UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE
SECURITIES EXCHANGE ACT OF 1934
FOR THE FISCAL YEAR ENDED SEPTEMBER 30, 1998 COMMISSION FILE NUMBER: 33-22603
BAYOU STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 72-1125783
(STATE OF INCORPORATION) (I.R.S. EMPLOYER IDENTIFICATION NO.)
138 HIGHWAY 3217
P.O. BOX 5000
LAPLACE, LOUISIANA 70069
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (504) 652-4900
SECURITIES REGISTERED PURSUANT TO SECTION 12(B) OF THE ACT:
TITLE OF EACH CLASS NAME OF EXCHANGE ON WHICH REGISTERED
Class A Common Stock, $.01 par value American Stock Exchange
SECURITIES REGISTERED PURSUANT TO SECTION 12(G) OF THE ACT:
TITLE OF EACH CLASS
9 1/2% First Mortgage Notes due 2008
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such report) and (2) has been subject to such
filing requirements for the past 90 days.
Yes |X| No |_|
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K.|X|
The aggregate market value and the number of voting shares of the
registrant's common stock outstanding on October 31, 1998 was:
SHARES OUTSTANDING HELD BY MARKET VALUE
TITLE OF EACH CLASS -------------------------- HELD BY
OF COMMON STOCK AFFILIATES NON-AFFILIATES NON-AFFILIATES
--------------- ---------- -------------- --------------
Class A, $.01 par value... 1,309,564 9,309,816 $32,584,356
Class B, $.01 par value... 2,271,127 0 N/A
Class C, $.01 par value... 100 0 N/A
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the registrant's definitive Proxy Statement for the 1999 Annual
Meeting of Stockholders are incorporated herein by reference in Part III and
portions of the registrant's 1998 Annual Report filed as an exhibit, are
incorporated herein by reference in Part II hereof.
<PAGE>
BAYOU STEEL CORPORATION
TABLE OF CONTENTS
PAGE
PART I
ITEM 1. BUSINESS.................................................... 1
General..................................................... 1
Manufacturing Process and Facilities........................ 1
Products.................................................... 2
Customers and Sales......................................... 3
Distribution................................................ 3
Strategy.................................................... 4
Competition................................................. 5
Raw Materials............................................... 6
Energy...................................................... 6
Environmental Matters....................................... 7
Safety and Health Matters................................... 8
Employees................................................... 9
ITEM 2. PROPERTIES.................................................. 9
ITEM 3. LEGAL PROCEEDINGS........................................... 10
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS......... 10
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND
RELATED STOCKHOLDER MATTERS.................................. 10
ITEM 6. SELECTED FINANCIAL DATA..................................... 10
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS.......................... 11
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA................. 11
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE........ 11
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS............................ 11
ITEM 11. EXECUTIVE COMPENSATION...................................... 12
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT................................................... 12
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.............. 12
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K..................................................... 12
ii
<PAGE>
PART I
ITEM 1. BUSINESS
GENERAL
Bayou Steel Corporation (the "Company) is a leading producer of light
structural shapes and merchant bar steel products. The Company owns and operates
a steel minimill and a stocking warehouse located on the Mississippi River in
LaPlace, Louisiana (the "Louisiana Facility"), three additional stocking
locations accessible to the Louisiana Facility through the Mississippi River
waterway system, and a rolling mill in Harriman, Tennessee (the "Tennessee
Facility") also accessible through the Mississippi River waterway system. The
Company produces light structural steel products ranging in size from three to
eight inches at the Louisiana Facility and merchant bar products ranging from
one-half to four inches at the Tennessee Facility.
The Louisiana Facility, which was constructed in 1981 at a cost of $243
million, is a minimill consisting of two electric arc furnaces (one of which is
used as a back-up), a rolling mill, a climate controlled warehouse facility, and
a deep-water dock on the Mississippi River. A "minimill" is a relatively
low-cost steel production facility which uses steel scrap rather than iron ore
as its basic raw material. In general, minimills recycle scrap using electric
arc furnaces, continuous casters, and rolling mills. The Louisiana Facility's
minimill includes two Krupp computer-controlled electric arc furnaces utilizing
water-cooled sidewalls and roof, two Voest-Alpine four-strand continuous
casters, a computer supervised Italimpianti reheat furnace, and a 15-stand
Danieli rolling mill.
The Tennessee Facility was acquired and re-started by the Company in July
1995 following the purchase by the Company of substantially all of the assets of
the Tennessee Valley Steel Corporation (the "TVSC"). The rolling mill at the
Tennessee Facility includes a computer supervised reheat furnace, a 16-stand
rolling mill and automated straightening, continuous cut-to-length, stacking and
bundling equipment.
The Company purchases most of its scrap in the open market from a large
number of steel scrap dealers, although the Company also operates an automobile
shredder to produce some of the scrap used in its operations. At the Louisiana
Facility, the Company uses steel scrap to produce finished steel in a variety of
shapes, including angles, flats, channels, standard beams, and wide flange
beams. At the Tennessee Facility, the Company rolls billets to produce merchant
bar products, including angles, flats, rounds, and squares, and also has the
capability to produce rebar. The merchant bar product mix of the Tennessee
Facility extends and complements the Company's Louisiana Facility product line.
The Company's products are used for a wide range of commercial and industrial
applications.
The location of the Company's production and distribution facilities allows
the Company to serve customers across a wide geographic area, including its
primary markets in the Southeast, the lower Midwest, the Northeast, the Mid-
Atlantic and the Appalachian states. The Company also sells to customers in the
West Coast region, Canada, Mexico and other overseas locations. The Company
sells its products to over 550 customers, the majority of which are steel
service centers, in 42 states, Canada, Mexico, and occasionally overseas.
In August 1988, the Company completed an initial public offering of its Class
A Common Stock, which shares are traded on the American Stock Exchange. The
Company was incorporated under the laws of the State of Louisiana in 1979 and
was reincorporated in Delaware in 1988 in connection with its public offering.
The address of the Company's principal place of business is 138 Highway 3217,
P.O. Box 5000, LaPlace, Louisiana 70069 and its telephone number is (504)
652-4900.
MANUFACTURING PROCESS AND FACILITIES
Steel scrap is the principal raw material used by the Company in its
production process. The Company purchases most of its scrap needs on the open
market and transports it to the Louisiana Facility by barge, ocean going vessel,
rail, and truck, and stores it in a scrap receiving yard. With the use of a
newly installed automobile shredder, the Company is able to process all of its
shredded scrap requirements normally at significantly reduced costs,
constituting
1
<PAGE>
approximately 15% of its steel scrap requirements. The scrap is transported to
the Louisiana Facility's melt shop by rail or truck, where it is melted in a
99-ton capacity alternating current electric arc furnace which heats the scrap
to approximately 3100(degree)F. During the scrap melting and refining process,
impurities are removed from the molten steel. After the scrap reaches a molten
state, it is poured from the furnace into ladles, where adjustments of alloying
elements and carbon are made to obtain the desired chemistry. The ladles of
steel are then transported to one of two four-strand continuous casters in which
the molten steel is solidified in water-cooled molds. The casters produce long
strands of steel that are cut by torch into billets (semi-finished product),
moved to a cooling bed and marked for identification. After cooling, the billets
are transferred to the Louisiana rolling mill for further processing. Billets in
excess of the Louisiana Facility's rolling mill requirements are either shipped
to the Tennessee Facility via rail or sold to other processors.
In the Louisiana Facility's rolling mill, the billets are reheated in a
walking beam furnace with recuperative burners. After the billets are reheated
to approximately 2000(degree)F, they are rolled through up to fifteen mill
stands which form the billets into the dimensions and sizes of the finished
products. The heated finished shapes are placed on a cooling bed and then
straightened and cut into either standard 40-foot lengths or specific customer
lengths. The shapes are stacked into 2 1/2 to 5-ton bundles, processed (if
needed) through an off-line saw to 20 foot standard lengths, and placed in a
climate-controlled warehouse where they are subsequently shipped to the
Company's stocking locations via barge or to customers directly via truck, rail,
or barge.
The Tennessee Facility's rolling mill uses steel billets which are received
by rail, truck, or barge and then stored in a billet yard. The billets are
reheated in a pusher reheat furnace with recuperative burners before being
rolled. Once the billets are heated to approximately 2000(degree)F, they are
rolled through up to sixteen mill stands which form the billets into the
dimensions and sizes of the finished products. The heated finished shapes are
placed on a cooling bed and then straightened and cut into the appropriate
customer lengths. The shapes are then stacked into 2 1/2 ton bundles and placed
in a climate-controlled warehouse where they are subsequently shipped to the
Company's stocking locations via barge or to customers directly via truck or
rail.
PRODUCTS
The Louisiana Facility is capable of producing a variety of light structural
steel products and the Tennessee Facility is capable of producing a wide range
of merchant bar products and rebar.
SIZE RANGE (IN INCHES)
PROFILE TENNESSEE LOUISIANA
Equal Angles.............................. 3/4-2 1/2 2-6
Flats..................................... 1-4 4-8
Channels.................................. N/A 3-8
Squares................................... 1/2-1 N/A
Rounds.................................... 1/2-2 N/A
Unequal Angles............................ N/A 4-7
Rebar..................................... 3/8-13/8 N/A
Standard Beams............................ N/A 3-6
Wide Flange Beams......................... N/A 4-8
The light structural shapes, merchant bar products and rebar produced by the
Company are used for 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, and bridges. Rebar is used in highway and bridge
construction, concrete structures such as parking garages, and home construction
for driveways, sidewalks and swimming pools.
The Company plans to continue to emphasize the production of light structural
shapes and merchant bar products. Rebar was last produced in 1995. Shape margins
are historically considerably higher than those of rebar. The Tennessee Facility
will produce rebar when appropriate opportunities exist.
2
<PAGE>
The Company's shapes are produced to various national specifications, such as
those set by the American Society for Testing and Materials, or to specific
customer specifications which have more stringent quality criteria. In addition,
the Company is one of a few minimills that is certified by the American Bureau
of Shipping. The Company certifies that its products are tested in accordance
with nuclear, state highway, bridge and military specifications. The Company's
products are also certified for state highway and bridge structures.
CUSTOMERS AND SALES
The Company has over 550 customers in 42 states, Canada and Mexico. The
majority of the Company's finished products (approximately 62% in fiscal 1998)
are sold to domestic steel service centers, while the remainder are sold to
original equipment manufacturers (approximately 27% in fiscal 1998) and export
customers (approximately 11% in fiscal 1998). Steel service centers warehouse
steel products from various minimills and integrated mills and sell combinations
of products from different mills to their customers. Some steel service centers
also provide additional labor-intensive value-added services such as
fabricating, cutting or selling steel by the piece rather than by the bundle.
Rebar, when produced, will be selectively sold to a few customers who are not
necessarily part of the existing customer base.
In fiscal 1998, the Company's top ten customers accounted for approximately
47% of total shipments. No single customer accounted for greater than 10% of
total sales. The Company believes that it is not dependent on any customer and
that it could, over time, replace lost sales attributable to any one customer.
The Company's products are sold domestically and in Canada, Mexico, and
overseas on the basis of availability, quality, service, and price. The Company
maintains a real-time computer information system, which tracks prices offered
by competitors, as well as freight rates from its customers to both the
Company's stocking locations and the nearest competitive facilities. A new
electronic data interchange system that allows the Company to manage a major
customer's inventory needs was recently implemented. This system, which
interfaces with the customer's system, reduces overhead and is intended to
increase sales for the Company. The system also provides the customer with
just-in-time inventory capabilities. The Company expects to expand use of this
system and believes that this system gives it a competitive advantage.
Although sales of shapes tend to be slower during the winter months due to
the impact of winter weather on construction and transportation activities and
during the late summer due to planned plant shutdowns of end-users, seasonality
has not been a material factor in the Company's business. The Company's backlog
of unfilled cancelable orders for shapes totaled $100 million as of September
30, 1998 and $110 million as of September 30, 1997. As of October 31, 1998, the
Company's backlog totaled $89 million.
The level of billet sales to third parties is dependent on the Company's
billet requirements and worldwide market conditions, which may vary greatly from
year to year. In the past three fiscal years the Company has consumed
substantially all of its billet production resulting in minimal billet sales to
third parties.
DISTRIBUTION
The Louisiana Facility, which includes a deep-water dock, is strategically
located on the Mississippi River, which the Company believes enhances its
competitive posture by reducing its overall transportation costs because it can
receive steel scrap and ship its product by barge, normally the least costly
method of transportation in the steel industry. The Company also believes that
the location of its minimill on the Mississippi River and its network of inland
waterway warehouses enable it to access markets for its products that would
otherwise be uneconomical to the Company due to the high freight costs of light
structural products relative to their end selling price. The Company operates
three inventory stocking warehouses in Chicago, Tulsa, and Pittsburgh, which
complement its operations in Louisiana and Tennessee. These facilities, each of
which is equipped with an inland waterway dock, enable the Company to
significantly increase its marketing territory by providing storage capacity for
its finished products in three additional markets and by allowing the Company to
meet customer demand far from its Louisiana minimill and Tennessee rolling mill
on a timely basis. From these locations, product is primarily distributed by
truck. In addition, the Company makes rail shipments to some customers,
primarily those on the West Coast and in Mexico. With the recent completion of a
3
<PAGE>
rail spur into the Louisiana warehouse, the Company has expanded rail shipment.
The Louisiana Facility's deep-water dock enables the Company to load vessels
or ocean-going barges for overseas shipments, giving the Company low cost access
to overseas markets. Additionally, the dock enables the Company to access scrap
from the Caribbean and South and Central America, an important strategic factor
which mitigates the impact of fluctuations in domestic scrap prices on the
Company's performance. Since the minimill is only 35 miles from the Port of New
Orleans, smaller quantities of shapes or billets can be shipped overseas on
cargo ships from that port. The Company believes it has a freight cost advantage
over land-locked domestic competitors in serving the export market. This
advantage permits the Company to compete with foreign minimills in certain
export markets. In recent years, due to strong domestic margins, the Company has
only occasionally accessed overseas markets.
The Tennessee Facility provides access for the Company to the Appalachian
states and the lower Midwest, plus additional access to the upper Midwest, the
Southeast and the Mid-Atlantic regions. The Tennessee Facility's product line is
distributed through the Tennessee Facility and the stocking centers in Chicago,
Pittsburgh, and Tulsa. The Tennessee Facility's location is accessible by all
forms of transportation; the rolling mill is in close proximity to two major
interstate highways, is four miles from a barge dock, and is situated on the
main line of the Norfolk Southern Railroad.
The Company believes that the elimination of current duties in Canada and
Mexico as a result of the passage of the North American Free Trade Agreement
("NAFTA") will increase the competitiveness of the Company's products compared
to locally produced products in such countries. During fiscal 1998, 1997, and
1996, 11%, 10%, and 9%, respectively, of the Company's tons shipped were
exported to Canada and Mexico. There can be no assurance, however, that there
will be an increase in the Company's shipments to Canada and Mexico as a result
of the passage of NAFTA.
STRATEGY
The Company's strategy is to improve operating efficiencies and to reduce
costs through improved processes, utilization, and capital. The Company will
also consider strategic acquisitions which complement or expand the Company's
current operations, and/or captures finished goods or raw material capacity.
A.THE LOUISIANA FACILITY
The Company's principal operating strategy is to improve operating results
by continuing to increase productivity and reduce costs, including labor
cost per ton, and increasing sales of higher margin shape products.
OPERATING EFFICIENCIES. The Company's operating strategy is to be a low
cost producer of light structural steel products. The Company continues to
focus on cost reductions through, among other things, capital improvements
and a high performance work culture.
The Company continues its commitment to developing a high performance work
culture. Through extensive training and individual development efforts, the
Company will further reinforce its basic values of employee improvement,
teamwork, and increased individual accountability. The Company believes that
the workforce, through this program, will have an impact in achieving
operational and productivity improvements.
CAPITAL IMPROVEMENTS. The Company wants to increase billet production so
as to supply most of the Tennessee Facility's billet requirements. In fiscal
1998, the Louisiana Facility produced 603,000 tons of billets. In fiscal
1999, as part of its short-term strategy, the Company has committed
approximately $6 million in capital to increase melt shop capacity to
650,000 tons and to improve overall plant operations. The Company may spend
$33 million over the next two years to substantially increase its melting
capacity to 850,000 tons and reduce operating costs by approximately 10%.
The project is divided into several phases whereby work will be performed in
independently beneficial phases that will require the Company to commit
funds on an incremental basis. The Company has committed approximately $6
million to complete phases 1 and 2 and the engineering work on the last
phase. Depending on economic conditions, the Company may commit the
remaining $27 million in the spring of 1999.
4
<PAGE>
B.THE TENNESSEE FACILITY
OPERATING CAPACITY. The Company's operating strategy continued to focus on
expanding its merchant bar shape production. In fiscal 1998, the Tennessee
Facility produced 169,000 tons or a 17% increase over prior year. Its
production is expected to reach nearly 200,000 tons in 1999. However, this
projection can vary and will depend on market demand and new sections to be
introduced during the fiscal year. The total annual capacity of the plant is
estimated at 225,000 tons depending on the product mix.
The Tennessee Facility produced only merchant bar shapes and customer
specific sections in fiscal 1998 although it also has the ability to produce
rebar. Bar shape products have historically higher profit margins than rebar
and the shapes produced complement and enhance the Louisiana Facility's
existing range of structural shapes.
CAPITAL IMPROVEMENTS. The Company expects to commit approximately $6
million on various capital projects at the Tennessee Facility in fiscal 1999
on operations to reduce costs and increase productivity. The Company
continues to look at long term capital spending needs that will benefit
production while reducing costs.
C.ACQUISITION PROGRAM AND TAX BENEFITS
The Company may, from time to time, seek vertical or horizontal strategic
acquisitions, such as the acquisition of the Tennessee Facility in 1995.
Attractive candidates include steel producers and recycling operators which
provide the opportunity to accelerate growth while complementing or
expanding the Company's current operations.
The Company will seek to maximize and accelerate its utilization of net
operating loss carryforwards to offset taxable earnings achieved through
efficiency improvements, cost savings and acquisitions. As of September 30,
1998, the Company had approximately $220 million of net operating loss
carryforwards which could be used to offset taxable earnings of the Company,
including the earnings of acquired entities.
Since the estimated operating cost savings from the Company's expected
operating efficiencies and planned capital improvements are based upon a number
of assumptions, estimated operating cost savings are not necessarily indicative
of the Company's expected financial performance since increases in the cost of
raw materials and other conversion costs may offset any operating cost savings
to cause actual results to vary significantly. Although the Company believes its
assumptions with respect to its planned capital expenditure program to be
reasonable, there can be no assurance that the estimated production cost savings
of the Company's capital expenditure program will actually be achieved or
sufficient demand for structural steel products will exist for the additional
capacity.
Foreign steel producers historically have not competed significantly with
the Company in the domestic market for shape sales due to higher freight costs
relative to end product prices. Foreign competition could increase, however, as
a result of changes in currency exchange rates, economic conditions overseas,
and increased steel subsidies by foreign government.
COMPETITION
The Company competes in the markets for light steel structural shapes and
bar shape products. The Company does not currently compete with minimill flat
rolled producers, most domestic integrated steel producers, or rebar
manufacturers.
STRUCTURAL SHAPES. The Louisiana Facility's location on the Mississippi
River, as well as the Company's stocking locations in three additional regions
of the country, provide access to large markets in the Eastern, Midwestern,
Southern, and Central portions of the United States. As a result, the Company
competes in the structural shape market with several major domestic minimills in
each of these regions. Depending on the region and product, the Company
primarily competes with Nucor Corporation, Structural Metals, Inc., North Star
Steel Co., Lake Ontario Steel Corporation, Birmingham Steel, Ameristeel, and
Northwestern Steel and Wire Company, among others. Certain of these competitors
have significantly greater financial resources than the Company.
5
<PAGE>
BAR SHAPES. In fiscal 1999, the Company expects to sell most of the
Tennessee Facility's yearly production of bar shape products in its regional
market. Competitors in the region are Ameristeel, Structural Metals, Inc., Nucor
Corporation, Birmingham Steel, Roanoke Electric, North Star Steel Co., SMI/Cayce
Steel, and Marion Steel.
REBAR. The Tennessee Facility will produce rebar in varying quantities
depending on economic and market trends. The Tennessee Facility's main
competitor will be Ameristeel in Knoxville, Tennessee. Ameristeel, however,
fabricates a large portion of its rebar in competition with independent
fabricators who would be the target customers of the Tennessee Facility.
Independent fabricators opting not to buy from a competitor may create a
significant niche for the Tennessee Facility's rebar. Other competitors include
SMI/Cayce Steel, Birmingham Steel, Nucor Corporation, and Co- Steel.
RAW MATERIALS
The Company's major raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad, and other scrap
sources and is primarily purchased directly by the Company in the open market
through a large number of steel scrap dealers. The Company is able to
efficiently transport scrap from suppliers throughout the inland waterway system
and through the Gulf of Mexico, permitting it to take advantage of scrap
purchasing opportunities far from its minimill, and to protect itself from
supply imbalances that develop from time to time in specific local markets. In
addition, unlike many other minimills, the Company, through its own scrap
purchasing staff, buys scrap primarily from scrap dealers and contractors rather
than through brokers. The Company believes that its enhanced knowledge of scrap
market conditions gained by being directly involved in scrap procurement on a
daily basis, coupled with management's extensive experience in metals recycling
markets, gives the Company a competitive advantage. The Company does not
currently depend upon any single supplier for its scrap. No single vendor
supplies more than 10% of the Company's scrap needs. The Company, on average,
maintains a 25-day inventory of steel scrap.
The Company has a program of buying directly from local scrap dealers for
cash. Through this program, the Company has procured approximately 25% of its
scrap at prices lower than those of large scrap dealers. The Company has also
installed an automobile shredder, which is located at a site adjacent to the
Louisiana Facility, to produce shredded steel scrap, one of several types used
by the Company. Mississippi River Recycling ("MRR"), a division of the Company,
began operating the automobile shredder in late fiscal 1995. The Company
expanded MRR's business activities into other scrap processing, thereby
decreasing the Company's demand on third parties for prepared scrap metal.
During fiscal 1998, MRR supplied 15% of the Company's total scrap requirements.
The cost of steel scrap is subject to market forces, including demand by
other steel producers. The cost of steel scrap to the Company can vary
significantly, and product prices generally cannot be adjusted in the short-term
to recover large increases in steel scrap costs. Over longer periods of time,
however, product prices and steel scrap prices have tended to move in the same
direction.
The long-term demand for steel scrap and its importance to the domestic
steel industry may be expected to increase as steel makers continue to expand
scrap-based electric arc furnace capacity. For the foreseeable future, however,
the Company believes that supplies of steel scrap will continue to be available
in sufficient quantities at competitive prices. In addition, a number of
technologies exist for the processing of iron ore into forms which may be
substituted for steel scrap in electric arc furnace-based steel making. Such
forms include direct-reduced iron, iron carbide, and hot-briquetted iron. While
such forms may not be cost competitive with steel scrap at present, a sustained
increase in the price of steel scrap could result in increased implementation of
these alternative technologies.
The Tennessee Facility currently purchases billets on the open market to
supply part of its billet requirements. The Company has not experienced any
shortages or significant delays in delivery of these materials. The Company
believes that an adequate supply of raw materials will continue to be available.
ENERGY
The Company's manufacturing process at the Louisiana Facility consumes large
volumes of electrical energy and natural gas. The Company purchases its
electrical service needs from a local utility company pursuant to a contract
6
<PAGE>
originally executed in 1980 and extended in 1995 for a six year period. The base
contract is supplemented to provide lower cost off-peak power and known maximums
in higher cost firm demand power. In addition, the Company receives discounted
peak power rates in return for the utility company's right to periodically
curtail service during periods of peak demand. These curtailments are generally
limited to a few hours and, in prior years, have had negligible impact on
operations; however, the Louisiana Facility experienced an unusual number and
duration of power curtailments in the fourth quarter of fiscal 1996, 1997 and
1998 due to generating and transmission failures at the local utility company.
The Louisiana Facility's contract with the local utility company contains a
fuel adjustment clause which allows the utility company to pass on to its
customers any increases in price paid for the various fuels used in generating
electrical power and other increases in operating costs. This fuel adjustment
applies to all of the utility company's consumers. In the fourth quarter of
fiscal 1997, the Company experienced high fuel adjustment cost due to the
utility company passing on the cost for an extended nuclear unit shutdown. If
the price that the utility company pays for fuel, such as natural gas,
increases, then the Louisiana Facility's energy expense could increase. The
Company believes that its utility rates at the Louisiana Facility have, in the
past, been competitive in the domestic minimill steel industry; however, due to
the aforementioned factors, the Company believes that its utility rates were not
as competitive in fiscal 1998, 1997 and late fiscal 1996 as they had previously
been. To a lesser extent, the Louisiana Facility's consumes quantities of
natural gas via two separate pipelines serving the facility. The Company
purchases its natural gas on a month-to-month basis from a variety of suppliers.
Historically, the Louisiana Facility has been adequately supplied with
electricity and natural gas and does not anticipate any significant curtailments
in its operations resulting from energy shortages.
The Tennessee Facility's manufacturing process consumes both electricity and
natural gas. The Tennessee Facility purchases its electricity from a local
Tennessee utility company. Historically, the Tennessee Facility's local utility
company has had one of the lowest power rates in the country. In 1995, the
Company negotiated a ten year contract at a favorable rate with the local
utility company and has no reason to believe that a similar contract will not be
renewed upon similar terms. The Harriman, Tennessee area is served by only one
gas pipeline. Currently, the Tennessee Facility does not have a direct
interconnect with this pipeline so all gas for the plant must be purchased
through a Local Distribution Company ("LDC"). Thus, the Company must pay the
wellhead price plus transportation charges and the LDC mark up. The Company
believes this premium adds approximately $1 per ton to the Tennessee Facility's
cost structure. (This is not an uncommon arrangement throughout the industry.)
ENVIRONMENTAL MATTERS
Like others in the industry, the Company's minimill is required to control
the emission of dust from its electric arc furnaces that contains lead, cadmium,
and chromium, which are considered hazardous. The Company is subject to various
Federal, state and local laws and regulations, including, among others, the
Clean Air Act, the 1990 Amendments, the Resource Conservation and Recovery Act,
the Clean Water Act and the Louisiana Environmental Quality Act, and the
regulations promulgated in connection therewith, concerning the discharge of
contaminants which may be emitted into the air and discharged into the
waterways, and the disposal of solid and/or hazardous waste such as electric arc
furnace dust. The Company has a full-time manager who is responsible for
monitoring the Company's procedures for compliance with such rules and
regulations. The Company does not anticipate any substantial increase in its
costs for environmental compliance or that such costs will have a material
adverse effect on the Company's competitive position, operations or financial
condition.
In the event of a release or discharge of a hazardous substance to certain
environmental media, the Company could be responsible for the costs of
remediating the contamination caused by such a release or discharge. In the last
five years, the only environmental penalty assessed to the Company was a $2,500
fine levied in 1996 in conjunction with an Air Quality Notice of Violation
issued by the Louisiana Department of Environmental Quality (the "LDEQ"). During
fiscal 1997, the United States Public Interest Research Group ("USPIRG") filed a
lawsuit in Louisiana against the Company for alleged violations of air quality
regulations. USPIRG is asking the court to award it appropriate legal fees and
to assess appropriate penalties against the Company. The Company believes it has
meritorious defenses to these charges. The Company believes it is in substantial
compliance with applicable air quality environmental requirements.
The Company plans to close two storm-water retention ponds at the Louisiana
Facility's minimill. The Company has conducted limited analysis of the effluents
of these ponds, and although this analysis has indicated that there is a
7
<PAGE>
limited potential for contamination, the Company does not believe that future
remediation costs, if any, will be material. The LDEQ has approved a sampling
plan to analyze the contents of the pond sediments which could indicate a
greater level of contaminants than suggested by the Company's limited testing.
The sampling has been conducted and the data is being analyzed. In such case,
the costs of clean up could be higher than the Company now believes. Until such
sampling is completed, however, it is impossible to estimate such costs.
The Resource Conservation and Recovery Act regulates the management of
emission dust from electric arc furnaces. The Company currently collects the
dust resulting from its melting operation through an emissions control system
and recycles it through an approved high temperature metals recovery firm. The
dust management costs were approximately $2.0 million in fiscal 1996, $1.3
million in fiscal 1997 and $1.1 million in fiscal 1998. The recycling costs
declined in fiscal 1997 due to increases in recycling competition and
implementation of a new dust recycling contract.
Tennessee Valley Steel Corporation ("TVSC"), the prior owners of the
Tennessee Facility, entered into a Consent Agreement and Order ("the TVSC
Consent Order") with the Tennessee Department of Environment and Conservation
under its voluntary clean-up program. The Company, in acquiring the assets of
TVSC, entered into a Consent Agreement and Order ("the Bayou Steel Consent
Order") with the Tennessee Department of Environment and Conservation, which is
supplemental to the previous TVSC Consent Order and does not affect the
continuing validity of the TVSC Consent Order. The ultimate remedy and clean-up
goals will be dictated by the results of human health and ecological risk
assessment which are components of a required, structured investigative,
remedial, and assessment process. The definitive asset purchase agreement
between the Company and TVSC provided for $2.0 million of the purchase price to
be held in escrow and applied to costs incurred by the Company for activities
pursuant to the TVSC Consent Order (with an additional $1.0 million to be held
for one year for such costs and other costs resulting from a breach of TVSC's
representations and warranties in the agreement). As of September 30, 1998,
investigative, remedial, and risk assessment activities have resulted in
expenses of approximately $1.3 million. At this time, the Company does not
expect the costs of resolution of the TVSC Consent Order to exceed funds
provided by the escrow agreement. As of September 30, 1998 and 1997, the Company
has accrued loss contingencies for certain environmental matters and believes
that is currently in material compliance with all environmental laws.
Environmental laws have been enacted, and may in the future be enacted, to
create liability for past actions that were lawful at the time taken, but that
have been found to affect the environment and to create rights of action for
environmental conditions and activities. Under Superfund legislation, a company
that has sent waste to a third party disposal site could be held liable for the
entire cost of remediating such site regardless of fault or the lawfulness of
the original disposal activity and also for related damages to natural
resources. As of September 30, 1998, the Company has not received any notice
letters under Superfund legislation.
The Company's future expenditures for installation of environmental control
facilities are difficult to predict. Environmental legislation, regulations and
related administrative policies are continuously modified. Environmental issues
are also subject to differing interpretations by the regulated community, the
regulating authorities and the courts. Consequently, it is difficult to forecast
expenditures needed to comply with future regulations. Therefore, at this time,
the Company cannot estimate those costs associated with compliance and the
effect of the upcoming regulations will have on the Company's competitive
position, operations, or financial condition. In fiscal 1998, the Company spent
approximately $1 million on various environmental capital projects. In fiscal
1999, the Company intends to spend approximately $1 million on various
environmental capital projects. Furthermore, there can be no assurance that
material environmental liabilities will not be incurred by the Company in the
future or that future compliance with environmental laws (whether those
currently in effect or enacted in the future) will not require additional
expenditures by the Company or require changes to the Company's current
operations, any of which could have a material adverse effect on the Company's
results of operations and financial condition. See "Management's Discussion and
Analysis of Financial Condition and Results of Operations."
SAFETY AND HEALTH MATTERS
The Company is subject to various regulations and standards promulgated
under the Occupational Safety and Health Act, which are administered by OSHA.
These regulations and standards are minimum requirements for employee
8
<PAGE>
protection and health. It is the Company's policy to meet or exceed these
minimum requirements in all of the Company's safety and health policies,
programs, and procedures.
The Company knows of no other material safety or health issues.
EMPLOYEES
As of September 30, 1998, the Company had 580 employees, of whom 150 were
salaried office, supervisory and sales personnel, and 430 were hourly employees.
Approximately 415 are covered by labor contracts. There are no current disputes
with employees related to their employment, and the Company believes its
relations with employees to be good.
ITEM 2. PROPERTIES
PROPERTIES
The Company's principal operating properties are listed in the table below.
The Company believes that its properties and warehouse facilities are suitable
and adequate to meet its needs and that the size of its warehouse facilities is
sufficient to store the level of inventory necessary to support its level of
distribution.
LOCATION PROPERTY
-------- --------
LaPlace, Louisiana.............. Approximately 287 acres of land, including a
shredder, melt shop, rolling mill, related
equipment, a 75,000 square foot warehouse, and
dock facilities situated on state-leased water
bottom in the Mississippi River under a 45-year
lease with 39 years remaining.
Harriman, Tennessee............. Approximately 198 acres of land, 175,000 square
feet of steel mill buildings, including a melt
shop (which the Company does not intend to use),
a 39,600 square foot warehouse, a rolling mill,
and related equipment.
Chicago, Illinois............... Approximately 7 acres of land, a dock on the
Calumet River, and buildings, including a
recently renovated 100,000 square foot
warehouse.
Tulsa, Oklahoma................. 63,500 square foot warehouse facility with a
dock on the Arkansas River system. Located on
land under a long-term lease. The original term
of the lease is from April 1, 1989 through March
31, 1999; the Company has two 10-year renewal
options through March 31, 2019.
Pittsburgh, Pennsylvania........ 182,000 square foot leased warehouse facility
with a dock on the Ohio River. The original term
of the lease was from January 1, 1987 through
June 30, 1992; the Company is in the second of
three 5-year renewal options through June 30,
2007.
Louden County, Tennessee........ Approximately 25 acres of undeveloped land
along the Tennessee River, available for future
use as a stocking location.
The principal asset comprising the collateral under the 9 1/2% First Mortgage
Notes due 2008 is the Louisiana Facility. See "Description of the First Mortgage
Notes--Security." None of the other properties described above serve as
collateral.
9
<PAGE>
ITEM 3. LEGAL PROCEEDINGS
LEGAL PROCEEDINGS
The Company is not involved in any pending legal proceedings which involve
claims for damages exceeding 10% of its current assets. The Company is not a
party to any material pending litigation which, if decided adversely, would have
a significant impact on the business, income, assets, or operation of the
Company, and the Company is not aware of any material threatened litigation
which might involve the Company. See also "--Employees," "--Environmental
Matters," "--Safety and Health Matters," and the consolidated financial
statements of the Company and notes thereto included elsewhere herein.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the fourth
quarter of fiscal year ended September 30, 1998.
PART II
ITEM 5. MARKET FOR REGISTRANT'S CLASS A COMMON STOCK AND RELATED STOCKHOLDER
MATTERS
MARKET INFORMATION AND STOCK PRICE
The Class A Common Stock of the Company is traded on the American Stock
Exchange (AMEX) under the symbol BYX. The approximate number of stockholders of
record on November 20, 1998 was 353. In addition, there are approximately 2,900
shareholders whose stock is held in street name. The stock has been trading
since July 27, 1988. The closing price per share on November 20, 1998 was $5.25.
The following tables set forth the high and low prices for the periods
indicated.
SALES PRICE PER SHARE
----------------------------------
FISCAL YEAR 1998 FISCAL YEAR 1997
---------------- ----------------
HIGH LOW HIGH LOW
---- --- ---- ---
October-December................. $5.000 $3.250 $4.000 $2.500
January-March.................... 7.188 3.250 3.250 2.250
April-June....................... 9.563 5.313 3.688 2.125
July-September................... 6.500 2.875 5.625 3.375
There is no public trading market for the Class B Common Stock and the Class
C Common Stock.
DIVIDENDS
The Company's ability to pay dividends to Class A Common Stock stockholders
is subject to restrictive covenants under the Indenture pursuant to which the
Company's 9 1/2% First Mortgage Notes due 2008 (the "9 1/2% Notes") were issued,
and the Company's line of credit. See "Notes 6 and 15 of the Consolidated
Financial Statements" section of the 1998 Annual Report.
ITEM 6. SELECTED FINANCIAL DATA
Set forth below is summary consolidated financial information for the
Company.
10
<PAGE>
SUMMARY FINANCIAL INFORMATION
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
AS OF AND FOR YEARS ENDED SEPTEMBER 30,
----------------------------------------------------------------------
1998 1997 1996 1995 1994
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net Sales .............................................. $ 253,881 $ 231,161 $ 204,426 $ 185,772 $ 160,823
Cost of Sales .......................................... 213,732 209,930 188,453 162,158 144,314
--------- --------- --------- --------- ---------
Gross Profit ........................................... 40,149 22,231 15,973 23,614 16,509
Selling, General and Administrative .................... 6,219 6,311 6,273 5,312 3,925
Non-Production Strike and Corporate Campaign Expenses .. -- 3,3231,768 1,000 996
Operating Income ....................................... 33,930 12,597 7,932 17,302 11,588
Interest Expense ....................................... (9,229) (8,962) (8,635) (7,821) (7,670)
Interest Income ........................................ 1,251 12 147 543 280
Miscellaneous .......................................... (1,300) 187 871 431 163
--------- --------- --------- --------- ---------
Income Before Income Tax and Extraordinary Item ........ 24,652 3,834 315 10,455 4,361
Provision for Income Tax ............................... (10,954) 50 -- 118 --
--------- --------- --------- --------- ---------
Income Before Extraordinary Item ....................... 35,606 3,784 315 10,337 4,361
Extraordinary Item ..................................... (5,507) -- -- -- (5,468)
--------- --------- --------- --------- ---------
Net Income (Loss) ...................................... $ 30,099(1) $ 3,784(1) $ 315(1) $ 10,337 $ (1,107)
========= ========= ========= ========= =========
BALANCE SHEET DATA:
Working Capital ........................................ $ 117,635 $ 72,031 $ 70,090 $ 73,301 $ 65,186
Total Assets ........................................... 249,497 196,465 199,272 197,076 156,068
Total Debt ............................................. 118,899 83,540 85,142 85,751 76,076
Preferred Stock ........................................ -- 13,089 10,489 12,239 --
Common Stockholders' Equity ............................ $ 97,340 $ 71,512 $ 70,382 $ 72,605 $ 60,124
</TABLE>
(1) In fiscal 1995, 1996, 1997, and 1998 income (loss) applicable to common
shares after dividends accrued and accretion on preferred stock and a loss
on the redemption of the preferred stock in 1998 was $9.6, ($2.3), $1.2,
and $25.8 million, respectively.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
RESULTS OF OPERATIONS AND ANALYSIS OF FINANCIAL CONDITION
The requirements to satisfy these items are incorporated by reference to the
"Management's Discussion and Analysis" section of the 1998 Annual Report.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
The financial statement and supplementary data information required by this
item are incorporated by reference to the "Consolidated Financial Statements"
and "Footnotes to Consolidated Financial Statements" sections of the 1998 Annual
Report.
ITEM 9. DISAGREEMENTS ON ACCOUNTING AND FINANCIAL DISCLOSURE
NONE.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS
Information regarding Directors and Executive Officers is incorporated by
reference to the "Information with respect to Board of Directors" section of the
Company's Proxy Statement for the 1999 Annual Meeting of Stockholders.
11
<PAGE>
ITEM 11. EXECUTIVE COMPENSATION
Information regarding executive compensation is incorporated by reference to
the "Executive Compensation" section of the Company's Proxy Statement for the
1999 Annual Meeting of Stockholders.
ITEM 12. OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
The beneficial ownership of the Company's common stock as of October 31,
1998, by persons, other than Directors and Officers, known to the Company to be
beneficial owners of more than 5% of the outstanding common stock is
incorporated by reference to the "Security Ownership of Certain Beneficial
Owners" section of the Company's Proxy Statement for the 1999 Annual Meeting of
Stockholders.
SECURITY OWNERSHIP OF MANAGEMENT AND DIRECTORS
The beneficial ownership of the Company's common stock of all Directors and
Executive Officers is incorporated by reference to the "Information with respect
to Board of Directors" section of the Company's Proxy Statement for the 1998
Annual Meeting of Stockholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Additional information regarding certain relationships and related
transactions is incorporated by reference to the "Certain Transaction" section
of the Company's Proxy Statement for the 1999 Annual Meeting of Stockholders and
to the "Notes to Consolidated Financial Statements" section of the 1998 Annual
Report.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(A)(I) FINANCIAL STATEMENTS
The Consolidated Financial Statements are incorporated herein by reference to
the Company's 1998 Annual Report to Stockholders and the Accountant's Report
relating to the Consolidated Financial Statements and Notes thereto.
(II) FINANCIAL STATEMENT SCHEDULES 10-K PAGE
Auditor's Opinion Relating to Schedule........................... 15
Schedule II Valuation and Qualifying Accounts for the three years
ended September 30, 1998........................................ 17
Schedules not listed above are omitted because of the absence of conditions
under which they are required or because the required information is included in
the Consolidated Financial Statements submitted.
(B) REPORTS ON FORM 8-K
No reports were filed on Form 8-K by the Registrant during the fourth quarter
of fiscal year 1998.
12
<PAGE>
LIST OF EXHIBITS
NUMBER EXHIBIT
- ------ -------
3.1 Third Restated Certificate of Incorporation of the Company (incorporated
by reference herein to Post-Effective Amendment No. 1 to Registration
Statement on Form S-1 (No. 33-10745)).
3.2 Restated By-laws of the Company (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
4.1 Specimen Certificate for Class A Common Stock (incorporated herein by
reference to Registration Statement on Form S-1 (No. 33-10745)).
4.2 Indenture (including form of First Mortgage Note and Subsidiary
guarantee between each recourse subsidiary of the Company and the
Trustee), dated May 22, 1998, between the Company, Bayou Steel
Corporation (Tennessee) ("BSCT"), River Road Realty Corporation ("RRRC")
and First National Bank of Commerce, as trustee (the "Trustee")
(incorporated by reference to Registration Statement on Form S-4 (No.
333-58263)).
4.3 Mortgage and Collateral Assignment of Leases granted by the Company and
RRRC to the Trustee, dated as of May 22, 1998.
4.4 Security Agreement, dated May 22, 1998, between the Company and the
Trustee.
4.5 Security Agreement, dated May 22, 1998, between RRRC and the Trustee.
4.6 Intercreditor Agreement, dated as of May 22, 1998, between the Trustee
and The Chase Manhattan Bank, as agent under the Amended and Restated
Credit Agreement.
4.9 Form of Release of Federal Income Tax Ownership and Agreement between
the Trustee and the Company, Voest-Alpine A.G. and Howard M. Meyers
(incorporated by reference to Amendment No. 1 to Registration Statement
on Form S-1 (No. 33-72486)).
4.21 Stock Purchase Agreement dated August 28, 1986, between BSAC and the
purchasers of the Company's Class A Common Stock and Preferred Stock
(incorporated herein by reference to Post-Effective Amendment No. 1 to
Registration Statement on Form S-1 (No. 33-10745)).
4.22 Stock Purchase Agreement dated August 28, 1986, between BSAC and RSR,
the sole purchaser of the Company's Class B Common Stock (incorporate
herein by reference to Registration Statement on Form S-1 (No.
33-22603)).
4.23 Stock Purchase Agreement dated August 28, 1986, between BSAC and Allen &
Company, Incorporated (incorporated herein by reference to Registration
Statement on Form S-1 (No. 33-22603)).
4.24 Agreement between the Company and the holders of Preferred Stock dated
as of July 26, 1988 (incorporated herein by reference to Post-Effective
Amendment No. 1 to Registration Statement on Form S-1 (No.
33-10745)).
10.1 Employment Letter dated July 26, 1988, between Howard M. Meyers and the
Company (incorporated herein by reference to Post-Effective Amendment
No. 1 to Registration Statement on Form S-1 (No. 33-10745)).
10.2 (i) Agreement dated November 11, 1981, between Amoco Tax Leasing I
Corporation ("Amoco") and the Company, (ii) letter dated December 7,
1981 from Voest-Alpine A.G. ("VA") and Voest-Alpine International
Corporation ("VAIC") to Amoco, and (iii) letter dated November 11, 1981
from VAIC, Honen Investissements SARL, Barzel Investissements SARL, Anku
Foundation, Raphaely Steel Investments, N.V., Landotal Properties, Inc.,
Canota Investments, Ltd., S.A. and Beruga Establishment and VA to Amoco
(incorporated herein by reference to Registration Statement on Form S-1
(No. 33-10745)).
10.8 Warehouse (Stocking Location) Leases.
(i) Leetsdale, Pennsylvania (incorporated herein by reference to
Registration Statement on Form S-1 (No. 33-10745)).
(ii) Catoosa, Oklahoma (incorporated herein by reference to the
Company's Quarterly Report on Form 10-Q for the quarter ended June
30, 1989).
10.21 Incentive Compensation Plan for Key Employees dated March 3, 1988
(incorporated herein by reference to the Company's Annual Report on Form
10-K for the year ended September 30, 1991).
10.22 1991 Employees' Stock Option Plan dated April 18, 1991 with technical
amendments (incorporated herein by reference to Post-Effective Amendment
No. 4 to Registration Statement on Form S-1 (No. 33-10745)).
13
<PAGE>
NUMBER EXHIBIT
- ------ -------
10.23 Pension Plan for Bargained Employees and the Employees Retirement Plan
(incorporated herein by reference to Post-Effective Amendment No. 5 to
the Company's Registration Statement on Form S-1 (No.
33-10745)).
10.24 Amendment among the Company, Bayou Scrap Corporation River Road Realty
Corporation, the Lenders named in the Credit Agreement and Chemical
Bank, as agent (incorporated herein by reference to Amendment No. 4 to
Registration Statement on Form S-1 (No. 33-72486)).
10.25 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) (incorporated
herein by reference to Form 8-K dated March 8, 1995 (No. 33-22603)).
10.26 Amendment No. 1 to the Preferred Stock and Warrant Purchase Agreement,
dated as of June 13, 1995, by and between the Company and Rice Partners
II, L.P. (incorporated herein by reference to the Company's quarterly
report on Form 10-Q for the quarter ending June 30, 1996 (No.
33-22603)).
10.27 Shareholder Agreement, dated as of June 13, 1995, by and among the
Company, Bayou Steel Properties Limited, Howard M. Meyers and Rice
Partners II, L.P. (incorporated herein by reference to Form 8-K dated
June 20, 1995 (No. 33-22603)).
10.30 Credit Agreement dated as of June 28, 1989, as amended and restated
through May 22, 1998, among the Company, the lenders named therein, and
The Chase Manhattan Bank, as agent (formerly, Chemical Bank)
(incorporated by reference to Registration Statement on Form S-4 (No.
333-58263)).
10.31 Security Agreement dated as of June 28, 1989, as amended and restated
through May 22, 1998, among the Company, the lenders named in the Credit
Agreement, and The Chase Manhattan Bank, as agent.
10.32 Subsidiary Guarantee, dated as of May 22, 1998, between BSCT, RRRC and
The Chase Manhattan Bank. 10.33 Exchange and Registration Rights
Agreement, dated May 22, 1998, among the Company, BSCT, RRRC, Chase
Securities, Inc., BT Alex. Brown Incorporated and Paine Webber
Incorporated (incorporated by reference to Registration Statement on
Form S-4 (No. 333-58263)).
13.1 Annual Report filed with this report.
14
<PAGE>
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation
We have audited, in accordance with generally accepted auditing standards,
the consolidated financial statements as of September 30, 1998 and 1997 and for
each of the three years in the period ended September 30, 1998 included in Bayou
Steel Corporation's annual report to stockholders incorporated by reference in
this Form 10-K, and have issued our report thereon dated November 13, 1998. Our
audits were made for the purpose of forming an opinion on the consolidated
financial statements taken as a whole. The schedule listed in the preceding
index is the responsibility of the Company's management and is presented for
purposes of complying with the Securities and Exchange Commission's rules and is
not part of the basic consolidated financial statements. This schedule has been
subjected to the auditing procedures applied in the audits of the basic
consolidated financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic consolidated financial statements taken as a whole.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 13, 1998
15
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BAYOU STEEL CORPORATION
By /s/ HOWARD M. MEYERS
Howard M. Meyers
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
Pursuant to the requirements of the Securities Act of 1934, this report has
been signed below by the following persons on behalf of the registrant and in
the capacities on the date indicated.
SIGNATURE TITLE DATE
/s/ HOWARD M. MEYERS Chairman of the Board, Chief December 17, 1998
Howard M. Meyers Executive Officer and
Director
/s/ JERRY M. PITTS President, Chief Operating December 17, 1998
Jerry M. Pitts Officer and Director
/s/ RICHARD J. GONZALEZ Vice President, Chief December 17, 1998
Richard J. Gonzalez Financial Officer,
Treasurer and Secretary
/s/ LAWRENCE E. GOLUB Director December 17, 1998
Lawrence E. Golub
/s/ MELVYN N. KLEIN Director December 17, 1998
Melvyn N. Klein
/s/ ALBERT P. LOSPINOSO Director December 17, 1998
Albert P. Lospinoso
/s/ STANLEY S. SHUMAN Director December 17, 1998
Stanley S. Shuman
/s/ JEFFREY P. SANGALIS Director December 17, 1998
Jeffrey P. Sangalis
16
<PAGE>
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1998, 1997, AND 1996
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS BALANCE
BEGINNING OF CHARGED TO AT END OF
DESCRIPTION PERIOD EXPENSES OTHER(1) PERIOD
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C>
September 30, 1998
Allowance for doubtful accounts ....... $ 500,459 $ 268,626 $ 4,899 $ 773,984
--------- --------- --------- ---------
September 30, 1997
Allowance for doubtful accounts ....... $ 352,965 $ 143,393 $ 4,101 $ 500,459
--------- --------- --------- ---------
September 30, 1996
Allowance for doubtful accounts ....... $ 567,970 $(186,039) $ (28,966) $ 352,965
</TABLE>
(1) (Write-offs)/recoveries of uncollectible accounts.
17
EXHIBIT 4.3
MORTGAGE AND COLLATERAL UNITED STATES OF AMERICA
ASSIGNMENT OF LEASES
STATE OF LOUISIANA
BY:
PARISH OF ORLEANS
BAYOU STEEL CORPORATION AND
RIVER ROAD REALTY CORPORATION
IN FAVOR OF:
FIRST NATIONAL BANK OF COMMERCE,
AS TRUSTEE AND COLLATERAL AGENT
BE IT KNOWN, that on this 21st day of the month of May, 1998, but
effective May 22, 1998, before me, the undersigned Notary Public, duly
commissioned and qualified in and for the Parish and State aforesaid, and in the
presence of the undersigned witnesses personally appeared:
BAYOU STEEL CORPORATION, a Delaware corporation ("BSC"), the Federal
Employer Identification Number of which is 72-1125783, represented herein
by Richard J. Gonzalez, its Vice President, being hereunto duly authorized
by virtue of resolutions of the Board of Directors of said corporation, a
certified copy of which is annexed hereto and made a part hereof;
RIVER ROAD REALTY CORPORATION, a Louisiana corporation ("RRRC", together
with BSC, "MORTGAGOR"), the Federal Employer Identification Number of
which is 72-1162713, represented herein by Richard J. Gonzalez, its Vice
President, being hereunto duly authorized by virtue of resolutions of the
Board of Directors of said corporation, a certified copy of which is
annexed hereto and made a part hereof; and
FIRST NATIONAL BANK OF COMMERCE, a national banking association
with its principal trust offices located in New Orleans, Louisiana, as
Trustee under the Indenture hereinafter referred to (in such capacity, the
"TRUSTEE") and as Collateral Agent (in such capacity, the "MORTGAGEE"),
the Federal Employer Identification Number of which is 72-0269760,
appearing herein not in its corporate capacity but as Trustee and
Collateral Agent as hereinafter set forth, being represented herein by
Denis Milliner, its duly authorized Vice President and Trust Officer,
who declared unto me, Notary, as follows:
18
<PAGE>
WHEREAS, BSC has authorized the creation and issuance of its 9 1/2% First
Mortgage Notes, the first series of which are due May 15, 2008 initially in the
aggregate principal amount of One Hundred Ten Million and No/100 Dollars
($110,000,000.00) (together with any additional First Mortgage Notes issued in
the same or any other series and any note or notes issued in substitution,
exchange or renewal of any and all of the foregoing, the "SECURITIES");
WHEREAS, the Securities will be issued pursuant to the terms of that
certain Indenture dated May 22, 1998 among BSC, RRRC, Bayou Steel Corporation
(Tennessee) and the Trustee, an execution copy of which Indenture without
exhibits is annexed hereto as EXHIBIT "A" and made an integral part hereof (as
the same may hereafter be supplemented, amended, extended or restated, the
"INDENTURE");
WHEREAS, the Trustee has accepted the trust established by the Indenture
in accordance with the terms thereof;
WHEREAS, RRRC is a wholly-owned subsidiary of BSC and is a Recourse
Subsidiary, as defined in the Indenture;
WHEREAS, Mortgagor desires to enter into this Mortgage and Collateral
Assignment of Leases (as the same may hereafter be supplemented, amended,
extended or restated, the "MORTGAGE") for the purpose of creating in favor of
the Mortgagee and for the ratable benefit of the Holders, as defined in the
Indenture (collectively, the "HOLDERS" and, individually, a "HOLDER") a mortgage
and other liens on properties and interests of the Mortgagor located and to be
located within the State of Louisiana;
WHEREAS, by their acceptance of the Securities, the Holders will
irrevocably appoint the Trustee as the special attorney-in-fact for each one of
said Holders and vest the Mortgagee with full power to effect and enforce this
Mortgage for the benefit of all of said Holders and the Trustee and the
Mortgagee hereby accept such appointment; and
WHEREAS, Mortgagor contemplates incurring future obligations to the
Trustee and the Holders during the term of this Mortgage;
NOW, THEREFORE, for the purposes of securing the prompt and complete
payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the unpaid principal of and interest on the
Securities and all other obligations and liabilities of BSC or of RRRC, or of
both, to the Trustee, the Mortgagee and the Holders (including, without
limitation, interest accruing after the maturity of the Securities and interest
accruing after the filing of any petition in bankruptcy, or the commencement of
any insolvency, reorganization or like proceeding, relating to BSC or RRRC,
whether or not a claim for post-filing or post-petition interest is allowed in
such proceeding and interest, to the extent permitted by law, on the unpaid
interest), whether direct or indirect, absolute or contingent, due or to become
due, or now existing or hereafter incurred, which may arise under, out of, or in
connection with, the Indenture, the Securities, this Mortgage, the other
Security Documents (as defined in the Indenture) (including, without limitation,
any Subsidiary Guarantee and any Subsidiary Security Agreement, as such terms
are defined in the
19
<PAGE>
Indenture, to which RRRC is or becomes a party and the Company Security
Agreement, as defined in the Indenture) or any other document made, delivered or
given in connection therewith, in each case whether on account of principal,
interest, fees, indemnities, costs, expenses or otherwise (including, without
limitation, all fees and disbursements of counsel to the Trustee and the
Mortgagee that are required to be paid by BSC or RRRC pursuant to the terms of
the Indenture or this Mortgage or any other Security Document), up to the
maximum amount set forth in Section 4.11 hereof (as any or all thereof may
hereafter be amended, modified, extended or restated, collectively, the "SECURED
OBLIGATIONS"), the Mortgagor does by these presents specially mortgage, unto and
in favor of the Mortgagee, and, with respect to the following clause (v), does
hereby collaterally assign unto and in favor of the Mortgagee, for the ratable
benefit of the Holders, all of the following described property located in the
Parish of St. John the Baptist, State of Louisiana (collectively, the "MORTGAGED
PROPERTY"):
i) Those certain tracts of land located in the Parish of St. John the
Baptist, Louisiana and legally described on EXHIBIT "B" attached hereto and made
a part hereof (the "LAND");
ii) All buildings, structures, improvements and other constructions of
every nature whatsoever now or hereafter situated on the Land, and all fixtures,
machinery, appliances, apparatus and equipment, of every nature whatsoever now
owned or hereafter acquired by Mortgagor and attached to, installed in, used or
usable in connection with or incorporated in any of the Land or the foregoing
immovable property so as to become component parts thereof, (including, without
limitation, that certain deep water dock and related facilities situated on the
water bottom in the Mississippi River and attached to the Land at Mile 132.4
A.H.P. between LaPlace and Little Gypsy, if and to the extent characterized as
immovable property under Louisiana law) including all extensions, additions,
improvements, betterments, renewals, substitutions and replacements of or to any
of the foregoing and all of the right, title and interest of the Mortgagor in
and to any of the foregoing (the "IMPROVEMENTS");
iii) All easements, servitudes, rights of way, strips and gores of land,
streets, ways, alleys, passages, sewer rights, waters, water courses, water
rights and powers, and all estates, rights, titles, interests, privileges,
liberties, tenements, hereditaments and appurtenances whatsoever, in any way
belonging, relating or appertaining to the Land or to the Improvements, or which
hereafter shall in any way belong, relate or be appurtenant thereto, whether now
owned or hereafter acquired by the Mortgagor, and the reversions, remainders,
rents, issues and profits thereof, and all the estate, right, title, interest,
property, possession, claim and demand whatsoever, at law as well as in equity,
of the Mortgagor, in and to the same (the "APPURTENANT RIGHTS") (the Land, the
Improvements and the Appurtenant Rights being sometimes herein collectively
referred to as the "PREMISES");
iv) All rents, royalties, issues, profits, revenue, income and other
benefits from the Premises; provided, however, that permission is hereby given
to the Mortgagor, so long as no Default has occurred hereunder, to collect,
receive, take, use and enjoy such rents, royalties, issues, profits, revenue,
income and other benefits as they become due and payable, but not more than one
(1) month in advance of the scheduled dates for payment of each one thereof;
20
<PAGE>
v) All right, title and interest of the Mortgagor in, to and under any and
all leases, subleases, underlettings, concession agreements, management
agreements, licenses and other agreements now or hereafter on or affecting the
Premises or any part thereof, whether written or oral, and all agreements for
use of the Premises (collectively, the "LEASES" and individually, a "LEASE"),
together with all security therefor and all moneys payable thereunder, including
without limitation, the present and continuing right to make claim for, collect,
receive and receipt for any of the rents, royalties, issues, profits, revenues,
income and other sums of money payable or receivable thereunder (except sums
payable directly by the lessee under any such Lease to a person other than the
Mortgagor) whether payable as rent or otherwise, to bring actions and
proceedings thereunder or for the enforcement thereof, and to do any and all
things which the Mortgagor or any lessor is or may become entitled to do under
such Leases; subject, however, (a) to the conditional permission given to
Mortgagor to collect the rentals under any such Lease so long as no Default
shall exist hereunder, and (b) so long as no Default has occurred hereunder, to
the right of the Mortgagor to bring actions and proceedings thereunder or for
the enforcement thereof; and provided that the assignment made hereby shall not
impair or diminish any obligation of the Mortgagor under such Leases, nor shall
any such obligation be imposed upon the Mortgagee; and
vi) Subject to the provisions of the Indenture and, in the case of
insurance proceeds, to the provisions of La. R.S. 9:5386, all proceeds,
including interest payable thereon, of any and all of the Mortgaged Property,
including without limitation, all judgments, awards of damages and settlements
hereafter made resulting from condemnation proceedings or the taking of the
Premises or any portion thereof under the power of eminent domain, any policies
of insurance maintained with respect to all or any part of the Premises and the
proceeds thereof or proceeds of any sale, option or contract to sell the
Premises or any portion thereof; and the Mortgagor hereby authorizes, directs
and empowers the Mortgagee, at its option, on behalf of the Mortgagor, or the
successors or assigns of Mortgagor, pursuant to the terms of this Mortgage, and
subject to the terms of the Indenture, to adjust, compromise, claim, collect and
receive such proceeds, to give property receipts and acquittance therefore and,
after deducting expenses of collection, to apply the net proceeds upon the
Secured Obligations as provided herein, notwithstanding the fact that the same
may not then be due and payable or that the Securities are otherwise adequately
secured.
vii) All right, title, interest, claim and demand of the Mortgagor in, to
and under any and all contracts and agreements entered into by the Mortgagor at
any time and from time to time in connection with the construction, operation,
management or leasing of the Premises, or any part thereof; and,
viii) Any and all other property of every kind and nature from time to
time hereafter conveyed, mortgaged, pledged, assigned, hypothecated or
transferred hereunder as and for additional security hereunder by the Mortgagor.
The Mortgaged Property shall remain so specially mortgaged and
collaterally assigned to the Mortgagee upon the terms herein set forth for the
equal and proportionate benefit, security and protection of all of the aforesaid
Holders without any privilege, priority or distinction as to the lien or
otherwise of any of the Secured Obligations over any of the other Secured
Obligations until payment and performance in full of all of the Secured
Obligations
21
<PAGE>
This Mortgage is also granted by Mortgagor and accepted by he Mortgagee
pursuant to Louisiana Civil Code Article 3298 as a mortgage to secure future
obligations and is entitled, without limitation of other applicable provisions
of Louisiana law, to the benefits of La.R.S. 9:5554 through 9:5557 and of
Louisiana Civil Code Article 3311, 3312 and 3319. For all purposes of La.R.S.
9:5556, the Mortgagee is the mortgagee of record.
ARTICLE I
COVENANTS
SECTION 1.1 PAYMENT AND PERFORMANCE OF SECURED OBLIGATIONS; INCORPORATION
OF INDENTURE; INDENTURE CONTROLLING; DEFINED TERMS. BSC and
RRRC shall each pay when due all sums required under the Secured Obligations to
which each is a party or under which each is an obligor and shall duly and
punctually perform and observe all of the terms, provisions, conditions,
covenants and agreements on its part to be performed or observed as provided in
the Secured Obligations to which each is a party or under which each is an
obligor. Each and all of the terms, provisions, representations, warranties,
conditions, covenants and agreements set forth in the Indenture, and in each and
every supplement thereto or amendment thereof which may at any time or from time
to time be executed and delivered by the parties thereto or their successors and
assigns, are incorporated herein by reference to the same extent as though each
and all of said terms, provisions, representations, warranties, conditions,
covenants and agreements were fully set out herein. In the event of any conflict
or inconsistency between the provisions of this Mortgage and the provisions of
the Indenture, the provisions of the Indenture shall be deemed controlling,
except with respect to those provisions of this Mortgage which relate to the
creation or enforcement of the liens hereby granted. All capitalized terms not
otherwise defined herein shall have the meanings ascribed thereto in the
Indenture.
Without limitation of anything contained in the immediately foregoing
paragraph, BSC hereby specifically covenants and agrees to be bound by all of
the covenants, agreements and undertakings contained in Articles VI, VII, X, XII
and XIII of the Indenture (in each case as any or all thereof may hereafter be
modified, amended or restated), and RRRC hereby specifically covenants and
agrees to be bound by all of the covenants, agreements and undertakings
contained in Article XV of the Indenture (as such may hereafter be modified,
amended or restated).
SECTION 1.2 WARRANTY OF TITLE.
Mortgagor warrants that Mortgagor has good title to the Premises in fee
simple and good title to the rest of the Mortgaged Property, subject only to the
matters that are set forth in EXHIBIT "C" attached hereto and made a part hereof
and to any other Permitted Liens as defined under the Indenture (the "PERMITTED
EXCEPTIONS") and Mortgagor shall warrant, defend and preserve such title and the
lien of this Mortgage thereon against all claims of all persons and entities.
Mortgagor further warrants that it has the right to mortgage or collaterally
assign, as the case may be, the Mortgaged Property as set forth in this
Mortgage.
22
<PAGE>
If the interest of the Mortgagee in the Mortgaged Property, or any part
thereof, shall be endangered or shall be attacked, directly or indirectly, the
Mortgagor hereby authorizes the Mortgagee, at the Mortgagor's expense, to take
all necessary and proper steps for the defense of such title or interest,
including the employment of counsel, the prosecution or defense or litigation
and the compromise or discharge of claims and liens made against such title or
interest in the Mortgaged Property. The Mortgagor will indemnify and hold the
Mortgagee harmless from and against any and all loss, cost, damage, liability or
expense incurred in protecting the interests of the Mortgagee hereunder in such
an event, including but not limited to, all court costs and reasonable
attorneys' fees.
SECTION 1.3 REQUIREMENTS. (a) Mortgagor shall promptly comply with, or cause to
be complied with, and conform to all present and future laws, statutes, codes,
ordinances, orders, judgments, decrees, rules, regulations and requirements of
each of the United States of America, any State and any municipality, local
government or other political subdivision thereof and any agency, department,
bureau, board, commission or other instrumentality of any of them, now existing
or subsequently created (collectively, "GOVERNMENTAL AUTHORITY") which has
jurisdiction over the Mortgaged Property or any portion thereof and all
covenants, restrictions and conditions now or later of record which may be
applicable to any of the Mortgaged Property, or to the use, manner of use,
occupancy, possession, operation, maintenance, alteration, repair or
reconstruction of any of the Mortgaged Property. All present and future laws,
statutes, codes, ordinances, orders, judgments, decrees, rules, regulations and
requirements of every Governmental Authority applicable to Mortgagor or to any
of the Mortgaged Property and all covenants, restrictions, and conditions which
now or later may be applicable to any of the Mortgaged Property are collectively
referred to as the "LEGAL REQUIREMENTS".
(b) Except as otherwise expressly provided in the Indenture with respect
to the construction and operation of any Released Property Facility, from and
after the date of this Mortgage, Mortgagor shall not by act or omission permit
any building or other improvement on any premises not subject to the lien of
this Mortgage to rely on the Premises or any part thereof or any interest
therein to fulfill any Legal Requirement, and Mortgagor hereby assigns to
Mortgagee any and all rights to give consent for all or any portion of the
Premises or any interest therein to be so used. Mortgagor represents that each
parcel of the Land constitutes a legally subdivided lot, in compliance, to the
extent required by law, with all subdivision laws and similar Legal
Requirements. Any act or omission by Mortgagor which would result in a violation
of any of the provisions of this subsection shall be void.
SECTION 1.4 PAYMENT OF TAXES AND OTHER IMPOSITIONS. (a) Promptly when due,
Mortgagor shall pay and discharge all taxes of every kind and nature (including,
without limitation, all real and personal property, income, franchise,
withholding, transfer, gains, profits and gross receipts taxes), all charges for
any easement or agreement maintained for the benefit of any of the Mortgaged
Property, all general and special assessments, levies, permits, inspection and
license fees, all water and sewer rents and charges and all other public charges
even if unforeseen or extraordinary, imposed upon or assessed against or which
may become a lien on any of the Mortgaged Property, or arising in respect of the
occupancy, use or possession thereof, together with any penalties or interest on
any of the foregoing (all of the foregoing are collectively referred to as the
23
<PAGE>
"IMPOSITIONS"). Upon request by Mortgagee, Mortgagor shall deliver to Mortgagee
(i) original or copies of receipted bills and canceled checks evidencing payment
of such Imposition if it is a real estate tax or other public charge and (ii)
evidence acceptable to Mortgagee showing the payment of any other such
Imposition. If by law any Imposition, at Mortgagor's option, may be paid in
installments (whether or not interest shall accrue on the unpaid balance of such
Imposition), Mortgagor may elect to pay such Imposition in such installments and
shall be responsible for the payment of such installments with interest, if any.
(b) Nothing herein shall affect any right or remedy of Mortgagee under
this Mortgage or otherwise, without notice or demand to Mortgagor, to pay any
Imposition after the date such Imposition shall have become due, and to add to
the Secured Obligations the amount so paid, together with interest from the time
of payment at the Default Rate. Any sums paid by Mortgagee in discharge of any
Impositions shall be (i) a lien on the Premises secured hereby prior to any
right or title to, interest in, or claim upon the Premises subordinate to the
lien of this Mortgage, and (ii) payable on demand by Mortgagor to Mortgagee
together with interest at the Default Rate as set forth above.
(c) Mortgagor shall not claim, demand or be entitled to receive any credit
or credits toward the satisfaction of this Mortgage or on any interest payable
thereon for any taxes assessed against the Mortgaged Property or any part
thereof, and shall not claim any deduction from the taxable value of the
Mortgaged Property by reason of this Mortgage.
(d) Mortgagor shall have the right before any delinquency occurs to
contest or object in good faith to the amount or validity of any Imposition by
appropriate legal proceedings, but such right shall not be deemed or construed
in any way as relieving, modifying, or extending Mortgagor's covenant to pay any
such Imposition at the time and in the manner provided in this Section unless
(i) Mortgagor has given prior written notice to Mortgagee of Mortgagor's intent
so to contest or object to an Imposition, (ii) Mortgagor shall demonstrate to
Mortgagee's satisfaction that the legal proceedings shall operate conclusively
to prevent the sale of the Mortgaged Property, or any part thereof, to satisfy
such Imposition prior to final determination of such proceedings and (iii)
Mortgagor shall furnish a good and sufficient bond or surety as requested by and
reasonably satisfactory to Mortgagee in the amount of the Impositions which are
being contested plus any interest and penalty which may be imposed thereon and
which could become a lien against the Premises or any other part of the
Mortgaged Property.
(e) Upon written notice to Mortgagor, Mortgagee, after an Event of Default
with respect to the Securities of any series and the acceleration of the
Securities under Article VIII of the Indenture, shall be entitled, unless and
until such acceleration is rescinded under Article VIII of the Indenture, to
require Mortgagor to pay monthly in advance to Mortgagee the equivalent of
1/12th of the estimated annual Impositions. Mortgagee may commingle such funds
with its own funds and Mortgagor shall not be entitled to interest thereon.
SECTION 1.5 INSURANCE. (a) Mortgagor shall maintain or cause to be
- ------------------------
maintained on all of the Premises:
24
<PAGE>
(i) property insurance against loss or damage by (A) fire,
lightning, windstorm, tornado, water damage and by such other further
risks and hazards as now are or subsequently may be covered by an "all
risk" policy or a fire policy covering "special" causes of loss, which
policy shall include building ordinance law endorsements and shall be
automatically reinstated after each loss (subject to the right of the
insurance carrier to cancel its policy upon due notice in which case
Mortgagor shall promptly obtain a replacement policy meeting requirements
established herein), and (B) flood and earthquake in annual aggregates of
$25,000,000 for flood and $75,000,000 for earthquake;
(ii) comprehensive general liability insurance under a policy
including the "broad form CGL endorsement" (or which incorporates the
language of such endorsement), covering all claims for personal injury,
bodily injury or death, or property damage occurring on, in or about the
Premises in an amount not less than $10,000,000 combined single limit with
respect to injury and property damage relating to any one occurrence plus
such excess limits as Mortgagee shall request from time to time;
(iii) when and to the extent required by Mortgagee, insurance
against loss or damage by any other risk commonly insured against by
persons occupying or using like properties in the locality or localities
in which the Land is situated;
(iv) insurance against rent loss, extra expense or business
interruption (and/or soft costs, in the case of new construction), if
applicable, in amounts satisfactory to Mortgagee, but not less than one
year's gross rent or gross income;
(v) during the course of any construction or repair of Improvements,
comprehensive general liability insurance under a policy including the
"broad form CGL endorsement" (or which incorporates the language of such
endorsement), including coverage for elevators and escalators, if any. The
policy shall include coverage for independent contractors and completed
operations. The completed operations coverage shall stay in effect for two
years after construction of any Improvements has been completed. The
policy shall provide coverage on an occurrence basis against claims for
personal injury, including, without limitation, bodily injury, death or
property damage occurring on, in or about the Premises and the adjoining
streets, sidewalks and passageways, such insurance to afford immediate
minimum protection to a limit of not less than that required by Mortgagee
with respect to personal injury, bodily injury or death to any one or more
persons or damage to property;
(vi) during the course of any construction or repair of the
Improvements, workers' compensation insurance (including employer's
liability insurance) for all employees of Mortgagor engaged on or with
respect to the Premises in such amounts as are reasonably satisfactory to
Mortgagee, but in no event less than the limits established by law;
(vii) during the course of any construction, addition, alteration or
repair of the Improvements, builder's risk completed value form insurance
against "all risks of physical loss," including collapse, water damage,
flood and earthquake and transit coverage, during
25
<PAGE>
construction or repairs of the Improvements, with deductible approved by
Mortgagee, in nonreporting form, covering the total value of work
performed and equipment, supplies and materials furnished (with an
appropriate limit for soft costs in the case of construction);
(viii) boiler and machinery property insurance covering pressure
vessels, air tanks, boilers, machinery, pressure piping, heating, air
conditioning and elevator equipment and escalator equipment, provided the
Improvements contain equipment of such nature, and insurance against rent,
extra expense, business interruption and soft costs, if applicable,
arising from any such breakdown, in such amounts as are reasonably
satisfactory to Mortgagee but not less than the lesser of $1,000,000 or
10% of the value of the Improvements; and
(ix) if any portion of the Premises is located in an area identified
as a special flood hazard area by the Federal Emergency Management Agency
or other applicable agency, flood insurance in an amount satisfactory to
Mortgagee, but in no event less than the maximum limit of coverage
available under the National Flood Insurance Act of 1968, as amended.
Each insurance policy (other than flood insurance written under the National
Flood Insurance Act of 1968, as amended, in which case to the extent available)
shall (i) provide that it shall not be canceled, non-renewed or materially
amended without 30 days, prior written notice to Mortgagee, (ii) with respect to
all property insurance, provide for deductibles not to exceed $250,000, contain
a "Replacement Cost Endorsement" (predicated on rebuilding) without any
deduction made for depreciation and with no co-insurance penalty (or attaching
an agreed amount endorsement satisfactory to Mortgagee), with loss payable to
Mortgagor and Mortgagee as their respective interests may appear, without
contribution, under a "standard" or "New York" mortgagee clause acceptable to
Mortgagee and be written by insurance companies having an A.M. Best Company,
Inc. rating of A or higher and a financial size category of not less than XII,
or otherwise as approved by Mortgagee, and (iii) contain a "manuscript"
endorsement providing that Mortgagor may not unilaterally cancel such policy
without Mortgagee's prior written consent. Liability insurance policies shall
name Mortgagee as an additional insured and contain a waiver of subrogation
against Mortgagee; all such policies shall indemnify and hold Mortgagee harmless
from all liability claims occurring on, in or about the Premises and the
adjoining streets, sidewalks and passageways. The amounts each insurance policy
and the form of each such policy shall at all times be satisfactory to
Mortgagee. Mortgagor shall instruct each insurance company in writing to deliver
all insurance proceeds under each such insurance policy to Mortgagee
(notwithstanding that loss may be payable to both Mortgagor and Mortgagee) and
Mortgagor agrees that any such insurance company shall not be liable to
Mortgagor with respect to the delivery of any such proceeds to Mortgagee alone.
Any proceeds which are payable by check to the order of both Mortgagee and
Mortgagor, or of Mortgagor alone, shall be promptly endorsed by Mortgagor and
delivered to Mortgagee and Mortgagor hereby irrevocably constitutes and appoints
Mortgagee and any officer or agent thereof, with full power of substitution, as
Mortgagor's true and lawful attorney-in-fact with full irrevocable power and
authority in the place and stead of Mortgagor and in the name of Mortgagor, from
time to time in Mortgagee's sole discretion, to endorse any such check on behalf
of Mortgagor and Mortgagor hereby ratifies all that such attorneys shall
lawfully do or cause to be done by virtue of
26
<PAGE>
this power, which is a power coupled with an interest and shall be irrevocable.
The foregoing powers conferred upon Mortgagee are solely to protect its interest
in the Mortgaged Property and shall not impose any duty upon Mortgagee to
exercise any such powers; Mortgagee shall be accountable only for amounts that
it actually receives as a result of the exercise of such powers and neither it
nor the Holders nor any of their respective officers, directors, employees or
agents shall be responsible to Mortgagor for any act of failure to act, except
for its own gross negligence or willful misconduct. If any required insurance
shall expire, be withdrawn, become void by breach of any condition thereof by
Mortgagor or by any lessee of any part of the Mortgaged Property or become void
or unsafe by reason of the failure or impairment of the capital of any insurer,
or if for any other reason whatsoever such insurance shall become unsatisfactory
to Mortgagee, Mortgagor shall immediately obtain new or additional insurance
satisfactory to Mortgagee. Mortgagor shall not take out any separate or
additional insurance which is contributing in the event of loss unless it is
properly endorsed and otherwise satisfactory to Mortgagee in all respects.
(b) Mortgagor shall deliver to Mortgagee an original of each insurance
policy required to be maintained, or a certificate of such insurance acceptable
to Mortgagee, together with a copy of the declaration page for each such policy.
Mortgagor shall (i) pay as they become due all premiums for such insurance, (ii)
not later than 15 days prior to the expiration of each policy to be furnished
pursuant to the provisions of this Section, deliver a renewed policy or
policies, or duplicate original or originals thereof, marked "premium paid," or
accompanied by such other evidence of payment satisfactory to Mortgagee. Upon
request of Mortgagee, Mortgagor shall cause its insurance underwriter or broker
to certify to Mortgagee in writing that all the requirements of this Mortgage
governing insurance have been satisfied.
(c) If Mortgagor is in default of its obligations to insure or deliver any
such prepaid policy or policies, then Mortgagee, at its option and without
notice, may effect such insurance from year to year, and pay the premium or
premiums therefor, and Mortgagor shall pay to Mortgagee on demand such premium
or premiums so paid by Mortgagee with interest from the time of payment at the
Default Rate and the same shall be deemed to be secured by this Mortgage and
shall be collectible in the same manner as the obligations secured by this
Mortgage.
(d) Mortgagor promptly shall comply with and conform to (i) all provisions
of each such insurance policy, and (ii) all requirements of the insurers
applicable to Mortgagor or to any of the Mortgaged Property or to the use,
manner of use, occupancy, possession, operation, maintenance, alteration or
repair of any of the Mortgaged Property. Mortgagor shall not use or permit the
use of the Mortgaged Property in any manner which would permit any insurer to
cancel any insurance policy or void coverage required to be maintained by this
Mortgage.
(e) If the Mortgaged Property, or any part thereof, shall be destroyed or
damaged by fire or any other casualty, whether insured or uninsured, or in the
event any claim is made against Mortgagor for any personal injury, bodily injury
or property damage incurred on or about the Premises, Mortgagor shall give
immediate notice thereof to Mortgagee. If the Mortgaged Property is damaged by
fire or other casualty and the cost to repair such damage is less than the
lesser of (i) 5% of the replacement cost of the Improvements at the affected
Land site and (ii) $100,000, then provided that no Event of Default shall have
occurred and be continuing, Mortgagor shall have the
27
<PAGE>
right to adjust such loss, and the insurance proceeds relating to such loss may
be paid over to Mortgagor; provided that Mortgagor shall, promptly after any
such damage, repair all such damage regardless of whether any insurance proceeds
have been received or whether such proceeds, if received, are sufficient to pay
for the costs of repair. If the Mortgaged Property is damaged by fire or other
casualty, and the cost to repair such damage exceeds the above limit, or if an
Event of Default shall have occurred and be continuing, then Mortgagor
authorizes and empowers Mortgagee, at Mortgagee's option and in Mortgagee's sole
discretion, as attorney-in-fact for Mortgagor, to make proof of loss, to adjust
and compromise any claim under any insurance policy, to appear in and prosecute
any action arising from any policy, to collect and receive insurance proceeds
and to deduct therefrom Mortgagee's expenses incurred in the collection process.
Each insurance company concerned is hereby authorized and directed to make
payment for such loss directly to Mortgagee. Mortgagee shall have the right to
require Mortgagor to repair or restore the Mortgaged Property, and Mortgagor
hereby designates Mortgagee as its attorney-in-fact for the purpose of making
any election required or permitted under any insurance policy relating to repair
or restoration. The insurance proceeds or any part thereof received by Mortgagee
and/or Mortgagor shall constitute Trust Moneys which shall be applied in
accordance with subsection 13.2 of the Indenture.
(f) In the event of foreclosure of this Mortgage or other transfer of
title to the Mortgaged Property in extinguishment of the Secured Obligations,
all right, title and interest of Mortgagor in and to any insurance policies then
in force shall pass to the purchaser or grantee and Mortgagor hereby appoints
Mortgagee its attorney-in-fact, in Mortgagor's name, to assign and transfer all
such policies and proceeds to such purchaser or grantee.
(g) Upon written notice to Mortgagor, Mortgagee after an Event of Default
with respect to the Securities of any series, and acceleration of the Securities
under Article VIII of the Indenture, shall be entitled, unless and until such
acceleration is rescinded under Article VIII of the Indenture, to require
Mortgagor to pay monthly in advance to Mortgagee the equivalent of 1/12th of the
estimated annual premiums due on such insurance. Mortgagee may commingle such
funds with its own funds and Mortgagor shall not be entitled to interest
thereon.
(h) Mortgagor may maintain insurance required under this Mortgage by means
of one or more blanket insurance policies maintained by Mortgagor; PROVIDED,
HOWEVER, that (A) any such policy shall specify, or Mortgagor shall furnish to
Mortgagee a written statement from the insurer so specifying, the maximum amount
of the total insurance afforded by such blanket policy that is allocated to the
Premises and the other Mortgaged Property and any sublimits in such blanket
policy applicable to the Premises and the other Mortgaged Property, (B) each
such blanket policy shall include an endorsement providing that, in the event of
a loss resulting from an insured peril, insurance proceeds shall be allocated to
the Mortgaged Property in an amount equal to the coverages required to be
maintained by Mortgagor as provided above and (C) the protection afforded under
any such blanket policy shall be no less than that which would have been
afforded under a separate policy or policies relating only to the Mortgaged
Property.
SECTION 1.6 (a) RESTRICTIONS ON LIENS, ENCUMBRANCES, SALES AND TRANSFERS. For
the purposes of (i) protecting Mortgagee's security, both of repayment and of
value in the Mortgaged Property, (ii) giving Mortgagee the full benefit of its
bargain and contract with Mortgagor, and
28
<PAGE>
(iii) keeping the Mortgaged Property free of subordinate financing liens,
Mortgagor agrees that if the following provisions of this paragraph should be
deemed a restraint on alienation, that such provisions are reasonable
restraints:
(1) Except for the lien of this Mortgage and the Permitted Exceptions,
Mortgagor shall not further mortgage, nor otherwise encumber the Mortgaged
Property nor create or suffer to exist any lien, charge or encumbrance on the
Mortgaged Property, or any part thereof, whether superior or subordinate to the
lien of this Mortgage and whether recourse or non-recourse.
(2) Except as may be permitted pursuant to subsection 6.15 of the
Indenture, Mortgagor shall not sell, transfer, convey or assign all or any
portion of, or any interest in, the Mortgaged Property.
(b) SUBORDINATION OF MORTGAGE. Notwithstanding anything to the
contrary contained herein regarding the priority of this Mortgage, Mortgagee
hereby expressly subordinates the lien of this Mortgagee to any and all
Permitted Easements hereafter granted by Mortgagor over the Mortgaged Property
in accordance with the Indenture. This subordination is automatic and
self-operative; however, upon written notice from Mortgagor, at Mortgagor's
cost, Mortgagee shall execute and deliver any and all instruments and agreements
requested by Mortgagor to confirm or evidence this subordination with respect to
all or any particular Permitted Easement(s).
SECTION 1.7 RELATIONSHIP OF MORTGAGEE AND MORTGAGOR. Mortgagee shall in no event
be construed for any purpose to be a partner, joint venturer, agent or associate
of Mortgagor or of any beneficiary, tenant, subtenant, operator, concessionaire
or licensee of Mortgagor in the conduct of their respective businesses, and
without limiting the foregoing, Mortgagee shall not be deemed to be such
partner, joint venturer, agent or associate on account of Mortgagee becoming a
Mortgagee in possession or exercising any rights pursuant to this Mortgage, any
of the other Security Documents, as defined in the Indenture, or otherwise.
SECTION 1.8 MAINTENANCE; NO ALTERATION; INSPECTION; UTILITIES. (a) Mortgagor
shall maintain or cause to be maintained all the Improvements in good condition
and repair and shall not commit or suffer any waste of the Improvements.
Mortgagor shall repair, restore, replace or rebuild promptly any part of the
Premises which may be damaged or destroyed by any casualty whatsoever. Any
material alteration or demolition of or addition to the Improvements shall be
undertaken in a commercially reasonable manner as reasonably established by a
Board Resolution.
(b) Mortgagee and any persons authorized by Mortgagee shall have the right
to enter and inspect the Premises and the right to inspect all work done, labor
performed and materials furnished in and about the Improvements and the right to
inspect and make copies of all books, contracts and records of Mortgagor
relating to the Mortgaged Property subject to Section 4.7 below.
(c) Mortgagor shall pay or cause to be paid when due all utility charges
which are incurred for gas, electricity, water or sewer services furnished to
the Premises and all other assessments or charges of a similar nature, whether
public or private, affecting the Premises or any portion thereof, whether or not
such assessments or charges are liens thereon.
29
<PAGE>
SECTION 1.9 CONDEMNATION/EMINENT DOMAIN. Immediately upon obtaining knowledge of
the institution of any proceedings for the condemnation of the Mortgaged
Property, or any portion thereof, Mortgagor will notify Mortgagee of the
pendency of such proceedings. Mortgagor authorizes Mortgagee, at Mortgagee's
option and in Mortgagee's sole discretion, as attorney-in-fact for Mortgagor, to
commence, appear in and prosecute, in Mortgagee's or Mortgagor's name, any
action or proceeding relating to any condemnation of the Mortgaged Property, or
any portion thereof, and to settle or compromise any claim in connection with
such condemnation. If Mortgagee elects not to participate in such condemnation
proceeding, then Mortgagor shall, at its expense, diligently prosecute any such
proceeding and shall consult with Mortgagee, its attorneys and experts and
cooperate with them in any defense of any such proceedings. All awards and
proceeds of condemnation shall be assigned to Mortgagee to be applied in the
same manner as insurance proceeds, as provided above, and Mortgagor agrees to
execute any such assignments of all such awards as Mortgagee may request.
SECTION 1.10 LEASES. (a) Mortgagor shall not (i) execute an assignment or pledge
of any Lease relating to all or any portion of the Mortgaged Property other than
in favor of Mortgagee, or (ii) without the prior written consent of Mortgagee,
execute or permit to exist any Lease of any of the Mortgaged Property.
(b) As to any Lease consented to by Mortgagee, Mortgagor shall:
(i) promptly perform all of the provisions of the Lease on the part
of the lessor thereunder to be performed;
(ii) promptly enforce all of the provisions of the Lease on the part
of the lessee thereunder to be performed;
(iii) appear in and defend any action or proceeding arising under or
in any manner connected with the Lease or the obligations of Mortgagor as
lessor or of the lessee thereunder;
(iv) exercise, within 5 days after a request by Mortgagee, any right
to request from the lessee a certificate with respect to the status
thereof;
(v) simultaneously deliver to Mortgagee copies of any notices of
default which Mortgagor may at any time forward to or receive from the
lessee;
(vi) promptly deliver to Mortgagee a fully executed counterpart of
the Lease; and
(vii) promptly deliver to Mortgagee, upon Mortgagee's request, an
assignment of the Mortgagor's interest under such Lease.
(c) Mortgagor shall deliver to Mortgagee, within 10 days after a request
by Mortgagee, a written statement, certified by Mortgagor as being true, correct
and complete, containing the names of all lessees and other occupants of the
Mortgaged Property, the terms of all Leases and the spaces
30
<PAGE>
occupied and rentals payable thereunder, and a list of all Leases which are then
in default, including the nature and magnitude of the default; such statement
shall be accompanied by credit information with respect to the lessees and such
other information as Mortgagee may request.
(d) All Leases entered into by Mortgagor after the date hereof, if any,
and all rights of any lessees thereunder shall be subject and subordinate in all
respects to the lien and provisions of this Mortgage unless Mortgagee shall
otherwise elect in writing.
(e) As to any Lease now in existence or subsequently consented to by
Mortgagee, Mortgagor shall not accept a surrender or terminate, cancel, rescind,
supplement, alter, revise, modify or amend such Lease or permit any such action
to be taken nor shall Mortgagor accept the payment of rent more than thirty (30)
days in advance of its due date.
(f) If any act or omission of Mortgagor would give any lessee under any
Lease the right, immediately or after lapse of a period of time, to cancel or
terminate such Lease, or to abate or offset against the payment of rent or to
claim a partial or total eviction, such lessee shall not exercise such right
until it has given written notice of such act or omission to Mortgagee and until
a reasonable period for remedying such act or omission shall have elapsed
following the giving of such notice without a remedy being effected.
(g) In the event of the enforcement by Mortgagee of any remedy under this
Mortgage, the lessee under each Lease shall, if requested by Mortgagee or any
other person succeeding to the interest of Mortgagee as a result of such
enforcement, attorn to Mortgagee or to such person and shall recognize Mortgagee
or such successor in interest as lessor under the Lease without change in the
provisions thereof; provided however, that Mortgagee or such successor in
interest shall not be: (i) bound by any payment of an installment of rent or
additional rent which may have been made more than 30 days before the due date
of such installment; (ii) bound by any amendment or modification to the Lease
made without the consent of Mortgagee or such successor in interest; (iii)
liable for any previous act or omission of Mortgagor (or its predecessors in
interest); (iv) responsible for any monies owing by Mortgagor to the credit of
such lessee or subject to any credits, offsets, claims, counterclaims, demands
or defenses which the lessee may have against Mortgagor (or its predecessors in
interest); (v) bound by any covenant to undertake or complete any construction
of the Premises or any portion thereof; or (vi) obligated to make any payment to
such lessee other than any security deposit actually delivered to Mortgagee or
such successor in interest. Each lessee or other occupant, upon request by
Mortgagee or such successor in interest, shall execute and deliver an instrument
or instruments confirming such attornment. In addition, Mortgagor agrees that
each Lease entered into after the date of this Mortgage shall include language
to the effect of subsections (d) through (g) of this Section; provided that the
provisions of such subsections shall be self-operative and any failure of any
Lease to include such language shall not impair the binding effect of such
provisions on any lessee under such Lease.
SECTION 1.11 FURTHER ASSURANCES/ESTOPPEL CERTIFICATES. To further assure
Mortgagee's rights under this Mortgage, Mortgagor agrees upon demand of
Mortgagee to do any act or execute any additional documents (including, but not
limited to, security agreements on any personalty included or to be included in
the Mortgaged Property and a separate assignment of each Lease in
31
<PAGE>
recordable form) as may be required by Mortgagee to confirm the lien of this
Mortgage and all other rights or benefits conferred on Mortgagee. Mortgagor,
within five (5) business days after request, shall deliver, in form and
substance satisfactory to Mortgagee, a written statement, duly acknowledged,
setting forth the amount of the Secured Obligations, and whether any offsets,
claims, counterclaims or defenses exist against the Secured Obligations and
certifying as to such other matters as Mortgagee shall reasonably request.
SECTION 1.12 MORTGAGEE'S RIGHT TO PERFORM. If Mortgagor fails to perform any of
the covenants or agreements of Mortgagor, Mortgagee, without waiving or
releasing Mortgagor from any obligation or default under this Mortgage, may, at
any time (but shall be under no obligation to) pay or perform the same, and the
amount or cost thereof, with interest at the Default Rate, shall immediately be
due from Mortgagor to Mortgagee and the same shall be secured by this Mortgage
and shall be a lien on the Mortgaged Property prior to any right, title to,
interest in or claim upon the Mortgaged Property attaching subsequent to the
lien of this Mortgage. No payment or advance of money by Mortgagee under this
Section shall be deemed or construed to cure Mortgagor's default or waive any
right or remedy of Mortgagee. The Mortgagee, in making any payment hereby
authorized (a) relating to taxes, may do so according to any bill, statement or
estimate, without inquiry into the validity of any tax, assessment, sale,
forfeiture, tax lien or title or claim thereof; (b) for the purchase, discharge,
compromise or settlement of any lien, may do so without inquiry as to the
validity or amount of any claim for lien which may be asserted; and (c) in
connection with the completion of construction, furnishing or equipping of the
Premises or the rental, operation or management of the Premises or the payment
of operating costs and expenses thereof may do so in such amounts and to such
persons as the Mortgagee may deem appropriate. Nothing contained herein shall be
construed to require the Mortgagee to advance or expend moneys for any purpose
mentioned herein, or for any other purpose.
SECTION 1.13 HAZARDOUS MATERIAL. (a) Neither Mortgagor nor, to the best
knowledge of Mortgagor, any other person has ever caused or permitted any
Hazardous Material (as defined below) to be placed, held, located or disposed of
on, under or at the Premises, or any part thereof, and the Premises have never
been used (whether by Mortgagor or, to the best knowledge of Mortgagor, by any
other person, including any tenant) as a dump site or storage (whether permanent
or temporary) site for any Hazardous Material, in each instance, except in
compliance with all Legal Requirements, the violation of which would have a
material adverse effect on the financial condition, results of operations,
business or prospects of BSC and its subsidiaries, taken as a whole.
(b) Mortgagor represents that to the best of Mortgagor's knowledge, upon
due inquiry, (i) the Premises are free of all Hazardous Material except for
Hazardous Material being used or stored in compliance with all Legal
Requirements, the violation of which would have a material adverse effect on the
financial condition, results of operations, business or prospects of BSC and its
subsidiaries, taken as a whole, and (ii) the Premises are not or have not been
adversely affected by any Hazardous Material and are not in violation of any
applicable Legal Requirement, the violation of which would have a material
adverse effect on the financial condition, results of operations, business or
prospects of BSC and its subsidiaries, taken as a whole, of any Governmental
Authority regulating, relating to, or imposing liability or standards of conduct
concerning Hazardous Material.
32
<PAGE>
(c) Mortgagor shall comply with any and all applicable Legal Requirements,
the violation of which would have a material adverse effect on the financial
condition, results of operations, business or prospects of BSC and its
subsidiaries, taken as a whole, governing the discharge and removal of Hazardous
Material, shall pay immediately when due the costs of removal of any Hazardous
Material, and shall keep the Premises free of any lien imposed pursuant to such
Legal Requirements. In the event Mortgagor fails to do so, after notice to
Mortgagor and the expiration of the earlier of (i) applicable cure periods
hereunder, or (ii) the cure period permitted under the applicable Legal
Requirement, Mortgagee may declare such failure an Event of Default with respect
to Securities of all series or cause the Premises to be freed from the Hazardous
Material and the cost of the removal with interest at the Default Rate shall
immediately be due from Mortgagor to Mortgagee and the same shall be added to
the Secured Obligations and be secured by this Mortgage. Mortgagor further
agrees not to release or dispose of, or to authorize any other Person to release
or dispose of, any Hazardous Material at the Premises except in compliance with
all applicable Legal Requirements, the violation of which would have a material
adverse effect on the financial condition, results of operations, business or
prospects of BSC and its subsidiaries, taken as a whole. Prior to the occurrence
of an Event of Default, Mortgagee may, at Mortgagor's expense, require only such
environmental audits or assessments as Mortgagee may reasonably deem necessary
based on facts and circumstances specific to the Premises which might indicate a
violation of this Section 1.13. Upon the occurrence and during the continuance
of any Event of Default, Mortgagee may, at Mortgagor's expense, require any
environmental audit or assessments which Mortgagee may deem necessary in its
sole discretion. Mortgagor shall give Mortgagee and its agents and employees
access to the Premises to remove Hazardous Material. Mortgagor agrees to defend,
indemnify and hold Mortgagee free and harmless from and against all loss, costs,
damage and expense (including attorneys' fees and costs Mortgagee may sustain by
reason of (i) the imposition or recording of a lien by any Governmental
Authority pursuant to any Legal Requirement relating to hazardous or toxic
wastes or substances or the removal thereof ("HAZARDOUS MATERIAL LAW"); (ii)
claims of any private parties regarding violations of Hazardous Material Laws;
(iii) costs and expenses (including, without limitation, attorneys' fees and
fees incidental to the securing of repayment of such costs and expenses)
incurred by Mortgagor or Mortgagee in connection with the removal of any such
lien or in connection with Mortgagor's or Mortgagee's compliance with any
Hazardous Material Laws; and (iv) the assertion against Mortgagee by any party
of any claim in connection with Hazardous Material.
(d) For the purposes of this Mortgage, "HAZARDOUS MATERIAL" means and
includes any hazardous, nuclear, toxic or dangerous waste, substance or material
defined as such in (or for purposes of) the Comprehensive Environmental
Response, Compensation, and Liability Act, any so-called "Superfund" or
"Superlien" law, or any other Legal Requirement regulating, relating to, or
imposing liability or standards of conduct concerning, any hazardous, nuclear,
toxic or dangerous waste, substance or material, as now or at any time in
effect.
(e) The foregoing indemnification shall be a recourse obligation of
Mortgagor and shall survive repayment of the Secured Obligations,
notwithstanding any limitations on recourse which may be contained herein or in
any Security Documents or the delivery of any satisfaction or release or the
assignment of this Mortgage by Mortgagee.
33
<PAGE>
SECTION 1.14 ASBESTOS. Mortgagor shall not install or permit to be installed in
the Premises friable asbestos or any substance containing asbestos and deemed
hazardous by any Legal Requirement respecting such material, or any other
building material deemed to be harmful, hazardous or injurious by relevant Legal
Requirements and with respect to any such material currently present in the
Premises shall promptly either (a) remove any material which such Legal
Requirements deem harmful, hazardous or injurious and require to be removed or
(b) otherwise comply with such Legal Requirements, at Mortgagor's expense. If
Mortgagor shall fail to so remove or otherwise comply, Mortgagee may declare an
Event of Default with respect to the Securities of all series and/or do whatever
is necessary to eliminate such substances from the Premises or otherwise comply
with the applicable Legal Requirement, and the costs thereof, with interest at
the Default Rate, shall be immediately due from Mortgagor to Mortgagee and the
same shall be added to the obligations and be secured by this Mortgage.
Mortgagor shall give Mortgagee and its agents and employees access to the
Premises to remove such asbestos or substances. Mortgagor shall defend,
indemnify, and save Mortgagee harmless from all loss, costs, damages and expense
(including attorneys' fees and costs) asserted or proven against Mortgagee by
any party, as a result of the presence of such substances or any removal or
compliance with such Legal Requirements. The foregoing indemnification shall be
a recourse obligation of Mortgagor and shall survive repayment of the Secured
Obligations, notwithstanding any limitation on recourse which may be contained
herein or in any of the Security Documents or the delivery of any satisfaction
or release or the assignment of this Mortgage by Mortgagee.
ARTICLE II
EVENTS OF DEFAULT; RIGHTS AND REMEDIES
SECTION 2.1 EVENTS OF DEFAULT; ACCELERATION.
If an Event of Default with respect to the Securities of any series
occurs, then and in every such case the Mortgagee by notice to BSC, or the
Holders of not less than twenty-five percent (25%) in principal amount of the
Outstanding Securities of any series, by notice to BSC and the Mortgagee, may
declare all of the principal of and premium, if any, and accrued interest on all
of the Securities of any applicable series to be due and payable immediately;
provided, however, if an Event of Default specified in clause (vii), (viii) or
(xi) of Section 8.1 of the Indenture occurs, the principal amount and accrued
interest shall IPSO FACTO become and be immediately due and payable on all
Outstanding Securities without any declaration or other act on the part of the
Mortgagee or any Holder. Upon such declaration all of the principal of and
premium, if any, and accrued interest on the Securities of any applicable series
shall be due and payable immediately. The Holders of the majority in principal
amount of the Outstanding Securities of any series by notice to BSC and the
Mortgagee may rescind an acceleration and its consequences in the manner set
forth in the Indenture.
SECTION 2.2 REMEDIES.
In case an Event of Default with respect to the Securities of any series
shall occur, (a) the Mortgagee shall have all of the rights and remedies
provided pursuant to the Indenture (in each case
34
<PAGE>
as any or all thereof may be modified, amended or restated), but only to the
extent that the exercise of any such rights and remedies would not be prohibited
by the laws of the State of Louisiana, (b) the provisions of the Indenture (in
each case as any or all thereof may be modified, amended or restated) shall
apply to the exercise by the Mortgagee and by the Holders of their respective
rights and remedies under this Mortgage to the same extent as aforesaid and (c)
the Mortgagee shall, in general, have the right to:
(1) cause all or any part of the Mortgaged Property to be foreclosed
or seized and sold under executory or other legal process in a manner
provided for in Section 2.3 hereof or as provided by law;
(2) exercise any right, power or remedy provided by this Mortgage,
the Securities, the Indenture, the Security Documents or by law or in
equity or by any other document or instrument regulating, evidencing,
securing or guaranteeing any of the Securities; and,
(3) take whatever action at law or in equity may appear necessary or
desirable to collect the amounts then due and thereafter to become due
under, or to enforce performance and observance of, any or all of the
Secured Obligations.
SECTION 2.3 FORECLOSURE AND SALE.
If an Event of Default with respect to the Securities of any series has
occurred and if the Securities of any series have become due, whether by
acceleration or otherwise, and if BSC or RRRC has failed to pay to the Mortgagee
all sums then due and owing by it under the Securities of such series and under
the other Secured Obligations, the Mortgagee shall have the right to seize and
sell the Mortgaged Property by executory or other legal process without demand,
notice or putting in default, all of which are hereby waived, and to foreclose
the lien hereof, in accordance with the laws of the State of Louisiana and to
exercise any other remedies provided by this Mortgage, or any which the
Mortgagee may have at law, at equity or otherwise. In any suit to foreclose the
lien hereof, there shall be allowed and included as additional indebtedness
hereunder all expenditures and expenses which may be paid or incurred by or on
behalf of the Mortgagee for reasonable attorney's fees, court costs, appraiser's
fees, outlays for documentary and expert evidence, stenographer's charges,
publication costs and costs (which may be estimated as to items to be expended
after entry of the decree) of procuring all such abstracts of title, title
searches and examinations and similar data and assurances with respect to title
as the Mortgagee may deem reasonably necessary either to prosecute such suit or
to evidence to bidders at sales which may be had pursuant to such decree the
true conditions of the title to or the value of the Premises. All expenditures
and expenses of the nature mentioned in this Section 2.3, and such other
expenses and fees as may be incurred in the protection of the Premises and rents
and income therefrom and the maintenance of the lien of this Mortgage, including
the reasonable fees of any attorney employed by the Mortgagee in any litigation
or proceedings affecting this Mortgage, the Secured Obligations or the Premises,
including probate and bankruptcy proceedings, or in preparation of the
commencement or defense of any proceedings or threatened suit or proceeding or
otherwise in dealing specifically therewith, shall be so much
35
<PAGE>
additional indebtedness secured hereby and shall be immediately due and payable
by the Mortgagor, with interest thereon at the Default Rate until paid.
The Mortgagee may exercise the remedies hereunder with respect to any of
the Mortgaged Property, in whole or in part, and in such portions and in such
order as may be deemed advisable by the Mortgagee in its discretion, and any
such action shall not in anywise be considered as a waiver of any of the rights,
benefits or liens evidenced by this Mortgage.
To the fullest extent the Mortgagor may legally do so, the Mortgagor
agrees that the Mortgagor will not at any time insist upon, plead, claim or take
the benefit or advantage of any law now or hereafter in force providing for any
appraisement, valuation, stay, extension or redemption, and the Mortgagor, to
the extent permitted by applicable law, hereby waives and releases all rights of
redemption, valuation, appraisement and stay of execution, in the event of any
sale by executory or other legal process and foreclosure of the liens hereby
created. If any law referred to in this paragraph and now in force, of which the
Mortgagor might take advantage despite this paragraph, shall hereafter be
repealed or cease to be in force, such law shall not thereafter be deemed to
preclude the application of this paragraph.
In the event of any sale of the Mortgaged Property, or any part thereof,
in any proceedings instituted to enforce this Mortgage, it is agreed that the
Mortgaged Property may be sold without appraisement to the highest bidder for
cash, the said Mortgagor hereby expressly waiving the benefit of any and all
appraisement thereof.
The Mortgagor hereby further expressly waives: (a) the benefit of
appraisement as provided in Louisiana Code of Civil Procedure Articles 2332,
2336, 2723 and 2724 and all other laws conferring the same; (b) the demand and
three (3) days' delay accorded by the Louisiana Code of Civil Procedure Articles
2639 and 2721; (c) the three (3) days' delay provided by the Louisiana Code of
Civil Procedure Articles 2331 and 2722; and, (d) the benefit of the other
provisions of the Louisiana Code of Civil Procedure Articles 2331, 2722 and
2723; and the Mortgagor expressly agrees to the immediate seizure of the
Mortgaged Property in the event of suit hereon.
BSC hereby CONFESSES JUDGMENT in favor of the Mortgagee for the full
amount of principal and interest, and premium, if any, on the Securities, and
BSC and RRRC hereby CONFESS JUDGMENT in favor of the Mortgagee for all sums due
and to become due under all other Secured Obligations to which each is a party
or under which each is an obligor, for reasonable attorney's fees, and for any
sums that may be advanced during the life of this Mortgage for the payment of
premiums of insurance, taxes or amounts for the protection and preservation of
this Mortgage, notwithstanding that such amount may exceed the aggregate face
amounts of the Securities.
Subject to the terms of the Indenture, the Mortgagee or any one or more of
the Holders shall have the right to become the purchaser at any sale of the
Mortgaged Property hereunder and shall have the right to have credited on the
amount of its bid therefor all or any part of the Secured Obligations held by it
or them as of the date of such sale.
36
<PAGE>
All rights of action (including the right to file proof of claims) under
this Mortgage or under any of the Securities may be enforced by the Mortgagee
without the possession of any of the Securities or the production thereof in any
trial, or other proceedings relating thereto, and any such suit or proceeding
instituted by the Mortgagee shall be brought in its name as Mortgagee without
the necessity of joining any Holders as plaintiffs. Subject to the terms of the
Indenture, any recovery of judgment shall be for the equal benefit of the
Holders of the Secured Obligations and all of the Holders of the Secured
Obligations shall be entitled to participate pro rata, without regard to series,
in the proceeds of the Mortgaged Property.
SECTION 2.4 KEEPER.
Upon the institution of proceedings to effect seizure and sale under this
Mortgage or at any time thereafter, the court in which such proceedings are
filed may appoint a keeper of the Premises. Such appointment may be made either
before or after sale, without notice, without regard to solvency or insolvency
of the Mortgagor at the time of application for such keeper, and without regard
to the then value of the Premises. Pursuant to La. R.S. 9:5136, ET SEQ., the
Mortgagor and Mortgagee agree that the Mortgagee may be the keeper or may name a
keeper of the Premises at the time a seizure thereof is effected. Such keeper
shall have the power to collect the rents, issues and profits of the Premises
during the pendency of such foreclosure suit and in case of a sale and
deficiency, if any, as well as during any further times when the Mortgagor,
except for the intervention of such keeper, would be entitled to collection of
such rents, issues and profits, and such keeper shall have all other powers
which may be necessary or useful in such cases for the protection, possession,
control, management and operation of the Premises during the whole of said
period. The court may, from time to time, authorize the keeper to apply the net
income from the Premises in payment in whole or in part of: (a) the Secured
Obligations or the indebtedness secured by a decree foreclosing this Mortgage,
or any tax, special assessment, or other lien which may be or become superior to
the lien hereof or of such decree, provided such application is made prior to
the foreclosure sale, or (b) the deficiency in case of a sale and deficiency.
The rights provided for by this Section 2.4 are in addition to those provided
for by the Indenture.
SECTION 2.5 PROCEEDS OF SALE.
The proceeds of any foreclosure or sale of the Mortgaged Property, or any
portion thereof, shall be distributed and applied in accordance with all
applicable provisions of the Indenture.
SECTION 2.6 INSURANCE DURING FORECLOSURE.
In the case of foreclosure of this Mortgage, and sale of the Mortgaged
Property, the court, in its decree of foreclosure and sale, may provide that the
mortgagee's clauses attached to each of the casualty insurance policies with
respect to the Premises may be canceled and that the decree creditor may cause a
new loss clause to be attached to each one of said casualty insurance policies
making the loss thereunder payable to said decree creditor. In the event of
foreclosure and sale hereunder, the Mortgagee is hereby authorized, without the
consent of the Mortgagor, to assign any and all insurance policies to the
purchaser at the sale, or to take such other steps as the Mortgagee
37
<PAGE>
may deem advisable to cause the interest of such purchaser to be protected by
any of the insurance policies without credit or allowance to the Mortgagor for
prepaid premiums thereon.
SECTION 2.7 RIGHTS CUMULATIVE.
Each right, power and remedy conferred herein or in the Indenture, or in
both, upon the Mortgagee is cumulative and in addition to every other right,
power or remedy, express or implied, now or hereafter provided by law, and each
and every right, power and remedy herein set forth or otherwise so existing may
be exercised from time to time as often and in such order as may be deemed
expedient to the Mortgagee.
ARTICLE III
TRUSTEE
SECTION 3.1 ACCEPTANCE OF THE TRUST.
The Trustee hereby accepts the trust imposed upon it by this Mortgage, and
agrees to perform said trust and any duties required to be performed by it under
the terms of this Mortgage or under the terms of the Indenture, as the case may
be, as an ordinarily prudent Trustee under a corporate mortgage, but only upon
and subject to the express terms and conditions hereof and of the Indenture.
SECTION 3.2 TERMS OF THE TRUST.
The duties of the Trustee, the rights of the Trustee, its compensation,
right to indemnity, method of replacement and all other matters concerning the
Trustee shall be governed by the terms and conditions of the Indenture,
including but not limited to, particularly Article IX thereof.
ARTICLE IV
MISCELLANEOUS
SECTION 4.1 SUCCESSORS AND ASSIGNS.
This Mortgage and each and every covenant, agreement and other provision
hereof shall be binding upon BSC and RRRC, as Mortgagor, and their respective
successors and assigns (including, without limitation, each and every record
owner from time to time of the Premises or any other person having an interest
therein), and shall inure to the benefit of the Mortgagee and its successors and
assigns. Wherever herein the term, "Mortgagee", is used, such reference shall be
deemed to include the Collateral Agent from time to time under the Indenture,
whether so expressed or not. Each such Mortgagee from time to time shall be
bound by the provisions hereof and shall have and enjoy all of the rights,
privileges, powers, options and benefits afforded hereunder, and may enforce any
and all of the terms and provisions hereof, as fully and to the same extent and
with the same
38
<PAGE>
effect as if such Mortgagee were herein by name specifically granted such
rights, privileges, powers, options and benefits and was herein by name
designated the Mortgagee.
SECTION 4.2 COVENANTS RUN WITH LAND; SUCCESSOR MORTGAGORS.
- ----------- ---------------------------------------------
All of the covenants of this Mortgage shall run with the Land and be
binding on any successor owners of the Land. If the ownership of the Premises or
any portion thereof becomes vested in a Person other than the Mortgagor, the
Mortgagee may, without notice to the Mortgagor, deal with such successor or
successors in interest of the Mortgagor with reference to this Mortgage in the
same manner as with the Mortgagor without in any way releasing or discharging
the Mortgagor from its obligations hereunder.
SECTION 4.3 EXONERATION FROM SUCCESSOR MORTGAGEES.
- ----------- --------------------------------------
No successor to the rights, titles, interests, duties, discretions or
options of the Mortgagee hereunder shall have any liability for any acts or
omissions of any prior Mortgagee.
SECTION 4.4 AFTER-ACQUIRED PROPERTY; FURTHER ASSURANCES.
- ----------- --------------------------------------------
The Mortgagor will do, execute, acknowledge and deliver, or cause to be
done, executed, acknowledged and delivered, all such further acts, conveyances,
mortgages, security agreements and assurances as the Mortgagee shall, from time
to time, reasonably require for the better assuring, mortgaging, assigning,
hypothecating and confirming unto the Mortgagee all property mortgaged or
collaterally assigned hereby or property intended to be mortgaged or
collaterally assigned hereby, whether now owned by the Mortgagor or hereafter
acquired.
SECTION 4.5 GOVERNING LAW; INVALIDITY OF CERTAIN PROVISIONS.
- ----------- -----------------------------------------------
This Mortgage shall be construed and enforced according to the laws of the
State of Louisiana, notwithstanding its place of execution and without reference
to the conflicts of law principles of the State of Louisiana. If the lien of
this Mortgage is invalid or unenforceable as to any part of the Mortgaged
Property, the unsecured or partially secured portion of the Secured Obligations
shall be completely paid prior to the payment of the remaining and secured or
partially secured portion of the Secured Obligations, and all payments made on
the Secured Obligations, whether voluntary or under foreclosure or other
enforcement action or procedure, shall be considered to have been first paid on
and applied to the full payment of that portion of the Secured Obligations which
is not secured or not fully secured by the lien of this Mortgage.
SECTION 4.6 SECURITIES LEGAL.
- ----------- -----------------
BSC declares, represents, warrants, certifies and agrees that the proceeds
of the Securities will be used solely for the purposes specified in any
applicable offering document relating to the placement or sale thereof and that
the Securities and all fees, charges and other payments made or required to be
made with respect thereto and under this Mortgage and the Indenture are legal
and do not violate any usury or other law of the State of Louisiana. The
Securities do or will, when issued,
39
<PAGE>
evidence business loans and do not, and when disbursed will not, violate the
provisions of the usury, consumer credit or other laws of any state which may
have jurisdiction.
SECTION 4.7 INSPECTION OF PREMISES AND RECORDS.
- ----------- ----------------------------------
The Mortgagee and its representatives and agents shall have the right to
inspect the Premises and all books, records and documents relating thereto and
to the Mortgaged Property at all reasonable times following reasonable notice to
the Mortgagor, and access thereto shall be permitted for that purpose.
SECTION 4.8 CERTAIN DEFINITIONS; CAPTIONS.
- ----------- -------------------------------
Unless the context clearly indicates a contrary intent or unless otherwise
specifically provided herein, words used in this Mortgage shall be used
interchangeably in singular or plural form and the word "Mortgagor" shall mean
"each Mortgagor or any subsequent owner or owners of the Mortgaged Property or
any part thereof or interest therein," and the word "Mortgagee" shall mean
"Mortgagee or any successor collateral agent to the Mortgagee," the word
"person" shall include any individual, corporation, partnership, trust,
unincorporated association, government, governmental authority, or other entity,
the words "Mortgaged Property" shall include any portion of the Mortgaged
Property or interest therein. "Default Rate" shall mean the rate equal to the
highest rate of interest borne by any outstanding series of Securities at the
time such Default Rate must be calculated. Whenever the context may require, any
pronouns used herein shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural and vice versa. The captions in this Mortgage are for convenience or
reference only and in no way limit or amplify the provisions hereof.
SECTION 4.9 NOTICES.
- ----------- --------
All notices, requests and demands to or upon the Mortgagor or the
Mortgagee to be effective shall be in writing (or by fax or similar electronic
transfer confirmed in writing) and shall be deemed to have been duly given or
made (a) when delivered by hand or (b) if given by mail, when deposited in the
mails by certified mail, return receipt requested, to the addresses provided
below, or (c) if by fax or similar electronic transfer, when sent and receipt
has been confirmed, addressed to the Mortgagor or the Mortgagee at its address
or transmission number for notices provided below. The Mortgagor and the
Mortgagee may change their addresses and transmission numbers for notices by
notice in the manner provided in this Section.
40
<PAGE>
(i) If to the Mortgagor:
Bayou Steel Corporation
P.O. Box 5000
River Road
La Place, Louisiana 70069
Attention: Richard J. Gonzalez
FAX No. 504/652-8450
(ii) If to the Mortgagee:
First National Bank of Commerce
Third Floor, 210 Baronne Street
New Orleans, Louisiana 70112
Attention: Corporate Trust Department
FAX No. (504) 623-1432
Any notice or communication to a Holder shall be mailed by first class
mail to his address shown on the Security Register kept by the Trustee. Failure
to mail a notice or communication to a Holder or any defect in it shall not
affect its sufficiency with respect to other Holders.
If the Mortgagor mails a notice or communication to any Holder, it shall
mail a copy to the Mortgagee at the same time.
SECTION 4.10 WAIVER OF CERTIFICATES.
- ------------ -----------------------
The parties hereto waive production of all Mortgage and Conveyance
Certificates, Tax Research Certificates and all other Certificates with respect
to the Mortgaged Property and relieve and release me, Notary, and the surety on
my official bond from all liability in connection with failure to produce said
Certificates and to attach the same to this Mortgage.
SECTION 4.11 MAXIMUM AMOUNT SECURED.
- ------------ -----------------------
Anything herein to the contrary notwithstanding, all amounts advanced by
the Mortgagee hereunder, including without limitation, for the payment of
premiums for insurance, taxes, assessments or other amounts for the preservation
and protection of the Mortgaged Property and the lien of this mortgage, and all
sums due or to become due under the Securities and the other Secured Obligations
shall be secured by this Mortgage in an aggregate amount not to exceed TWO
HUNDRED TWENTY MILLION AND NO/100 DOLLARS ($220,000,000.00).
41
<PAGE>
SECTION 4.12 CHANGES IN METHOD OF TAXATION. In the event of the passage after
the date hereof of any law of any Governmental Authority deducting from the
value of the Premises for the purposes of taxation any lien thereon, or changing
in any way the laws for the taxation of mortgages or debts secured thereby for
federal, state or local purposes, or the manner of collection of any such taxes,
and imposing a tax, either directly or indirectly, on mortgages or debts secured
thereby, the Mortgagee shall have the right to declare the Secured Obligations
due on a date to be specified by not less than 30 days' written notice to be
given to Mortgagor unless within such 30-day period Mortgagor shall assume as a
Secured Obligation hereunder the payment of any tax so imposed until full
payment of the Secured Obligations and such assumption shall be permitted by
law.
SECTION 4.13 EXPENSES; INDEMNIFICATION. (a) Mortgagor shall pay or reimburse
Mortgagee for all expenses incurred by Mortgagee before and after the date of
this Mortgage with respect to any and all transactions contemplated by this
Mortgage including without limitation, the preparation of any document
reasonably required hereunder or any amendment, modification, restatement or
supplement to this Mortgage, the delivery of any consent, nondisturbance
agreement or similar document in connection with this Mortgage or the
enforcement of any of Mortgagee's rights. Such expenses shall include, without
limitation, all title and conveyance charges, recording and filing fees and
taxes, mortgage taxes, intangible personal property taxes, escrow fees, revenue
and tax stamp expenses, insurance premiums (including title insurance premiums),
title search and title rundown charges, brokerage commissions, finders fees,
placement fees, court costs, surveyors', photographers', appraisers',
architects', engineers', consulting professionals, accountants' and attorneys'
fees and disbursements. Mortgagor acknowledges that from time to time Mortgagor
may receive statements for such expenses, including without limitation
attorneys' fees and disbursements.
Mortgagor shall pay such statements promptly upon receipt.
(b) If (i) any action or proceeding shall be commenced by Mortgagee
(including but not limited to any action to foreclose this Mortgage or to
collect the Secured Obligations), or any action or proceeding is commenced to
which Mortgagee is made a party, or in which it becomes necessary to defend or
uphold the lien of this Mortgage (including, without limitation, any proceeding
or other action relating to the bankruptcy, insolvency or reorganization of
Mortgagor and/or any Subsidiary, as defined in the Indenture), or in which
Mortgagee is served with any legal process, discovery notice or subpoena and
(ii) in each of the foregoing instances such action or proceeding in any manner
relates to or arises out of this Mortgage or Mortgagee's lending to Mortgagor or
acceptance of a guaranty from any guarantor of the Secured Obligations or of any
of the Secured Obligations or any of the transactions contemplated by this
Mortgage, then Mortgagor will immediately reimburse or pay to Mortgagee all of
the expenses which have been or may be incurred by Mortgagee with respect to the
foregoing (including reasonable counsel fees and disbursements), together with
interest thereon at the Default Rate, and any such sum and the interest thereon
shall be a lien on the Mortgaged Property, prior to any right, or title to,
interest in or claim upon the Mortgaged Property attaching or accruing
subsequent to the lien of this Mortgage, and shall be deemed to be secured by
this Mortgage. In any action or proceeding to foreclose this Mortgage, or to
recover or collect the Secured Obligations, the provisions of law respecting the
recovering of costs, disbursements and allowances shall prevail unaffected by
this covenant.
42
<PAGE>
(c) Mortgagor shall indemnify and hold harmless Mortgagee and Mortgagee's
affiliates, and the respective directors, officers, agents and employees of
Mortgagee and its affiliates from and against all claims, damages, losses and
liabilities (including, without limitation, reasonable attorneys fees and
expenses) arising out of or based upon any matter relating to this Mortgage, the
Mortgaged Property or the occupancy, ownership, maintenance or management of the
Mortgaged Property by Mortgagor, including, without limitation, any claims based
on the alleged acts or omissions of any employee or agent of Mortgagor, except
to the extent that any such claims, damages, losses and liabilities arise out of
the gross negligence or willful misconduct of Mortgagee. This indemnification
shall be in addition to any other liability which Mortgagor may otherwise have
to Mortgagee.
SECTION 4.14 NO WAIVERS, ETC. Any failure by Mortgagee to insist upon the strict
performance by Mortgagor of any of the terms and provisions of this Mortgage
shall not be deemed to be a waiver of any of the terms and provisions hereof,
and Mortgagee, notwithstanding any such failure, shall have the right thereafter
to insist upon the strict performance by Mortgagor of any and all of the terms
and provisions of this Mortgage to be performed by Mortgagor. Mortgagee may
release, regardless of consideration and without the necessity for any notice to
or consent by the holder of any subordinate lien on the Mortgaged Property, any
part of the security held for the obligations secured by this Mortgage without,
as to the remainder of the security, in anywise impairing or affecting the lien
of this Mortgage or the priority of such lien over any subordinate lien.
SECTION 4.15 PREAMBLES.
The preambles of this Mortgage constitute an integral part hereof.
43
<PAGE>
THUS DONE AND PASSED in New Orleans, Louisiana, on the date hereinabove
first written, in the presence of the undersigned competent witnesses, who have
hereunto signed their names, together with said appearers and me, Notary, after
due reading of the whole.
WITNESSES: BAYOU STEEL CORPORATION
("BSC" AND "MORTGAGOR")
BY:
PRINTED NAME: PRINTED NAME: RICHARD J. GONZALEZ
TITLE: VICE PRESIDENT
RIVER ROAD REALTY CORPORATION
PRINTED NAME: ("RRRC" AND "MORTGAGOR")
BY:
PRINTED NAME: RICHARD J. GONZALEZ
TITLE: VICE PRESIDENT
FIRST NATIONAL BANK OF COMMERCE,
AS TRUSTEE ("TRUSTEE")
BY:
PRINTED NAME: DENIS MILLINER
TITLE: VICE PRESIDENT AND TRUST OFFICER
----------------------------------------
NOTARY PUBLIC
IN AND FOR ORLEANS PARISH, LOUISIANA
MY COMMISSION IS ISSUED FOR LIFE.
44
<PAGE>
EXHIBIT "A" TO
MORTGAGE AND COLLATERAL ASSIGNMENT OF LEASES
BY
BAYOU STEEL CORPORATION
AND
RIVER ROAD REALTY CORPORATION
IN FAVOR OF
FIRST NATIONAL BANK OF COMMERCE, AS TRUSTEE
----------------------------------------------
INDENTURE
45
<PAGE>
EXHIBIT "B" TO
MORTGAGE AND COLLATERAL ASSIGNMENT OF LEASES
BY
BAYOU STEEL CORPORATION
AND
RIVER ROAD REALTY CORPORATION
IN FAVOR OF
FIRST NATIONAL BANK OF COMMERCE, AS TRUSTEE
----------------------------------------------
LEGAL DESCRIPTION OF LAND
46
<PAGE>
EXHIBIT "C" TO
MORTGAGE AND COLLATERAL ASSIGNMENT OF LEASES
BY
BAYOU STEEL CORPORATION
AND
RIVER ROAD REALTY CORPORATION
IN FAVOR OF
FIRST NATIONAL BANK OF COMMERCE, AS TRUSTEE
----------------------------------------------
PERMITTED EXCEPTIONS
47
EXHIBIT 4.4
SECURITY AGREEMENT
BETWEEN
BAYOU STEEL CORPORATION
AND
FIRST NATIONAL BANK OF COMMERCE,
AS COLLATERAL AGENT
May 22, 1998
48
<PAGE>
TABLE OF CONTENTS
PAGE
1. DEFINED TERMS...........................................................1
1.1 DEFINITIONS.......................................................1
1.2 OTHER DEFINITIONAL PROVISIONS.....................................3
2. GRANT OF SECURITY INTEREST..............................................3
3. REPRESENTATIONS AND WARRANTIES..........................................4
3.1 TITLE; NO OTHER LIENS.............................................4
3.2 PERFECTED FIRST PRIORITY LIENS....................................4
3.3 EQUIPMENT.........................................................4
3.4 CHIEF EXECUTIVE OFFICE............................................4
3.5 FARM PRODUCTS.....................................................4
3.6 NO OTHER OWNERS...................................................4
4. COVENANTS...............................................................4
4.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER.........................5
4.2 MARKING OF RECORDS................................................5
4.3 MAINTENANCE OF INSURANCE..........................................5
4.4 PAYMENT OF OBLIGATIONS............................................5
4.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER
DOCUMENTATION....................................................6
4.6 CHANGES IN LOCATIONS, NAMES, ETC..................................6
4.7 FURTHER IDENTIFICATION OF COLLATERAL..............................6
4.8 NOTICES...........................................................6
5. ASSET SALES AND RECEIPT OF NET INSURANCE PROCEEDS.......................7
6. REMEDIES................................................................7
6.1 CODE REMEDIES.....................................................7
6.2 DEFICIENCY........................................................8
7. APPLICABLE PROVISIONS OF THE INDENTURE..................................8
8. COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN FACT; COLLATERAL
AGENT'S PERFORMANCE OF COMPANY'S OBLIGATIONS...........................8
8.1 POWERS............................................................8
8.2 PERFORMANCE BY COLLATERAL AGENT OF COMPANY'S OBLIGATIONS..........9
8.3 COMPANY'S REIMBURSEMENT OBLIGATION................................9
8.4 RATIFICATION; POWER COUPLED WITH AN INTEREST......................9
9. DUTY OF COLLATERAL AGENT................................................9
49
<PAGE>
10. EXECUTION OF FINANCING STATEMENTS......................................10
11. AUTHORITY OF COLLATERAL AGENT..........................................10
12. INDEMNITY..............................................................10
12.1 INDEMNITY........................................................10
12.2 SURVIVAL.........................................................11
12.3 REIMBURSEMENTS...................................................11
13. NOTICES................................................................11
14. SEVERABILITY...........................................................11
15. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES..................11
15.1 AMENDMENTS IN WRITING............................................11
15.2 NO WAIVER BY COURSE OF CONDUCT...................................12
15.3 .................................................................12
15.4 REMEDIES CUMULATIVE..............................................12
16. SECTION HEADINGS.......................................................12
17. SUCCESSORS AND ASSIGNS.................................................12
18. GOVERNING LAW..........................................................12
19. SUBMISSION TO JURISDICTION; WAIVERS....................................12
20. SPECIAL LOUISIANA PROVISIONS...........................................13
50
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 22, 1998, made by BAYOU STEEL
CORPORATION, a Delaware corporation, the Federal taxpayer identification number
of which is 72-1125783 (the "COMPANY"), in favor of FIRST NATIONAL BANK OF
COMMERCE, as trustee (in such capacity, the "TRUSTEE"), the Federal Employer
Identification Number of which is 72-0269760, under the Indenture dated May 22,
1998, among the Trustee, the Company, Bayou Steel Corporation (Tennessee) and
River Road Realty Corporation (as amended, supplemented or otherwise modified
from time to time, the "INDENTURE"), and as collateral agent (in such capacity
and together with any successors in such capacity, the "COLLATERAL AGENT") for
the benefit of the Holders of all securities issued under the Indenture (the
"SECURITIES").
W I T N E S S E T H:
WHEREAS, the Company is the owner of the Collateral (as hereinafter
defined); and
WHEREAS, it is a condition precedent to the purchase of the 1998
Securities from the Company that the Company shall have executed and delivered
this Agreement to the Collateral Agent for the ratable benefit of Holders of the
Securities of all series.
NOW THEREFORE, in consideration of the premises and to induce the Trustee
to enter into the Indenture and to induce the Holders to purchase the
Securities, the Company hereby agrees with the Collateral Agent, for the ratable
benefit of the Holders of the Securities of all series, as follows:
III DEFINED TERMS.
3.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in the
Indenture and used herein shall have the meanings given to them in the Indenture
and the following terms which are defined in the Uniform Commercial Code in
effect in the State of New York on the date hereof are used herein as so
defined: Chattel Paper, Equipment, Fixtures, Farm Products, and Instruments.
(b) The following terms shall have the following meanings:
"AGREEMENT" means this Security Agreement, as the same may be amended,
modified or otherwise supplemented from time to time.
"BANK SECURITY AGREEMENT" means the Amended and Restated Security
Agreement dated as of May 22, 1998, among the Company, Bayou Steel Corporation
(Tennessee), River Road Realty Corporation and the other Subsidiaries of the
Company from time to time a party thereto and The Chase Manhattan Bank, as agent
for the Lenders party to the New Credit Facility.
51
<PAGE>
"CODE" means the Uniform Commercial Code as from time to time in effect in
the State of New York.
"COLLATERAL" has the meaning specified in Section 2 of this Agreement.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"NET INSURANCE PROCEEDS" has the meaning specified in Section 4.3 of this
Agreement.
"OBLIGATIONS" means the collective reference to the unpaid principal of
and interest on the Securities of all series and all other obligations and
liabilities of the Company to the Trustee, the Collateral Agent and the Holders
of the Securities of all series (including, without limitation, interest
accruing after the maturity of the Securities and interest accruing after the
filing of any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Company, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding,
and interest, to the extent permitted by law, on the unpaid interest), whether
direct or indirect, absolute or contingent, due or to become due, or now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Indenture, the Securities of any series, this Agreement, the other
Security Documents or any other document made, delivered or given in connection
therewith, in each case whether on account of principal, interest, fees,
indemnities, costs, expenses or otherwise (including, without limitation, all
fees and disbursements of counsel to the Trustee and the Collateral Agent that
are required to be paid by the Company pursuant to the terms of the Indenture or
this Agreement or any other Security Document).
"PROCEEDS" and "PRODUCTS" shall have the meaning ascribed to such terms in
the Code and shall include in any event (i) whatever is received upon any
collection, exchange, sale or other disposition or refinancing of any of the
Collateral and any property into which any of the Collateral is converted
(whether cash or non-cash proceeds), (ii) any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to the Company from time to time with
respect to any of the Collateral, (iii) any and all payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of governmental authority) and (iv) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.
"REQUIREMENT OF LAW" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
3.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and
52
<PAGE>
not to any particular provision of this Agreement, and section and paragraph
references are to this Agreement unless otherwise specified.
(b) All references to the Collateral Agent shall be deemed to
include a reference to the Trustee, and the reverse thereof shall similarly
apply.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
IV GRANT OF SECURITY INTEREST. As collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the Obligations, the Company hereby grants to the
Collateral Agent for the ratable benefit of the Holders a security interest in
all of the following property now owned or at any time hereafter acquired by the
Company or in which the Company now has or at any time in the future may acquire
any right, title or interest (collectively, the "COLLATERAL"):
(a) all Equipment located on the real property described in SCHEDULE
1 hereto and constituting a portion of the Integral Fixtures and
Equipment, including, without limitation, (i) furniture, furnishings,
tools, lubricants, spare parts, shelving, displays, cases, accessories,
motors and engines, (ii) bearings, rolls, guides and stores which are
classified on the balance sheet of the Company as inventory and (iii) with
respect to the foregoing, all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto;
(b) all Fixtures located on the real property described in SCHEDULE
1 hereto and constituting a portion of the Integral Fixtures and
Equipment;
(c) to the extent that the Company has any rights therein, that
certain account number 1102160-1, in the name of the Collateral Agent,
established with the Collateral Agent, pursuant to Section 13.1 of the
Indenture; and
(d) to the extent not otherwise included, all Proceeds and Products
of any and all of the foregoing (including, without limitation, any
properties or assets into which Proceeds or Products of any of the
foregoing are converted); provided, however, that, if Proceeds are
converted into assets which are collateral for the New Credit Facility,
the security interest created hereunder shall not attach to such assets;
(e) all books and records pertaining to the forgoing Collateral.
The Collateral specifically includes, but is not limited to, that certain deep
water dock and related facilities situated on a water bottom in the Mississippi
River and attached to the real property described in SCHEDULE 1 at Mile 132.4
A.H.P. between LaPlace and Little Gypsy, if and to the extent characterized as
movable property under Louisiana law. Notwithstanding the foregoing, the
Collateral shall not be deemed to include "Accounts Receivable" and "Inventory",
and the "Proceeds" thereof, as each of such terms is defined in the
Intercreditor Agreement.
53
<PAGE>
V REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants
that:
5.1 TITLE; NO OTHER LIENS. Except for the security interest granted to the
Collateral Agent for the ratable benefit of the Holders of the Securities of all
series pursuant to this Agreement and the other Liens permitted to exist on the
Collateral pursuant to the Indenture, the Company owns each item of the
Collateral free and clear of any and all Liens or claims of others. No security
agreement, financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except such
as have been filed in favor of the Collateral Agent, for the ratable benefit of
the Holders of the Securities of all series, pursuant to this Agreement or as
are permitted pursuant to the Indenture.
5.2 PERFECTED FIRST PRIORITY LIENS. The security interests granted
pursuant to this Agreement (a) constitute perfected security interests in the
Collateral in favor of the Collateral Agent, for the ratable benefit of the
Holders of the Securities of all series , (b) are prior to all other Liens on
the Collateral in existence on the date hereof except for Liens permitted to
exist pursuant to the Indenture, and (c) are enforceable as such against (1) all
creditors of and purchasers from the Company and (2) any Person having any
interest in the real property where any of the Equipment constituting Collateral
is located.
5.3 EQUIPMENT. The Equipment constituting Collateral is kept at the
location described on SCHEDULE 1 hereto.
5.4 CHIEF EXECUTIVE OFFICE. The Company's chief executive office and chief
place of business is located at 138 Highway 3217, LaPlace, Louisiana 70068.
5.5 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds
of, Farm Products.
5.6 NO OTHER OWNERS. No Affiliate of the Company other than River Road
Realty Corporation owns any part of the Collateral.
VI COVENANTS. The Company covenants and agrees with the Collateral Agent that,
from and after the date of this Agreement until this Agreement is terminated and
the security interests created hereby are released:
6.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount payable under
or in connection with any of the Collateral shall be or become evidenced by any
Instrument or Chattel Paper, such Instrument or Chattel Paper shall be promptly
delivered to the Collateral Agent, duly indorsed in a manner satisfactory to the
Collateral Agent, to be held as Collateral pursuant to this Agreement and
subject to the Indenture's terms.
6.2 MARKING OF RECORDS. The Company will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests created hereby.
54
<PAGE>
6.3 MAINTENANCE OF INSURANCE. (a) The Company will maintain, with
financially sound and reputable companies, insurance policies (1) insuring the
Equipment and Fixtures constituting Collateral against loss by fire, explosion,
theft and such other casualties as are usually and customarily carried with
respect to similar property and/or facilities according to their respective
locations and (2) insuring the Company, the Collateral Agent and the Holders of
the Securities of all series against liability for personal injury and property
damage relating to such Equipment and Fixtures, such policies to be in such form
and amounts and having such coverage as are usually and customarily carried with
respect to similar property and/or facilities according to their respective
locations with losses payable to the Company and the Collateral Agent (the
proceeds of any insurance recovery under any insurance policy maintained by the
Company following a casualty event affecting any of the Collateral shall be
referred to collectively as "NET INSURANCE PROCEEDS").
(b) All such insurance shall (1) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt by the Collateral Agent of
written notice thereof, (2) name the Collateral Agent as an insured party and
(3) subject to paragraph (a) above, be reasonably satisfactory in all other
respects to the Collateral Agent.
(c) The Company shall deliver to the Collateral Agent a report of a
reputable insurance broker with respect to such insurance during the month of
June in each calendar year and such supplemental reports with respect thereto as
the Collateral Agent may from time to time reasonably request.
6.4 PAYMENT OF OBLIGATIONS. The Company will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount, applicability or validity thereof is
currently being contested in good faith by appropriate proceedings, reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Company and such proceedings do not involve any material danger of the sale,
forfeiture or loss of any of the Collateral or any interest therein.
6.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION.
(a) The Company shall maintain the security interest created by this
Agreement as a first, perfected security interest subject only to Liens
permitted to exist pursuant to the Indenture and shall defend such security
interest against claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of
the Collateral Agent and at the sole expense of the Company, the Company will
promptly and duly execute and deliver such further instruments and documents and
take such further action as the Collateral Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, the filing
of any financing
55
<PAGE>
or continuation statements under the Uniform Commercial Code in effect in any
jurisdiction with respect to the security interests created hereby.
6.6 CHANGES IN LOCATIONS, NAMES, ETC. The Company will not, unless it
shall have given the Collateral Agent at least 30 days' prior written notice:
(a) permit any of the Equipment constituting Integral Fixtures and
Equipment to be kept at a location other than that listed on SCHEDULE 1 hereto;
or
(b) change the location of its chief executive office and chief
place of business from that specified in subsection 3.4; or
(c) change its name, identity, Federal taxpayer identification
number or corporate structure to such an extent that any financing statement
filed by the Collateral Agent in connection with this Agreement would become
seriously misleading.
6.7 FURTHER IDENTIFICATION OF COLLATERAL. The Company will furnish to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request, all in reasonable
detail.
6.8 NOTICES. The Company will advise the Collateral Agent promptly, in
reasonable detail, at its address set forth in the Indenture of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Indenture) on, or claim asserted against, any of the
Collateral; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
VII ASSET SALES AND RECEIPT OF NET INSURANCE PROCEEDS. All cash, checks,
instruments and other Proceeds of the Collateral from Asset Sales or otherwise,
including Net Insurance Proceeds and Condemnation Awards, shall be held by the
Company in trust for the Collateral Agent and the Holders of the Securities of
all series, segregated from the other funds of the Company, and shall,
immediately upon receipt by the Company, be turned over to the Collateral Agent
in the exact form received by the Company (duly indorsed by the Company to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the sole dominion and control of the Collateral Agent,
except as may be released to the Company and or applied to the Obligations in
accordance with ARTICLE XIII of the Indenture. All proceeds while held by the
Collateral Agent in a Collateral Account (or by the Company in trust for the
Collateral Agent and the Holders) shall continue to be held as collateral
security for all the Obligations and shall not constitute payment thereof until
applied as provided in subsection 6.1.
56
<PAGE>
VIII REMEDIES.
8.1 CODE REMEDIES. Subject to the provisions of Article VIII of the
Indenture, if an Event of Default shall occur and be continuing, the Collateral
Agent on behalf of the Holders of the Securities of all series may exercise, in
addition to all other rights and remedies granted to it in this Agreement,
including without limitation Section 20 hereof, if applicable, and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Company or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Collateral Agent or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of any credit risk. The Collateral Agent shall have the right upon
any such public sale or sales, and, to the extent permitted by law, upon any
such private sale or sales, to purchase the whole or any part of the Collateral
so sold, free of any right or equity of redemption in the Company, which right
or equity is hereby waived or released. The Company further agrees, at the
Collateral Agent's request, to assemble the Collateral and make it available to
the Collateral Agent at places which the Collateral Agent shall reasonably
select, whether at the Company's premises or elsewhere. The Collateral Agent
shall apply the net proceeds of any such collection, recovery, receipt,
appropriation, realization or sale, after deducting all reasonable costs and
expenses of every kind incurred therein or incidental to the care or safekeeping
of any of the Collateral or in any way relating to the Collateral, in the manner
set forth in SECTION 8.6 of the Indenture. To the extent permitted by applicable
law, the Company waives all claims, damages and demands it may acquire against
the Collateral Agent arising out of the exercise by them of any rights
hereunder, except to the extent any such claims, damages or demands were
directly caused by the Collateral Agent's gross negligence or willful
misconduct. If any notice of a proposed sale or other disposition of Collateral
shall be required by law, such notice shall be deemed reasonable and proper if
given at least 10 days before such sale or other disposition.
8.2 DEFICIENCY. The Company shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Collateral Agent to collect such deficiency.
IX APPLICABLE PROVISIONS OF THE INDENTURE. Section 12.2 through 12.10 of the
Indenture is hereby incorporated by reference into this Agreement and made a
part of the same as if set forth herein. To the extent, if any, that the
provisions of this Agreement are inconsistent with the provisions of Section
12.2 through 12.10 of the Indenture, the provisions of the Indenture shall
prevail.
57
<PAGE>
X COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN FACT; COLLATERAL AGENT'S
PERFORMANCE OF COMPANY'S OBLIGATIONS.
10.1 POWERS. The Company hereby irrevocably constitutes and appoints the
Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Company and in the name of the
Company or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the
Company hereby gives the Collateral Agent the power and right, on behalf of the
Company, without notice to or assent by the Company, to do the following:
(a) in the case of any Collateral, at any time when any Event of
Default shall have occurred and is continuing, in the name of the Company
or its own name, or otherwise, to take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for
the payment of moneys due with respect to any Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise deemed appropriate by the Collateral Agent for the
purpose of collecting any and all such moneys due with respect to any
Collateral whenever payable;
(b) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Agreement and to pay all or any part of
the premiums therefor and the costs thereof;
(c) to execute, in connection with any Asset Sale permitted by
Section 6.15 of the Indenture or otherwise provided for in Section 6
hereof, any indorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and
(d) upon the occurrence and during the continuance of any Event of
Default, (1) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (2) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (3) to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other
right in respect of any Collateral; (5) to defend any suit, action or
proceeding brought against the Company with respect to any Collateral; (6)
to settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, to give such discharges or release as the
Collateral Agent may deem appropriate; and (7) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Collateral Agent were the
58
<PAGE>
absolute owner thereof for all purposes, and to do, at the Collateral
Agent's option and the Company's expense, at any time, or from time to
time, all acts and things which the Collateral Agent deems necessary to
protect, preserve or realize upon the Collateral and the Collateral
Agent's security interests therein and to effect the intent of this
Agreement, all as fully and effectively as the Company might do.
10.2 PERFORMANCE BY COLLATERAL AGENT OF COMPANY'S OBLIGATIONS. If the
Company fails to perform or comply with any of its agreements contained herein,
the Collateral Agent, at its option, but without any obligation so to do, may
perform or comply, or otherwise cause performance or compliance, with such
agreement.
10.3 COMPANY'S REIMBURSEMENT OBLIGATION. The expenses of the Collateral
Agent incurred in connection with actions undertaken as provided in this
Section, together with interest thereon at a rate per annum equal to the
interest rate payable with respect to the 1998 Securities from the date of
payment by the Collateral Agent to the date reimbursed by the Company, shall be
payable by the Company to the Collateral Agent on demand.
10.4 RATIFICATION; POWER COUPLED WITH AN INTEREST. The Company hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue
hereof. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
XI DUTY OF COLLATERAL AGENT. The Collateral Agent's sole duty with respect to
the custody, safekeeping and physical preservation of the Collateral in its
possession under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Collateral Agent deals with similar property for
its own account. Neither the Collateral Agent nor any of its respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Company or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Collateral Agent hereunder are solely to protect the Collateral
Agent's interests in the Collateral and shall not impose any duty upon the
Collateral Agent to exercise any such powers. The Collateral Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Company for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
XII EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code,
the Company authorizes the Collateral Agent to file financing statements with
respect to the Collateral without the signature of the Company in such form and
in such filing offices as the Collateral Agent reasonably determines appropriate
to perfect the security interests of the Collateral Agent under this Agreement.
A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
59
<PAGE>
XIII AUTHORITY OF COLLATERAL AGENT. The Company acknowledges that the rights and
responsibilities of the Collateral Agent under this Agreement with respect to
any action taken by the Collateral Agent or the exercise of non-exercise by the
Collateral Agent of any option, voting right, request, judgment or other right
or remedy provided for herein or resulting or arising out of this Agreement
shall, as between the Collateral Agent and the Holders of the Securities of all
series be governed by the Indenture and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Collateral Agent and the Company, the Collateral Agent shall be conclusively
presumed to be acting as agent for the Holders of the Securities of all series
with full and valid authority so to act or refrain from acting, and the Company
shall be under no obligation, or entitlement, to make any inquiry respecting
such authority.
XIV INDEMNITY.
14.1 INDEMNITY. (a) The Company agrees to indemnify, pay and hold harmless
the Collateral Agent and the officers, directors, employees, agents and
affiliates of the Collateral Agent (collectively called the "INDEMNITEES") from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs (including, without
limitation, settlement costs), expenses or disbursements of any kind or nature
whatsoever (including, without limitation, the reasonable fees and disbursements
of counsel for such Indemnitees in connection with any investigative,
administrative or judicial proceeding commenced or threatened, whether or not
such Indemnitee shall be designated a party thereto), which may be imposed on,
incurred by, or asserted against the Indemnitee, in any manner relating to or
arising out of this Agreement, the Indenture or the Securities arising in any
action relating to, directly or indirectly, the Collateral or the subject of
this Agreement (including without limitation, any misrepresentation by the
Company in this Agreement (the "INDEMNIFIED LIABILITIES"); PROVIDED that the
Company shall have no obligation to an Indemnitee hereunder with respect to
indemnified liabilities if it has been determined by a final decision (after all
appeals and the expiration of time to appeal) by a court of competent
jurisdiction that such indemnified liability arose from the negligence or
willful misconduct of that Indemnitee. To the extent that the undertaking to
indemnify, pay and hold harmless set forth in the preceding sentence may be
unenforceable because it is violative of any law or public policy, the Company
shall contribute the maximum portion which it is permitted to pay and satisfy
under applicable law, to the payment and satisfaction of all indemnified
liabilities incurred by the Indemnitees or any of them.
(b) The Company agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities, costs and expenses (including, without
limitation, legal fees and expenses) (1) with respect to, or resulting from any
delay in paying, any and all excise, sales or other taxes which may be payable
or determined to be payable with respect to any of the Collateral, (2) with
respect to, or resulting from, any delay in complying with any Requirement of
Law applicable to any of the Collateral and (3) in connection with any of the
transactions contemplated by this Agreement.
14.2 SURVIVAL. The obligations of the Company contained in this Section 12
shall survive the termination of this Agreement and the discharge of the
Company's other obligations under this Agreement.
60
<PAGE>
14.3 REIMBURSEMENTS. Any amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement shall constitute Obligations secured
by the Collateral.
XV NOTICES. All notices, requests and demands to or upon the Collateral Agent or
the Company to be effective shall be in writing (or by telex, fax or similar
electronic transfer confirmed in writing) and shall be deemed to have been duly
given or made (a) when delivered by hand or (b) if given by mail, when deposited
in the mails by certified mail, return receipt requested, or (c) if by telex,
fax or similar electronic transfer, when sent and receipt has been confirmed,
addressed to the Collateral Agent or the Company at its address or transmission
number for notices provided in Section 1.5 of the Indenture. The Collateral
Agent and the Company may change their addresses and transmission numbers for
notices by notice in the manner provided in this Section.
XVI SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
XVII AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES.
17.1 AMENDMENTS IN WRITING. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Company and the Collateral Agent in
accordance with the provisions of the Indenture.
17.2 NO WAIVER BY COURSE OF CONDUCT. Neither the Collateral Agent or any
Holder of any Securities shall by any act (except by a written instrument
pursuant to subsection 15.1 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent or any Holder, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Collateral
Agent or the Holders of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Collateral Agent or
the Holders would otherwise have on any future occasion.
17.3 DISCLAIMERS OF SECURITY INTEREST IN PROPERTIES AND ASSETS OTHER THAN
COLLATERAL. Upon the Company's request, but at the Company's expense, the
Collateral Agent shall promptly execute any disclaimer or release document
requested by the Company to evidence to third Persons that the Collateral Agent
is not claiming a security interest in any portion of the Company's property and
assets which does not constitute Collateral under this Agreement and which is
not otherwise encumbered in favor of the Collateral Agent as security for the
Securities pursuant to other Security Documents.
61
<PAGE>
17.4 REMEDIES CUMULATIVE. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
XVIII SECTION HEADINGS. The section and subsection headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
XIX SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the successors
and assigns of the Company and shall inure to the benefit of the Collateral
Agent and its successors and assigns.
XX GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
XXI SUBMISSION TO JURISDICTION; WAIVERS. The Company hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement to which it is a party, or for recognition
and enforcement of any judgment in respect thereof, to the non-exclusive general
jurisdiction of the Courts of the State of New York, the courts of the United
States of America for the Southern District of New York, and appellate courts
from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Company at its
address set forth in Section 1.5 of the Indenture or at such other address of
which the Collateral Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
XXII SPECIAL LOUISIANA PROVISIONS. Insofar as the validity or perfection of the
security interest in any of the Collateral hereunder or any of the remedies
hereunder are governed by the laws of the State of Louisiana, the Company agrees
as follows:
62
<PAGE>
(a) For purposes of Louisiana executory process, the Company
acknowledges the Obligations secured hereby, whether now existing or to
arise hereafter and confess judgment thereon. Upon the occurrence of an
Event of Default and at any time thereafter so long as the same shall be
continuing, and in addition to all other rights and remedies granted the
Collateral Agent under this Agreement, it shall be lawful for and the
Company hereby authorizes the Collateral Agent without making a demand or
putting the Company in default, a putting in default being expressly
waived, to cause all or any part of the Collateral to be seized and sold
after due process of law, whether under executory process or under writ of
fieri facias issued in execution of an ordinary judgment obtained on the
Obligations, the Company waiving the benefit of any and all laws or parts
of laws relative to appraisement of property seized and sold under
executory process or other legal process, and consenting that the
Collateral be sold without appraisement, either in its entirety or in lots
or parcels, as the Collateral Agent may determine, to the highest bidder
for cash or on such other terms as the plaintiff in such proceedings may
direct. In addition, the Collateral Agent shall have all of the rights and
remedies available to it under this Agreement and under Chapter 9 of the
Louisiana Commercial Laws, then in effect (La. R.S. 10:9-101 ET SEQ.).
(b) The Company hereby waives:
(i) the benefit of appraisement provided for in Articles 2332,
2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all
other laws conferring the same;
(ii) the demand and three (3) days delay as provided in
Articles 2639 and 2721 of the Louisiana Code of Civil Procedure;
(iii) the notice of seizure provided by Articles 2293 and 2721
of the Louisiana Code of Civil Procedure; and
(iv) the three (3) days delay provided for in Articles 2331
and 2722 of the Louisiana Code of Civil Procedure.
(c) Pursuant to the authority contained in La.R.S. 9:5136 through
9:5140.1, the Company and the Collateral Agent do hereby expressly
designate the Collateral Agent or its designee to be keeper or receiver
("KEEPER") for the benefit of the Collateral Agent or any assignee of the
Collateral Agent, such designation to take effect immediately upon any
seizure of any of the Collateral under writ of executory process or under
writ of sequestration or fieri facias as an incident to an action brought
by the Collateral Agent. The fees of the Keeper are hereby fixed at five
percent (5%) of the amount due or sued for or claimed or sought to be
protected, preserved or enforced in the proceeding for the recognition of
the security interest created hereby, and the payment of such fees shall
be secured by the security interest in the Collateral granted in this
Agreement.
63
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
BAYOU STEEL CORPORATION
By: ______________________________
Richard J. Gonzalez
Vice President, Treasurer, and
Chief Financial officer
Address: P. O. Box 5000
River Road
LaPlace, Louisiana 70069
Fax: (504) 652-0472
FIRST NATIONAL BANK OF COMMERCE, as
Collateral Agent
By: ______________________________
Denis L. Milliner
Vice President and Trust Officer
Address: Corporate Trust Department
210 Baronne Street
New Orleans, Louisiana 70112
Fax: (504) 623-1432
64
EXHIBIT 4.5
SECURITY AGREEMENT
BETWEEN
RIVER ROAD REALTY CORPORATION
AND
FIRST NATIONAL BANK OF COMMERCE,
AS COLLATERAL AGENT
May 22, 1998
65
<PAGE>
TABLE OF CONTENTS
Page
1. DEFINED TERMS...........................................................1
1.1 DEFINITIONS.......................................................1
1.2 OTHER DEFINITIONAL PROVISIONS.....................................2
2. GRANT OF SECURITY INTEREST..............................................3
3. REPRESENTATIONS AND WARRANTIES..........................................3
3.1 TITLE; NO OTHER LIENS.............................................4
3.2 PERFECTED FIRST PRIORITY LIENS....................................4
3.3 EQUIPMENT.........................................................4
3.4 CHIEF EXECUTIVE OFFICE............................................4
3.5 FARM PRODUCTS.....................................................4
3.6 NO OTHER OWNERS...................................................4
4. COVENANTS...............................................................4
4.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER.........................4
4.2 MARKING OF RECORDS................................................4
4.3 MAINTENANCE OF INSURANCE..........................................5
4.4 PAYMENT OF OBLIGATIONS............................................5
4.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION.5
4.6 CHANGES IN LOCATIONS, NAMES, ETC..................................6
4.7 FURTHER IDENTIFICATION OF COLLATERAL..............................6
4.8 NOTICES...........................................................6
5. ASSET SALES AND RECEIPT OF NET INSURANCE PROCEEDS.......................6
6. REMEDIES................................................................7
6.1 CODE REMEDIES.....................................................7
6.2 DEFICIENCY........................................................7
7. APPLICABLE PROVISIONS OF THE INDENTURE..................................7
8. COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN FACT; COLLATERAL
AGENT'S PERFORMANCE OF COMPANY'S OBLIGATIONS...........................8
8.1 POWERS............................................................8
8.2 PERFORMANCE BY COLLATERAL AGENT OF COMPANY'S OBLIGATIONS..........9
8.3 COMPANY'S REIMBURSEMENT OBLIGATION................................9
8.4 RATIFICATION; POWER COUPLED WITH AN INTEREST......................9
9. DUTY OF COLLATERAL AGENT................................................9
66
<PAGE>
10. EXECUTION OF FINANCING STATEMENTS......................................10
11. AUTHORITY OF COLLATERAL AGENT..........................................10
12. INDEMNITY..............................................................10
12.1 INDEMNITY........................................................10
12.2 SURVIVAL.........................................................11
12.3 REIMBURSEMENTS...................................................11
13. NOTICES................................................................11
14. SEVERABILITY...........................................................11
15. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES..................11
15.1 AMENDMENTS IN WRITING............................................11
15.2 NO WAIVER BY COURSE OF CONDUCT...................................11
15.3 DISCLAIMERS OF SECURITY INTEREST IN PROPERTIES AND ASSETS OTHER
THAN COLLATERAL.................................................12
15.4 REMEDIES CUMULATIVE..............................................12
16. SECTION HEADINGS.......................................................12
17. SUCCESSORS AND ASSIGNS.................................................12
18. GOVERNING LAW..........................................................12
19. SUBMISSION TO JURISDICTION; WAIVERS....................................12
20. SPECIAL LOUISIANA PROVISIONS...........................................13
67
<PAGE>
SECURITY AGREEMENT
SECURITY AGREEMENT, dated as of May 22, 1998, made by RIVER ROAD REALTY
CORPORATION, a Louisiana corporation, the Federal taxpayer identification number
of which is 72-1162713 (the "COMPANY"), in favor of FIRST NATIONAL BANK OF
COMMERCE, as trustee (in such capacity, the "TRUSTEE"), the Federal Employer
Identification Number of which is 72-0269760, under the Indenture dated May 22,
1998, among Bayou Steel Corporation, Bayou Steel Corporation (Tennessee), the
Company, and the Trustee (as amended, supplemented or otherwise modified from
time to time, the "INDENTURE"), and as collateral agent (in such capacity and
together with any successors in such capacity, the "COLLATERAL AGENT") for the
benefit of the Holders of all securities issued under the Indenture (the
"SECURITIES").
W I T N E S S E T H:
WHEREAS, the Company is the owner of the Collateral (as hereinafter
defined); and
WHEREAS, it is a condition precedent to the purchase of the 1998
Securities from the Company's parent corporation, Bayou Steel Corporation, that
the Company shall have executed and delivered this Agreement to the Collateral
Agent for the ratable benefit of Holders of the Securities of all series.
NOW THEREFORE, in consideration of the premises and to induce the Trustee
to enter into the Indenture and to induce the Holders to purchase the
Securities, the Company hereby agrees with the Collateral Agent, for the ratable
benefit of the Holders of the Securities of all series, as follows:
XXIII DEFINED TERMS.
23.1 DEFINITIONS. (a) Unless otherwise defined herein, terms defined in
the Indenture and used herein shall have the meanings given to them in the
Indenture and the following terms which are defined in the Uniform Commercial
Code in effect in the State of New York on the date hereof are used herein as so
defined: Chattel Paper, Equipment, Fixtures, Farm Products, and Instruments.
(b) The following terms shall have the following meanings:
"AGREEMENT" means this Security Agreement, as the same may be amended,
modified or otherwise supplemented from time to time.
"BANK SECURITY AGREEMENT" means the Amended and Restated Security
Agreement dated as of May 22, 1998, among Bayou Steel Corporation, Bayou Steel
Corporation (Tennessee), the Company and the other Subsidiaries of Bayou Steel
Corporation from time to time a party thereto and The Chase Manhattan Bank, as
agent for the Lenders party to the New Credit Facility.
68
<PAGE>
"CODE" means the Uniform Commercial Code as from time to time in effect in
the State of New York.
"COLLATERAL" has the meaning specified in Section 2 of this Agreement.
"CONTRACTUAL OBLIGATION" means, as to any Person, any provision of any
security issued by such Person or of any agreement, instrument or undertaking to
which such Person is a party or by which it or any of the property owned by it
is bound.
"NET INSURANCE PROCEEDS" has the meaning specified in Section 4.3 of this
Agreement.
"OBLIGATIONS" means the due and punctual payment and performance by the
Company of all its obligations and liabilities, absolute or contingent,
liquidated or unliquidated, now existing or hereafter incurred under, arising
out of or in connection with the Subsidiary Guarantee.
"PROCEEDS" and "PRODUCTS" shall have the meaning ascribed to such terms in
the Code and shall include in any event (i) whatever is received upon any
collection, exchange, sale or other disposition or refinancing of any of the
Collateral and any property into which any of the Collateral is converted
(whether cash or non-cash proceeds), (ii) any and all proceeds of any insurance,
indemnity, warranty or guarantee payable to the Company from time to time with
respect to any of the Collateral, (iii) any and all payments (in any form
whatsoever) made or due and payable to the Company from time to time in
connection with any requisition, confiscation, condemnation, seizure or
forfeiture of all or any part of the Collateral by any governmental authority
(or any person acting under color of governmental authority) and (iv) any and
all other amounts from time to time paid or payable under or in connection with
any of the Collateral.
"REQUIREMENT OF LAW" means, as to any Person, the Certificate of
Incorporation and By-Laws or other organizational or governing documents of such
Person, and any law, treaty, rule or regulation or determination of an
arbitrator or a court or other governmental authority, in each case applicable
to or binding upon such Person or any of its property or to which such Person or
any of its property is subject.
23.2 OTHER DEFINITIONAL PROVISIONS. (a) The words "hereof", "herein" and
"hereunder" and words of similar import when used in this Agreement shall refer
to this Agreement as a whole and not to any particular provision of this
Agreement, and section and paragraph references are to this Agreement unless
otherwise specified.
(b) All references to the Collateral Agent shall be deemed to
include a reference to the Trustee, and the reverse thereof shall similarly
apply.
(c) The meanings given to terms defined herein shall be equally
applicable to both the singular and plural forms of such terms.
XXIV GRANT OF SECURITY INTEREST. As collateral security for the prompt and
complete payment and performance when due (whether at the stated maturity, by
acceleration or otherwise) of the
69
<PAGE>
Obligations, the Company hereby grants to the Collateral Agent for the ratable
benefit of the Holders a security interest in all of the following property now
owned or at any time hereafter acquired by the Company or in which the Company
now has or at any time in the future may acquire any right, title or interest
(collectively, the "COLLATERAL"):
(a) all Equipment located on the real property described in SCHEDULE
1 hereto and constituting a portion of the Integral Fixtures and
Equipment, including, without limitation, (i) furniture, furnishings,
tools, lubricants, spare parts, shelving, displays, cases, accessories,
motors and engines, (ii) bearings, rolls, guides and stores which are
classified on the balance sheet of the Company as inventory and (iii) with
respect to the foregoing, all attachments, components, parts, equipment
and accessories installed thereon or affixed thereto;
(b) all Fixtures located on the real property described in SCHEDULE
1 hereto and constituting a portion of the Integral Fixtures and
Equipment;
(c) to the extent that the Company has any rights therein, that
certain account number 1102160-1, in the name of the Collateral Agent,
established with the Collateral Agent, pursuant to Section 13.1 of the
Indenture;
(d) to the extent not otherwise included, all Proceeds and Products
of any and all of the foregoing (including, without limitation, any
properties or assets into which Proceeds or Products of any of the
foregoing are converted); provided, however, that, if Proceeds are
converted into assets which are collateral for the New Credit Facility,
the security interest created hereunder shall not attach to such assets;
and
(e) all books and records pertaining to the foregoing Collateral.
Notwithstanding the foregoing, the Collateral shall not be deemed to include
"Accounts Receivable" and "Inventory", and the "Proceeds" thereof, as each of
such terms is defined in the Intercreditor Agreement.
XXV REPRESENTATIONS AND WARRANTIES. The Company hereby represents and warrants
that:
25.1 TITLE; NO OTHER LIENS. Except for the security interest granted to
the Collateral Agent for the ratable benefit of the Holders of the Securities of
all series pursuant to this Agreement and the other Liens permitted to exist on
the Collateral pursuant to the Indenture, the Company owns each item of the
Collateral free and clear of any and all Liens or claims of others. No security
agreement, financing statement or other public notice with respect to all or any
part of the Collateral is on file or of record in any public office, except such
as have been filed in favor of the Collateral Agent, for the ratable benefit of
the Holders of the Securities of all series, pursuant to this Agreement or as
are permitted pursuant to the Indenture.
25.2 PERFECTED FIRST PRIORITY LIENS. The security interests granted
pursuant to this Agreement (a) constitute perfected security interests in the
Collateral in favor of the Collateral
70
<PAGE>
Agent, for the ratable benefit of the Holders of the Securities of all series,
(b) are prior to all other Liens on the Collateral in existence on the date
hereof except for Liens permitted to exist pursuant to the Indenture, and (c)
are enforceable as such against (1) all creditors of and purchasers from the
Company and (2) any Person having any interest in the real property where any of
the Equipment constituting Collateral is located.
25.3 EQUIPMENT. The Equipment constituting Collateral is kept at the
location described on SCHEDULE 1 hereto.
25.4 CHIEF EXECUTIVE OFFICE. The Company's chief executive office and
chief place of business is located at 138 Highway 3217, LaPlace, Louisiana
70068.
25.5 FARM PRODUCTS. None of the Collateral constitutes, or is the Proceeds
of, Farm Products.
25.6 NO OTHER OWNERS. No Affiliate of the Company other than Bayou Steel
Corporation owns any part of the Collateral.
XXVI COVENANTS. The Company covenants and agrees with the Collateral Agent that,
from and after the date of this Agreement until this Agreement is terminated and
the security interests created hereby are released:
26.1 DELIVERY OF INSTRUMENTS AND CHATTEL PAPER. If any amount payable
under or in connection with any of the Collateral shall be or become evidenced
by any Instrument or Chattel Paper, such Instrument or Chattel Paper shall be
promptly delivered to the Collateral Agent, duly indorsed in a manner
satisfactory to the Collateral Agent, to be held as Collateral pursuant to this
Agreement and subject to the Indenture's terms.
26.2 MARKING OF RECORDS. The Company will mark its books and records
pertaining to the Collateral to evidence this Agreement and the security
interests created hereby.
26.3 MAINTENANCE OF INSURANCE. (a) The Company will maintain, with
financially sound and reputable companies, insurance policies (1) insuring the
Equipment and Fixtures constituting Collateral against loss by fire, explosion,
theft and such other casualties as are usually and customarily carried with
respect to similar property and/or facilities according to their respective
locations and (2) insuring the Company, the Collateral Agent and the Holders of
the Securities of all series against liability for personal injury and property
damage relating to such Equipment and Fixtures, such policies to be in such form
and amounts and having such coverage as are usually and customarily carried with
respect to similar property and/or facilities according to their respective
locations with losses payable to the Company and the Collateral Agent (the
proceeds of any insurance recovery under any insurance policy maintained by the
Company following a casualty event affecting any of the Collateral shall be
referred to collectively as "NET INSURANCE PROCEEDS").
(b) All such insurance shall (1) provide that no cancellation,
material reduction in amount or material change in coverage thereof shall be
effective until at least 30 days after receipt
71
<PAGE>
by the Collateral Agent of written notice thereof, (2) name the Collateral Agent
as an insured party and (3) subject to paragraph (a) above, be reasonably
satisfactory in all other respects to the Collateral Agent.
(c) The Company shall deliver to the Collateral Agent a report of a
reputable insurance broker with respect to such insurance during the month of
June in each calendar year and such supplemental reports with respect thereto as
the Collateral Agent may from time to time reasonably request.
26.4 PAYMENT OF OBLIGATIONS. The Company will pay and discharge or
otherwise satisfy at or before maturity or before they become delinquent, as the
case may be, all taxes, assessments and governmental charges or levies imposed
upon the Collateral or in respect of income or profits therefrom, as well as all
claims of any kind (including, without limitation, claims for labor, materials
and supplies) against or with respect to the Collateral, except that no such
charge need be paid if the amount, applicability or validity thereof is
currently being contested in good faith by appropriate proceedings, reserves in
conformity with GAAP with respect thereto have been provided on the books of the
Company and such proceedings do not involve any material danger of the sale,
forfeiture or loss of any of the Collateral or any interest therein.
26.5 MAINTENANCE OF PERFECTED SECURITY INTEREST; FURTHER DOCUMENTATION.
(a) The Company shall maintain the security interest created by this
Agreement as a first, perfected security interest subject only to Liens
permitted to exist pursuant to the Indenture and shall defend such security
interest against claims and demands of all Persons whomsoever.
(b) At any time and from time to time, upon the written request of
the Collateral Agent and at the sole expense of the Company, the Company will
promptly and duly execute and deliver such further instruments and documents and
take such further action as the Collateral Agent may reasonably request for the
purpose of obtaining or preserving the full benefits of this Agreement and of
the rights and powers herein granted, including, without limitation, the filing
of any financing or continuation statements under the Uniform Commercial Code in
effect in any jurisdiction with respect to the security interests created
hereby.
26.6 CHANGES IN LOCATIONS, NAMES, ETC. The Company will not, unless it
shall have given the Collateral Agent at least 30 days' prior written notice:
(a) permit any of the Equipment constituting Integral Fixtures and
Equipment to be kept at a location other than that listed on SCHEDULE 1 hereto;
or
(b) change the location of its chief executive office and chief
place of business from that specified in subsection 3.4; or
(c) change its name, identity, Federal taxpayer identification
number or corporate structure to such an extent that any financing statement
filed by the Collateral Agent in connection with this Agreement would become
seriously misleading.
72
<PAGE>
26.7 FURTHER IDENTIFICATION OF COLLATERAL. The Company will furnish to the
Collateral Agent from time to time statements and schedules further identifying
and describing the Collateral and such other reports in connection with the
Collateral as the Collateral Agent may reasonably request, all in reasonable
detail.
26.8 NOTICES. The Company will advise the Collateral Agent promptly, in
reasonable detail, at its address set forth in the Indenture of:
(a) any Lien (other than security interests created hereby or Liens
permitted under the Indenture) on, or claim asserted against, any of the
Collateral; and
(b) of the occurrence of any other event which could reasonably be
expected to have a material adverse effect on the aggregate value of the
Collateral or on the security interests created hereby.
XXVII ASSET SALES AND RECEIPT OF NET INSURANCE PROCEEDS. All cash, checks,
instruments and other Proceeds of the Collateral from Asset Sales or otherwise,
including Net Insurance Proceeds and Condemnation Awards, shall be held by the
Company in trust for the Collateral Agent and the Holders of the Securities of
all series, segregated from the other funds of the Company, and shall,
immediately upon receipt by the Company, be turned over to the Collateral Agent
in the exact form received by the Company (duly indorsed by the Company to the
Collateral Agent, if required) and held by the Collateral Agent in a Collateral
Account maintained under the sole dominion and control of the Collateral Agent,
except as may be released to the Company and or applied to the Obligations in
accordance with ARTICLE XIII of the Indenture. All proceeds while held by the
Collateral Agent in a Collateral Account (or by the Company in trust for the
Collateral Agent and the Holders) shall continue to be held as collateral
security for all the Obligations and shall not constitute payment thereof until
applied as provided in subsection 6.1.
XXVIII REMEDIES.
28.1 CODE REMEDIES. Subject to the provisions of ARTICLE VIII of the
Indenture, if an Event of Default shall occur and be continuing, the Collateral
Agent on behalf of the Holders of the Securities of all series may exercise, in
addition to all other rights and remedies granted to it in this Agreement,
including without limitation Section 20 hereof, if applicable, and in any other
instrument or agreement securing, evidencing or relating to the Obligations, all
rights and remedies of a secured party under the Code. Without limiting the
generality of the foregoing, the Collateral Agent without demand of performance
or other demand, presentment, protest, advertisement or notice of any kind
(except any notice required by law referred to below) to or upon the Company or
any other Person (all and each of which demands, defenses, advertisements and
notices are hereby waived), may in such circumstances forthwith collect,
receive, appropriate and realize upon the Collateral, or any part thereof,
and/or may forthwith sell, lease, assign, give option or options to purchase, or
otherwise dispose of and deliver the Collateral or any part thereof (or contract
to do any of the foregoing), in one or more parcels at public or private sale or
sales, at any exchange, broker's board or office of the Collateral Agent or
elsewhere upon such terms and conditions as it may deem advisable and at such
prices as it may deem best, for cash or on credit or for future delivery without
assumption of
73
<PAGE>
any credit risk. The Collateral Agent shall have the right upon any such public
sale or sales, and, to the extent permitted by law, upon any such private sale
or sales, to purchase the whole or any part of the Collateral so sold, free of
any right or equity of redemption in the Company, which right or equity is
hereby waived or released. The Company further agrees, at the Collateral Agent's
request, to assemble the Collateral and make it available to the Collateral
Agent at places which the Collateral Agent shall reasonably select, whether at
the Company's premises or elsewhere. The Collateral Agent shall apply the net
proceeds of any such collection, recovery, receipt, appropriation, realization
or sale, after deducting all reasonable costs and expenses of every kind
incurred therein or incidental to the care or safekeeping of any of the
Collateral or in any way relating to the Collateral, in the manner set forth in
SECTION 8.6 of the Indenture. To the extent permitted by applicable law, the
Company waives all claims, damages and demands it may acquire against the
Collateral Agent arising out of the exercise by them of any rights hereunder,
except to the extent any such claims, damages or demands were directly caused by
the Collateral Agent's gross negligence or willful misconduct. If any notice of
a proposed sale or other disposition of Collateral shall be required by law,
such notice shall be deemed reasonable and proper if given at least 10 days
before such sale or other disposition.
28.2 DEFICIENCY. The Company shall remain liable for any deficiency if the
proceeds of any sale or other disposition of the Collateral are insufficient to
pay the Obligations and the fees and disbursements of any attorneys employed by
the Collateral Agent to collect such deficiency.
XXIX APPLICABLE PROVISIONS OF THE INDENTURE. SECTION 12.2 THROUGH 12.10 of the
Indenture is hereby incorporated by reference into this Agreement and made a
part of the same as if set forth herein. To the extent, if any, that the
provisions of this Agreement are inconsistent with the provisions of SECTION
12.2 THROUGH 12.10 of the Indenture, the provisions of the Indenture shall
prevail.
XXX COLLATERAL AGENT'S APPOINTMENT AS ATTORNEY-IN FACT; COLLATERAL AGENT'S
PERFORMANCE OF COMPANY'S OBLIGATIONS.
30.1 POWERS. The Company hereby irrevocably constitutes and appoints the
Collateral Agent and any officer or agent thereof, with full power of
substitution, as its true and lawful attorney-in-fact with full irrevocable
power and authority in the place and stead of the Company and in the name of the
Company or in its own name, from time to time in the Collateral Agent's
discretion, for the purpose of carrying out the terms of this Agreement, to take
any and all appropriate action and to execute any and all documents and
instruments which may be necessary or desirable to accomplish the purposes of
this Agreement, and, without limiting the generality of the foregoing, the
Company hereby gives the Collateral Agent the power and right, on behalf of the
Company, without notice to or assent by the Company, to do the following:
(a) in the case of any Collateral, at any time when any Event of
Default shall have occurred and is continuing, in the name of the Company
or its own name, or otherwise, to take possession of and indorse and
collect any checks, drafts, notes, acceptances or other instruments for
the payment of moneys due with respect to any Collateral and to file any
claim or to take any other action or proceeding in any court of law or
equity or otherwise
74
<PAGE>
deemed appropriate by the Collateral Agent for the purpose of collecting
any and all such moneys due with respect to any Collateral whenever
payable;
(b) to pay or discharge taxes and Liens levied or placed on or
threatened against the Collateral, to effect any repairs or any insurance
called for by the terms of this Agreement and to pay all or any part of
the premiums therefor and the costs thereof;
(c) to execute, in connection with any Asset Sale permitted by
SECTION 6.15 of the Indenture or otherwise provided for in Section 6
hereof, any indorsements, assignments or other instruments of conveyance
or transfer with respect to the Collateral; and
(d) upon the occurrence and during the continuance of any Event of
Default, (1) to direct any party liable for any payment under any of the
Collateral to make payment of any and all moneys due or to become due
thereunder directly to the Collateral Agent or as the Collateral Agent
shall direct; (2) to ask or demand for, collect, receive payment of and
receipt for, any and all moneys, claims and other amounts due or to become
due at any time in respect of or arising out of any Collateral; (3) to
sign and indorse any invoices, freight or express bills, bills of lading,
storage or warehouse receipts, drafts against debtors, assignments,
verifications, notices and other documents in connection with any of the
Collateral; (4) to commence and prosecute any suits, actions or
proceedings at law or in equity in any court of competent jurisdiction to
collect the Collateral or any portion thereof and to enforce any other
right in respect of any Collateral; (5) to defend any suit, action or
proceeding brought against the Company with respect to any Collateral; (6)
to settle, compromise or adjust any such suit, action or proceeding and,
in connection therewith, to give such discharges or release as the
Collateral Agent may deem appropriate; and (7) generally, to sell,
transfer, pledge and make any agreement with respect to or otherwise deal
with any of the Collateral as fully and completely as though the
Collateral Agent were the absolute owner thereof for all purposes, and to
do, at the Collateral Agent's option and the Company's expense, at any
time, or from time to time, all acts and things which the Collateral Agent
deems necessary to protect, preserve or realize upon the Collateral and
the Collateral Agent's security interests therein and to effect the intent
of this Agreement, all as fully and effectively as the Company might do.
30.2 PERFORMANCE BY COLLATERAL AGENT OF COMPANY'S OBLIGATIONS. If the
Company fails to perform or comply with any of its agreements contained herein,
the Collateral Agent, at its option, but without any obligation so to do, may
perform or comply, or otherwise cause performance or compliance, with such
agreement.
30.3 COMPANY'S REIMBURSEMENT OBLIGATION. The expenses of the Collateral
Agent incurred in connection with actions undertaken as provided in this
Section, together with interest thereon at a rate per annum equal to the
interest rate payable with respect to the 1998 Securities from the date of
payment by the Collateral Agent to the date reimbursed by the Company, shall be
payable by the Company to the Collateral Agent on demand.
75
<PAGE>
30.4 RATIFICATION; POWER COUPLED WITH AN INTEREST. The Company hereby
ratifies all that said attorneys shall lawfully do or cause to be done by virtue
hereof. All powers, authorizations and agencies contained in this Agreement are
coupled with an interest and are irrevocable until this Agreement is terminated
and the security interests created hereby are released.
XXXI DUTY OF COLLATERAL AGENT. The Collateral Agent's sole duty with respect to
the custody, safekeeping and physical preservation of the Collateral in its
possession under Section 9-207 of the Code or otherwise, shall be to deal with
it in the same manner as the Collateral Agent deals with similar property for
its own account. Neither the Collateral Agent nor any of its respective
directors, officers, employees or agents shall be liable for failure to demand,
collect or realize upon any of the Collateral or for any delay in doing so or
shall be under any obligation to sell or otherwise dispose of any Collateral
upon the request of the Company or any other Person or to take any other action
whatsoever with regard to the Collateral or any part thereof. The powers
conferred on the Collateral Agent hereunder are solely to protect the Collateral
Agent's interests in the Collateral and shall not impose any duty upon the
Collateral Agent to exercise any such powers. The Collateral Agent shall be
accountable only for amounts that it actually receives as a result of the
exercise of such powers, and neither it nor any of its officers, directors,
employees or agents shall be responsible to the Company for any act or failure
to act hereunder, except for their own gross negligence or willful misconduct.
XXXII EXECUTION OF FINANCING STATEMENTS. Pursuant to Section 9-402 of the Code,
the Company authorizes the Collateral Agent to file financing statements with
respect to the Collateral without the signature of the Company in such form and
in such filing offices as the Collateral Agent reasonably determines appropriate
to perfect the security interests of the Collateral Agent under this Agreement.
A carbon, photographic or other reproduction of this Agreement shall be
sufficient as a financing statement for filing in any jurisdiction.
XXXIII AUTHORITY OF COLLATERAL AGENT. The Company acknowledges that the rights
and responsibilities of the Collateral Agent under this Agreement with respect
to any action taken by the Collateral Agent or the exercise of non-exercise by
the Collateral Agent of any option, voting right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Agreement shall, as between the Collateral Agent and the Holders of the
Securities of all series be governed by the Indenture and by such other
agreements with respect thereto as may exist from time to time among them, but,
as between the Collateral Agent and the Company, the Collateral Agent shall be
conclusively presumed to be acting as agent for the Holders of all the
Securities of all series with full and valid authority so to act or refrain from
acting, and the Company shall be under no obligation, or entitlement, to make
any inquiry respecting such authority.
XXXIV INDEMNITY.
34.1 INDEMNITY. (a) The Company agrees to indemnify, pay and hold harmless
the Collateral Agent and the officers, directors, employees, agents and
affiliates of the Collateral Agent (collectively called the "INDEMNITEES") from
and against any and all other liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs (including, without
limitation, settlement costs), expenses or disbursements of any kind or nature
whatsoever (including, without
76
<PAGE>
limitation, the reasonable fees and disbursements of counsel for such
Indemnitees in connection with any investigative, administrative or judicial
proceeding commenced or threatened, whether or not such Indemnitee shall be
designated a party thereto), which may be imposed on, incurred by, or asserted
against the Indemnitee, in any manner relating to or arising out of this
Agreement, the Indenture or the Securities arising in any action relating to,
directly or indirectly, the Collateral or the subject of this Agreement
(including without limitation, any misrepresentation by the Company in this
Agreement (the "INDEMNIFIED LIABILITIES"); PROVIDED that the Company shall have
no obligation to an Indemnitee hereunder with respect to indemnified liabilities
if it has been determined by a final decision (after all appeals and the
expiration of time to appeal) by a court of competent jurisdiction that such
indemnified liability arose from the negligence or willful misconduct of that
Indemnitee. To the extent that the undertaking to indemnify, pay and hold
harmless set forth in the preceding sentence may be unenforceable because it is
violative of any law or public policy, the Company shall contribute the maximum
portion which it is permitted to pay and satisfy under applicable law, to the
payment and satisfaction of all indemnified liabilities incurred by the
Indemnitees or any of them.
(b) The Company agrees to pay, and to save the Collateral Agent
harmless from, any and all liabilities, costs and expenses (including, without
limitation, legal fees and expenses) (1) with respect to, or resulting from any
delay in paying, any and all excise, sales or other taxes which may be payable
or determined to be payable with respect to any of the Collateral, (2) with
respect to, or resulting from, any delay in complying with any Requirement of
Law applicable to any of the Collateral and (3) in connection with any of the
transactions contemplated by this Agreement.
34.2 SURVIVAL. The obligations of the Company contained in this Section 12
shall survive the termination of this Agreement and the discharge of the
Company's other obligations under this Agreement.
34.3 REIMBURSEMENTS. Any amounts paid by any Indemnitee as to which such
Indemnitee has the right to reimbursement shall constitute Obligations secured
by the Collateral.
XXXV NOTICES. All notices, requests and demands to or upon the Collateral Agent
or the Company to be effective shall be in writing (or by telex, fax or similar
electronic transfer confirmed in writing) and shall be deemed to have been duly
given or made (a) when delivered by hand or (b) if given by mail, when deposited
in the mails by certified mail, return receipt requested, or (c) if by telex,
fax or similar electronic transfer, when sent and receipt has been confirmed,
addressed to the Collateral Agent or the Company at its address or transmission
number for notices provided in SECTION 1.5 of the Indenture. The Collateral
Agent and the Company may change their addresses and transmission numbers for
notices by notice in the manner provided in this Section.
XXXVI SEVERABILITY. Any provision of this Agreement which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
XXXVII AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES.
77
<PAGE>
37.1 AMENDMENTS IN WRITING. None of the terms or provisions of this
Agreement may be waived, amended, supplemented or otherwise modified except by a
written instrument executed by the Company and the Collateral Agent in
accordance with the provisions of the Indenture.
37.2 NO WAIVER BY COURSE OF CONDUCT. Neither the Collateral Agent or any
Holder of any Securities shall by any act (except by a written instrument
pursuant to subsection 15.1 hereof), delay, indulgence, omission or otherwise be
deemed to have waived any right or remedy hereunder or to have acquiesced in any
Default or Event of Default or in any breach of any of the terms and conditions
hereof. No failure to exercise, nor any delay in exercising, on the part of the
Collateral Agent or any Holder, any right, power or privilege hereunder shall
operate as a waiver thereof. No single or partial exercise of any right, power
or privilege hereunder shall preclude any other or further exercise thereof or
the exercise of any other right, power or privilege. A waiver by the Collateral
Agent or the Holders of any right or remedy hereunder on any one occasion shall
not be construed as a bar to any right or remedy which the Collateral Agent or
the Holders would otherwise have on any future occasion.
37.3 DISCLAIMERS OF SECURITY INTEREST IN PROPERTIES AND ASSETS OTHER THAN
COLLATERAL. Upon the Company's request, but at the Company's expense, the
Collateral Agent shall promptly execute any disclaimer or release document
requested by the Company to evidence to third Persons that the Collateral Agent
is not claiming a security interest in any portion of the Company's property and
assets which does not constitute Collateral under this Agreement and which is
not otherwise encumbered in favor of the Collateral Agent as security for the
Securities pursuant to other Security Documents.
37.4 REMEDIES CUMULATIVE. The rights and remedies herein provided are
cumulative, may be exercised singly or concurrently and are not exclusive of any
other rights or remedies provided by law.
XXXVIII SECTION HEADINGS. The section and subsection headings used in this
Agreement are for convenience of reference only and are not to affect the
construction hereof or be taken into consideration in the interpretation hereof.
XXXIX SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the
successors and assigns of the Company and shall inure to the benefit of the
Collateral Agent and its successors and assigns.
XL GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS AND
OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE GOVERNED
BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF
THE STATE OF NEW YORK.
XLI SUBMISSION TO JURISDICTION; WAIVERS. The Company hereby irrevocably and
unconditionally:
(a) submits for itself and its property in any legal action or
proceeding relating to this Agreement to which it is a party, or for recognition
and enforcement of any judgment in
78
<PAGE>
respect thereof, to the non-exclusive general jurisdiction of the Courts of the
State of New York, the courts of the United States of America for the Southern
District of New York, and appellate courts from any thereof;
(b) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to the
venue of any such action or proceeding in any such court or that such action or
proceeding was brought in an inconvenient court and agrees not to plead or claim
the same;
(c) agrees that service of process in any such action or proceeding
may be effected by mailing a copy thereof by registered or certified mail (or
any substantially similar form of mail), postage prepaid, to the Company at its
address set forth in SECTION 1.5 of the Indenture or at such other address of
which the Collateral Agent shall have been notified pursuant thereto;
(d) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the right
to sue in any other jurisdiction; and
(e) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred to in
this subsection any special, exemplary, punitive or consequential damages.
XLII SPECIAL LOUISIANA PROVISIONS. Insofar as the validity or perfection of the
security interest in any of the Collateral hereunder or any of the remedies
hereunder are governed by the laws of the State of Louisiana, the Company agrees
as follows:
(a) For purposes of Louisiana executory process, the Company
acknowledges the Obligations secured hereby, whether now existing or to
arise hereafter and confess judgment thereon. Upon the occurrence of an
Event of Default and at any time thereafter so long as the same shall be
continuing, and in addition to all other rights and remedies granted the
Collateral Agent under this Agreement, it shall be lawful for and the
Company hereby authorizes the Collateral Agent without making a demand or
putting the Company in default, a putting in default being expressly
waived, to cause all or any part of the Collateral to be seized and sold
after due process of law, whether under executory process or under writ of
fieri facias issued in execution of an ordinary judgment obtained on the
Obligations, the Company waiving the benefit of any and all laws or parts
of laws relative to appraisement of property seized and sold under
executory process or other legal process, and consenting that the
Collateral be sold without appraisement, either in its entirety or in lots
or parcels, as the Collateral Agent may determine, to the highest bidder
for cash or on such other terms as the plaintiff in such proceedings may
direct. In addition, the Collateral Agent shall have all of the rights and
remedies available to it under this Agreement and under Chapter 9 of the
Louisiana Commercial Laws, then in effect (La. R.S. 10:9-101 ET SEQ.).
(b) The Company hereby waives:
79
<PAGE>
(i) the benefit of appraisement provided for in Articles 2332,
2336, 2723 and 2724 of the Louisiana Code of Civil Procedure and all
other laws conferring the same;
(ii) the demand and three (3) days delay as provided in
Articles 2639 and 2721 of the Louisiana Code of Civil Procedure;
(iii) the notice of seizure provided by Articles 2293 and 2721
of the Louisiana Code of Civil Procedure; and
(iv) the three (3) days delay provided for in Articles 2331
and 2722 of the Louisiana Code of Civil Procedure.
(c) Pursuant to the authority contained in La.R.S. 9:5136 through
9:5140.1, the Company and the Collateral Agent do hereby expressly
designate the Collateral Agent or its designee to be keeper or receiver
("KEEPER") for the benefit of the Collateral Agent or any assignee of the
Collateral Agent, such designation to take effect immediately upon any
seizure of any of the Collateral under writ of executory process or under
writ of sequestration or fieri facias as an incident to an action brought
by the Collateral Agent. The fees of the Keeper are hereby fixed at five
percent (5%) of the amount due or sued for or claimed or sought to be
protected, preserved or enforced in the proceeding for the recognition of
the security interest created hereby, and the payment of such fees shall
be secured by the security interest in the Collateral granted in this
Agreement.
IN WITNESS WHEREOF, the undersigned has caused this Security Agreement to
be duly executed and delivered as of the date first above written.
RIVER ROAD REALTY CORPORATION
By: ______________________________
Richard J. Gonzalez
Vice President, Treasurer, and
Chief Financial officer
Address: P. O. Box 5000
River Road
LaPlace, Louisiana 70069
Fax: (504) 652-0472
80
<PAGE>
FIRST NATIONAL BANK OF COMMERCE, as
Collateral Agent
By: ______________________________
Denis L. Milliner
Vice President and Trust Officer
Address: Corporate Trust Department
210 Baronne Street
New Orleans, Louisiana 70112
Fax: (504) 623-1432
81
EXHIBIT 4.6
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT dated as of May 22, 1998, between FIRST
NATIONAL BANK OF COMMERCE ("FNBC"), as (i) trustee (in such capacity, the
"TRUSTEE") under the Indenture, dated as of May 22, 1998 (as amended,
supplemented or otherwise modified from time to time, the "INDENTURE"), among
the Trustee, Bayou Steel Corporation (the "COMPANY") and the subsidiaries of the
Company parties thereto and (ii) collateral agent (in such capacity, the
"COLLATERAL AGENT") under certain of the Security Documents (as defined in the
Indenture) (FNBC, in its capacities as Trustee and Collateral Agent, shall be
referred to herein as the "TRUSTEE"), and THE CHASE MANHATTAN BANK, a New York
banking corporation, as agent (in such capacity, the "BANK AGENT") under the
Amended and Restated Credit Agreement, dated as of May 22, 1998, among the
Company, the lenders listed therein (the "BANKS") and the Bank Agent (as
amended, supplemented or otherwise modified from time to time, the "CREDIT
AGREEMENT"). FNBC and the Bank Agent are each hereinafter sometimes referred to
individually as a "COLLATERAL AGENT" and collectively as the "COLLATERAL
AGENTS."
The Banks will make loans (collectively, the "REVOLVING LOANS") to
the Company, secured principally by accounts receivable arising in the ordinary
course of business, inventory and the proceeds thereof, as more particularly
described in the Security Agreement, dated as of May 22, 1998 (as amended,
supplemented or otherwise modified from time to time, the "BANK SECURITY
AGREEMENT"), between the Company, Bayou Steel Corporation (Tennessee) ("BAYOU
(TENNESSEE)") and the Bank Agent for the benefit of the Banks. The Credit
Agreement and the Bank Security Agreement are collectively referred to herein as
the "LOAN AGREEMENTS". The Company issued $110,000,000 9 1/2% First Mortgage
Notes due 2008 (together with any other securities from time to time issued
under the Indenture, the "SECURITIES") under the Indenture. The Securities are
secured by the Indenture and the Security Documents (excluding this
Intercreditor Agreement) (the "FIRST MORTGAGE NOTE SECURITY DOCUMENTS"). The
Indenture and the First Mortgage Note Security Documents are collectively
referred to herein as the "FNBC SECURITY DOCUMENTS."
NOW, THEREFORE, in consideration of the premises and for other good
and valuable consideration, the parties hereto hereby agree as follows:
43. DESCRIPTION OF COLLATERAL; PRIORITIES IN COLLATERAL.
(a) The Bank Agent's security interest in the following described
collateral in which it is granted a security interest pursuant to the Loan
Agreements shall take priority over any right, title or interest of the Trustee,
if any, in or to the following collateral: the Company's and Bayou (Tennessee)'s
Accounts Receivable, Inventory and Proceeds in
82
<PAGE>
Accounts Receivable and Inventory (collectively, the "COLLATERAL"), as such
terms are defined in the Loan Agreements and below:
(i) "ACCOUNTS RECEIVABLE" shall mean all Accounts (as defined in the
Bank Security Agreement) and all rights in any returned goods, together
with all rights, titles, securities and guarantees with respect thereto,
including any rights to stoppage in transit, replevin, reclamation and
resales, and all related security interests, liens and pledges, whether
voluntary or involuntary.
(ii) "INVENTORY" shall mean all merchandise intended for sale by the
Company or Bayou (Tennessee), or consumed in the Company's or Bayou
(Tennessee)'s business, together with all raw materials, including,
without limitation, scrap, billets, shapes, additives, alloys, fluxes,
electrodes and refractories, whether now owned or hereafter acquired or
arising, and all such property the sale or other disposition of which has
given rise to Accounts and which has been returned to, repossessed or
stopped in transit by or on behalf of the Company or Bayou (Tennessee);
PROVIDED that Inventory, as used herein, shall not include all properties,
rights and interests that the Company has granted the Trustee a security
interest in pursuant to the FNBC Security Documents, including, without
limitation, (1) all bearings, rolls, guides and stores that relate to
machinery and equipment in which the Trustee has a security interest
pursuant to the FNBC Security Documents and which are classified on the
balance sheet of the Company or Bayou (Tennessee) as inventory and (2) all
Proceeds and Products (as such term is defined in the FNBC Security
Documents) of all the foregoing excepted properties, rights and interests
referred to in clause (1) above.
(iii) "PROCEEDS" shall mean any consideration received from the sale,
exchange, lease or other disposition of any asset or property that
constitutes Collateral, any value received as a consequence of the
possession of any Collateral and any payment received from any insurer or
other person or entity as a result of the destruction, loss, theft, damage
or other involuntary conversion of whatever nature of any asset or
property which constitutes Collateral.
(b) The Trustee's security interest in all the collateral subject to
the FNBC Security Documents (except collateral with respect to which the Bank
Agent has priority pursuant to Paragraph 1(a) above) shall take priority over
any right, title or interest of the Bank Agent, if any, in or to such
collateral.
44. AGREEMENTS WITH RESPECT TO COLLATERAL.
(a) The Bank Agent shall not exercise any right or remedy or assert
any claim with respect to collateral as to which the Trustee has priority under
Paragraph 1(b) and the Trustee will not exercise any right or remedy, or assert
any claim with respect to collateral as to which the Bank Agent has priority
under Paragraph 1(a).
83
<PAGE>
(b) If either Collateral Agent shall receive any proceeds or other
amounts payable with respect to any collateral (including, without limitation,
any proceeds of a sale, foreclosure, loss, damage or otherwise with respect to
such collateral), which collateral, pursuant hereto, is subject to a prior
security interest in favor of the other Collateral Agent, the Collateral Agent
receiving such proceeds shall promptly remit the same to the other Collateral
Agent.
(c) Each of the Collateral Agents will, upon request of the other,
from time to time execute and deliver or cause to be executed and delivered such
further instruments and do and cause to be done such further acts as may be
necessary or proper to carry out more effectively the provisions of this
Agreement, provided that the Trustee need only execute or furnish such documents
as the Trustee is required to furnish under the FNBC Security Documents.
(d) The Trustee will send to the Bank Agent a copy of each notice of
default it sends to holders of any Securities pursuant to Section 9.2 of the
Indenture.
(e) The Trustee agrees that, at any time when it has physical
possession or control of the premises subject to the FNBC Security Documents or
any collateral in which the Bank Agent has a security interest, it will at all
times allow the Bank Agent the right, at the cost, risk and expense of the Bank
Agent and so long as such right is exercised in a manner which does not damage
the collateral in which the Trustee has a security interest or interfere with
the other operations or the other business of the Company, to enter such
premises for the purpose of repossessing, removing, selling or preparing for
shipment any Inventory which is subject to the Bank Agent's security interest.
In addition, the Trustee will allow the Bank Agent to store any such collateral
or take the actions referred to in the preceding sentence on the Company's
premises for up to six months after the date, if ever, on which the Trustee
gains physical possession or control of said premises. The rights of the Bank
Agent enumerated in this Paragraph (e) are effective notwithstanding any default
of the Company under the Indenture or any other agreement relating thereto
between the Trustee and the Company.
45. APPLICABILITY OF PRIORITIES. The priorities provided for in
Section 1 of this Agreement shall apply:
(a) without regard to the time or order of attachment or perfection
of the security interests and other liens to secure either the Revolving
Loans or the Securities, and without regard to the giving or failure to
give notice of the acquisition of any such security interest or lien; and
(b) with respect to the relative priority and attachment of the
security interests and liens perfected by any party hereto, or with
respect to the attachment of such security interests or liens to the
proceeds of the collateral in question or to the proceeds of the proceeds
thereof, notwithstanding anything to the contrary in the provisions of the
Uniform Commercial Code or the Bankruptcy Code of 1978, as
84
<PAGE>
amended, or any state bankruptcy or creditors act, and notwithstanding the
giving or failure to give notice of the acquisition or expected
acquisition of any property or security interest.
46. NOTICE OF DEFAULT. Each Collateral Agent agrees that if it
declares the Company to be in default under its agreements, or makes demand for
payment of all obligations thereunder, such Collateral Agent will promptly
notify the other Collateral Agent of any such declaration.
47. NO EFFECT ON OTHERS. This Agreement shall not affect the rights
of the Collateral Agents relative to the rights of any other creditors of the
Company. Nothing in this Agreement shall be construed in any way to modify or
relieve the Company's or Bayou (Tennessee)'s obligations to perform its
obligations under the Loan Agreements or the FNBC Security Documents or to
modify the obligations and liabilities of the Company or Bayou (Tennessee)
contained therein.
48. CONFIDENTIALITY. Each of the Collateral Agents agrees to keep
confidential (and to cause its respective officers, directors, employees, agents
and representatives to keep confidential) all information, materials and
documents furnished to either Collateral Agent (the "INFORMATION").
Notwithstanding the foregoing, each Collateral Agent shall be permitted to
disclose Information (i) to such of its officers, directors, employees, agents
and representatives as need to know such Information in connection with its
participation in any of the Loan Agreements or FNBC Security Documents,
respectively; (ii) to the extent required by applicable laws and regulations or
by any subpoena or similar legal process, or requested by any governmental
agency or authority; (iii) to the extent such Information (A) becomes publicly
available other than as a breach of this Agreement or (B) becomes available to
such Collateral Agent on a non-confidential basis from a source other than the
other Collateral Agent; (iv) to the extent the other Collateral Agent shall have
consented to such disclosure in writing, or (v) as necessary in connection with
an assignment or participation contemplated by Sections 10.04(b) and 10.04(f) of
the Credit Agreement or as necessary in connection with Sections 9.10, 9.11 and
9.12 of the Indenture.
49. AMENDMENTS. The Bank Agent may amend the Loan Agreements, and
the Trustee may amend the FNBC Security Documents, without the consent of the
other Collateral Agent; PROVIDED, that for the purposes of this Agreement, the
capitalized terms contained in Paragraph 1(a) hereof shall have the meanings
given to them on the date of this Agreement; PROVIDED, HOWEVER, that any
amendment to the Loan Agreements that adversely affects the interests of the
Trustee and any amendment to the FNBC Security Documents that adversely affects
the interests of the Banks shall not be effected without the consent of the
other Collateral Agent.
50. BOOKS AND RECORDS. In the event the Bank Agent elects to
exercise its right to remove the Company's books and records (whether pursuant
to its security interest therein or otherwise) it will do so only for the
purpose of copying such books and records,
85
<PAGE>
and it will return the originals for the benefit of the Company (to the extent
required under the Loan Agreements) or the Trustee, as the case may be.
51. MISCELLANEOUS.
(a) NOTICES. All notices, requests, demands and other communications
required or permitted to be given hereunder shall be deemed to have been duly
given or made when delivered or telecopied or if deposited in the United States
mail, three days after the day of deposit, first class postage prepaid,
addressed, in the case of the Bank Agent, as provided in the Loan Agreements
and, in the case of the Trustee, as provided in the Indenture, or to such other
address as such party may hereafter specify in a written notice to the other
parties named herein.
(b) AMENDMENTS AND SUCCESSORS. No agreement shall be effective to
amend, supplement or discharge in whole or in part this Agreement unless such
agreement is in writing, signed by the Collateral Agents. This Agreement shall
be binding upon and shall inure to the benefit of the successors and assigns of
the parties hereto.
(c) SEVERABILITY. Any provision of this Agreement which is
prohibited or unenforceable in any jurisdiction shall, as to such jurisdiction,
be ineffective to the extent of such prohibition or unenforceability without
invalidating the remaining provisions hereof, and any such prohibition or
unenforceability in any jurisdiction shall not invalidate or render
unenforceable such provision in any other jurisdiction.
(d) TERMINATION. This Agreement shall terminate upon the payment in
full of all amounts outstanding under the Loan Agreements and other obligations
of the Company and Bayou (Tennessee) incurred thereunder or the satisfaction and
discharge of the Indenture.
(e) HEADINGS. The headings in this Agreement are for convenience of
reference only and shall not define or limit the terms thereof.
52. GOVERNING LAW. THIS AGREEMENT AND THE RIGHTS
AND OBLIGATIONS OF THE PARTIES UNDER THIS AGREEMENT SHALL BE
GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE
WITH, THE LAW OF THE STATE OF NEW YORK.
53. SUBMISSION TO JURISDICTION; WAIVERS. Each of the Collateral
Agents hereby irrevocably and unconditionally:
(i) submits for itself and its property in any legal action or
proceeding relating to this Agreement to which it is a party, or for
recognition and enforcement of any judgement in respect thereof, to the
non-exclusive general jurisdiction of the Courts of the State of New York,
the courts of the United States of America for the Southern District of
New York, and appellate courts from any thereof;
86
<PAGE>
(ii) consents that any such action or proceeding may be brought in
such courts and waives any objection that it may now or hereafter have to
the venue of any such action or proceeding in any such court or that such
action or proceeding was brought in an inconvenient court and agrees not
to plead or claim the same;
(iii) agrees that service of process in any such action or
proceeding may be effected by mailing a copy thereof by registered or
certified mail (or any substantially similar form of mail), postage
prepaid, to the Collateral Agent at its address set forth in the Indenture
or the Loan Agreements, respectively, or at such other address of which
the other Collateral Agent shall have been notified pursuant hereto;
(iv) agrees that nothing herein shall affect the right to effect
service of process in any other manner permitted by law or shall limit the
right to sue in any other jurisdiction; and
(v) waives, to the maximum extent not prohibited by law, any right
it may have to claim or recover in any legal action or proceeding referred
to in this subsection any special, exemplary, punitive or consequential
damages.
87
<PAGE>
IN WITNESS WHEREOF, the parties have caused this Agreement to be
executed and delivered by their respective officers as of the date first above
written.
THE CHASE MANHATTAN BANK, as Agent
By___________________________
Title:
FIRST NATIONAL BANK OF COMMERCE,
as Trustee
By___________________________
Title:
88
EXHIBIT 10.31
SECURITY AGREEMENT
AMENDED AND RESTATED SECURITY AGREEMENT, dated as of May 22, 1998,
made by BAYOU STEEL CORPORATION, a Delaware corporation (the "BORROWER"), and
BAYOU STEEL CORPORATION (TENNESSEE), a Delaware corporation ("BAYOU
(TENNESSEE)"; and collectively with the Borrower, the "GRANTORS"), in favor of
THE CHASE MANHATTAN BANK, a New York banking corporation ("CHASE"), as
collateral agent (in such capacity, the "COLLATERAL AGENT") for the several
banks and other financial institutions (the "LENDERS") from time to time parties
to the Amended and Restated Credit Agreement, dated as of May 22, 1998 (as
further amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT") among the Borrower, the Lenders and Chase, as administrative
agent (in such capacity, the "ADMINISTRATIVE AGENT").
W I T N E S S E T H:
WHEREAS, the Borrower and the Collateral Agent are parties to the
Security Agreement dated as of June 28, 1989, as amended and restated through
June 1, 1995 and as in effect immediately prior to the effectiveness of this
Agreement (the "ORIGINAL SECURITY AGREEMENT");
WHEREAS, the Borrower and the Collateral Agent wish to amend and
restate the Original Security Agreement pursuant to this Agreement in accordance
with the terms and subject to the conditions set forth herein;
WHEREAS, Bayou (Tennessee) is party to the Subsidiary Guarantee,
dated as of May 22, 1998 (the "SUBSIDIARY GUARANTEE"), pursuant to which it has
guaranteed the obligations of the Borrower under the Credit Agreement;
WHEREAS, the Borrower and the Collateral Agent have elected to amend
and restate the Original Security Agreement pursuant to this Agreement rather
than amend the Original Security Agreement or enter into a new security
agreement for their convenience and intend that all indebtedness, obligations
and liens created under the Original Security Agreement be continued hereunder
and remain in full force and effect and not be discharged, paid, satisfied or
cancelled;
WHEREAS, in order to secure its obligations under the Subsidiary
Guarantee, Bayou (Tennessee) shall become a party to this Agreement;
WHEREAS, pursuant to the Credit Agreement, the Lenders have agreed
to make their respective Loans to, and the Issuing Bank has agreed to issue
Letters of Credit for the account of, the Borrower upon the terms and subject to
the conditions set forth therein; and
WHEREAS, it is a condition precedent to the obligation of the
Lenders to make their respective Loans to, and the Issuing Bank to issue Letters
of Credit for the account of, the Borrower under the Credit Agreement that the
Borrower and Bayou (Tennessee) shall have executed and delivered this Agreement
to the Collateral Agent for the ratable benefit of the Lenders.
89
<PAGE>
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Loans to, and the Issuing Bank to
issue Letters of Credit for the account of, the Borrower thereunder, the
Grantors hereby agree with the Collateral Agent, for the benefit of the Lenders,
as follows:
1. DEFINITION OF TERMS USED HEREIN. All capitalized terms used herein but
not defined herein shall have the meanings set forth in the Credit Agreement. As
used herein, the following terms shall have the following meanings:
(a) "Accounts" shall mean any and all rights of any Grantor to
payment for goods and services sold, leased or otherwise provided, including any
such right evidenced by chattel paper, whether due or to become due, whether or
not it has been earned by performance, and whether now or hereafter acquired or
arising in the future, including, without limitation, accounts receivable from
Affiliates or employees of any Grantor.
(b) "Accounts Receivable" shall mean all Accounts and all rights in
any returned goods, together with all rights, titles, securities and guarantees
with respect thereto, including any rights to stoppage in transit, replevin,
reclamation and resales, and all related security interests, liens and pledges,
whether voluntary or involuntary.
(c) "Borrower Obligations" shall mean the collective reference to
the unpaid principal of and interest on the Loans, any reimbursement obligations
in respect of any Letter of Credit and all other obligations and liabilities of
the Borrower to the Administrative Agent, the Collateral Agent or the Lenders
(including, without limitation, interest accruing at the then applicable rate
provided in the Credit Agreement after the maturity of the Loans and the Letters
of Credit and interest accruing at the then applicable rate provided in the
Credit Agreement after the filing of any petition in bankruptcy, or the
commencement of any insolvency, reorganization or like proceeding, relating to
the Borrower, whether or not a claim for post-filing or post-petition interest
is allowed in such proceeding), whether direct or indirect, absolute or
contingent, due or to become due, or now existing or hereafter incurred, which
may arise under, out of, or in connection with, the Credit Agreement, the Loans,
any reimbursement obligations in respect of any Letter of Credit, this
Agreement, the other Loan Documents or any Letter of Credit or any other
document made, delivered or given in connection therewith, in each case whether
on account of principal, interest, reimbursement obligations, fees, indemnities,
costs, expenses or otherwise (including, without limitation, all fees and
disbursements of counsel to the Administrative Agent or to the Lenders that are
required to be paid by the Borrower pursuant to the terms of any of the
foregoing agreements).
(d) "Collateral" shall mean all (i) Accounts Receivable, (ii)
Inventory and (iii) Proceeds.
(e) "Guarantor Obligations" shall mean, with respect to Bayou
(Tennessee), the collective reference to (i) the Borrower Obligations and (ii)
all obligations and liabilities of Bayou (Tennessee) which may arise under or in
connection with this Agreement or any other Loan Document to which Bayou
(Tennessee) is a party, in each case whether on account of guarantee
obligations, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel
to the Administrative Agent or to the Lenders that are
90
<PAGE>
required to be paid by Bayou (Tennessee) pursuant to the terms of this Agreement
or any other Loan Document).
(f) "Inventory" shall mean, subject to the provisions of Section 28,
all merchandise intended for sale by any Grantor, or consumed in any Grantor's
business, together with all raw materials, including, without limitation, scrap,
billets, shapes, additives, alloys, fluxes, electrodes and refractories, whether
now owned or hereafter acquired or arising, and all such property the sale or
other disposition of which has given rise to Accounts and which has been
returned to, repossessed or stopped in transit by or on behalf of any Grantor.
(g) "Obligations" shall mean (i) in the case of the Borrower, the
Borrower Obligations and (ii) in the case of Bayou (Tennessee), its Guarantor
Obligations.
(h) "Proceeds" shall mean any consideration received from the sale,
exchange, lease or other disposition of any asset or property that constitutes
Collateral, any value received as a consequence of the possession of any
Collateral and any payment received from any insurer or other person or entity
as a result of the destruction, loss, theft, damage or other involuntary
conversion of whatever nature of any asset or property which constitutes
Collateral.
2. SECURITY INTEREST. (a) As security for the payment or
performance, as the case may be, of such Grantor's Obligations, each Grantor
hereby creates and grants to the Collateral Agent, its successors and its
assigns, for the benefit of the Lenders, their successors and their assigns, a
security interest in the Collateral (the "SECURITY INTEREST").
(b) Without limiting the foregoing, the Collateral Agent is hereby
authorized to file one or more financing statements, continuation statements or
other documents for the purpose of perfecting, confirming, continuing, enforcing
or protecting the Security Interest without the signature of the relevant
Grantor, naming such Grantor as debtor and the Collateral Agent as secured
party; PROVIDED, HOWEVER, that the Collateral Agent will attempt in each
instance to obtain the signature of such Grantor before filing any such document
and, in the event that the Collateral Agent is unable to obtain such signature,
it shall promptly deliver to such Grantor copies of any such documents filed
without the signature of such Grantor.
Each Grantor agrees at all times to keep accurate and complete
accounting records with respect to the Collateral, including, but not limited
to, a record of all payments and Proceeds received.
3. FURTHER ASSURANCES. Each Grantor agrees, at its expense, to
execute, acknowledge, deliver and cause to be duly filed all such further
instruments and documents and take all such actions as the Collateral Agent may
from time to time request for the better assuring and preserving of the Security
Interest and the rights and remedies created hereby, including, without
limitation, the payment of any fees and taxes required in connection with the
execution and delivery of this Agreement, the granting of the security interests
created hereby and the filing of any financing statements or other documents in
connection herewith. If any amount payable under or in connection with any of
the Collateral shall be or become evidenced by any promissory note or other
instrument, such note or instrument shall be immediately pledged and delivered
to the Collateral Agent, duly endorsed in a manner satisfactory to the
Collateral Agent. Each Grantor agrees promptly to notify the Collateral Agent of
any change (a) in its corporate name, (b) in the location of its chief executive
office, (c) in its chief place of business or (d) in the office where it keeps
its records relating to the Collateral owned by it. The Borrower agrees not to
change its registered office in the State of Louisiana from 8550 United
91
<PAGE>
Plaza Boulevard, Baton Rouge, Louisiana 70809 except following thirty days'
prior written notice to the Collateral Agent. Bayou (Tennessee) agrees not to
change its registered office in the State of Tennessee from 150 Fourth Avenue
North, 1810 Dominion Tower, Nashville, Tennessee 37219-2424 except following
thirty days' prior written notice to the Collateral Agent. Each Grantor agrees
promptly to notify the Collateral Agent if any material portion of the
Collateral is damaged or destroyed.
4. INSPECTION AND VERIFICATION. The Collateral Agent and such
persons as the Collateral Agent may reasonably designate shall have the right,
at any reasonable time or times during any Grantor's usual business hours, to
inspect the Collateral of such Grantor, all records related thereto (and to make
extracts and copies from such records), and the premises upon which any of the
Collateral is located, to discuss such Grantor's affairs with the officers of
such Grantor and its independent accountants (with a representative of such
Grantor present if such Grantor is not in default) and to verify under
reasonable procedures the validity, amount, quality, quantity, value, and
condition of, or any other matter relating to, the Collateral, including, in the
case of Accounts or Collateral in the possession of a third person, upon not
less than one business day's notice to such Grantor contacting account debtors
or a third person possessing such Collateral for the purpose of making such a
verification. The Collateral Agent shall have the absolute right to share any
information it gains from such inspection or verification with any or all of the
Lenders subject in any event to the provisions of Section 10.16 of the Credit
Agreement.
5. TAXES; ENCUMBRANCES. At its option, the Collateral Agent, upon
one Business Day's notice to any Grantor, may discharge past due taxes, liens,
security interests or other encumbrances at any time levied or placed on the
Collateral of such Grantor and not permitted under the Credit Agreement, and may
pay for the maintenance and preservation of the Collateral to the extent such
Grantor fails to do so as required by the Credit Agreement, and such Grantor
agrees to reimburse the Collateral Agent on demand for any payment made or any
expense incurred by it pursuant to the foregoing authorization; PROVIDED,
HOWEVER, that nothing in this Section 5 shall be interpreted as excusing any
Grantor from the performance of any covenants or other promises with respect to
taxes, liens, security interests or other encumbrances and maintenance as set
forth herein or in the Credit Agreement.
6. ASSIGNMENT OF SECURITY INTEREST. If at any time any Grantor shall
take and perfect a security interest in any property of an account debtor or any
other person to secure payment and performance of an Account, such Grantor shall
promptly assign such security interest to the Collateral Agent. Such assignment
need not be filed of public record unless necessary to continue the perfected
status of the security interest against creditors of and transferees from the
account debtor or other person granting the security interest.
7. REPRESENTATIONS AND WARRANTIES. Each Grantor represents and
warrants to the Collateral Agent that:
(a) TITLE AND AUTHORITY. Such Grantor has rights in and good title
to its Collateral and has full corporate power and authority to grant to the
Collateral Agent the Security Interest in its Collateral pursuant hereto and to
execute, deliver and perform its obligations in accordance with the terms of
this Agreement, without the consent or approval of any other person other than
any consent or approval that has been obtained.
92
<PAGE>
(b) FILINGS. Fully executed Uniform Commercial Code financing
statements containing a description of such Grantor's Collateral have been filed
of record in every governmental, municipal or other office in every jurisdiction
in which any portion of such Collateral is located necessary to publish notice
of and protect the validity of and to establish a valid, legal and perfected
security interest in favor of the Collateral Agent in respect of such Collateral
in which a security interest may be perfected by filing in the United States and
its territories and possessions, and no further or subsequent filing, refiling,
recording, rerecording, registration or reregistration is necessary in any such
jurisdiction, except as provided under applicable law with respect to the filing
of continuation statements.
(c) VALIDITY OF SECURITY INTEREST. The Security Interest in such
Grantor's Collateral constitutes a valid, legal and perfected security interest
in all of the Collateral of such Grantor for payment and performance of the
Obligations of such Grantor and the Collateral of such Grantor is subject to no
liens, other than liens permitted by Section 7.02 of the Credit Agreement.
(d) INFORMATION REGARDING NAMES AND LOCATIONS. Such Grantor has
disclosed in writing to the Collateral Agent any trade names used to identify it
in its business or in the ownership of its properties and each location where it
maintains any Collateral.
(e) ABSENCE OF OTHER LIENS. Such Grantor has not filed any Financing
Statement under the Uniform Commercial Code covering any Collateral other than
as contemplated by the Credit Agreement or hereby, other than Financing
Statements of which copies have been delivered to the Collateral Agent, and such
Grantor has not filed any notices of assignment of any of the Accounts
Receivable located in Louisiana or Tennessee other than in favor of the
Collateral Agent.
(f) SCHEDULE OF ACCOUNTS. Each schedule of Accounts will be an
accurate description of the Accounts in all material respects.
(g) SCHEDULES. The information contained on Schedules I and II
hereof is accurate and complete in all respects.
(h) SURVIVAL OF REPRESENTATIONS AND WARRANTIES. All representations
and warranties of each Grantor contained in this Agreement shall survive the
execution, delivery and performance of this Agreement until the termination of
this Agreement pursuant to Section 33.
8. RECORDS AND SCHEDULES OF ACCOUNTS. Each Grantor shall keep or
cause to be kept records of Accounts that are accurate in all material respects.
9. DOCUMENTS OF TITLE. Each Grantor agrees, upon written request of
the Collateral Agent, immediately to deliver all documents of title (as such
term is defined in the Uniform Commercial Code) to the Collateral Agent or its
designee upon the creation and issuance of such documents of title to maintain a
valid, legal and perfected security interest in favor of the Collateral Agent in
respect of any and all Inventory. The Collateral Agent agrees immediately to
deliver, or cause to be delivered, such documents of title to such Grantor or
their designees upon the creation of Accounts Receivable relating to its
Inventory covered by such documents of title.
10. Intentionally Omitted.
93
<PAGE>
11. PROTECTION OF SECURITY. Each Grantor shall, at its own cost and
expense, take any and all actions necessary to defend title to the Collateral
against all persons and to defend the Security Interest of the Collateral Agent
in the Collateral and the priority thereof, against any adverse mortgage,
pledge, security interest, lien, charge or other encumbrance of any nature
whatsoever not permitted under the Credit Agreement.
12. INSURANCE. (a) Each Grantor, at its own expense, shall maintain
insurance covering physical loss or damage to its Inventory in accordance with
the provisions of Section 6.02 of the Credit Agreement. All such policies of
insurance shall be endorsed or otherwise amended to include a lender's loss
payable endorsement, in form and substance satisfactory to the Collateral Agent,
which shall provide that from and after the date, if any, on which the insurance
carrier receives written notice from the Collateral Agent that an Event of
Default has occurred, all proceeds otherwise payable to such Grantor under such
policies shall be payable directly to the Collateral Agent. Such endorsement or
an independent instrument furnished to the Collateral Agent shall provide that
the insurance companies will give the Collateral Agent at least 30 days' prior
written notice before any such policy or policies of insurance shall be
materially altered or canceled and that no act or default of such Grantor or any
other person shall affect the right of the Collateral Agent to recover under
such policy or policies of insurance in case of loss or damage.
(b) Following the occurrence of and during the continuance of an
Event of Default, each Grantor irrevocably makes, constitutes, and appoints the
Collateral Agent (and all officers, employees, or agents designated by the
Collateral Agent) as such Grantor's true and lawful agent (and attorney-in-fact)
for the purpose of making, settling and adjusting claims under policies of
insurance, endorsing the name of such Grantor on any check, draft, instrument,
or other item of payment for the proceeds of such policies of insurance and for
making all determinations and decisions with respect thereto. In the event that
any Grantor at any time or times shall fail to obtain or maintain any of the
policies of insurance required hereby or to pay any premium in whole or part
relating thereto, the Collateral Agent may, without waiving or releasing any
obligation or liability of such Grantor hereunder or any Event of Default, in
its sole discretion, obtain and maintain such policies of insurance and pay such
premium and take any other action with respect thereto as the Collateral Agent
deems advisable. All such sums so disbursed by the Collateral Agent, including
reasonable attorney's fees, court costs, expenses and other charges relating
thereto, shall be payable, upon demand, by such Grantor to the Collateral Agent
and shall be additional obligations secured hereby.
13. CONTINUING OBLIGATIONS OF EACH GRANTOR. Each Grantor shall
remain liable to observe and perform in all material respects all the material
conditions and obligations to be observed and performed by it under each
contract, agreement, interest or obligation relating to the Collateral, all in
accordance with the terms and conditions thereof, and shall indemnify and hold
harmless the Collateral Agent and the Lenders and each of them severally, from
any and all such liabilities.
14. USE AND DISPOSITION OF COLLATERAL. Except as permitted under
Sections 7.02 and 7.05 of the Credit Agreement, no Grantor (a) shall make or
permit to be made an assignment, pledge or hypothecation of the Collateral, or
grant any other security interest in the Collateral, or (b) shall make or permit
to be made any transfer of the Collateral. Each Grantor shall remain at all
times in possession of its Collateral other than transfers to the Collateral
Agent pursuant to the provisions hereof; except that so long as no Event of
Default shall have occurred and be continuing, any Grantor may use and dispose
of the Collateral in any lawful manner not inconsistent with the provisions of
this Agreement and of the Credit Agreement and in the event an Event of Default
has occurred and is
94
<PAGE>
continuing any Grantor may, unless it is otherwise notified by the Collateral
Agent, sell Inventory in the ordinary course of business.
15. LIMITATION ON MODIFICATIONS OF ACCOUNTS. No Grantor will,
without the Collateral Agent's prior written consent, grant any extension of the
time of payment of any of the Accounts Receivable, compromise, compound or
settle the same for less than the full amount thereof, release, wholly or
partly, any person liable for the payment thereof, or allow any credit or
discount whatsoever thereon other than extensions, credits, discounts,
compromises or settlements granted or made in the ordinary course of business.
16. COLLECTIONS. So long as no Event of Default shall have occurred,
each Grantor shall have the right to collect its Accounts Receivable in the
ordinary course of its business. Upon the occurrence and during the continuance
of any Event of Default, the Collateral Agent shall have the right, as the true
and lawful agent of each Grantor, with power of substitution for each Grantor
and in each Grantor's name, the Collateral Agent's name or otherwise, for the
use and benefit of the Collateral Agent and the Lenders (a) to receive, endorse,
assign and/or deliver any and all notes, acceptances, checks, drafts, money
orders or other evidences of payment relating to the Collateral or any part
thereof; (b) to demand, collect, receive payment of, give receipt for and give
discharges and releases of all or any of the Collateral; (c) to sign the name of
each Grantor on any invoice or bill of lading relating to any of the Collateral;
(d) to send verifications of Accounts Receivable to any account debtor; (e) to
commence and prosecute any and all suits, actions or proceedings at law or in
equity in any court of competent jurisdiction to collect or otherwise realize on
all or any of the Collateral or to enforce any rights in respect of any
Collateral; (f) to settle, compromise, compound, adjust or defend any actions,
suits or proceedings relating to or pertaining to all or any of the Collateral;
(g) to notify, or to require each Grantor to notify, the account debtors
obligated on any or all of the Accounts Receivable to make payment thereof
directly to the Collateral Agent; and (h) to use, sell, assign, transfer,
pledge, make any agreement with respect to or otherwise deal with all or any of
the Collateral, and to do all other acts and things necessary to carry out the
purposes of this Agreement, as fully and completely as though the Collateral
Agent were the absolute owner of the Collateral for all purposes; provided,
however, that nothing herein contained shall be construed as requiring or
obligating the Collateral Agent to make any commitment or to make any inquiry as
to the nature or sufficiency of any payment received by the Collateral Agent, or
to present or file any claim or notice, or to take any action with respect to
the Collateral or any part thereof or the moneys due or to become due in respect
thereof or any property covered thereby, and no action taken by the Collateral
Agent or omitted to be taken with respect to the Collateral or any part thereof
shall give rise to any defense, counterclaim or offset in favor of any Grantor
or to any claim or action against the Collateral Agent except the gross
negligence or willful misconduct of the Collateral Agent. Upon taking of
possession of any Collateral hereunder, the Collateral Agent shall deal with
such Collateral in substantially the same manner as it deals with similar
property for its own account and shall account for property actually received by
it. It is understood and agreed that the appointment of the Collateral Agent as
the agent of each Grantor for the purposes set forth above in this Section 16 is
coupled with an interest and is irrevocable. The provisions of this Section 16
shall in no event relieve any Grantor of any of its obligations hereunder or
under the Credit Agreement with respect to the Collateral or any part thereof or
impose any obligation on the Collateral Agent or the Lenders to proceed in any
particular manner with respect to the Collateral or any part thereof, or in any
way limit the exercise by the Collateral Agent or any Lender of any other or
further right that it may have on the date of this Agreement or hereafter,
whether hereunder, under the Credit Agreement or by law or otherwise.
95
<PAGE>
17. REMEDIES UPON DEFAULT. (a) Upon the occurrence and during the
continuance of an Event of Default, each Grantor agrees to deliver each item of
such Grantor's Collateral to the Collateral Agent on demand, and it is agreed
that the Collateral Agent shall have the right to take any or all of the
following actions at the same or different times: with or without legal process
and with or without previous notice or demand for performance, to take
possession of the Collateral and without liability for trespass to enter any
premises where the Collateral may be located for the purpose of taking
possession of or removing the Collateral and, generally, to exercise any and all
rights afforded to a secured party under the Uniform Commercial Code or other
applicable law. Without limiting the generality of the foregoing, each Grantor
agrees that the Collateral Agent shall have the right, subject to the mandatory
requirements of current law, to sell or otherwise dispose of all or any part of
the Collateral, at public or private sale or at any broker's board or on any
securities exchange, for cash, upon credit or for future delivery as the
Collateral Agent shall deem appropriate. The Collateral Agent shall be
authorized at any such sale (if it deems it advisable to do so) to restrict the
prospective bidders or purchasers to persons who will represent and agree that
they are purchasing the Collateral for their own account for investment and not
with a view to the distribution or sale thereof, and upon consum mation of any
such sale the Collateral Agent shall have the right to assign, transfer and
deliver to the purchaser or purchasers thereof the Collateral so sold. Each such
purchaser at any such sale shall hold the property sold absolutely, free from
any claim or right on the part of any Grantor, and each Grantor hereby waives
(to the extent permitted by law) all rights of redemption, stay and appraisal
that each Grantor now has or may at any time in the future have under any rule
of law or statute now existing or hereafter enacted.
The Collateral Agent shall give the relevant Grantor 10 days'
written notice (which such Grantor agrees is reasonable notice within the
meaning of Section 9-504(3) of the Uniform Commercial Code as in effect in the
State of New York or its equivalent in other jurisdictions) of the Collateral
Agent's intention to make any sale of Collateral of such Grantor. Such notice,
in the case of a public sale, shall state the time and place for such sale and,
in the case of a sale at a broker's board or on a securities exchange, shall
state the board or exchange at which such sale is to be made and the day on
which such Collateral, or portion thereof, will first be offered for sale at
such board or exchange. Any such public sale shall be held at such time or times
within ordinary business hours and at such place or places as the Collateral
Agent may fix and state in the notice (if any) of such sale. At any such sale,
such Collateral, or portion thereof, to be sold may be sold in one lot as an
entirety or in separate parcels, as the Collateral Agent may (in its sole and
absolute discretion) determine. The Collateral Agent shall not be obligated to
make any sale of such Collateral if it shall determine not to do so, regardless
of the fact that notice of sale of such Collateral shall have been given. The
Collateral Agent may, without notice or publication, adjourn any public or
private sale or cause the same to be adjourned from time to time by announcement
at the time and place fixed for sale, and such sale may, without further notice,
be made at the time and place to which the same was so adjourned. In case any
sale of all or any part of such Collateral is made on credit or for future
delivery, such Collateral so sold may be retained by the Collateral Agent until
the sale price is paid by the purchaser or purchasers thereof, but the
Collateral Agent shall not incur any liability in case any such purchaser or
purchasers shall fail to take up and pay for such Collateral so sold and, in
case of any such failure, such Collateral may be sold again upon like notice. At
any public sale made pursuant to this Section 17, any Lender may bid for or
purchase, free (to the extent permitted by law) from any right of redemption,
stay, valuation or appraisal on the part of any Grantor (all said rights being
also hereby waived and released to the extent permitted by law), such Collateral
or any part thereof offered for sale and may make payment on account thereof by
using any claim then due and payable to such Lender from any Grantor as a credit
against the purchase price, and such Lender may, upon compliance with the terms
of sale, hold, retain and dispose of such property without further
accountability to any Grantor therefor. For
96
<PAGE>
purposes hereof, a written agreement to purchase such Collateral or any portion
thereof shall be treated as a sale thereof; the Collateral Agent shall be free
to carry out such sale pursuant to such agreement, and no Grantor shall be
entitled to the return of such Collateral or any portion thereof subject
thereto, notwithstanding the fact that after the Collateral Agent shall have
entered into such an agreement all Events of Default shall have been remedied
and the Obligations paid in full. As an alternative to exercising the power of
sale herein conferred upon it, the Collateral Agent may proceed by a suit or
suits at law or in equity to foreclose this Agreement and to sell such
Collateral or any portion thereof pursuant to a judgment or decree of a court or
courts having competent jurisdiction or pursuant to a proceeding by a
court-appointed receiver.
(b) For purposes of executory process under applicable Louisiana
law, each Grantor hereby acknowledges the indebtedness owed under such Grantor's
Obligations, CONFESSES JUDGMENT thereon and consents that judgment be rendered
and signed, whether during the court's term or during vacation, in favor of the
Collateral Agent, for the benefit of the Lenders, for the full amount of its
Obligations in principal, interest, and attorneys' fees, together with all
charges and expenses whatsoever pursuant to this Agreement and the Credit
Agreement. Upon the occurrence and during the continuance of an Event of
Default, and in addition to all of its rights, powers and remedies under this
Agreement and applicable law, the Collateral Agent may, at its option, cause all
or any part of the Collateral to be seized and sold under executory process or
under writ of fieri facias issued in execution of an ordinary judgment obtained
upon the Obligations of any Grantor, without appraisement to the highest bidder,
for cash or under such terms as the Collateral Agent deems acceptable. Each
Grantor hereby waives all and every appraisement of the Collateral and waives
and renounces the benefit of appraisement and the benefit of all laws relative
to the appraisement of the Collateral seized and sold under executory or other
legal process. Each Grantor agrees to waive, and does hereby specifically waive:
(i) the benefit of appraisement provided for in Articles 2332,
2336, 2723 and 2724, Louisiana Code of Civil Procedure, and
all other laws conferring such benefits;
(ii) the demand and three (3) days delay accorded by Articles 2639
and 2721, Louisiana Code of Civil Procedure;
(iii) the notice of seizure required by Articles 2293 and 2721,
Louisiana Code of Civil Procedure;
(iv) the three (3) days delivery provided by Articles 2331 and
2722, Louisiana Code of Civil Procedure;
(v) the benefit of the other provisions of Articles 2331, 2722 and
2723, Louisiana Code of Civil Procedure;
(vi) the benefit of the provisions of any other articles of the
Louisiana Code of Civil Procedure not specifically mentioned
above; and,
(vii) all rights of divisions and discussion with respect to the
Obligations.
In the event the Collateral Agent elects, at its option, to enter suit via
ordinaria on the Obligations, in addition to the foregoing confession of
judgment, each Grantor hereby waives citation, other legal
97
<PAGE>
process and legal delays and hereby consents that judgment for the unpaid
principal due on the Obligations, together with interest, attorneys' fees, costs
and other charges that may be due on the Obligations, be rendered and signed
immediately.
Pursuant to the authority contained in La.R.S. 9:5136 through
9:5140.1, each Grantor and the Collateral Agent do hereby expressly designate
the Collateral Agent or its designee to be keeper or receiver ("Keeper") for the
benefit of the Collateral Agent or any assignee of the Collateral Agent, such
designation to take effect immediately upon any seizure of any of the Collateral
under writ of executory process or under writ of sequestration or fieri facias
as an incident to an action brought by the Collateral Agent. The fees of the
Keeper are hereby fixed at 5% of the amount due or sued for or claimed or sought
to be protected, preserved or enforced in the proceeding for the recognition of
the Security Interest, and the payment of such fees shall be secured by the
Security Interest.
18. APPLICATION OF PROCEEDS. (a) The Collateral Agent shall apply
the proceeds of any collection or sale of the Accounts Receivable or the
Inventory as follows:
FIRST, to the payment of all costs and reasonable expenses incurred
by the Collateral Agent in connection with such collection or sale or
otherwise in connection with this Agreement or any of the Obligations of
any Grantor, including, but not limited to, all court costs and the
reasonable fees and expenses of its agents and legal counsel, the
repayment of all advances made by the Collateral Agent hereunder on behalf
of such Grantor and any other costs or expenses incurred in connection
with the exercise of any right or remedy hereunder.
SECOND, to the payment in full of the Obligations of any Grantor to
the extent such proceeds secure the Obligations of any Grantor, pro rata
as among the Lenders in accordance with the amounts of the Loans made by
them and outstanding.
THIRD, to the payment and discharge in full of the Obligations of any
Grantor (other than those referred to above), pro rata as among the
Lenders in accordance with the amount of their respective Commitments.
FOURTH, to the relevant Grantor, its successors or assigns, or as a
court of competent jurisdiction may otherwise direct.
(b) The Collateral Agent shall have absolute discretion as to the
time of application of any such proceeds, moneys or balances in accordance with
this Agreement. Upon any sale of the Collateral by the Collateral Agent
(including, without limitation, pursuant to a power of sale granted by statute
or under a judicial proceeding), the receipt of the Collateral Agent or of the
officer making the sale shall be a sufficient discharge to the purchaser or
purchasers of such Collateral so sold and such purchaser or purchasers shall not
be obligated to see to the application of any part of the purchase money paid
over to the Collateral Agent or such officer or be answerable in any way for the
misapplication thereof.
(c) Each Lender may apply any such proceeds to any Obligations owed
to it in any manner it determines in its sole discretion.
19. LOCATIONS OF COLLATERAL; PLACE OF BUSINESS. (a) Each Grantor
hereby represents and warrants that all its Collateral is located at the
locations listed on Schedule I hereto. Each Grantor agrees not to establish, or
permit to be established, any other location for its Collateral, unless all
98
<PAGE>
filings under the Uniform Commercial Code or otherwise that are required by the
Credit Agreement to be made with respect to its Collateral have been made and
the Collateral Agent has a valid, legal and perfected security interest in such
Collateral subject to no liens, other than liens permitted by Section 7.02 of
the Credit Agreement.
(b) Each Grantor agrees, at such time or times as the Collateral
Agent may request, promptly to prepare and deliver to the Collateral Agent a
duly certified schedule or schedules in form satisfactory to the Collateral
Agent, showing the identity, amount and location of any and all of its material
Collateral.
(c) Each Grantor agrees that its chief executive office and its
registered office in Louisiana are located as indicated on Schedule II hereto
and that its federal employer identification number is as set forth on Schedule
II. Each Grantor agrees not to change, or permit to be changed, the location of
its chief executive office or of its registered office in Louisiana or its
federal employer identification number unless all filings under the Uniform
Commercial Code or otherwise that are required by the Credit Agreement to be
made have been made and the Collateral Agent has a valid, legal and perfected
security interest in the Collateral subject to no liens, other than liens
permitted by Section 7.02 of the Credit Agreement.
20. SECURITY INTEREST ABSOLUTE. All rights of the Collateral Agent
hereunder, the Security Interest and all obligations of each Grantor hereunder,
shall be absolute and unconditional irrespective of (a) any lack of validity or
enforceability of the Credit Agreement or any other Loan Document, any other
agreement with respect to any of the Obligations of any Grantor or any other
agreement or instrument relating to any of the foregoing, (b) any change in the
time, manner or place of payment of, or in any other term of, all or any of the
Obligations of any Grantor, or any other amendment or waiver of or any consent
to any departure from the Credit Agreement or any other Loan Document or any
other agreement or instrument, (c) any exchange, release or non-perfection of
any other Collateral, or any release or amendment or waiver of or consent to or
departure from any guaranty, for all or any of the Obligations, or (d) any other
circumstance that might otherwise constitute a defense available to, or a
discharge of, any Grantor in respect of its Obligations or in respect of this
Agreement.
21. NO WAIVER. No failure on the part of the Collateral Agent to
exercise, and no delay in exercising, any right, power or remedy hereunder shall
operate as a waiver thereof, nor shall any single or partial exercise of any
such right, power or remedy by the Collateral Agent preclude any other or
further exercise thereof or the exercise of any other right, power or remedy.
All remedies hereunder are cumulative and are not exclusive of any other
remedies provided by law. The Collateral Agent and the Lenders shall not be
deemed to have waived any rights hereunder or under any other agreement or
instrument unless such waiver shall be in writing and signed by such parties.
22. COLLATERAL AGENT APPOINTED ATTORNEY-IN-FACT. Except as otherwise
provided herein, each Grantor hereby appoints the Collateral Agent the
attorney-in-fact of such Grantor for the purpose of carrying out the provisions
of this Agreement and taking any action and executing any instrument that the
Collateral Agent may deem necessary or advisable to accomplish the purposes
hereof, which appointment is irrevocable and coupled with an interest.
23. COLLATERAL AGENT'S FEES AND EXPENSES. Each Grantor agrees to pay
upon demand to the Collateral Agent the amount of any and all reasonable
expenses, including the fees and expenses of its counsel and of any experts or
agents, that the Collateral Agent may incur in connection with (a)
99
<PAGE>
the administration of this Agreement, (b) the custody or preservation of, or the
sale of, collection from, or other realization upon, any of the Collateral, (c)
the exercise or enforcement of any of the rights of the Collateral Agent
hereunder or (d) the failure by any Grantor to perform or observe any of the
provisions hereof. In addition, each Grantor will upon demand pay to the
Collateral Agent such reasonable fees (in addition to its expenses) for its
service as Collateral Agent as may be agreed from time to time between the
Collateral Agent and the Borrower. Any such amounts payable as provided
hereunder or thereunder shall be additional Obligations secured hereby.
24. Intentionally Omitted.
25. Intentionally Omitted.
26. BINDING AGREEMENT; ASSIGNMENTS. This Agreement, and the terms,
covenants and conditions hereof, shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and assigns, except that
no Grantor shall be permitted to assign this Agreement or any interest herein or
in the Collateral, or any part thereof, or otherwise pledge, encumber or grant
any option with respect to the Collateral, or any part thereof, or any cash or
property held by the Collateral Agent as Collateral under this Agreement, except
as contemplated by this Agreement or the Credit Agreement.
27. GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY, AND
CONSTRUED IN ACCORDANCE WITH, THE LAWS OF THE STATE OF NEW YORK, WITHOUT
REFERENCE TO PRINCIPLES OF CONFLICTS OF LAW.
28. LIMITATIONS ON INVENTORY. The Grantors and the Collateral Agent
agree that the term, Inventory, as used herein, does not include, and shall
never be deemed or construed to include, any of the properties, rights or
interests (a) that have been mortgaged to First National Bank of Commerce, as
Trustee (the "Trustee"), pursuant to the Senior Secured Note Indenture,
including (i) all bearings, rolls, guides and stores that relate to machinery
and equipment mortgaged to the Trustee pursuant to the Senior Secured Note
Indenture, (ii) all licenses, franchises, permits, patents, patent rights,
formulae, processes, compounds, drawings, designs, blueprints, surveys, reports,
manuals and operating standards relating to or used in the operation of the
Grantors' business and all trade secret rights, rights in works of authorship
and contract rights relating to computer software programs in whatever form
created or maintained, and (iii) all proceeds of the properties, rights and
interests referred to in clauses (i) and (ii) above, or (b) that have been
granted to the Trustee pursuant to the Senior Secured Note Indenture.
29. NOTICES. All communications and notices hereunder shall be in
writing and given as provided in Section 10.01 of the Credit Agreement and
Section 11 of the Subsidiary Guarantee.
30. SEVERABILITY. In case any one or more of the provisions
contained in this Agreement should be invalid, illegal or unenforceable in any
respect, no party hereto shall be required to comply with such provision for so
long as such provision is held to be invalid, illegal or unen forceable and the
validity, legality and enforceability of the remaining provisions contained
herein shall not in any way be affected or impaired. The parties shall endeavor
in good-faith negotiations to replace the invalid, illegal or unenforceable
provisions with valid provisions, the economic effect of which comes as close as
possible to that of the invalid, illegal or unenforceable provisions.
31. SECTION HEADINGS. Section headings used herein are for
convenience only and are not to affect the construction of, or to be taken into
consideration in interpreting, this Agreement.
100
<PAGE>
32. COUNTERPARTS. This Agreement may be executed in two or more
counterparts, each of which shall constitute an original, but all of which, when
taken together, shall constitute but one instrument. This Agreement shall be
effective when counterparts which bear the signature of each Grantor shall have
been delivered to the Collateral Agent.
33. TERMINATION. This Agreement and the Security Interest shall
terminate when all the Obligations of the Grantors have been indefeasibly paid
in full, when the Lenders have no further commitment to lend or issue any Letter
of Credit under the Credit Agreement and all amounts payable under the
Subsidiary Guarantee have been indefeasibly paid in full, at which time the
Collateral Agent shall execute and deliver to each Grantor all Uniform
Commercial Code termination statements and similar documents prepared by any
Grantor which such Grantor shall reasonably request to evidence such
termination.
101
<PAGE>
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement as of the day and year first above written.
BAYOU STEEL CORPORATION
By:
Name:
Title:
BAYOU STEEL CORPORATION (TENNESSEE)
By:
Name:
Title:
THE CHASE MANHATTAN BANK, as Collateral
Agent
By:
Name:
Title:
102
<PAGE>
Schedule I
LOCATIONS OF COLLATERAL OF THE BORROWER
River Road Receivables and
La Place, LA 70069 Inventory
108 & The Calumet River Inventory
Chicago, IL 60617
Leetsdale Industrial Park Inventory
Leetsdale, PA 15056
790 Ft.Gibson Road Inventory
Catoosa, OK 74015
LOCATIONS OF COLLATERAL OF BAYOU (TENNESSEE)
2404 S. Roame Street Receivables
Harriman, TN 37748 and Inventory
River Road Receivables
LaPlace, LA 70069
103
<PAGE>
Schedule II
THE BORROWER
CHIEF EXECUTIVE OFFICES
P.O. Box 5000
La Place, LA 70069-1156
River Road
La Place, LA 70069
REGISTERED OFFICE
8550 United Plaza Boulevard
Baton Rouge, Louisiana 70809
FEDERAL EMPLOYER IDENTIFICATION NUMBER
72-1125783
BAYOU (TENNESSEE)
CHIEF EXECUTIVE OFFICES
P.O.Box 5000
LaPlace, LA 70069-1156
River Road
LaPlace, LA 70069
REGISTERED OFFICE
150 Fourth Avenue North
1810 Dominion Tower
Nashville, TN 37219-2424
FEDERAL EMPLOYER IDENTIFICATION NUMBER
62-1596494
104
EXHIBIT 10.32
SUBSIDIARY GUARANTEE
SUBSIDIARY GUARANTEE, dated as of May 22, 1998, made by BAYOU STEEL
CORPORATION (TENNESSEE), a Delaware corporation, and RIVER ROAD REALTY
CORPORATION, a Louisiana corporation (each, a "GUARANTOR"), in favor of THE
CHASE MANHATTAN BANK, as administrative agent (in such capacity, the
"ADMINISTRATIVE AGENT") for the
several banks and other financial institutions (the "LENDERS") from time to time
parties to the Amended and Restated Credit Agreement, dated as of May 22, 1998
(as further amended, supplemented or otherwise modified from time to time, the
"CREDIT AGREEMENT"; unless otherwise defined herein, terms defined in the Credit
Agreement and used herein shall have the meanings given to them in the Credit
Agreement), among Bayou Steel Corporation, a Delaware corporation (the
"BORROWER"), the Lenders and the Administrative Agent.
W I T N E S S E T H:
WHEREAS, pursuant to the Credit Agreement, the Lenders have severally
agreed to make Loans to, and issue and participate in Letters of Credit for the
account of, the Borrower upon the terms and subject to the conditions set forth
therein;
WHEREAS, the Borrower owns directly or indirectly all of the issued and
outstanding stock of each Guarantor;
WHEREAS, the Borrower and each Guarantor are involved in an integrated
business process; and
WHEREAS, it is a condition precedent to the obligation of the Lenders to
make their respective Loans to, and issue and participate in Letters of Credit
for the account of, the Borrower under the Credit Agreement that each Guarantor
shall have executed and delivered this Guarantee to the Administrative Agent for
the ratable benefit of the Lenders.
NOW, THEREFORE, in consideration of the premises and to induce the
Administrative Agent and the Lenders to enter into the Credit Agreement and to
induce the Lenders to make their respective Loans to, and issue and participate
in Letters of Credit for the account of, the Borrower under the Credit
Agreement, each Guarantor hereby agrees with the Administrative Agent, for the
ratable benefit of the Lenders, as follows:
54. DEFINED TERMS. a. Unless otherwise defined herein, terms defined in
the Credit Agreement and used herein shall have the meanings given to them in
the Credit Agreement.
b. As used herein, "OBLIGATIONS" means the collective reference to the
unpaid principal of and interest on the Loans, any reimbursement obligations in
respect of any Letter of Credit and all other obligations and liabilities of the
Borrower to the Administrative Agent or the Lenders (including,
105
<PAGE>
without limitation, interest accruing at the then applicable rate provided in
the Credit Agreement after the maturity of the Loans and interest accruing at
the then applicable rate provided in the Credit Agreement after the filing of
any petition in bankruptcy, or the commencement of any insolvency,
reorganization or like proceeding, relating to the Borrower, whether or not a
claim for post-filing or post-petition interest is allowed in such proceeding),
whether direct or indirect, absolute or contingent, due or to become due, now
existing or hereafter incurred, which may arise under, out of, or in connection
with, the Credit Agreement, the Loans, any reimbursement obligations in respect
of any Letter of Credit, the other Loan Documents or any other document made,
delivered or given in connection therewith, whether on account of principal,
interest, reimbursement obligations, fees, indemnities, costs, expenses or
otherwise (including, without limitation, all fees and disbursements of counsel
to the Administrative Agent or to the Lenders that are required to be paid by
the Borrower or any Guarantor pursuant to the terms of the Credit Agreement or
this Agreement or any other Loan Document).
c. The words "hereof," "herein" and "hereunder" and words of similar
import when used in this Guarantee shall refer to this Guarantee as a whole and
not to any particular provision of this Guarantee, and section and paragraph
references are to this Guarantee unless otherwise specified.
d. The meanings given to terms defined herein shall be equally applicable
to both the singular and plural forms of such terms.
55. GUARANTEE a. Subject to the provisions of paragraph 2(b), each
Guarantor hereby unconditionally and irrevocably guarantees to the
Administrative Agent, for the ratable benefit of the Lenders and their
respective successors, indorsees, transferees and assigns, the prompt and
complete payment and performance by the Borrower when due (whether at the stated
maturity, by acceleration or otherwise) of the Obligations.
b. Anything herein or in any other Loan Document to the contrary
notwithstanding, the maximum liability of any Guarantor hereunder and under the
other Loan Documents shall in no event exceed the amount which can be guaranteed
by such Guarantor under applicable federal and state laws relating to the
insolvency of debtors.
c. Each Guarantor further agrees to pay any and all expenses (including,
without limitation, all fees and disbursements of counsel) which may be paid or
incurred by the Administrative Agent or any Lender in enforcing, or obtaining
advice of counsel in respect of, any rights with respect to, or collecting, any
or all of the Obligations of such Guarantor and/or enforcing any rights with
respect to, or collecting against, such Guarantor under this Guarantee. This
Guarantee shall remain in full force and effect until the Obligations are paid
in full and the Commitments are terminated, notwithstanding that from time to
time prior thereto the Borrower may be free from any Obligations.
d. Each Guarantor agrees that the Obligations may at any time and from
time to time exceed the amount of the liability of such Guarantor hereunder
without impairing this Guarantee or affecting the rights and remedies of the
Administrative Agent or any Lender hereunder.
e. No payment or payments made by the Borrower, any Guarantor, any other
guarantor or any other Person or received or collected by the Administrative
Agent or any Lender from the Borrower, any Guarantor, any other guarantor or any
other Person by virtue of any action or proceeding or any set-off or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any
106
<PAGE>
Guarantor hereunder which shall, notwithstanding any such payment or payments
other than payments made by such Guarantor in respect of its Obligations or
payments received or collected from such Guarantor in respect of its
Obligations, remain liable for its Obligations up to the maximum liability of
such Guarantor hereunder until the Obligations are paid in full and the
Commitments are terminated.
f. Each Guarantor agrees that whenever, at any time, or from time to time,
it shall make any payment to the Administrative Agent or any Lender on account
of its liability hereunder, it will notify the Administrative Agent in writing
that such payment is made under this Guarantee for such purpose.
56. RIGHT OF SET-OFF. Upon the occurrence of any Event of Default, each
Guarantor hereby irrevocably authorizes the Administrative Agent and each Lender
at any time and from time to time without notice to the relevant Guarantor or
any other guarantor, any such notice being expressly waived by each Guarantor,
to set-off and appropriate and apply any and all deposits (general or special,
time or demand, provisional or final), in any currency, and any other credits,
indebtedness or claims, in any currency, in each case whether direct or
indirect, absolute or contingent, matured or unmatured, at any time held or
owing by the Administrative Agent or such Lender to or for the credit or the
account of such Guarantor, or any part thereof in such amounts as the
Administrative Agent or such Lender may elect, against and on account of the
obligations and liabilities of such Guarantor to the Administrative Agent or
such Lender hereunder and claims of every nature and description of such Lender
against such Guarantor, in any currency, whether arising hereunder, under the
Credit Agreement, any Note, any Loan Documents or otherwise, as the
Administrative Agent or such Lender may elect, whether or not the Administrative
Agent or any Lender has made any demand for payment and although such
obligations, liabilities and claims may be contingent or unmatured. The
Administrative Agent and each Lender shall notify the relevant Guarantor
promptly of any such set-off and the application made by the Administrative
Agent or such Lender, PROVIDED that the failure to give such notice shall not
affect the validity of such set-off and application. The rights of the
Administrative Agent and each Lender under this Section are in addition to other
rights and remedies (including, without limitation, other rights of set-off)
which the Administrative Agent or such Lender may have.
57. NO SUBROGATION. Notwithstanding any payment or payments made by any
Guarantor hereunder or any set-off or application of funds of any Guarantor by
any Lender, no Guarantor shall be entitled to be subrogated to any of the rights
of the Administrative Agent or any Lender against the Borrower or any other
guarantor or any collateral security or guarantee or right of offset held by any
Lender for the payment of the Obligations, nor shall any Guarantor seek or be
entitled to seek any contribution or reimbursement from the Borrower or any
other guarantor in respect of payments made by such Guarantor hereunder, until
all amounts owing to the Administrative Agent and the Lenders by the Borrower on
account of the Obligations are paid in full and the Commitments are terminated.
If any amount shall be paid to any Guarantor on account of such subrogation
rights at any time when all of the Obligations shall not have been paid in full,
such amount shall be held by such Guarantor in trust for the Administrative
Agent and the Lenders, segregated from other funds of such Guarantor, and shall,
forthwith upon receipt by such Guarantor, be turned over to the Administrative
Agent in the exact form received by such Guarantor (duly indorsed by such
Guarantor to the Administrative Agent, if required), to be applied against the
Obligations, whether matured or unmatured, in such order as the Administrative
Agent may determine.
58. AMENDMENTS, ETC. WITH RESPECT TO THE OBLIGATIONS; WAIVER OF RIGHTS.
Each Guarantor shall remain obligated hereunder notwithstanding that, without
any reservation of rights against any Guarantor and without notice to or further
assent by any Guarantor, any demand for payment of any of the Obligations made
by the Administrative Agent or any Lender to any Guarantor may be rescinded
107
<PAGE>
by such Person and any of the Obligations continued, and the Obligations, or the
liability of any other Person upon or for any part thereof, or any collateral
security or guarantee therefor or right of offset with respect thereto, may,
from time to time, in whole or in part, be renewed, extended, amended, modified,
accelerated, compromised, waived, surrendered or released by the Administrative
Agent or any Lender, and the Credit Agreement, the Notes and the other Loan
Documents and any other documents executed and delivered in connection therewith
may be amended, modified, supplemented or terminated, in whole or in part, as
the Administrative Agent (or the Required Lenders, as the case may be) may deem
advisable from time to time, and any collateral security, guarantee or right of
offset at any time held by the Administrative Agent or any Lender for the
payment of the Obligations may be sold, exchanged, waived, surrendered or
released. Neither the Administrative Agent nor any Lender shall have any
obligation to protect, secure, perfect or insure any Lien at any time held by it
as security for the Obligations or for this Guarantee or any property subject
thereto. When making any demand hereunder against any Guarantor, the
Administrative Agent or any Lender may, but shall be under no obligation to,
make a similar demand on the Borrower, the other Guarantor or any other
guarantor, and any failure by the Administrative Agent or any Lender to make any
such demand or to collect any payments from the Borrower, such other Guarantor
or any such other guarantor or any release of the Borrower, such other Guarantor
or such other guarantor shall not relieve the relevant Guarantor of its
obligations or liabilities hereunder, and shall not impair or affect the rights
and remedies, express or implied, or as a matter of law, of the Administrative
Agent or any Lender against such relevant Guarantor. For the purposes hereof
"demand" shall include the commencement and continuance of any legal
proceedings.
59. GUARANTEE ABSOLUTE AND UNCONDITIONAL. Each Guarantor waives any and
all notice of the creation, renewal, extension or accrual of any of its
Obligations and notice of or proof of reliance by the Administrative Agent or
any Lender upon this Guarantee or acceptance of this Guarantee, its Obligations,
and any of them, shall conclusively be deemed to have been created, contracted
or incurred, or renewed, extended, amended or waived, in reliance upon this
Guarantee; and all dealings between the Borrower and any Guarantor, on the one
hand, and the Administrative Agent and the Lenders, on the other hand, likewise
shall be conclusively presumed to have been had or consummated in reliance upon
this Guarantee. Each Guarantor waives diligence, presentment, protest, demand
for payment and notice of default or nonpayment to or upon the Borrower or the
Guarantor with respect to its Obligations. Each Guarantor understands and agrees
that this Guarantee shall be construed as a continuing, absolute and
unconditional guarantee of payment without regard to (a) the validity,
regularity or enforceability of the Credit Agreement, any Note or any other Loan
Document, any of the Obligations or any other collateral security therefor or
guarantee or right of offset with respect thereto at any time or from time to
time held by the Administrative Agent or any Lender, (b) any defense, set-off or
counterclaim (other than a defense of payment or performance) which may at any
time be available to or be asserted by the Borrower against the Administrative
Agent or any Lender, or (c) any other circumstance whatsoever (with or without
notice to or knowledge of the Borrower or any Guarantor) which constitutes, or
might be construed to constitute, an equitable or legal discharge of the
Borrower for the Obligations, or of any Guarantor under this Guarantee, in
bankruptcy or in any other instance. When pursuing its rights and remedies
hereunder against any Guarantor, each of the Administrative Agent and any Lender
may, but shall be under no obligation to, pursue such rights and remedies as it
may have against the Borrower or any other Person or against any collateral
security or guarantee for the Obligations or any right of offset with respect
thereto, and any failure by the Administrative Agent or any Lender to pursue
such other rights or remedies or to collect any payments from the Borrower or
any such other Person or to realize upon any such collateral security or
guarantee or to exercise any such right of offset, or any release of the
Borrower or any such other Person or any such collateral security, guarantee or
right of offset, shall not relieve any Guarantor of any liability
108
<PAGE>
hereunder, and shall not impair or affect the rights and remedies, whether
express, implied or available as a matter of law, of the Administrative Agent
and the Lenders against any Guarantor. This Guarantee shall remain in full force
and effect and be binding in accordance with and to the extent of its terms upon
each Guarantor and its successors and assigns thereof, and shall inure to the
benefit of the Administrative Agent and the Lenders, and their respective
successors, indorsees, transferees and assigns, until all the Obligations and
the obligations under this Guarantee shall have been satisfied by payment in
full and the Commitments shall be terminated, notwithstanding that from time to
time during the term of the Credit Agreement the Borrower may be free from any
Obligations.
60. REINSTATEMENT. This Guarantee shall continue to be effective, or be
reinstated, as the case may be, if at any time payment, or any part thereof, of
any of the Obligations is rescinded or must otherwise be restored or returned by
the Administrative Agent or any Lender upon the insolvency, bankruptcy,
dissolution, liquidation or reorganization of the Borrower or any Guarantor, or
upon or as a result of the appointment of a receiver, intervenor or conservator
of, or trustee or similar officer for, the Borrower or any Guarantor or any
substantial part of its property, or otherwise, all as though such payments had
not been made.
61. PAYMENTS. Each Guarantor hereby guarantees that payments hereunder
will be paid to the Administrative Agent without set-off or counterclaim in U.S.
Dollars at the office of the Administrative Agent located at 270 Park Avenue,
New York, New York 10017.
62. COVENANTS; FURTHER ASSURANCES. Each Guarantor hereby covenants and
agrees with the Administrative Agent and the Lenders that, from and after the
date of this Guarantee until its Obligations are paid in full and the
Commitments are terminated and the expiration, termination or return to the
Issuing Bank of the Letters of Credit (i) no Guarantor shall take any action,
and each Guarantor shall refrain from taking action, that would result in a
violation of the covenants of the Borrower contained in Article VII of the
Credit Agreement and (ii) at any time and from time to time, upon the written
request of the Administrative Agent, and at the sole expense of the relevant
Guarantor, such relevant Guarantor will promptly and fully execute and deliver
such further instruments and documents and take such further actions as the
Administrative Agent may reasonably request for the purpose of obtaining or
preserving the full benefits of this Guarantee and the other Loan Documents to
which such Guarantor is a party and of the rights and powers herein or therein
granted.
63. AUTHORITY OF AGENT. Each Guarantor acknowledges that the rights and
responsibilities of the Administrative Agent under this Guarantee with respect
to any action taken by the Administrative Agent or the exercise or non-exercise
by the Administrative Agent of any option, right, request, judgment or other
right or remedy provided for herein or resulting or arising out of this
Guarantee shall, as between the Administrative Agent and the Lenders, be
governed by the Credit Agreement and by such other agreements with respect
thereto as may exist from time to time among them, but, as between the
Administrative Agent and any Guarantor, the Administrative Agent shall be
conclusively presumed to be acting as agent for the Lenders with full and valid
authority so to act or refrain from acting, and neither Guarantor shall be under
any obligation, or entitlement, to make any inquiry respecting such authority.
64. NOTICES. All notices, requests and demands to or upon the
Administrative Agent, any Lender or any Guarantor to be effective shall be in
writing (or by telex, fax or similar electronic transfer confirmed in writing)
and shall be deemed to have been duly given or made (1) when delivered by hand
or (2) if given by mail, when deposited in the mails by certified mail, return
receipt requested,
109
<PAGE>
or (3) if by telex, fax or similar electronic transfer, when sent and receipt
has been confirmed, addressed as follows:
a. if to the Administrative Agent or any Lender, at its address or
transmission number for notices provided in Section 10.01 of the Credit
Agreement; and
b. if to any Guarantor, at its address or transmission number for notices
set forth under its signature below.
The Administrative Agent, each Lender and each Guarantor may change its
address and transmission numbers for notices by notice in the manner provided in
this Section.
65. SEVERABILITY. Any provision of this Guarantee which is prohibited or
unenforceable in any jurisdiction shall, as to such jurisdiction, be ineffective
to the extent of such prohibition or unenforceability without invalidating the
remaining provisions hereof, and any such prohibition or unenforceability in any
jurisdiction shall not invalidate or render unenforceable such provision in any
other jurisdiction.
66. INTEGRATION. This Guarantee represents the agreement of each Guarantor
with respect to the subject matter hereof and there are no promises or
representations by the Administrative Agent or any Lender relative to the
subject matter hereof not reflected herein.
67. AMENDMENTS IN WRITING; NO WAIVER; CUMULATIVE REMEDIES. a. None of the
terms or provisions of this Guarantee may be waived, amended, supplemented or
otherwise modified except by a written instrument executed by each Guarantor and
the Administrative Agent, PROVIDED that any provision of this Guarantee may be
waived by the Administrative Agent and the Lenders in a letter or agreement
executed by the Administrative Agent or by telex or facsimile transmission from
the Administrative Agent.
b. Neither the Administrative Agent nor any Lender shall by any act
(except by a written instrument pursuant to paragraph 14(a) hereof), delay,
indulgence, omission or otherwise be deemed to have waived any right or remedy
hereunder or to have acquiesced in any Default or Event of Default or in any
breach of any of the terms and conditions hereof. No failure to exercise, nor
any delay in exercising, on the part of the Administrative Agent or any Lender,
any right, power or privilege hereunder shall operate as a waiver thereof. No
single or partial exercise of any right, power or privilege hereunder shall
preclude any other or further exercise thereof or the exercise of any other
right, power or privilege. A waiver by the Administrative Agent or any Lender of
any right or remedy hereunder on any one occasion shall not be construed as a
bar to any right or remedy which the Administrative Agent or such Lender would
otherwise have on any future occasion.
c. The rights and remedies herein provided are cumulative, may be
exercised singly or concurrently and are not exclusive of any other rights or
remedies provided by law.
68. SECTION HEADINGS. The section headings used in this Guarantee are for
convenience of reference only and are not to affect the construction hereof or
be taken into consideration in the interpretation hereof.
110
<PAGE>
69. SUCCESSORS AND ASSIGNS. This Guarantee shall be binding upon the
successors and assigns of each Guarantor and shall inure to the benefit of the
Administrative Agent and the Lenders and their successors and assigns.
70. WAIVER OF JURY TRIAL. Each Guarantor hereby waives, to the fullest
extent permitted by applicable law, any right it may have to a trial by jury in
respect of any litigation directly or indirectly arising out of, under or in
connection with this Guarantee or any of the other Loan Documents. Each
Guarantor (a) certifies that no representative, agent or attorney of any other
party has represented, expressly or otherwise, that such other party would not,
in the event of litigation, seek to enforce the foregoing waiver and (b)
acknowledges that it has been induced to enter into this Guarantee by, among
other things, the mutual waivers and certifications in this paragraph 17.
71. JURISDICTION; CONSENT TO SERVICE OF PROCESS. (a) Each Guarantor hereby
irrevocably and unconditionally submits, for itself and its property, to the
nonexclusive jurisdiction of any New York State court or Federal court of the
United States of America sitting in New York City, and any appellate court from
any thereof, in any action or proceeding arising out of or relating to this
Guarantee or the other Loan Documents, or for recognition or enforcement of any
judgment, and each Guarantor hereby irrevocably and unconditionally agrees that
all claims in respect of any such action or proceeding may be heard and
determined in such New York State or, to the extent permitted by law, in such
Federal court. Each Guarantor agrees that a final judgment in any such action or
proceeding shall be conclusive and may be enforced in other jurisdictions by
suit on the judgment or in any other manner provided by law. Nothing in this
Guarantee shall affect any right that any Lender may otherwise have to bring any
action or proceeding relating to this Guarantee or the other Loan Documents
against the Borrower or its properties in the courts of any jurisdiction.
(b) Each Guarantor hereby irrevocably and unconditionally waives, to
the fullest extent it may legally and effectively do so, any objection which it
may now or hereafter have to the laying of venue of any suit, action or
proceeding arising out of or relating to this Guarantee or the other Loan
Documents in any New York State or Federal court. Each Guarantor hereby
irrevocably waives, to the fullest extent permitted by law, the defense of an
inconvenient forum to the maintenance of such action or proceeding in any such
court.
(c) Each Guarantor irrevocably consents to service of process in the
manner provided for notices in Section 10.01 of the Credit Agreement. Nothing in
this Guarantee will affect the right of any party to this Guarantee to serve
process in any other manner permitted by law.
72. GOVERNING LAW. THIS GUARANTEE SHALL BE GOVERNED BY, AND
CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE
OF NEW YORK.
111
<PAGE>
IN WITNESS WHEREOF, the undersigned has caused this Guarantee to be
duly executed and delivered by its duly authorized officer as of the day and
year first above written.
BAYOU STEEL CORPORATION (TENNESSEE)
By ---------------------------------
Title -----------------------------
Address for Notices:
River Road
La Place, Louisiana 70068
Attention: Richard J. Gonzalez
Telecopy No.: 504-652-0472
RIVER ROAD REALTY CORPORATION
By ---------------------------------
Title -----------------------------
Address for Notices:
River Road
La Place, Louisiana 70068
Attention: Richard J. Gonzalez
Telecopy No.: 504-652-0472
112
EXHIBIT 13.1
BAYOU STEEL
CORPORATION
------------------------------
ANNUAL REPORT
113
<PAGE>
1998
114
<PAGE>
BAYOU STEEL CORPORATION OWNS AND
OPERATES A STEEL MINIMILL LOCATED ON THE MISSISSIPPI RIVER IN LAPLACE,
LOUISIANA, 35 MILES NORTHWEST OF NEW ORLEANS, LOUISIANA AND A ROLLING MILL IN
HARRIMAN, TENNESSEE, 37 MILES WEST OF KNOXVILLE.
THE COMPANY'S PRINCIPAL RAW MATERIAL, SCRAP STEEL, IS
MELTED IN ELECTRIC ARC FURNACES AND CONTINUOUSLY CAST INTO BILLETS, THEN ROLLED
ON ITS TWO ROLLING MILLS INTO A VARIETY OF MERCHANT BAR AND LIGHT STRUCTURAL
STEEL SHAPES. CURRENTLY, THE COMPANY ROLLS ANGLES, CHANNELS, FLATS, STANDARD
BEAMS, WIDE-FLANGE BEAMS, ROUNDS, AND SQUARES. THESE PRODUCTS ARE SOLD
PRINCIPALLY TO STEEL SERVICE CENTERS THAT SUPPLY VARIOUS END-USERS IN
MANUFACTURING AND CONSTRUCTION. THE COMPANY HAS OVER 550 CUSTOMERS IN 42 STATES,
CANADA, AND MEXICO. THE COMPANY ALSO, OCCASIONALLY, SHIPS BOTH BILLETS AND
SHAPES OVERSEAS.
THE COMPANY HAS FIVE MODERN WAREHOUSES LOCATED AT
STRATEGIC POINTS ALONG THE INLAND WATERWAY SYSTEM CREATING A WIDE GEOGRAPHIC
MARKET FOR PRODUCT DISTRIBUTION. THE COMPANY SHIPS SUBSTANTIAL QUANTITIES OF
BILLETS AND STRUCTURAL STEEL SHAPES AND RECEIVES SCRAP STEEL USING BARGE, OCEAN
GOING VESSEL, TRUCK AND RAIL TRANSPORTATION. THE COMPANY ALSO UTILIZES
TECHNOLOGICALLY ADVANCED EQUIPMENT, RESULTING IN OPERATIONAL FLEXIBILITY AND
OPERATING EFFICIENCY. THE HIGH PRODUCTIVITY OF ITS EMPLOYEES, TOGETHER WITH THE
MODERN EQUIPMENT, ENABLE THE COMPANY TO PRODUCE HIGH QUALITY PRODUCTS AT A LOW
COST.
115
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
FINANCIAL HIGHLIGHTS
<TABLE>
<CAPTION>
<S> <C> <C> <C>
YEAR ENDED SEPTEMBER 30, 1998 1997 PERCENT CHANGE
FOR THE YEAR:
Net Sales ...................................... $ 253,880,835 $ 232,161,116 9%
Income:
Income Before Income Tax and
Extraordinary Item .......................... 24,651,738 3,833,942 543%
Income Before Income Tax and Extraordinary
Item Per Equivalent Common Share ............ 1.80 0.28 543%
Net Income .................................... 30,098,853 3,784,147 695%
Net Income Per Equivalent Common Share ........ 2.19 0.28 682%
Income Applicable to Common and Common
Equivalent Shares ........................... 25,801,630 1,184,228 2,079%
Income Applicable to Common and Common
Equivalent Shares Per Share ................. 1.88 .09 1,989%
Cash Provided by (Used in):
Operating Activities .......................... 27,311,801 12,761,936 114%
Investing Activities .......................... (5,738,623) (5,757,617) --
Financing Activities .......................... 11,484,200 (6,781,450) --
EBITDA(1) ...................................... $ 40,374,794 $ 19,754,929 104%
Interest Coverage Ratio ........................ 4.37 2.20 99%
AT YEAR END:
Cash and Temporary Cash Investments ............ $34,028,855 $ 971,477 3,403%
Working Capital ................................ 117,634,574 72,031,082 63%
Net Property, Plant and Equipment .............. 90,115,865 90,138,299 --
Total Assets ................................... 249,497,455 196,465,054 27%
Long-Term Debt ................................. 118,898,853 80,500,073 48%
Redeemable Preferred Stock ..................... -- 13,089,010 (100%)
Common Stockholders' Equity .................... 97,339,685 71,511,805 36%
Stockholders' Equity Per Equivalent Common Share 7.09 5.22 36%
Stock Price per Share .......................... 3.88 4.88 (21%)
OTHER DATA:
Shape Shipment Tons ............................ 687,482 663,675 4%
Employees ...................................... 580 563 3%
</TABLE>
(1) EBITDA is defined as net income before extraordinary items plus interest
expense, income taxes, depreciation and amortization. EBITDA provides
additional information and trends for determining the Company's ability to
meet debt service requirements. EBITDA does not represent and should not
be considered as an alternative to net income or cash flow from operations
as determined by generally accepted accounting principles and other
companies may use different definitions.
116
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
GENERAL
BAYOU STEEL CORPORATION (THE "COMPANY") IS A LEADING PRODUCER OF LIGHT
STRUCTURAL SHAPES AND MERCHANT BAR STEEL PRODUCTS. THE COMPANY OWNS AND OPERATES
A STEEL MINIMILL AND A STOCKING WAREHOUSE LOCATED ON THE MISSISSIPPI RIVER IN
LAPLACE, LOUISIANA (THE "LOUISIANA FACILITY"), THREE ADDITIONAL STOCKING
LOCATIONS ACCESSIBLE TO THE LOUISIANA FACILITY THROUGH THE MISSISSIPPI RIVER
WATERWAY SYSTEM, AND A ROLLING MILL WITH WAREHOUSING FACILITY IN HARRIMAN,
TENNESSEE (THE "TENNESSEE FACILITY") ALSO ACCESSIBLE THROUGH THE MISSISSIPPI
RIVER WATERWAY SYSTEM. THE COMPANY PRODUCES LIGHT STRUCTURAL STEEL PRODUCTS
RANGING IN SIZE FROM THREE TO EIGHT INCHES AT THE LOUISIANA FACILITY AND
MERCHANT BAR PRODUCTS RANGING FROM ONE-HALF TO FOUR INCHES AT THE TENNESSEE
FACILITY. THE LIGHT STRUCTURAL SHAPES AND MERCHANT BAR PRODUCTS PRODUCED BY THE
COMPANY ARE USED FOR 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, AND BRIDGES.
THE MAJORITY OF THE COMPANY'S FINISHED PRODUCTS ARE SOLD TO DOMESTIC STEEL
SERVICE CENTERS, WHILE THE REMAINDER ARE SOLD TO ORIGINAL EQUIPMENT
MANUFACTURERS/FABRICATORS ("OEM/FAB") AND EXPORT CUSTOMERS. STEEL SERVICE
CENTERS WAREHOUSE STEEL PRODUCTS FROM VARIOUS MINIMILLS AND INTEGRATED MILLS AND
SELL COMBINATIONS OF PRODUCTS FROM DIFFERENT MILLS TO THEIR CUSTOMERS. SOME
STEEL SERVICE CENTERS ALSO PROVIDE ADDITIONAL LABOR-INTENSIVE VALUE-ADDED
SERVICES SUCH AS FABRICATING, CUTTING OR SELLING STEEL BY THE PIECE RATHER THAN
BY THE BUNDLE.
RESULTS OF OPERATIONS
IN FISCAL 1998, THE COMPANY REPORTED CONSOLIDATED INCOME OF $24.7 MILLION
BEFORE AN EXTRAORDINARY ITEM AND INCOME TAX BENEFITS OF A VALUATION ADJUSTMENT
COMPARED TO $3.8 MILLION IN FISCAL 1997. THE RESULTS OF OPERATIONS FOR FISCAL
1998 REPRESENT THE BEST EARNINGS IN THE HISTORY OF THE COMPANY. THIS RECORD YEAR
WAS PARTIALLY ATTRIBUTABLE TO THE SIGNIFICANT IMPACT OF THE FOURTH QUARTER WHICH
ALSO WAS THE BEST IN COMPANY HISTORY. THE $20.9 MILLION IMPROVEMENT FOR THE YEAR
WAS DUE TO SEVERAL SIGNIFICANT FACTORS. SHAPE SHIPMENT TONS INCREASED 23,807 OR
4% IN FISCAL 1998 TO A NEW COMPANY RECORD WHILE THE AVERAGE SELLING PRICE PER
TON INCREASED $19 OR 6%.
IN THE SECOND HALF OF FISCAL 1998 THE PRICE OF STEEL SCRAP (A MAJOR COMPONENT
OF COST OF SALES) DECLINED TO LEVELS THAT HAVE NOT BEEN EXPERIENCED SINCE FISCAL
1993. THE PRICE DECLINE COUPLED WITH THE INCREASE IN THE AVERAGE SELLING PRICE
RESULTED IN A STRONG METAL MARGIN (THE DIFFERENCE IN THE PRICE OF STEEL SCRAP
AND FINISHED PRODUCT) CONTRIBUTING TO THE RECORD YEAR AS WELL AS THE DRIVING
COMPONENT BEHIND THE RECORD FOURTH QUARTER EARNINGS. ALSO IN THE FOURTH QUARTER,
THE COMPANY RECOGNIZED AN UNUSUAL AND NONRECURRING ITEM, RELATED TO
REIMBURSEMENTS RECEIVED FROM A THIRD PARTY PURSUANT TO THE SETTLEMENT OF A
DISPUTE RELATED TO PRODUCTION COSTS INCURRED IN THE PRIOR PERIOD WHICH FAVORABLY
IMPACTED EARNINGS BY APPROXIMATELY $3 MILLION. THE TENNESSEE FACILITY, WHICH
STARTED OPERATIONS IN FISCAL 1995, COMPLETED ITS FIRST FULL YEAR OF
PROFITABILITY INCREASING ITS CONTRIBUTION TO EARNINGS BY APPROXIMATELY $5.6
MILLION OVER THE PRIOR YEAR. FINALLY, NON-PRODUCTION STRIKE AND CORPORATE
CAMPAIGN EXPENSES WERE MINIMAL IN THE CURRENT YEAR DECREASING $3.3 MILLION AS
ALL OUTSTANDING ISSUES HAVE BEEN SETTLED.
DURING FISCAL 1998, THE COMPANY COMPLETED SEVERAL SIGNIFICANT TRANSACTIONS
AND EVENTS WHICH IMPACTED INCOME AVAILABLE TO COMMON SHAREHOLDERS AND, WITH THE
EXCEPTION OF CERTAIN CHARGES TAKEN IN CONNECTION WITH A TERMINATED MERGER, ARE
NOT INCLUDED IN THE RESULTS OF OPERATIONS DISCUSSED ABOVE:
REFINANCING. THE COMPANY COMPLETED A REFINANCING TRANSACTION IN ITS THIRD
QUARTER WHEREBY IT ISSUED, AT A PRICE OF 99.048%, $120 MILLION OF 9.5% FIRST
MORTGAGE NOTES ( THE "9.5% NOTES") DUE 2008 TO REPAY ITS PREVIOUSLY EXISTING
FIRST MORTGAGE NOTES AND TERM LOAN AND RETIRE ITS PREFERRED STOCK. IN CONNECTION
WITH THIS TRANSACTION, THE COMPANY INCURRED CERTAIN PREPAYMENT PENALTIES AND
WROTE-OFF PREVIOUSLY DEFERRED
117
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
financing costs associated with the transaction. This resulted in a $7.9 million
charge comprised of a $5.5 million extraordinary loss and a $2.4 million loss on
redemption of preferred stock in fiscal 1998.
MERGER. In February 1998, the Company entered into a letter of intent to
acquire a major minimill producer of structural steel, rod and wire products. In
April 1998, the Company announced that it would not proceed with the
acquisition. Included in miscellaneous expense for fiscal 1998 is an unusual,
non-recurring charge of $1.3 million related to cost incurred for this
unconsummated transaction.
INCOME TAX VALUATION ADJUSTMENT. Historically, the Company has had
significant net operating loss carryforwards ("NOLs") as a result of losses
generated from operations in prior years. Current accounting standards require
that the Company determine whether it will "more-likely-than-not" realize the
tax benefits associated with the prior year losses before recording a net
deferred tax asset. In light of the Company's improved profitability, a steady
long-term economic outlook, expiration of certain tax benefits derived from a
tax-favored lease agreement and its internal projections for the near future,
the Company has reversed approximately $16.5 million of this deferred tax
valuation allowance in fiscal 1998. Recognition of the benefit of realization of
these NOLs is included in provision (benefit) for income tax in the accompanying
consolidated statements of operations. The net effect of this item on the
Company's earnings in fiscal 1998 was approximately $11 million and was a
non-cash impact.
The Company reported consolidated net income in fiscal 1997 of $3.8 million
compared to $0.3 million in fiscal 1996. The $3.5 million improvement was mainly
due to three factors. First, the results at the Tennessee Facility improved by
$5.6 million. Second, metal margin at the Louisiana Facility improved by 4% or
$9 per ton. And third, shipments from the Louisiana Facility increased by 5% or
23,474 tons. Offsetting some of the improvements in earnings was increased
expense of $1.6 million related to the settlement of the extended strike and a
related lawsuit. In addition, the price of power and key supply items increased
by $2 per ton of steel produced or $1.1 million.
The following table sets forth the shipment and sales:
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
-------- -------- -------
Shape Shipment Tons.................... 687,482 663,675 580,069
Average Shape Selling Price Per Ton $ 364 $ 345 $ 340
Billet Shipment Tons................... -- 241 15,638
Net Sales (in thousands)............... $253,881 $232,161 $204,426
SALES
Net sales in fiscal 1998 increased by 9%, or $22 million compared to fiscal
1997. A strong demand for the Company's products caused by favorable domestic
economic conditions in fiscal 1998 led to shipment increases of 23,807 tons and
a $19 per ton increase in the average selling price. Fiscal 1998 was a record
shipment year exceeding the record shipments posted in the prior year.
Net sales increased by $28 million or 14% in fiscal 1997 compared to fiscal
1996 due to increased shipments out of both the Louisiana and Tennessee
facilities. The average shape selling price also increased by 1% during this
period.
SHAPES. Shipments for fiscal 1998 increased 4% compared to fiscal 1997. The
higher shipments were mainly due to a strong domestic economy, an increase in
shipments to the OEM/FAB market, and a good product mix. The total increase in
tons shipped in fiscal 1998 was comprised of 12,393 tons from the Louisiana
Facility and 11,414 tons from the Tennessee Facility. Higher production arising
from the record productivity level established in the current year enabled the
Company to capitalize on the strong demand
118
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
for its products. Exports to Mexico were minimal, while exports to Canada
remained consistent with the prior year.
Overall selling price increased $19 per ton or 6% during fiscal 1998 compared
to the same period of fiscal 1997. The Tennessee Facility, which was purchased
in fiscal 1995 and, after being idle for a period of time, was restarted by the
Company, demonstrated consistent improvement in production, product quality and
product mix. These improvements, as well as the overall improved market, were
factors that contributed to a 8% increase in shipments from this facility.
In fiscal 1997, shape shipment increases of 83,606 tons were attributable to
a strong economy and improved product mix enabling the Company to better respond
to customer demand. Exports to Mexico and overseas were minimal, while exports
to Canada remained approximately the same compared to fiscal 1996. Shipments
from the Tennessee Facility in fiscal 1997 improved by 81% or 60,132 tons while
the selling price improved by 8% or $25 per ton. Shipments from the Louisiana
Facility improved by 5% or 23,474 tons while the selling price improved 1% or $4
per ton. The Company focused its sales efforts on capturing a larger share of
the OEM/FAB market. More shipments, as a percentage of the total, went to
OEM/FAB and less to steel service center customers in fiscal 1997 compared to
fiscal 1996.
IMPORTS. The Company did not experience significant competition from foreign
producers during fiscal 1998. However, subsequent to year end the impact of
imports has indirectly adversely affected prices in the Company's product range.
Steel service centers, reacting to ever increasing imports at lower prices and
record high inventories of steel outside of the Company's product line, have
chosen to reduce orders from domestic mills. Subsequently, certain major
competitors, in hopes of stimulating shipments, have announced selling price
reductions affecting virtually all of the Company's products. Based on the
average sales price for fiscal 1998 of $364 per ton, the net price reduction
approximates 8%. Imports have not only impacted the selling price but, due to a
lack of demand for scrap metals in Asian countries, the scrap market has
softened significantly in the second half of fiscal 1998. The price that the
Company paid for scrap reached a five year low at the end of fiscal 1998.
Although selling prices have decreased subsequent to year-end, scrap price
decreases experienced in the fourth quarter of fiscal 1998 are anticipated to
offset the impact of this price fluctuation. Shipments are expected to
temporarily decline as steel service centers reduce inventories in the event of
an economic slowdown. A slowdown in the economy or additional imports in the
Company's product range could further affect shipments.
BILLETS. Due to the high productivity of the Company's rolling mills, no
billets were sold on the open market in fiscal 1998, and there were minimal
sales in fiscal 1997. The Tennessee Facility's demand for billets has been
satisfied by a combination of billets manufactured at the Louisiana Facility and
billets purchased on the open market at competitive prices.
COST OF GOODS SOLD
Cost of goods sold was 84% of sales in fiscal 1998 compared to 90% in fiscal
1997. The decrease was due to selling price increases while scrap costs declined
and conversion cost (the costs to convert scrap metal into billets and billets
into finished products) remained constant. Additionally, the Company received
reimbursement during fiscal 1998 pursuant to the settlement of previously
disputed production costs. The proceeds from this reimbursement are included as
a reduction to cost of sales in the current year and account for approximately
1% of the decrease.
Cost of goods sold was 90% of sales in fiscal 1997 compared to 92% in fiscal
1996. The variance was due to selling prices increasing more than scrap prices
increasing as well as conversion cost at the Tennessee Facility improving by
15%.
RAW MATERIAL. A major component of cost of goods sold is scrap. Scrap cost in
fiscal 1998 decreased 2% compared to the same period last year. The market for
scrap metal has softened in the second half of
119
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
fiscal 1998 and is expected to remain this way as the export demand for scrap
decreased sharply allowing for a greater domestic supply and lower prices. The
purchase price of scrap in the latter part of fiscal 1998 reached a five year
low decreasing 11% from the same period in the prior year. In fiscal 1997, scrap
cost decreased 4% compared to fiscal 1996 also due to a softening market.
The Company has been able to control the availability and the cost of scrap
to some degree by producing its own shredded scrap through a scrap processing
division of the Company, Mississippi River Recycling ("MRR"). MRR produces
shredded scrap metal from automobile hulks, appliances and sheet metal. Shredded
scrap is one of several scrap types used in steelmaking at the minimill.
Productivity, tons produced, and cost per ton have improved significantly since
this operation commenced in fiscal 1995. In fiscal 1998, MRR expanded into
additional scrap processing. As with the shredder, this operation also provides
the Company's melt shop with dependable, high-grade scrap normally at below
market costs. MRR currently supplies approximately 15% of the Company's scrap
requirements.
The Tennessee Facility's principal raw material is billets which are produced
at the Louisiana Facility or purchased on the open market at competitive prices.
The cost of billets purchased on the open market trends with scrap cost and
accordingly decreased by almost 1% in fiscal 1998 and 1997. The purchase price
of billets in the latter part of fiscal 1998 was the lowest since the Company
began purchasing billets for its Tennessee Facility decreasing 5% from the same
period in the prior year. The Louisiana Facility supplied approximately 17% of
the Tennessee rolling mill's total billet requirements in fiscal 1998 and 1997.
AAF. Another component of raw materials is additives, alloys and fluxes
("AAF"). AAF cost decreased by 1% in fiscal 1998 but, as with scrap, prices in
the latter part of fiscal 1998 decreased 11% from the same period in the prior
year. The favorable pricing trend along with better consumption in the melting
process resulted in the lowest AAF cost per ton in several years. The price
decrease is due to low demand as a result of similar economic factors that have
influenced scrap prices. In fiscal 1997, AAF cost remained approximately the
same as in fiscal 1996.
CONVERSION COST. Conversion cost include labor, energy, maintenance material,
and supplies used to convert raw materials into billets and billets into
finished products. Conversion cost per ton for the Louisiana Facility remained
unchanged in fiscal 1998 after increasing 1% in fiscal 1997. At the Tennessee
Facility, conversion cost per ton decreased 11% on improved production and cost
management.
In fiscal 1997, conversion cost per ton at the Louisiana Facility increased
by 1% compared to fiscal 1996. The price of various energy items and certain
supply items increased conversion cost by 2% compared to 1996. During fiscal
1997, the Company incurred a one-time expense related to the strikers returning
to work under a settlement agreement. In addition, productivity was affected as
returning and current workers became re-acquainted with the equipment or learned
new jobs. The Company also experienced two unusual equipment outages which
affected production and resulted in increased maintenance costs. Contributing to
improving the cost in the melting facility was record productivity, as measured
in tons produced per hour, and power consumption in fiscal 1997. The rolling
mill's record productivity level in fiscal 1997 contributed to reducing fixed
conversion cost per ton.
In July 1995, the Company commenced operations at its Tennessee rolling mill.
The learning curve associated with new and refurbished equipment combined with
an inexperienced work force caused production tons to be lower and conversion
cost per ton to be higher than expected in the start-up period. The rolling mill
performance has improved since start-up due to capital improvements and the
experience gained by the workforce. Comparing fiscal 1998 to fiscal 1997, tons
produced improved 17%, conversion cost per ton improved 11%, productivity
improved 23% and yield loss was reduced 13%. As a result of the strong economy,
a wide acceptance of the Tennessee product line and these favorable trends, the
Tennessee Facility reported its first year of profitability in fiscal 1998.
120
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
Comparing fiscal 1997 to fiscal 1996, tons produced at the Tennessee Facility
improved by 51%, conversion cost per ton improved by 15%, productivity improved
by 49%, and yield loss was reduced by 20%.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
Selling, general and administrative expense was relatively constant in fiscal
1998, 1997 and 1996.
NON-PRODUCTION STRIKE & CORPORATE
CAMPAIGN EXPENSES
In fiscal 1997, the Company's expense for direct out-of-pocket strike-related
and corporate campaign issues increased by $1.6 million compared to fiscal 1996.
The final issues connected with the strike were settled on October 29, 1997, the
results of which did not have a material impact on the Company's financial
position or results of operations.
INTEREST EXPENSE & MISCELLANEOUS
Interest expense increased $0.3 million in fiscal 1998 compared to 1997 due
primarily to the refinancing transaction in which the Company extinguished its
existing debt and preferred stock and issued one instrument with a greater face
value but a lower interest rate and less restrictive covenants. Interest expense
increased in fiscal 1997 compared to the prior fiscal year due to additional
short-term borrowings under the line of credit and higher interest rates. The
Company borrowed an average of $5.4 million at a weighted average interest rate
of 8.8% in fiscal 1997 and had no short term borrowings in fiscal 1998.
Excess cash generated from operations throughout the year, in addition to the
excess proceeds from the refinancing transaction, yielded liquidity that the
Company was able to invest, resulting in increased interest income in fiscal
1998. Interest income decreased in fiscal 1997 compared to the prior year due to
the Company having less cash to invest as it paid down its short term
borrowings.
Included in miscellaneous expense for fiscal 1998 is $1.3 million of costs
related to the terminated merger discussed above.
NET INCOME
In fiscal 1998, the Company's consolidated net income improved by $26 million
compared to fiscal 1997 due to higher selling prices, increased metal margin,
decreased conversion cost at the Tennessee Facility, decreased non-production
strike and corporate campaign expenses and the one time items discussed in
"Results of Operation" included elsewhere herein.
In fiscal 1997, the Company's consolidated net income improved by $3.5
million compared to fiscal 1996 mainly due to improvements in the Tennessee
operations, stronger shipments, and a better metal margin. The improvement was
partially offset by increased costs associated with non-production strike and
corporate campaign expenses and increased price of energy sources and certain
supply items.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended fiscal 1998 with $34 million in cash and temporary cash
investments and no short-term borrowings after completing a debt refinancing and
preferred stock redemption. At September 30, 1998, current assets exceeded
current liabilities by a ratio of 4.5 to 1.0 and working capital increased $46
million to $118 million during the year.
121
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
OPERATING CASH FLOW. In fiscal 1998, cash provided by operations was $27
million while $13 million was provided by operations during fiscal 1997.
Contributing to the significant improvement was the increase in income before
income tax benefits and extraordinary item of $21 million. This improvement was
offset somewhat by increased inventories at the Tennessee Facility as production
continues its improving trend.
For fiscal 1997, net cash provided by operations was $13 million while $4.5
million was used in operations in fiscal 1996. The improvement is a result of
increased net income and a decrease in inventory levels as shipments exceeded
production and the improved productivity of the rolling mills resulted in fewer
billets in inventory.
CAPITAL EXPENDITURES. Capital expenditures amounted to $5.7 million and $6.0
million in fiscal 1998 and 1997, respectively. In fiscal 1999, depending on
market conditions, the Company expects to commit approximately $12 million on
various capital projects. Capital projects in the past and for fiscal 1999 have
and will be to reduce costs and increase productivity, enhance safety and
environmental programs, and maintain the facilities. Depending on economic
conditions, the Company may commit and spend $33 million over the next two years
to substantially increase its melting capacity and reduce operating costs. The
project is divided into several phases whereby work will be performed in
independently beneficial phases that will require the Company to commit funds on
an incremental basis. The Company has committed approximately $6 million for two
phases in fiscal 1999. This flexibility will allow the Company to benefit from
each phase of the upgrade and provide flexibility in the event of changes in
economic conditions.
FINANCING ACTIVITIES. As a result of favorable market conditions, the Company
completed a refinancing transaction whereby it issued, at a price of 99.048%,
$120 million of 9.5% First Mortgage Notes due 2008, the proceeds of which were
used to repay its previously existing first mortgage notes and term loan and
redeem its preferred stock and for working capital purposes. The amended and
restated credit agreement and the indenture governing the 9.5% Notes contain
certain restriction on the ability of the Company and its subsidiaries to make
distribution to each other.
Concurrent with the refinancing transaction, the Company entered into an
amendment and restatement of its revolving line of credit agreement which will
be used for general corporate purposes. The terms of the amended and restated
agreement calls for available borrowings up to $50 million, including
outstanding letters of credit, using a borrowing base of accounts receivable and
inventory. As of September 30, 1998, there were no borrowings under the
revolving line of credit facility.
The 9.5% Notes are the Company's only financial instrument subject to market
risk. The fair value of the 9.5% Notes was approximately $103 million as of
September 30, 1998. The Company estimates that a 100 basis point change in
current market interest rates would impact the fair value of the 9.5% Notes by
approximately $6 million.
The Company has no financial obligations with respect to post-employment or
post-retirement benefits other than the employee retirement plans.
The Company believes that current cash balances, internally generated funds
and the line of credit agreement will be adequate to meet its foreseeable
short-term and long-term liquidity needs. If additional funds are required to
accomplish long-term expansion of its production facilities or significant
acquisitions, the Company believes funding can be obtained from a secondary
equity offering or additional indebtedness.
OTHER COMMENTS
YEAR 2000
The Company is completing the implementation phase of an organized program to
assure that the Company's electronic data processing, automated operating
systems and other information systems will be
122
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
year 2000 compliant. The program commenced in June 1997 and is scheduled for
completion by the end of the second quarter of fiscal 1999. The program has been
divided into four major areas including: (1) business systems, (2) commercial
systems, (3) process control or manufacturing systems, and (4) facility support
systems. Each system has been throughly audited by the Company's management
information systems department and a detailed plan for year 2000 compliance has
been developed, executed and tested. The Company believes that it has
substantially completed its internal year 2000 readiness program and has
performed the necessary testing via various routines including simulation.
Management believes that costs previously incurred and any future cost for
correction of the year 2000 issues will total less than $1.5 million. Such
expenditures incurred in fiscal 1997 and 1998 and future expenditures, if any,
are not considered material to the financial position of the Company or the
results of its operations.
The Company's year 2000 program also includes investigation of major vendors'
and customers' year 2000 readiness. The Company is using questionnaires and
inquiries to determine their readiness in addition to contacting, for example,
the energy provider and its phone and data line service vendors to determine
their status. If any such vendors indicate that they will not be compliant,
contingency plans will be developed to address this issue, which may include
changing vendors. The Company is also contacting all electronic data interchange
customers to determine their status and to identify issues and alternatives, if
required. The Company has been assured by its key financial institutions that
they are year 2000 compliant or will be compliant in early 1999.
Because there is no generally accepted definition of "Year 2000 Compliant"
and the ability of any organization's systems to operate reliably after midnight
on December 31, 1999 is dependent upon factors that may be outside the control
of, or unknown to, that organization, no "certification" of compliance is
possible by any business. For example, in Securities and Exchange Commission
(SEC) Staff Legal Bulletin No. 5, the SEC opined that, "It is not, and will not,
be possible for any single entity or collective enterprise to represent that it
has achieved complete year 2000 compliance and thus to guarantee its remediation
efforts. The problem is simply too complex for such a claim to have legitimacy.
Efforts to solve year 2000 problems are best described as 'risk mitigation'."
Consequently, the Company cannot so "certify" either.
Although management does not believe that it will be necessary, a contingency
plan has been developed whereby the Company's disaster recovery plan will be
implemented for any systems that fail to meet year 2000 compliance. This
contingency plan relies on manual processes and low technology to operate the
Company's facilities until the damaged systems can be repaired.
The foregoing assessment of the impact of the year 2000 issues on the Company
is based on management's estimates at the present time. The assessment is based
upon assumptions of future events and there can be no assurance that these
estimates and assumptions will prove accurate, and the actual results could
differ materially. To the extent that year 2000 issues cause significant delays
in production or limitation of sales, the Company's results of operations and
financial position would be materially adversely affected.
FORWARD-LOOKING INFORMATION AND INFLATION
This document contains various "forward-looking" statements which represent
the Company's expectation or belief concerning future events. The Company
cautions that a number of important factors could, individually or in the
aggregate, cause actual results to differ materially from those included in the
forward-looking statements including, without limitation, the following: changes
in the price of supplies, power, natural gas, or purchased billets; changes in
the selling price of the Company's finished products or the purchase price of
scrap; changes in demand due to imports or a general economic downturn; cost
overruns or start-up problems with capital expenditures; weather conditions in
the market area of the finished product distribution; unplanned equipment
outages; internal and external year 2000 compliance matters; and changing laws
affecting labor, employee benefit costs and environmental and other governmental
regulations.
123
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS - (CONTINUED)
ENVIRONMENTAL MATTERS
The Company is subject to various federal, state, and local laws and
regulations. See Footnote 10 and the "10-K Business-Environmental Matters".
124
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
ASSETS
<TABLE>
<CAPTION>
SEPTEMBER 30,
CURRENT ASSETS: 1998 1997
------------- -------------
<S> <C> <C>
Cash and temporary cash investments ..................... $ 34,028,855 $ 971,477
Receivables, net of allowance for doubtful accounts
of $773,984 and $500,459, respectively ................. 27,194,660 27,162,056
Inventories ............................................. 83,756,111 75,022,554
Deferred income taxes ................................... 5,671,451 --
Prepaid expenses ........................................ 242,414 239,161
------------- -------------
Total current assets ................................. 150,893,491 103,395,248
------------- -------------
PROPERTY, PLANT AND EQUIPMENT:
Land .................................................... 3,790,399 3,790,399
Machinery and equipment ................................. 114,165,843 110,028,977
Plant and office building ............................... 22,867,334 21,265,577
------------- -------------
140,823,576 135,084,953
Less--Accumulated depreciation .......................... (50,707,711) (44,946,654)
Net property, plant and equipment .................... 90,115,865 90,138,299
DEFERRED INCOME TAXES ...................................... 5,282,549 --
OTHER ASSETS ............................................... 3,205,550 2,931,507
------------- -------------
Total assets ......................................... $ 249,497,455 $ 196,465,054
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
Current maturities of long-term debt .................... $ -- $ 3,040,257
Accounts payable ........................................ 24,862,440 23,749,765
Interest payable ........................................ 4,116,667 677,371
Accrued liabilities ..................................... 4,279,810 3,896,773
------------- -------------
Total current liabilities ............................ 33,258,917 31,364,166
------------- -------------
LONG-TERM DEBT ............................................. 118,898,853 80,500,073
------------- -------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK ................................. -- 13,089,010
------------- -------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.01 par value--
Class A: 24,271,127 authorized and
10,619,380 outstanding shares .................. 106,194 106,134
Class B: 4,302,347 authorized and
2,271,127 outstanding shares .................. 22,711 22,711
Class C: 100 authorized and outstanding shares ......... 1 1
------------- -------------
Total common stock ................................... 128,906 128,846
Paid-in capital ......................................... 47,795,224 47,769,034
Retained earnings ....................................... 49,415,555 23,613,925
------------- -------------
Total common stockholders' equity .................... 97,339,685 71,511,805
------------- -------------
Total liabilities and common stockholders' equity .... $ 249,497,455 $ 196,465,054
============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
125
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------
1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
NET SALES ......................... $ 253,880,835 $ 232,161,116 $ 204,425,858
COST OF SALES ..................... 213,732,410 209,930,423 188,453,259
------------- ------------- -------------
GROSS PROFIT ...................... 40,148,425 22,230,693 15,972,599
------------- ------------- -------------
SELLING, GENERAL AND ADMINISTRATIVE 6,219,020 6,310,688 6,272,624
NON-PRODUCTION STRIKE AND
CORPORATE CAMPAIGN EXPENSE ...... -- 3,323,385 1,768,197
------------- ------------- -------------
OPERATING PROFIT .................. 33,929,405 12,596,620 7,931,778
------------- ------------- -------------
OTHER INCOME (EXPENSE):
Interest expense ............... (9,228,551) (8,961,587) (8,634,510)
Interest income ................ 1,251,246 12,193 146,825
Miscellaneous .................. (1,300,362) 186,716 870,507
------------- ------------- -------------
(9,277,667) (8,762,678) (7,617,178)
INCOME BEFORE INCOME TAX AND
EXTRAORDINARY ITEM .............. 24,651,738 3,833,942 314,600
PROVISION (BENEFIT) FOR INCOME TAX (10,954,000) 49,795 --
------------- ------------- -------------
INCOME BEFORE EXTRAORDINARY ITEM .. 35,605,738 3,784,147 314,600
EXTRAORDINARY ITEM ................ (5,506,885) -- --
------------- ------------- -------------
NET INCOME ........................ 30,098,853 3,784,147 314,600
LOSS ON REDEMPTION OF
PREFERRED STOCK ................. (2,429,105) -- --
DIVIDENDS ACCRUED AND ACCRETION ON
PREFERRED STOCK ................. (1,868,118) (2,599,919) (2,592,418)
------------- ------------- -------------
INCOME (LOSS) APPLICABLE TO COMMON
AND COMMON EQUIVALENT SHARES .... $ 25,801,630 $ 1,184,228 $ (2,277,818)
============= ============= =============
WEIGHTED AVERAGE COMMON SHARES
OUTSTANDING:
BASIC .......................... 12,886,107 12,884,607 12 ,884,607
DILUTED ........................ 13,723,009 13,707,029 13,707,029
INCOME (LOSS) PER COMMON SHARE:
BASIC .......................... $ 2.00 $ .09 $ (.18)
============= ============= =============
DILUTED ........................ $ 1.88 $ .09 $ (.18)
============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
126
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED SEPTEMBER 30,
-----------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES: 1998 1997 1996
------------- ------------- -------------
<S> <C> <C> <C>
Net Income .......................................................... $ 30,098,853 $ 3,784,147 $ 314,600
Extraordinary item .................................................. 5,506,885 -- --
Depreciation ........................................................ 5,761,057 5,953,714 6,094,870
Amortization ........................................................ 733,412 1,005,686 1,163,952
Provision for (reduction in) losses on accounts receivable .......... 268,626 143,393 (186,039)
Deferred income taxes ............................................... (10,954,000) -- --
Changes in working capital:
(Increase) in receivables ......................................... (301,230) (3,197,883) (2,000,180)
(Increase) decrease in inventories ................................ (8,733,557) 4,833,508 (12,161,321)
(Increase) decrease in prepaid expenses ........................... (3,253) 53,297 (35,053)
Increase (decrease) in accounts payable ........................... 1,112,675 (531,729) 2,093,010
Increase in interest payable and accrued liabilities .............. 3,822,333 717,803 180,625
------------- ------------- -------------
Net cash provided by (used in) operations ........................ 27,311,801 12,761,936 (4,535,536)
------------- -------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment .......................... (5,738,623) (5,997,630) (4,989,761)
Proceeds from the sale of property, plant and equipment ............. -- 240,013 210,541
Net cash used by investing activities ............................ (5,738,623) (5,757,617) (4,779,220)
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (payments) borrowings under line of credit ...................... -- (3,000,000) 3,000,000
Payments of long-term debt and early retirement cost ................ (86,678,456) (1,601,851) (608,966)
Proceeds from issuance of long-term debt ............................ 118,857,600 -- --
Payments of preferred stock, dividends and
early retirement cost .............................................. (17,386,232) (2,175,000) (2,783,749)
Stock options exercised ............................................. 26,250 -- --
Debt issue and other costs .......................................... (3,334,962) (4,599) (65,585)
Net cash provided by (used in)
financing activities ............................................ 11,484,200 (6,781,450) (458,300)
------------- ------------- -------------
NET INCREASE (DECREASE) IN CASH AND TEMPORARY
CASH INVESTMENTS ..................................................... 33,057,378 222,869 (9,773,056)
CASH AND TEMPORARY CASH INVESTMENTS,
beginning balance .................................................... 971,477 748,608 10,521,664
------------- ------------- -------------
CASH AND TEMPORARY CASH INVESTMENTS,
ending balance ....................................................... $ 34,028,855 $ 971,477 $ 748,608
============= ============= =============
SUPPLEMENTAL CASH FLOW DISCLOSURES:
Cash paid during the period for:
Interest (net of amounts capitalized) ............................... $ 6,326,880 $ 9,011,60 $ 88,651,413
Income taxes ........................................................ $ 38,093 $ -- $ 42,611
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
127
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
TOTAL
COMMON STOCK COMMON
------------------------------------------- PAID-IN RETAINED STOCKHOLDERS'
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY
----------- ------------- ------------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
October 1, 1995 ................. $ 106,134 $ 22,711 $ 1 $ 47,769,034 $ 424,707,515 $ 72,605,395
Net income .................... -- -- -- -- 314,600 314,600
Dividends on preferred stock .. -- -- -- -- (2,167,500) (2,167,500)
Prepaid dividends on
preferred stock .............. -- -- -- -- -- --
Accretion on preferred stock .. -- -- -- -- (424,918) (424,918)
----------- ------------- ------------- ------------- ------------- -------------
ENDING BALANCE,
September 30, 1996 .............. 106,134 22,711 1 47,769,034 22,429,697 70,327,577
Net income .................... -- -- -- -- 3,784,147 3,784,147
Dividends on preferred stock .. -- -- -- -- (2,175,000) (2,175,000)
Accretion on preferred stock .. -- -- -- -- (424,919) (424,919)
----------- ------------- ------------- ------------- ------------- -------------
ENDING BALANCE,
September 30, 1997 .............. 106,134 22,711 1 47,769,034 23,613,925 71,511,805
Net income .................... -- -- -- -- 30,098,853 30,098,853
Loss on redemption of preferred
stock ........................ -- -- -- -- (2,429,105) (2,429,105)
Stock options exercised ....... 60 -- -- 26,190 -- 26,250
Dividends on preferred stock .. -- -- -- -- (1,561,232) (1,561,232)
Accretion on preferred stock .. -- -- -- -- (306,886) (306,886)
----------- ------------- ------------- ------------- ------------- -------------
ENDING BALANCE,
September 30, 1998 .............. $ 106,194 $ 22,711 $ 1 $ 47,795,224 $ 49,415,555 $ 97,339,685
=========== ============= ============= ============= ============= =============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
128
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
1. NATURE OF OPERATIONS:
Bayou Steel Corporation (the "Company") owns and operates a steel minimill
located on the Mississippi River in LaPlace, Louisiana ("the Louisiana
Facility") and a rolling mill in Harriman, Tennessee ("the Tennessee Facility").
The Louisiana Facility produces bar and light structural steel products and the
Tennessee Facility produces merchant bar shapes. In addition, the Company
operates five stocking warehouses along the inland waterway. The Company's
customer base is comprised of steel service centers and original equipment
manufacturers/fabricators located throughout the United States, with export
shipments to Canada and Mexico.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
PRINCIPLES OF CONSOLIDATION
The accompanying consolidated financial statements include the accounts of
the Company and its wholly-owned subsidiaries after elimination of all
significant intercompany accounts and transactions.
CASH AND TEMPORARY CASH INVESTMENTS
The Company considers investments purchased with original maturities of three
months or less to be temporary cash investments.
INVENTORIES
Inventories are carried at the lower of cost (last-in, first-out) or market
except mill rolls which are stated at cost (specific identification) and
operating supplies which are stated at average cost.
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment acquired as part of the acquisition of the
Louisiana Facility in 1986 and the Tennessee Facility in 1995 has been recorded
based on the respective fair values at the date of purchase. Betterments and
improvements are capitalized at cost; repairs and maintenance are expensed as
incurred. Interest during construction of significant additions is capitalized.
Depreciation is provided on the units-of-production method for machinery and
equipment and on the straight-line method for buildings over an estimated useful
life of 30 years.
CONTINGENCIES
The Company accounts for all contingencies, including the potential
environmental liabilities discussed in Note 10, in accordance with the
provisions of Statement of Financial Accounting Standards No. 5, "Accounting for
Contingencies," which, among other things, requires the Company to accrue for
estimated loss contingencies if: (a) it is probable that a liability has been
incurred, and (b) the amount can be reasonably estimated.
New Accounting Pronouncements
In June 1997, the Financial Accounting Standards Board (the "FASB") issued
Statements of Financial Accounting Standards No. 130, "Reporting Comprehensive
Income" ("FAS 130") and No. 131, "Disclosures About Segments of an Enterprise
and Related Information" ("FAS 131"). FAS 130 establishes standards for
reporting and display of comprehensive income in the financial statements.
Comprehensive income is the total of net income and all other non-owner changes
in equity. FAS 131 requires that companies disclose segment data based on how
management makes decisions about allocating resources to segments and
129
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
measuring their performance. FAS 130 and 131 are effective for fiscal years
beginning after December 15, 1997. Adoption of these standards is not expected
to have an effect on the reporting requirements of the Company's financial
position or results of operations.
In February 1998, the FASB issued Statement of Financial Accounting Standards
No. 132, "Employers' Disclosures about Pension and other Postretirement
Benefits" ("FAS 132"). FAS 132 revises employer's disclosures about pension and
other postretirement benefit plans, but does not change the measurement or
recognition of those plans. FAS 132 was developed to standardize disclosure
requirements, provide additional information on changes in the benefit
obligations and fair values of plan assets, and eliminated certain disclosures
which were previously required and is effective for fiscal years beginning after
December 15, 1997. The Company will adopt the provisions of this standard in
fiscal 1999.
In June 1998, the FASB issued Statement of Financial Accounting Standards No.
133, "Accounting for Derivative Instruments and Hedging Activity" ("FAS 133")
which establishes accounting and reporting standards requiring that every
derivative instrument (including certain derivative instruments embedded in
other contracts) be recorded in the balance sheet as either an asset or
liability measured at its fair value. The Company currently has no investments
or other financial obligation that qualify as derivative financial instruments
nor does the Company engage in hedging activities, therefore the adoption of
this standard is not expected to impact the Company's financial position or
results of operations.
ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities, disclosure of contingent
assets and liabilities at the date of the financial statements and the reported
amount of revenues and expenses during the reporting period. Actual results
could differ from those estimates.
CREDIT RISK
The Company extends credit to its customers primarily on 30 day terms and
encourages discounting. The Company believes that its credit risk exposure is
minimal due to the ongoing review of its customers' financial conditions,
sizeable customer base, and the geographical dispersion of its customer base. On
some occasions, particularly large export shipments, the Company requires
letters of credit. Historically, credit losses have not been significant. Also,
the Company invests its excess cash in high-quality short-term financial
instruments.
OPERATING LEASE COMMITMENTS
The Company has no significant operating lease commitments that would be
considered material to the financial statement presentation.
EXTRAORDINARY ITEM
As discussed in Note 6, during fiscal 1998 the Company refinanced its
previous indebtedness and incurred a loss on the early retirement of debt which
is reflected in the accompanying consolidated statements of operations as an
extraordinary item.
STRIKE AND CORPORATE CAMPAIGN
In fiscal 1993, the United Steelworkers of America Local 9121 (the "Union")
initiated a strike and, subsequently, a corporate campaign designed to bring
pressure on the Company from individuals and institutions with financial or
other interests in the Company. In fiscal 1996, the Company and Union entered
130
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
into a settlement agreement which, among other issues, resulted in a new labor
contract, ending the strike. In fiscal 1998, the Company and Union reached an
agreement on the corporate campaign issues the effect of which was not material
to the financial position or results of operations of the Company.
Non-Production strike and corporate campaign expenses include legal and other
charges incurred by the Company related to these matters.
3. INVENTORIES:
INVENTORIES AS OF SEPTEMBER 30 CONSIST OF THE FOLLOWING:
1998 1997
------------ ------------
Scrap steel ................................... $ 3,131,848 $ 5,623,964
Billets ....................................... 12,001,153 4,799,025
Finished product .............................. 45,339,376 46,717,869
LIFO adjustments .............................. 2,074,726 (2,497,697)
------------ ------------
62,547,103 54,643,161
Mill rolls, operating supplies, and other ..... 21,209,008 20,379,393
------------ ------------
$ 83,756,111 $ 75,022,554
In fiscal 1998, there were increments in the last-in, first-out ("LIFO")
inventories. Decrements in the LIFO inventories had no material impact on the
results of operations in fiscal 1997. At September 30, 1998 and 1997, the
first-in, first-out inventories were $60.5 million and $57.1 million,
respectively.
4. PROPERTY, PLANT AND EQUIPMENT:
Capital expenditures totaled $5.7 million, $6.0 million, and $5.0 million in
fiscal 1998, 1997, and 1996, respectively. As of September 30, 1998, the
estimated cost to complete authorized projects under construction or contract
amounted to $6.5 million. The Company capitalized interest of $103,000, $50,000,
and $18,000 during the years ended September 30, 1998, 1997, and 1996,
respectively, related to qualifying assets under construction. Depreciation
expense during the years ended September 30 was as follows:
1998 1997 1996
---------- ---------- ----------
Inventory ............................... $ 157,943 $ 19,683 $ 140,401
Cost of sales ........................... 5,597,335 5,928,467 5,947,719
Selling, general and administrative ..... 5,779 5,564 6,750
---------- ---------- ----------
$5,761,057 $5,953,714 $6,094,870
5. OTHER ASSETS:
Other assets consist of financing costs associated with the issuance of
long-term debt and the revolving line of credit which are amortized over the
terms of the respective agreements. During fiscal 1998, the Company completed a
refinancing transaction and amended and restated its line of credit resulting in
the write-off of $2,369,000 of other assets related to its previously existing
deferred financing costs. This charge is included as a component of the
extraordinary loss on early retirement of debt. In connection with this
transaction, the Company capitalized $3,335,000 of new deferred financing costs
which are being amortized over the ten year term of the new debt agreement.
Amortization of other assets was $733,000, $1,006,000, and $1,164,000 for the
years ended September 30, 1998, 1997, and 1996, respectively. Other assets are
reflected in the accompanying consolidated balance sheets net of accumulated
amortization of $129,000 and $3,015,000 at September 30, 1998 and 1997,
respectively.
131
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
6. LONG-TERM DEBT:
Long-term debt as of September 30 consists of the following:
1998 1997
------------ ------------
First Mortgage Notes ................... $118,898,853 $ 75,000,000
Term loan .............................. -- 8,500,000
Other notes payable .................... -- 40,330
------------ ------------
83,540,330
Less--current maturities ............... -- 3,040,257
------------ ------------
$118,898,853 $ 80,500,073
During fiscal 1998, the Company issued $120 million of 9.5% First Mortgage
Notes (the "9.5% Notes") due 2008, the proceeds of which were used to repay its
previously existing first mortgage notes and term loan, redeem its preferred
stock and for working capital purposes. The 9.5% Notes are presented in the
accompanying consolidated balance sheets, net of the original issue discount of
$1,142,400, which is being amortized over the life of the notes using the
straight line method which does not materially differ from the interest method.
In connection with the refinancing transaction, the Company paid certain
prepayment penalties and wrote off previously deferred financing costs, the
results of which are reflected as an extraordinary loss on the early retirement
of debt of $5.5 million in the accompanying consolidated statements of
operations for year ended September 30, 1998. No income tax benefit has been
provided against the extraordinary loss because there was no incremental effect
to the Company's total tax provision as a result of the extraordinary loss due
to the availability of previously unrecognized net operating loss tax benefits.
The 9.5% Notes are senior obligations of the Company, secured by a first
priority lien, subject to certain exceptions, on existing and future real
property, plant and equipment, and most additions or improvements thereto at the
Louisiana Facility. The Indenture under which the 9.5% Notes are issued contains
covenants, including an interest expense coverage ratio, which restrict the
Company's ability to incur additional indebtedness, make certain levels of
dividend payments, or place liens on the assets acquired with such indebtedness.
The 9.5% Notes bear interest at the nominal rate of 9.5% per annum (9.65%
effective rate) payable semi-annually on May 15 and November 15 of each year,
commencing on November 15, 1998. Subject to certain exceptions, the Company may
not redeem the 9.5% Notes prior to May 15, 2003. On and after such date, the
Company may, at its option, redeem the 9.5% Notes, in whole or in part,
initially at 104.75% of the principal amount, plus accrued interest to the date
of redemption, and declining ratably to par on May 15, 2006. The fair value of
the 9.5% Notes on September 30, 1998 was approximately $103 million.
Bayou Steel Corporation (Tennessee) and River Road Realty Corporation,
(collectively the "guarantor subsidiaries"), which are wholly owned by and which
comprise all of the direct and indirect subsidiaries of the Company, fully and
unconditionally guarantee the 9.5% Notes on a joint and several basis. The
following is summarized combined financial information of the guarantor
subsidiaries. Separate full financial statements and other disclosures
concerning each guarantor subsidiary have not been presented because, in the
opinion of management, such information is not deemed material to investors. The
indenture governing the 9.5% Notes provides certain restrictions on the ability
of the guarantor subsidiaries to make distributions to the Company.
132
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
SEPTEMBER 30,
1998 1997
----------- -----------
Current assets ..................................... $29,992,000 $38,817,000
Noncurrent assets .................................. 21,502,000 21,648,000
Current liabilities ................................ 26,489,000 23,844,000
Noncurrent liabilities ............................. 34,973,000 35,922,000
YEAR ENDED SEPTEMBER 30,
1998 1997 1996
------------ ------------ ------------
Net sales .............. $ 52,747,000 $ 45,851,000 $ 23,623,000
Gross profit ........... 3,757,000 (702,000) (4,806,000)
Net income (loss) ...... 2,299,000 (3,279,000) (6,748,000)
7. SHORT-TERM BORROWING ARRANGEMENT:
Concurrent with the refinancing transaction, the Company entered into an
amendment and restatement of its revolving line of credit agreement which will
be used for general corporate purposes. The terms of the amended and restated
agreement call for available borrowings up to $50 million, including outstanding
letters of credit, using a borrowing base of accounts receivable and inventory.
Based on these criteria, the net amount available as of September 30, 1998 was
$48.2 million. The agreement is secured by inventory and accounts receivable and
bears interest on a sliding scale based on the quarterly leverage ratio, as
defined. The terms of the agreement contain several operating and financial
performance measurement covenants including a maximum debt to capitalization
ratio, a minimum interest coverage ratio, minimum tangible net worth
requirements and limits on the incurrence of certain other indebtedness. As of
September 30, 1998 and 1997, there were no borrowings under either revolving
line of credit facility.
The following information relates to borrowings under the credit lines during
the years ended September 30:
1998 1997
--------- -----------
Maximum amount outstanding......................... $ -- $13,400,000
Average amount outstanding......................... $ -- $5,400,000
Weighted average interest rate..................... -- 8.8%
8. INCOME TAXES:
The Company accounts for income taxes under the provisions of Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). As of September 30, 1998, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $220 million available to utilize
against regular taxable income. The NOLs will expire in varying amounts through
fiscal 2010. A substantial portion of the available NOLs, approximately $124
million, expire by the end of fiscal 2001. Even though management believes the
Company will be profitable in the future and will be able to utilize a portion
of the NOLs, management does not believe that it is currently likely that all of
the NOLs will be utilized considering that a substantial portion of the NOLs
will expire within the next three years. In previous years, the Company had
maintained a full valuation allowance against its net deferred tax assets,
primarily due to the Company's history of generating tax losses. In addition to
the impact of the Company's operating performance, the historical tax losses
were highly influenced by the generation of substantial tax benefits related to
a fifteen year lease agreement that expired in May 1997. Because of the
expiration of the tax-favored lease agreement, the Company's improved operating
profit trends and management's expectation that the Company will utilize a
portion of the Company's NOLs through the generation of prospective taxable
income, the Company has determined that it is more likely than not that a
portion of the NOLs will be realized in the future, and therefore a favorable
adjustment of approximately $16.5 million was recorded as a reduction to the
deferred tax valuation allowance in fiscal 1998.
133
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of the deferred tax assets and liabilities as of September 30 follows:
<TABLE>
<CAPTION>
1998 1997
--------------------------- ----------------------------
CURRENT LONG-TERM CURRENT LONG-TERM
------------ ------------ ------------ ------------
<S> <C> <C> <C> <C>
Deferred tax assets:
Net operating loss and other tax
credit carryforwards ......... $ -- $ 77,924,491 $ -- $ 98,328,107
Allowance for doubtful accounts 270,882 -- 175,161 --
Inventory ..................... 3,238,826 -- 3,444,496 --
Accrued plant maintenance costs 490,326 -- 429,921 --
Employee benefit accruals ..... 687,357 -- 533,412 --
Preferred stock accretion ..... -- -- -- 338,815
Other accruals ................ 984,060 -- 1,039,523 --
------------ ------------ ------------ ------------
Subtotal .................... 5,671,451 77,924,491 5,622,513 98,666,922
------------ ------------ ------------ ------------
Deferred tax liabilities:
Property, plant and equipment . -- (7,983,360) -- (7,900,407)
------------ ------------ ------------
Valuation allowance .............. -- (64,658,582) (5,622,513) (90,766,515)
------------ ------------ ------------ ------------
Net deferred tax asset ...... $ 5,671,451 $ 5,282,549 $ -- $ --
============ ============ ============ ============
Income tax for the years ended September 30 consist of the following:
1998 1997 1996
------------ ------------ ------
Current ................................ $ 286,445 $ 49,795 $ --
Deferred ............................... (11,240,445) -- --
------------ ------------ ------
Total Income tax expense (benefit) ... $(10,954,000) $ 49,795 --
============ ============ ======
Provision for income tax differs from expected tax expense computed by
applying the federal corporate rate for the years ended September 30 follows:
1998 1997 1996
------------ ------------ ------------
Taxes computed at statutory rate . $ 5,196,683 $ 431,908 $ (797,236)
Minimum taxes .................... 286,445 49,795 --
Non-deductible expenses and other 11,391 9,754 15,217
Net lease costs .................. -- (327,782) (2,672,749)
Adjustments to valuation allowance (16,448,519) (113,880) 3,454,768
------------ ------------ ------------
$(10,954,000) $ 49,795 $ --
============ ============ ============
</TABLE>
9. EARNINGS PER SHARE:
In fiscal 1998, the Company adopted Statement of Financial Accounting
Standards No. 128, "Earnings Per Share" ("FAS 128"). The provisions of FAS 128
require restatement of reported earnings per share ("EPS") for all years
presented. However, there was no significant effect of this accounting change on
previously reported EPS for those periods.
Basic earnings per share was computed by dividing net income applicable to
common shares by the weighted average number of outstanding common shares of
12,886,107 during fiscal 1998 and 12,884,607 during fiscal 1997 and 1996. In
connection with the issuance of redeemable preferred stock discussed in Note 14,
the Company reserved 822,422 shares of its Class A Common Stock for issuance
upon exercise of the outstanding warrants at a nominal exercise price. In
addition, the Company maintains an incentive stock award plan for certain key
employees under which stock options to purchase 115,000 and 85,000 shares of its
Class A Common Stock at exercise prices of $4.375 and $4.75 per share,
respectively. Diluted earnings per share amounts were determined by assuming
that the outstanding warrants and stock options were exercised and considered as
additional common stock equivalents outstanding computed under the treasury
134
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
stock method. Additional common stock equivalents for purposes of the diluted
earnings per share computation were 836,902, 822,422 and 822,422 for fiscal
1998, 1997 and 1996, respectively.
The EPS effect of the extraordinary item for the year ended September 30,
1998 is as follows:
BASIC DILUTED
EPS before extraordinary item .................... $2.43 $2.28
Extraordinary item ............................... (.43) (.40)
----- -----
EPS applicable to common
and common equivalent shares ................... $2.00 $1.88
===== =====
10. COMMITMENTS AND CONTINGENCIES:
ENVIRONMENTAL
The Company is subject to various federal, state, and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solid and/or hazardous
wastes such as electric arc furnace dust. In addition, in the event of a release
of a hazardous substance generated by the Company, the Company could be
potentially responsible for the remediation of contamination associated with
such a release. In the past, the Company's operations in certain limited
circumstances have been challenged with respect to some of the applicable
standards promulgated pursuant to such laws and regulations. During fiscal 1997,
the United States Public Interest Research Group ("USPIRG") filed a lawsuit in
Louisiana against the Company for alleged violations of air quality regulations.
USPIRG is asking the court to award its appropriate legal fees and to assess
appropriate penalties against the Company. The Company believes that it has
meritorious defenses to these charges. The Company believes that it is in
compliance, in all material respects, with applicable environmental requirements
and that the cost of such continuing compliance (including the ultimate
resolution of the USPIRG matter) is not expected to have a material adverse
effect on the Company's competitive position, operations or financial condition,
or cause a material increase in currently anticipated capital expenditures. The
Company currently has no mandated expenditures at its Louisiana Facility to
address previously contaminated sites and is not designated as a "Potential
Responsible Party" under the Superfund legislation. As of September 30, 1998 and
1997, the Company has accrued loss contingencies for certain environmental
matters and believes that it is presently in material compliance with all
environmental laws.
VOLUNTARY CONSENT ORDER
Tennessee Valley Steel Corporation ("TVSC"), the prior owners of the
Tennessee Facility, entered into a Consent Agreement and Order (the "TVSC
Consent Order") with the Tennessee Department of Environment and Conservation
under its voluntary clean-up program. The Company, in acquiring the assets of
TVSC, entered into a Consent Agreement and Order (the "Bayou Steel Consent
Order") with the Tennessee Department of Environment and Conservation. The Bayou
Steel Consent Order is supplemental to the previous TVSC Consent Order and does
not affect the continuing validity of the TVSC Consent Order. The ultimate
remedy and clean-up goals will be dictated by the results of human health and
ecological risk assessments which are components of a required, structured
investigative, remedial, and assessment process. The definitive asset purchase
agreement between the Company and TVSC provided for $2.0 million of the purchase
price to be held in escrow and applied to costs incurred by the Company for
activities pursuant to the TVSC Consent Order (with an additional $1.0 million
to be held for one year for such costs and other costs resulting from a breach
of TVSC's representations and warranties in the agreement). As of September 30,
1998, investigative, remedial, and risk assessment activities have resulted in
costs of approximately $1.3 million, which are included in current assets in the
accompanying consolidated balance sheets. At this time the Company does not
expect the costs of resolution of the TVSC Consent Order to exceed funds to be
reimbursed to the Company through the escrow agreement.
135
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees other than those described in Note 12.
There are various claims and legal proceedings arising in the ordinary course
of business pending against or involving the Company wherein monetary damages
are sought. It is management's opinion that the Company's liability, if any,
under such claims or proceedings would not materially affect its financial
position or results of operations.
11. STOCK OPTION PLAN:
The Board of Directors and the Stockholders approved the 1991 Employees Stock
Option Plan for the purpose of attracting and retaining key employees. On
September 21, 1994, the Board of Directors granted to certain key employees
115,000 incentive stock options to purchase Class A Common Stock, exercisable at
the market price on the grant date of $4.375. On July 27, 1998, an additional
85,000 incentive stock options were granted under this program exercisable at
the market price on the grant date of $4.75. The options are exercisable in five
equal annual installments commencing one year from the grant date and expire ten
years from that date. As of September 30, 1998, 6,000 options were exercised,
86,000 shares were exercisable, and 400,000 additional shares were available for
grant under this plan.
A summary of activity relating to stock options follows:
SEPTEMBER 30,
1998 1997
-------- --------
Outstanding, beginning of year .................. 115,000 115,000
Granted ......................................... 85,000 --
Exercised (exercise price of $4.375) ............ (6,000) --
-------- --------
Outstanding, end of year ........................ 194,000 115,000
======== ========
The Company has adopted Statement of Financial Accounting Standards No. 123
"Accounting for Stock- Based Compensation" ("FAS 123") which, among other
provisions, establishes an optional fair value method of accounting for
stock-based compensation, including stock options awards. The Company has
elected to adopt the disclosure only provisions of FAS 123, and continues to
apply APB Opinion No. 25 "Accounting for Stock Issued to Employees" and related
interpretations in accounting for its stock-based compensation plans. The
disclosure requirements of FAS 123 include providing pro forma net income and
pro forma earnings per share as if the fair value based accounting method had
been used to account for stock-based compensation cost for the effects of all
awards granted in fiscal years beginning after December 31, 1994.
The fair value of the options subject to the requirements of FAS 123 was
estimated at the date of grant using a present value approach with the following
weighted-average assumptions: risk free interest rate of 5%; no expected
dividend yield; an estimated volatility of 35%; and an average expected life of
the options of ten years. The pro forma net income and related pro forma
earnings per share effect from applying FAS 123 did not result in a material
change to the actual results and earnings per share amounts reported.
12. EMPLOYEE RETIREMENT PLANS:
Effective October 1, 1991, the Company implemented two defined benefit
retirement plans (the "Plan(s)"), one for employees covered by the contracts
with the United Steelworkers of America ("hourly employees") and one for
substantially all other employees ("salaried employees"), except those employees
at the Tennessee Facility who are covered by a defined contribution plan. The
Plan for the hourly employees provides benefits of stated amounts for a
specified period of service. The Plan for the salaried employees provides
benefits based on employees' years of service and average compensation for a
specified period of
136
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
time before retirement. The Company follows the funding requirements under the
Employee Retirement Income Security Act of 1974 ("ERISA"). The net pension cost
for both non-contributory Company sponsored pension plans consists of the
following components for fiscal year 1998 and 1997:
The actuarial present value of future benefit obligations:
SEPTEMBER 30,
------------------------------
1998 1997
----------- -----------
Vested benefit obligation .............. $ 2,014,115 $ 1,504,232
Non-vested benefit obligation .......... 173,251 125,537
----------- -----------
Accumulated benefit obligation ......... $ 2,187,366 $ 1,629,769
===========
Projected benefit obligation ........... $ 3,110,562 $ 2,441,103
Plan assets at fair value .............. (2,833,937) (2,366,508)
----------- -----------
Funded status .......................... 276,625 74,595
Unrecognized net gain (loss) ........... (80,929) 120,558
----------- -----------
Accrued pension liability .............. $ 195,696 $ 195,153
=========== ===========
Determination of net periodic pension cost:
Service cost ........................... $ 461,210 $ 390,534
Interest cost .......................... 216,646 147,959
Expected return on plan assets ......... (253,648) (168,925)
Net amortization ....................... 4,820 4,820
----------- -----------
Total net periodic pension cost ........ $ 429,028 $ 374,388
=========== ===========
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1998 and 1997
measurement dates and include a discount rate of 7% per annum on valuing
liabilities; long-term expected rate of return on assets of 9% per annum; and
salary increases of 5% per annum for salaried employees.
The Company recognized expenses of $125,000, $75,000, and $63,000 in fiscal
1998, 1997, and 1996, respectively, in connection with a defined contribution
plan to which employees contribute and the Company makes matching contributions
based on employee contributions. In addition, the Company recognized expenses of
$109,000, $115,000, and $84,000 for the fiscal years 1998, 1997, and 1996,
respectively, in connection with a defined contribution plan at the Tennessee
Facility to which the employees contribute and the Company makes matching
contributions based on employee contributions and profit sharing contributions
based on employees' annual wages.
13. MAJOR CUSTOMERS:
No single customer accounted for 10% or more of total sales for the years
ended September 30, 1998, 1997, and 1996.
14. PREFERRED STOCK AND WARRANTS:
In fiscal 1995, the Company issued 15,000 shares of its redeemable preferred
stock and warrants to purchase six percent of the Company's Class A Common Stock
(or 822,422 shares) at a nominal amount. The Company valued the 15,000 shares of
preferred stock sold at $12,121,520, after deducting $2,878,480 for the market
value of the warrants. The holders were entitled to receive quarterly dividends
at a rate of 14.5% per annum. In connection with the refinancing transaction in
fiscal 1998, the preferred stock was redeemed resulting in a loss of $2.4
million from prepayment penalties and the write-off of certain deferred costs.
The warrants remain outstanding.
137
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
A summary of activity related to the preferred stock follows:
SEPTEMBER 30,
1998 1997
------------ ------------
Balance, beginning of year .............. $ 13,089,010 $ 10,489,091
Accretion of prepaid dividends .......... -- 2,175,000
Accretion of discount ................... 306,886 424,919
Redemption .............................. (13,395,896) --
------------ ------------
Balance, end of year .................... $ -- $ 13,089,010
============ ============
15. COMMON STOCK:
Other than for voting rights, all classes of common stock have similar
rights. With respect to voting rights, Class B Common Stock has 60% and Class A
and Class C Common Stock have 40% of the votes except for special voting rights
for Class B and Class C Common Stock on liquidation and certain mergers. The
Class B Common Stock is held by an entity that is controlled by certain
directors and one officer of the Company. The Company's ability to pay certain
levels of dividends is subject to restrictive covenants under the indenture
governing the Company's 9.5% Notes and the Company's line of credit.
Under the Second Restated Certificate of Incorporation of the Company, upon
issuance of shares of Class A Common Stock of the Company for any reason, the
holders of Class B Common Stock have the right to purchase additional shares of
Class B Common Stock necessary to maintain, after the issuance of such
additional shares of Class A Common Stock, the ratio that the Class B Common
Stock bears to the aggregate number of shares of common stock outstanding
immediately prior to the additional issuance of such consideration per share
equal to the fair market value of consideration per share being paid for the
Class A Common Stock being issued. The impact of these rights has been
considered in the Company's computation of other common stock equivalents for
purposes of determining diluted earnings per share.
16. MISCELLANEOUS:
Miscellaneous income for the years end September 30 included the following:
1998 1997 1996
----------- ----------- -----------
Discount earned .................... $ 231,180 $ 174,089 $ 220,919
Allowance for doubtful accounts .... (268,626) (143,393) 186,039
Other income (expense) ............. (1,262,916) 156,020 463,549
$(1,300,362) $ 186,716 $ 870,507
During fiscal 1998, the Company entered into a letter of intent to purchase
all of the outstanding shares of a major minimill producer of structural steel,
rod and wire products and subsequently determined that it would not proceed with
this acquisition. Included in miscellaneous expense for fiscal 1998 is an
unusual, non-recurring charge of $1.3 million related to this unconsummated
transaction which includes fees for investment banking services paid to Allen &
Company Incorporated of which a director of the Company is a principal.
138
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - (CONTINUED)
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL YEAR 1998 QUARTERS
--------------------------------------------
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales ..................................... $ 66,348 $ 65,836 $ 59,606 $ 62,091
Gross Profit .................................. 8,138 8,430 9,449 14,131
Income Before Income Tax and Extraordinary Item 4,601 4,915 4,847 10,289
Income Before Extraordinary Item .............. 4,507 4,811 4,747 21,541
Extraordinary Item ............................ -- -- (5,507) --
Net Income (Loss) ............................. 4,507 4,811 (760) 21,541
Loss on Redemption of Preferred Stock ......... -- -- (2,429) --
Dividends and Accretion on Preferred Stock .... (650) (654) (564) --
Income (Loss) Applicable to Common and
Common Equivalent Shares .................... 3,857 4,157 (3,753) 21,541
Income (Loss) Per Common and
Common Equivalent Shares .................... .28 .30 (.29) 1.57
<CAPTION>
FISCAL YEAR 1997 QUARTERS
FIRST SECOND THIRD FOURTH
-------- -------- -------- --------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
Net Sales ................................ $ 54,865 $ 57,653 $ 59,075 $ 60,568
Gross Profit ............................. 2,813 5,152 7,157 7,109
Net Income (Loss) ........................ (1,803) 803 2,113 2,671
Dividends and Accretion on Preferred Stock (650) (650) (650) (650)
Income (Loss) Applicable to Common and
Common Equivalent Shares ............... (2,453) 152 1,463 2,022
Income (Loss) Per Common and
Common Equivalent Shares ............... (.18) .01 .11 .15
</TABLE>
139
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Stockholders of
Bayou Steel Corporation:
We have audited the accompanying consolidated balance sheets of Bayou Steel
Corporation (a Delaware corporation) and subsidiaries as of September 30, 1998
and 1997, and the related consolidated statements of operations, cash flows, and
changes in equity for the years ended September 30, 1998, 1997, and 1996. These
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Bayou Steel Corporation and
subsidiaries as of September 30, 1998 and 1997 and the results of their
operations and their cash flows for the years ended September 30, 1998, 1997,
and 1996 in conformity with generally accepted accounting principles.
New Orleans, Louisiana
November 13, 1998
140
<PAGE>
BAYOU STEEL CORPORATION
- --------------------------------------------------------------------------------
SHAREHOLDER INFORMATION
CORPORATE DATA
CORPORATE HEADQUARTERS
BAYOU STEEL CORPORATION
138 HIGHWAY 3217
LAPLACE, LOUISIANA 70068
(504) 652-4900
MAILING ADDRESS
BAYOU STEEL CORPORATION
P.O. BOX 5000
LAPLACE, LOUISIANA 70069-1156
TRANSFER AGENT AND REGISTRAR
CLASS A COMMON STOCK
AMERICAN STOCK TRANSFER & TRUST COMPANY
40 WALL STREET NEW YORK, NY 10005
(800) 937-5449
TRUSTEE
9 1/2% FIRST MORTGAGE NOTES DUE 2008
BANK ONE TRUST COMPANY, NA
CORPORATE TRUST ADMINISTRATION
BANK ONE CENTER, 27TH FLOOR
201 ST. CHARLES AVENUE
NEW ORLEANS, LOUISIANA 70170
(504) 623-1995
INDEPENDENT AUDITORS
ARTHUR ANDERSEN LLP
201 ST. CHARLES AVENUE, SUITE 4500
NEW ORLEANS, LOUISIANA 70170
(504) 581-5454
STOCK LISTING
AMERICAN STOCK EXCHANGE
TRADING SYMBOL-BYX
INVESTOR INFORMATION INVESTOR INFORMATION IS AVAILABLE UPONREQUEST BY WRITING OR
CALLING: BAYOU STEEL CORPORATION VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY P.O. BOX 5000 LAPLACE, LOUISIANA 70069-1156 (504)
652-4900 E-MAIL ADDRESS: [email protected] INTERNET NEWS BUREAU:
HTTP://WWW.BAYOUSTEEL.COM
BOARD OF DIRECTORS
HOWARD M. MEYERS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
BAYOU STEEL CORPORATION
LAWRENCE E. GOLUB
PRESIDENT
GOLUB ASSOCIATES, INC.
MELVYN N. KLEIN, ESQ.
PRESIDENT
JAKK HOLDING CORPORATION
GENERAL PARTNER
GKH PARTNERS, L.P.
ALBERT P. LOSPINOSO
DIRECTOR OF QUEXCO INC.
RSR CORPORATION
STANLEY S. SHUMAN
EXECUTIVE VICE PRESIDENT AND
MANAGING DIRECTOR
ALLEN & COMPANY INCORPORATED
JEFFREY P. SANGALIS
MANAGING DIRECTOR
RICE SANGALIS TOOLE & WILSON
JERRY M. PITTS
PRESIDENT AND CHIEF
OPERATING OFFICER
BAYOU STEEL CORPORATION
CORPORATE OFFICERS
HOWARD M. MEYERS
CHAIRMAN OF THE BOARD AND
CHIEF EXECUTIVE OFFICER
JERRY M. PITTS
PRESIDENT AND CHIEF
OPERATING OFFICER
RICHARD J. GONZALEZ
VICE PRESIDENT, CHIEF FINANCIAL
OFFICER, TREASURER AND SECRETARY
RODGER A. MALEHORN
VICE PRESIDENT OF COMMERCIAL OPERATIONS
TIMOTHY R. POSTLEWAIT
VICE PRESIDENT OF PLANT OPERATIONS
HENRY S. VASQUEZ
VICE PRESIDENT OF HUMAN RESOURCES
141
<PAGE>
FOR INFORMATION CONTACT:
[GRAPHIC OMITTED]
Bayou Steel Corporation
P.O. Box 5000
LaPlace, LA 70069-1156
Phone: (504) 652-4900
142
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE FINANCIAL DATA SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED
FROM BAYOU STEEL CORPORATION CONSOLIDATED BALANCE SHEETS AND CONSOLIDATED
STATEMENTS OF OPERATIONS AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH
FINANCIAL STATEMENTS.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> SEP-30-1998
<PERIOD-END> SEP-30-1998
<CASH> 34,028,855
<SECURITIES> 0
<RECEIVABLES> 27,968,644
<ALLOWANCES> 773,984
<INVENTORY> 83,756,111
<CURRENT-ASSETS> 150,893,491
<PP&E> 140,823,576
<DEPRECIATION> 50,707,711
<TOTAL-ASSETS> 249,497,455
<CURRENT-LIABILITIES> 33,258,917
<BONDS> 118,898,853
<COMMON> 128,906
0
0
<OTHER-SE> 97,210,779
<TOTAL-LIABILITY-AND-EQUITY> 249,497,455
<SALES> 253,880,835
<TOTAL-REVENUES> 255,132,081
<CGS> 213,732,410
<TOTAL-COSTS> 219,951,430
<OTHER-EXPENSES> 1,031,736
<LOSS-PROVISION> 268,626
<INTEREST-EXPENSE> 9,228,551
<INCOME-PRETAX> 24,651,738
<INCOME-TAX> (10,954,000)
<INCOME-CONTINUING> 35,605,738
<DISCONTINUED> 0
<EXTRAORDINARY> (5,506,885)
<CHANGES> 0
<NET-INCOME> 30,098,853
<EPS-PRIMARY> 2.00
<EPS-DILUTED> 1.88
</TABLE>
