<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON AUGUST 3, 1998.
REGISTRATION NO. 333-58263
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
---------------
AMENDMENT NO. 1 TO
FORM S-4
REGISTRATION STATEMENT UNDER
THE SECURITIES ACT OF 1933
---------------
BAYOU STEEL CORPORATION
(AND ITS SUBSIDIARIES IDENTIFIED IN FOOTNOTE (1) BELOW)
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 3312 72-1125783
(STATE OR OTHER (PRIMARY STANDARD (I.R.S. EMPLOYER
JURISDICTION INDUSTRIAL IDENTIFICATION NO.)
OF INCORPORATION OR CLASSIFICATION CODE
ORGANIZATION) NUMBER)
RIVER ROAD
P.O. BOX 5000
LAPLACE, LOUISIANA 70068
(504) 652-4900
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
RICHARD J. GONZALEZ
VICE PRESIDENT, CHIEF FINANCIAL OFFICER,
TREASURER AND SECRETARY
RIVER ROAD
P.O. BOX 5000
LAPLACE, LOUISIANA 70068
(504) 652-4900
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER,
INCLUDING AREA CODE, OF AGENT FOR SERVICE)
COPIES TO:
CURTIS R. HEARN, ESQ.
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
201 ST. CHARLES AVENUE
NEW ORLEANS, LOUISIANA 70170
504-582-8188
---------------
APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC:
As soon as practicable after this Registration Statement becomes effective.
---------------
If the securities being registered on this Form are being offered in
connection with the formation of a holding company and there is compliance
with General Instruction G, check the following box. [_]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(d)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
CALCULATION OF REGISTRATION FEE
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<TABLE>
<CAPTION>
PROPOSED
TITLE OF EACH CLASS OF MAXIMUM OFFERING PROPOSED
SECURITIES AMOUNT TO BE PRICE PER MAXIMUM AGGREGATE AMOUNT OF
TO BE REGISTERED REGISTERED UNIT(2) OFFERING PRICE(2) REGISTRATION FEE
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<S> <C> <C> <C> <C>
9 1/2% First Mortgage
Notes due 2008......... $120,000,000 100% $120,000,000 $35,400(3)
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Guarantee of 9 1/2%
First Mortgage Notes
due 2008............... (4) (4) (4) (4)
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</TABLE>
(1) Bayou Steel Corporation (Tennessee), a Delaware corporation (I.R.S.
Employer Identification Number 62-1596494), and River Road Realty
Corporation, a Louisiana corporation (I.R.S. Employer Identification
Number 72-1162713), each a wholly owned subsidiary of the Company, will
each be a guarantor of the 9 1/2% First Mortgage Notes due 2008
(collectively, the "Subsidiary Guarantors").
(2) Determined solely for the purpose of calculating the registration fee in
accordance with Rule 457(f).
(3) The Registrant previously paid $32,450 of the registration fee in
connection with the initial filing of this Registration Statement.
(4) Pursuant to Rule 475(n), no registration fee is required with respect to
the guarantee of the First Mortgage Notes registered hereby.
THE CO-REGISTRANTS HEREBY AMEND THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE CO-REGISTRANTS
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE COMMISSION, ACTING PURSUANT TO SAID
SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+INFORMATION CONTAINED HEREIN IS SUBJECT TO COMPLETION OR AMENDMENT. A +
+REGISTRATION STATEMENT RELATING TO THESE SECURITIES HAS BEEN FILED WITH THE +
+SECURITIES AND EXCHANGE COMMISSION. THESE SECURITIES MAY NOT BE SOLD NOR MAY +
+OFFERS TO BUY BE ACCEPTED PRIOR TO THE TIME THE REGISTRATION STATEMENT +
+BECOMES EFFECTIVE. THIS PROSPECTUS SHALL NOT CONSTITUTE AN OFFER TO SELL OR +
+THE SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY STATE IN WHICH SUCH OFFER, SOLICITATION OR SALE WOULD BE +
+UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS OF +
+ANY SUCH STATE. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED , 1998
PROSPECTUS
OFFER TO EXCHANGE REGISTERED
9 1/2% FIRST MORTGAGE NOTES DUE 2008 FOR OUTSTANDING
UNREGISTERED 9 1/2% FIRST MORTGAGE NOTES DUE 2008
OF
BAYOU STEEL CORPORATION
LOGO
[LOGO OF BAYOU STEEL APPEARS HERE]
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME
ON , 1998 UNLESS EXTENDED BY THE COMPANY.
Bayou Steel Corporation (the "Company" or "Bayou Steel"), hereby offers (the
"Exchange Offer") to exchange an aggregate principal amount of up to
$120,000,000 of its registered 9 1/2% First Mortgage Notes due 2008 (the
"Exchange Notes") for a like principal amount of its unregistered 9 1/2% First
Mortgage Notes due 2008 (the "Old First Mortgage Notes") outstanding on the
date hereof upon the terms and subject to the conditions set forth in this
Prospectus and in the accompanying Letter of Transmittal (the "Letter of
Transmittal"). The Exchange Notes and the Old First Mortgage Notes are
collectively referred to hereinafter as the "First Mortgage Notes."
The terms of the Exchange Notes are identical in all material respects to those
of the Old First Mortgage Notes, except for certain transfer restrictions and
registration rights relating to the Old First Mortgage Notes. The Exchange
Notes will be issued pursuant to, and entitled to the benefits of the indenture
governing the Old First Mortgage Notes (the "Indenture"). Interest on the
Exchange Notes will accrue from the last interest payment date on which
interest was paid on the Old First Mortgage Notes surrendered in exchange
therefor or, if no interest has been paid on the Old First Mortgage Notes, from
May 22, 1998 (the "Issue Date"). Interest on the Exchange Notes will be payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1998 at the rate of 9 1/2% per annum. The Exchange Notes will mature on May 15,
2008. Except as described below, the Company may not redeem the First Mortgage
Notes prior to May 15, 2003. On and after such date, the Company may, at its
option, redeem the First Mortgage Notes, in whole or in part, from time to
time, at the redemption prices set forth herein, together with accrued and
unpaid interest, if any, to the date of redemption. In addition, at any time
prior to May 15, 2001, the Company may, at its option, from time to time,
redeem up to 35% of the original aggregate principal amount of the First
Mortgage Notes at a redemption price equal to 109.500% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption with all or a portion of the net proceeds of public sales of common
stock of the Company; provided, that at least 65% of the original aggregate
principal amount of the First Mortgage Notes remains outstanding immediately
after the occurrence of such redemption. The First Mortgage Notes will not be
subject to any sinking fund requirement. See "Description of the First Mortgage
Notes."
Upon a Change of Control (as defined herein), the Company will be required to
make an offer to repurchase all of the outstanding First Mortgage Notes at a
repurchase price equal to 101% of the principal amount thereof, together with
accrued and unpaid interest, if any, to the date of repurchase. In addition, at
any time on or prior to May 15, 2003, the Company may, at its option, redeem
the First Mortgage Notes, in whole but not in part, upon the occurrence of a
Change of Control at a redemption price equal to 100% of the principal amount
thereof, together with the Applicable Premium (as defined herein) as of, and
accrued and unpaid interest, if any, to, the date of redemption. See
"Description of the First Mortgage Notes."
(Continued on following page)
SEE "RISK FACTORS" BEGINNING ON PAGE 13 FOR A DESCRIPTION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED CAREFULLY BY PROSPECTIVE PURCHASERS IN EVALUATING AN
INVESTMENT IN THE EXCHANGE NOTES.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE COMMISSION
OR ANY STATE SECURITIES COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A CRIMINAL OFFENSE.
The date of this Prospectus is , 1998.
<PAGE>
The First Mortgage Notes will be senior obligations of the Company, secured by
a first priority lien, subject to certain exceptions, on certain existing and
future real property, plant and equipment (including certain operating
equipment classified as inventory), and all additions or improvements thereto
and all proceeds and products thereof. See "Description of the First Mortgage
Notes--Security." The First Mortgage Notes (together with any additional First
Mortgage Notes issued under the Indenture relating thereto) will rank pari
passu in right of payment with any existing and future senior indebtedness of
the Company, including obligations of the Company arising in connection with
the New Credit Facility (as defined herein) and will rank senior in right of
payment to all existing and future subordinated indebtedness of the Company.
The First Mortgage Notes are guaranteed (the "Subsidiary Guarantees"), jointly
and severally, by the Company's Recourse Subsidiaries (as defined herein) (the
"Subsidiary Guarantors"). As of March 31, 1998, after giving pro forma effect
to the original sale on May 22, 1998 by the Company of $110 million aggregate
principal amount of First Mortgage Notes (the "Original Offering") and the
subsequent sale on July 8, 1998 by the Company of an additional $10 million
aggregate principal amount of First Mortgage Notes (the "Subsequent Offering"
and, together with the Original Offering, the "Original Offerings") and the
New Credit Facility, and the application of the proceeds therefrom, the
Company would have had approximately $120 million of senior indebtedness
outstanding. The Company and its subsidiaries are permitted to incur
additional secured and unsecured indebtedness under the Indenture (as defined
herein) governing the First Mortgage Notes (including indebtedness under the
New Credit Facility).
The Exchange Notes are being offered hereunder in order to satisfy certain
obligations of the Company contained in the Exchange and Registration Rights
Agreements dated as of May 22, 1998 and July 8, 1998, respectively
(collectively, the "Exchange and Registration Rights Agreement"), each among
the Company, Chase Securities Inc., BT Alex. Brown Incorporated and
PaineWebber Incorporated (the "Initial Purchasers"), with respect to the
Exchange Offer. Based on interpretations by the staff of the Securities and
Exchange Commission (the "Commission" or "SEC"), as set forth in no-action
letters issued to third parties, the Company believes that the Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old First Mortgage Notes
may be offered for resale, resold and otherwise transferred by any holder
thereof (other than any such holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act) without compliance
with the registration and prospectus delivery provisions of the Securities
Act, provided that such Exchange Notes are acquired in the ordinary course of
such holder's business and such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes.
Each holder will be required to acknowledge in the Letter of Transmittal that
it is not, and does not intend to engage in, a distribution of the Exchange
Notes. Notwithstanding the foregoing, Each broker-dealer that receives
Exchange Notes for its own account pursuant to the Exchange Offer must
acknowledge that it will deliver a prospectus in connection with any resale of
such Exchange Notes. The Letter of Transmittal states that by so acknowledging
and by delivery of a prospectus, a broker-dealer will not be deemed to admit
that it is an "underwriter" within the meaning of the Securities Act of 1933,
as amended (the "Securities Act"). This Prospectus, as it may be amended or
supplemented from time to time, may be used by a broker-dealer in connection
with resales of Exchange Notes received in exchange for Old First Mortgage
Notes where such Old First Mortgage Notes were acquired by such broker-dealer
as a result of market-making activities or other trading activities. The
Company has agreed that for a period of the lesser of 180 days following the
consummation of the Exchange Offer or the date on which all such broker-
dealers have sold all Exchange Notes held by them, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Based on the above-mentioned
interpretations by the staff of the Commission, the Company believes that
broker-dealers who acquired the Old First Mortgage Notes directly from the
Company and not as a result of market-making activities or other trading
activities cannot rely on such interpretations by the staff of the Commission
and must, in the absence of an exemption, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
secondary resales of the Exchange Notes. Such broker-dealers may not use this
Prospectus, as it may be amended or supplemented from time to time, in
connection with any resales of the Exchange Notes.
The Company will not receive any proceeds from the Exchange Offer. The Company
will pay all the expenses incident to the Exchange Offer. Tenders of Old First
Mortgage Notes pursuant to the Exchange Offer may be withdrawn at any time
prior to the Expiration Date (as defined herein) for the Exchange Offer. In
the event the company terminates the Exchange Offer and does not accept for
exchange any Old First Mortgage Notes with respect to the Exchange Offer, the
Company will promptly return such Old First Mortgage Notes to the holders
thereof. See "The Exchange Offer."
Prior to the Exchange Offer, there has been no public market for the Old First
Mortgage Notes. The Old First Mortgage Notes have been designated for trading
in the Private Offering, Resales and Trading through Automated Linkages
("PORTAL") Market. There can be no assurance that any public market for the
Exchange Notes will develop; however, if a market for the Exchange Notes
should develop, such Exchange Notes could trade at a discount from their
principal amount.
The Exchange Offer is not conditioned upon any minimum principal amount of Old
First Mortgage Notes being tendered for exchange pursuant to the Exchange
Offer.
<PAGE>
AVAILABLE INFORMATION
The Company is subject to the informational requirements of the Securities
Exchange Act of 1934 (the "Exchange Act") and the rules and regulations
thereunder, and in accordance therewith files periodic reports, proxy
statements and other documents with the Commission. All documents filed by the
Company with the Commission may be inspected at the public reference
facilities maintained by the Commission at 450 Fifth Street, N.W., Washington,
D.C. 20549, and at the regional offices of the Commission located at 7 World
Trade Center, 13th Floor, New York, New York 10048, and 500 West Madison
Street, Suite 1400, Chicago, Illinois 60661. Copies of such material may be
obtained from the Public Reference Section of the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549, at prescribed rates. The Commission also
maintains a Web site (http://www.sec.gov) that contains information regarding
registrants, such as the Company, that file electronically with the
Commission. The Company's Class A Common Stock is traded on the American Stock
Exchange and its reports, proxy statements and other information can also be
inspected at the offices of the American Stock Exchange, Inc., 86 Trinity
Place, New York, New York 10006-1881.
NOTICE REGARDING FORWARD-LOOKING STATEMENTS
Certain of the matters discussed under the captions "Summary," "Risk
Factors," "Management's Discussion and Analysis of Financial Condition and
Results of Operations," "Business" and elsewhere in this Prospectus may
constitute "forward-looking" statements, and as such may involve known and
unknown risks, uncertainties and other factors that may cause the Company's
actual results to be materially different from the anticipated future results
expressed or implied by such forward-looking statements. Such forward-looking
statements may include, without limitation, statements with respect to the
Company's anticipated future performance, financial position and liquidity,
growth opportunities, business and competitive outlook, demand for products,
business strategies, and other similar statements of expectations or
objectives that are highlighted by words such as "expects," "anticipates,"
"intends," "plans," "believes," "projects," "seeks," "estimates," "should "
and "may," and variations thereof and similar expressions. 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:
(i) changes in the price of supplies, power, natural gas, or purchased
billets; (ii) changes in the selling price of the Company's finished products
or the purchase price of steel scrap; (iii) weather conditions in the market
area of the finished product distribution; (iv) unplanned equipment outages;
and (v) changes in the laws affecting labor, employee benefit costs and
environmental and other governmental regulations. See "Risk Factors" and
"Business." Due to these uncertainties, each prospective investor is cautioned
not to place undue reliance upon the Company's forward-looking statements,
which speak only as of the date hereof. The Company undertakes no obligation
to update or revise any of its forward-looking statements.
i
<PAGE>
SUMMARY
The following summary is qualified in its entirety by, and should be read in
conjunction with, the more detailed information and financial statements,
including the notes thereto, contained elsewhere herein. See "Glossary" for the
definition of certain terms used in this Prospectus. Unless the context
requires otherwise, all references to the Company or Bayou Steel in this
Prospectus shall include Bayou Steel Corporation and its subsidiaries.
THE COMPANY
GENERAL
Bayou Steel is a leading producer of light structural shapes and merchant bar
steel products. Bayou Steel 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"). 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 Company estimates that it currently has
aggregate annual steel melting capacity of approximately 610,000 tons and
finished product rolling capacity aggregating approximately 800,000 tons, with
approximately 550,000 tons at the Louisiana Facility and approximately 250,000
tons at the Tennessee Facility, depending on the product mix. The Company has
been increasing its production at the Tennessee Facility, and for the twelve
months ended March 31, 1998, the Company shipped 697,943 tons of steel
products, generating net sales of $251.8 million and Adjusted EBITDA (as
defined) of $32.0 million.
The Louisiana Facility, which was constructed in 1981 at a cost of $243
million, is a minimill consisting of an electric arc furnace, a rolling mill,
climate controlled warehouse facilities, 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 a Krupp
computer-controlled, electric arc furnace 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 Company ("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. Since the acquisition, the Company has retrained the
workforce, improved the profitability of the product mix, enhanced operational
efficiencies and increased capacity utilization. The Tennessee Facility has
been profitable since July 1997, and the Company expects continued operational
improvements should result in higher capacity utilization, lower costs per ton
and additional sales volume.
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,
1
<PAGE>
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 44 states, Canada, Mexico, and overseas.
COMPETITIVE STRENGTHS
Advantageous Geographic Locations. The Company's production and distribution
facilities are positioned to provide the Company with access to a broad
geographic customer base and are strategically located to reduce transportation
costs for raw materials and finished products. The Louisiana Facility, which
includes a deep-water dock, is strategically located on the Mississippi River,
which reduces the Company's transportation costs and enhances its competitive
position. Both scrap and finished products may be shipped to and from the
Louisiana Facility by barge, normally the least costly method of transportation
in the steel industry. The Company also believes that the location of the
Louisiana Facility on the Mississippi River and its network of three inland
waterway inventory stocking warehouses in Chicago, Tulsa and Pittsburgh enable
it to access remote markets for its products on a cost-effective basis. The
Louisiana Facility's deep-water dock also provides the Company with low-cost
alternative sources of scrap from the Caribbean and elsewhere, partially
protecting the Company from domestic scrap price increases.
Strong Market Position. The Company believes that it is currently the second
largest producer of structural steel products, excluding flats and wide flange
beams, in the United States and estimates that it supplied approximately 16% of
shipments of such products in the United States in 1997. In the Company's
primary geographic markets, the Company has an even larger market share as
producers of light structural products tend to serve customers located near
their facilities. The Company believes that its strong market position and
extensive distribution network provide it with competitive market intelligence
and other advantages from scale and vertical integration relative to smaller
competitors.
Improving Operating Performance. Through efficiency and productivity
improvement efforts and targeted capital expenditures, the Company has
generated significant gains in its performance at its production facilities
over the past several years. In the first six months of fiscal 1998, the
Company achieved record productivity levels at the Louisiana and Tennessee
Facilities following record years in terms of shipments of finished products
from both facilities in fiscal 1997. The Louisiana Facility and Tennessee
Facility shipped 529,707 and 133,968 tons of rolled finished products in fiscal
1997, respectively, and 288,138 and 74,568 tons of rolled finished products in
the first six months of fiscal 1998, respectively, as opposed to rolled
finished product shipments of 504,944 and 75,125 tons, respectively, in fiscal
1996. Productivity has improved at the Louisiana Facility rolling mill such
that the Company had no internally produced billets available for external
sales in the first six months of fiscal 1998, despite record production levels
in the melt shop. Since its acquisition of the Tennessee Facility in fiscal
1995, the Company has invested approximately $7.7 million in projects to
improve the facility's productivity and efficiency, which are beginning to
generate benefits. In fiscal 1997, the Tennessee Facility realized a 4%
improvement in its yield of shapes rolled from billets over fiscal 1996,
creating savings of $6 per ton. The Tennessee Facility also realized a 51%
increase in finished product tons produced, a 15% reduction in conversion cost
and a 49% increase in productivity in
2
<PAGE>
fiscal 1997 over fiscal 1996 levels. Such improvements continued in the first
six months of 1998 as the Tennessee Facility realized a $3 per ton conversion
cost improvement over the corresponding fiscal 1997 period.
Broad Product Offering. The Company's broad product range of light structural
steel products makes the Company an attractive supplier for steel service
centers, which prefer a supplier that offers a full range of products. These
products are used in a variety of applications and industries, including
commercial, infrastructure and home construction, and truck, trailer and ship
manufacturing and construction. The Company believes that the breadth of its
products and markets mitigates the impact of adverse conditions in any one of
the Company's markets on its overall performance.
Advantageous Labor Arrangements. The Company believes that the labor
agreements it recently entered into with its Louisiana and Tennessee workforces
advantageously position the Company for future cost savings and efficiency
enhancing opportunities. After a lengthy labor disruption at the Louisiana
Facility was settled in late 1996, the Company entered into a six-year labor
contract with the Louisiana workforce that provides for no compulsory wage
increases other than through the Company's productivity incentive and profit-
sharing plans. In 1997, the Company entered into a similar seven and one-half
year labor contract with its Tennessee workforce. The Company believes that
these incentive programs have contributed to the record productivity levels
achieved by the Company in the first six months of fiscal 1998. As part of its
strategic employee development efforts, the Company is committed to developing
a high performance work culture through extensive training, a "pay-for-
performance" culture, and individual development efforts incentivized through a
"pay-for-knowledge" program. The Company believes that the workforce, through
this program, will have an impact in achieving operational and productivity
improvements.
Experienced and Committed Management Team. Senior management of the Company
average over 12 years with the Company and 17 years in the steel industry.
Management has demonstrated its ability to successfully manage and incentivize
its labor force, achieve improvements in operating results in challenging
market conditions and integrate acquired operations.
BUSINESS STRATEGY
The Company's objective is to continue to improve operating efficiencies and
reduce costs through improved production processes, higher capacity
utilization, and targeted capital investments. The Company will also consider
strategic acquisitions, such as the acquisition of the Tennessee Facility,
which complement or expand the Company's current operations or add finished
goods or raw material capacity.
Continue Operating Efficiency and Productivity Improvements. The Company
intends to continue to improve operating results through increases in
productivity and capacity utilization, reduced costs, and increased sales of
high margin shape products. Through such efforts the Louisiana Facility lowered
its labor cost by $15 per ton from 1992 through 1997, despite a $3 per ton
increase in 1997 attributable to costs incurred from the return of previously
striking employees. The Company believes that conversion cost per ton will be
reduced further through capital investments and production incentives under its
new labor contract. Additionally, the Company believes that at a minimal
capital cost, it can expand its rolling capacity at the Louisiana Facility to
approximately 600,000 tons per year. At the Tennessee Facility, the Company
will continue to expand its merchant bar production. In fiscal 1997, the
Tennessee Facility, which has an estimated annual rolling capacity of 250,000
tons, produced 144,609 tons of merchant bar products, a 51% increase over the
prior year, and its production is expected to reach over 170,000 tons in fiscal
1998. The Company expects to commit approximately $4.0 million on various
capital projects at the Tennessee Facility in fiscal 1998 to continue to reduce
costs and improve productivity. The Company will continue to review capital
spending opportunities that will benefit production while reducing costs and
expanding product mix in its customer markets.
3
<PAGE>
Balance Melting and Rolling Capacity. The Company has approximately 610,000
tons of annual melting capacity compared to approximately 800,000 tons of
annual rolling capacity, and as a result, must meet a portion of its steel
billet requirements through purchases in the open market. The Company plans to
increase the proportion of lower cost, internally produced billets supplied to
its rolling operations through increased melt capacity at its Louisiana
Facility. The Company is in the process of installing a ladle metallurgy
furnace ("LMF") at the Louisiana Facility that is expected to increase melt
shop capacity to approximately 650,000 tons at a capital cost of approximately
$3.2 million. The LMF station is expected to allow better sequencing of melts
by balancing the melting furnace operation with the continuous caster
operation, which the Company believes will generate approximately $500,000 to
$1.0 million in annual cost savings by enabling the melt furnace to run at an
optimal rate. Management is also developing plans to implement a major melt
shop upgrade which is expected to be completed in approximately two and one
half years and would expand melt shop capacity to approximately 850,000 tons
per year. The furnace upgrade would increase the size of the furnace to accept
a larger scrap bucket, reducing the number of buckets per charge, and would
replace the existing 60 MVA transformer with an ultra-high-powered 80 MVA
transformer. The furnace upgrade is expected to generate cost savings of
approximately $7.0 to $8.0 million per year. Upon the completion of these
capital projects, the Company expects the Louisiana melt shop to have the
capacity to supply the rolling mills at the Louisiana Facility and the
Tennessee Facility with all of their billet requirements. In 1997, the melt
shop at the Louisiana Facility supplied the rolling mill at the Tennessee
Facility with only 17% of its billet requirements.
Improve Scrap Sourcing. The Company continually seeks to increase its control
over and reduce the cost of its scrap supply. In late 1995, in order to reduce
its reliance on third parties for prepared scrap metal, the Company installed
an automobile shredder on a site adjacent to the Louisiana Facility. During
1997, the automobile shredder supplied the Company with 12% of its total scrap
requirements and all of its shredded scrap requirements at significantly
reduced costs. Since its commencement of operations, the automobile shredder
has continued to improve its efficiency and reduce costs, lowering the
Company's cost to produce shredded scrap by 5% for the first six months of
fiscal 1998 over the same period in fiscal 1997. The automobile shredder
currently operates on one shift at a production run-rate of 100,000 tons of
shredded scrap per year, and the Company intends to eventually increase its
output. To supplement its shredded scrap activities, the Company has recently
initiated the processing of other grades of scrap, including demolition scrap
(scrap from tanks, barges and railcars), to further reduce its scrap costs.
Additionally, the Company has procured approximately 25% of its scrap at prices
lower than those offered by large scrap dealers by sourcing a portion of its
scrap through smaller local dealers. The Company plans to expand the scope of
these activities and seek opportunities to improve its scrap supply position in
the future.
Pursue Strategic Acquisitions. The Company may, from time to time, seek
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.
Realize Tax Benefits of Net Operating Loss Carryforwards. 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, 1997, the
Company had approximately $280 million of net operating loss carryforwards
which could be used to offset taxable earnings of the Company, including the
earnings of acquired entities.
----------------
The Company is a Delaware corporation headquartered in LaPlace, Louisiana.
The Company's principal office is located at 138 Highway 3217, LaPlace,
Louisiana 70068, telephone number (504) 652-4900.
4
<PAGE>
THE ORIGINAL OFFERINGS AND USE OF PROCEEDS
On May 22, 1998, $110 million aggregate principal amount of the Old First
Mortgage Notes and on July 8, 1998 an additional $10 million aggregate
principal amount of the Old First Mortgage Notes were sold by the Company to
the Initial Purchasers and, in each case, were thereupon offered and sold by
the Initial Purchasers within the United States only to persons whom they
reasonably believed to be qualified institutional buyers in reliance on Rule
144A under the Securities Act and outside the United States only in offshore
transactions in reliance on Regulation S under the Securities Act. The Company
has applied or intends to apply substantially all of the net proceeds from the
Original Offering (i) to redeem the Company's 10 1/4% First Mortgage Notes due
2001 (the "Notes due 2001"); (ii) to redeem the Company's redeemable preferred
stock, par value $0.01 per share (the "Preferred Stock"); and (iii) to repay
outstanding indebtedness under the Company's term loan agreement (the "Term
Loan"). The remaining proceeds from the Original Offering and the proceeds from
the Subsequent Offering will be used for general corporate purposes, including
ongoing capital expenditures. The Company will not receive any cash proceeds
from the Exchange Offer.
THE EXCHANGE OFFER
Securities Offered.......... Up to $120,000,000 aggregate principal amount of
registered 9 1/2% First Mortgage Notes due 2008.
The terms of the Exchange Notes and Old First
Mortgage Notes are identical in all material
respects, except for certain transfer
restrictions and registration rights relating to
the Old First Mortgage Notes.
The Exchange Offer.......... The Exchange Notes are being offered in exchange
for a like principal amount of Old First Mortgage
Notes. Old First Mortgage Notes may be exchanged
only in integral multiples of $1,000. The
issuance of the Exchange Notes is intended to
satisfy obligations of the Company contained in
the Exchange and Registration Rights Agreement.
Expiration Date............. The Exchange Offer will expire at 5:00 p.m., New
York City time, on , 1998, or
such later date and time to which it is extended
by the Company in its sole discretion. See "The
Exchange Offer--Expiration Date; Extensions;
Termination; Amendments."
Conditions to the Exchange
Offer....................... The Company's obligation to consummate the
Exchange Offer is subject to certain customary
conditions. See "The Exchange Offer--Conditions
to the Exchange Offer." The Company reserves the
right to terminate or amend the Exchange Offer at
any time prior to the Expiration Date upon the
occurrence of any such condition.
Withdrawal Rights........... Tenders may be withdrawn at any time prior to the
Expiration Date. Any Old First Mortgage Notes not
accepted for any reason will be returned without
expense to the tendering holder thereof as
promptly as practicable after the expiration or
termination of the Exchange Offer. See "The
Exchange Offer--Withdrawal Rights."
5
<PAGE>
Procedures for Tendering
Old Notes................... Each holder of Old First Mortgage Notes wishing
to accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with
such Old First Mortgage Notes and any other
required documentation, to the Exchange Agent (as
hereinafter defined) at the address set forth
herein. Persons holding Old First Mortgage Notes
through a book-entry transfer facility and
wishing to accept the Exchange Offer must do so
in accordance with such book-entry transfer
facility's procedures for transfer. See "The
Exchange Offer--Exchange Offer Procedures."
Guaranteed Delivery
Procedures.................. Holders of Old First Mortgage Notes who wish to
tender their Old First Mortgage Notes and whose
Old First Mortgage Notes are not immediately
available or who cannot deliver their Old First
Mortgage Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date, or who cannot complete the
procedures for book-entry transfer on a timely
basis, must tender their Old First Mortgage Notes
according to the guaranteed delivery procedures
set forth in "The Exchange Offer--Exchange Offer
Procedures--Guaranteed Delivery Procedures."
Use of Proceeds............. The Company will not receive any cash proceeds
from the issuance of Exchange Notes pursuant to
the Exchange Offer.
Exchange Agent.............. First National Bank of Commerce is serving as the
Exchange Agent in connection with the Exchange
Offer.
United States Federal
Income Tax Consequences.... The exchange of Old First Mortgage Notes pursuant
to the Exchange Offer will not be a taxable event
for United States federal income tax purposes.
See "The Exchange Offer--United States Federal
Income Tax Consequences of the Exchange Offer."
Effect on Holders of Old
First Mortgage Notes ...... As a result of the making of this Exchange Offer,
and upon acceptance for exchange of all validly
tendered Old First Mortgage Notes pursuant to the
terms of this Exchange Offer, the Company will
have fulfilled a covenant contained in the
Exchange and Registration Rights Agreement and,
accordingly, the holders of the Old First
Mortgage Notes will have no further registration
or other rights under the Exchange and
Registration Rights Agreement, except under
certain limited circumstances. See "Exchange and
Registration Rights Agreement." Holders of the
Old First Mortgage Notes who do not tender their
Old First Mortgage
6
<PAGE>
Notes in the Exchange Offer will continue to hold
such Old First Mortgage Notes and will be
entitled to all rights and limitations thereto
under the Indenture. All untendered, and tendered
but unaccepted, Old First Mortgage Notes will
continue to be subject to the restrictions on
transfer provided for in such Old First Mortgage
Notes and the Indenture. To the extent Old First
Mortgage Notes are tendered and accepted in the
Exchange Offer, the trading market, if any, for
the Old First Mortgage Notes could be adversely
affected. See "Risk Factors--Consequences of
Failure to Exchange."
TERMS OF THE FIRST MORTGAGE NOTES
Issuer...................... Bayou Steel Corporation
Interest....................
The First Mortgage Notes will bear interest at a
rate of 9 1/2% per annum. Interest on the
Exchange Notes will accrue from the last interest
payment date on which interest was paid on the
Old First Mortgage Notes surrendered in exchange
therefor or, if no interest has been paid on the
Old First Mortgage Notes, from May 22, 1998.
Interest on the Exchange Notes will be payable
semi-annually on May 15 and November 15 of each
year, commencing on November 15, 1998.
Maturity Date............... May 15, 2008.
Optional Redemption......... Except as described below, the Company may not
redeem the First Mortgage Notes prior to May 15,
2003. On and after such date, the Company may, at
its option, redeem the First Mortgage Notes, in
whole or in part, from time to time, at the
redemption prices set forth herein, together with
accrued and unpaid interest, if any, to the date
of redemption. In addition, at any time prior to
May 15, 2001, the Company may, at its option,
from time to time, redeem up to 35% of the
original aggregate principal amount of the First
Mortgage Notes at a redemption price equal to
109.500% of the principal amount thereof,
together with accrued and unpaid interest, if
any, to the date of redemption with all or a
portion of the net proceeds of public sales of
Common Stock of the Company; provided, that at
least 65% of the original aggregate principal
amount of the First Mortgage Notes remains
outstanding immediately after the occurrence of
such redemption. In addition, under certain
circumstances, the Company may redeem the First
Mortgage Notes upon the occurrence of a Change of
Control. See "--Change of Control."
Ranking..................... The First Mortgage Notes will be senior
obligations of the Company, secured by a first
priority lien, subject to certain exceptions, on
certain existing and future real property, plant
7
<PAGE>
and equipment (including certain operating
equipment classified as inventory), and all
additions or improvements thereto and all
proceeds and products thereof. The principal
asset comprising the Collateral (as defined
herein) is the Louisiana Facility. Under certain
circumstances the Company may issue additional
First Mortgage Notes under the Indenture, all of
which will be secured by the Collateral. See
"Description of the First Mortgage Notes--
Security." The First Mortgage Notes will rank
pari passu in right of payment with any existing
and future senior indebtedness of the Company,
including obligations of the Company arising in
connection with the New Credit Facility and will
rank senior in right of payment to all existing
and future subordinated indebtedness of the
Company. As of March 31, 1998, after giving pro
forma effect to the Original Offerings and the
New Credit Facility, and the application of the
proceeds therefrom, the Company would have had
approximately $120 million of senior indebtedness
outstanding. The Company and its subsidiaries are
permitted to incur additional secured and
unsecured indebtedness under the indenture
governing the First Mortgage Notes (including
additional First Mortgage Notes and indebtedness
under the New Credit Facility).
Subsidiary Guarantors....... The First Mortgage Notes are guaranteed, jointly
and severally, by each of the Subsidiary
Guarantors. See "Description of the First
Mortgage Notes--Security."
Change of Control........... Upon a Change of Control, the Company will be
required to make an offer to purchase all of the
outstanding First Mortgage Notes at a redemption
price of 101% of the principal amount thereof,
plus accrued and unpaid interest, if any, to the
date of repurchase. In addition, at any time on
or prior to May 15, 2003, the Company may, at its
option, redeem the First Mortgage Notes, in whole
but not in part, upon the occurrence of a Change
of Control at a redemption price equal to 100% of
the principal amount thereof, together with the
Applicable Premium as of, and accrued and unpaid
interest, if any, to, the date of redemption.
Certain Covenants........... The Indenture contains certain restrictive
covenants that, among other things, limits the
ability of the Company to incur additional
indebtedness; create liens; make certain
restricted payments; engage in certain
transactions with affiliates; engage in sale and
leaseback transactions; dispose of assets; issue
preferred stock of its subsidiaries; transfer
assets to its subsidiaries; enter into agreements
that restrict the ability of its subsidiaries to
make dividends and distributions; engage in
mergers, consolidations and transfer of
substantially all of the Company's assets; make
certain investments, loans and advances; and
create non-recourse subsidiaries.
8
<PAGE>
Asset Sale Proceeds......... Subject to certain exceptions, the net cash
proceeds of sales or other dispositions of
Collateral by the Company will become subject to
the lien of the Indenture and the Security
Documents. In the event the net cash proceeds of
asset sales not otherwise retained by the Company
or applied as permitted under the Indenture equal
or exceed $5 million, the Company may elect,
within six months of such date, to either apply
such net cash proceeds to the acquisition of
assets that, upon purchase, shall become subject
to the lien of the Security Documents if the net
cash proceeds represent Collateral Proceeds, to
make offers to purchase a portion (calculated as
set forth herein) of the First Mortgage Notes at
a purchase price equal to 100% of the principal
amount thereof, together with accrued and unpaid
interest to the date of repurchase or, in the
case of net cash proceeds that do not represent
Collateral Proceeds, to repay other senior
indebtedness.
Registration Rights......... Holders of Exchange Notes will not be entitled to
any registration rights with respect to the
Exchange Notes. Pursuant to the Exchange and
Registration Rights Agreement, the Company agreed
to file, at its cost, the registration statement
of which this Prospectus is a part with respect
to the Exchange Offer (the "Exchange Offer
Registration Statement"). See "Exchange and
Registration Rights Agreement."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by holders of Old First Mortgage Notes prior to tendering their Old
First Mortgage Notes in the Exchange Offer.
9
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
The summary consolidated financial data presented below for each of the years
in the three-year period ended September 30, 1997 have been derived from and
should be read in conjunction with the audited consolidated financial
statements of the Company and the notes thereto included elsewhere in this
Prospectus. The summary consolidated financial data presented below for each of
the years in the two-year period ended September 30, 1994 have been derived
from the audited consolidated financial statements of the Company and the notes
thereto not included elsewhere in this Prospectus. The summary consolidated
financial data presented below as of March 31, 1998 and for the six month
periods ended March 31, 1997 and 1998 have been derived from and should be read
in conjunction with the unaudited consolidated financial statements of the
Company included elsewhere in this Prospectus. The summary consolidated
financial data presented below for the twelve months ended March 31, 1998 have
been derived from the audited and unaudited consolidated financial statements
of the Company and notes thereto included elsewhere in this Prospectus. The
unaudited consolidated financial statements have been prepared on the same
basis as the audited consolidated financial statements and include all
adjustments, consisting only of normal recurring adjustments, necessary for a
fair presentation of the Company's financial condition and results of
operations for those periods. Operating results for the six months ended March
31, 1997 and 1998 and for the twelve months ended March 31, 1998 are not
necessarily indicative of the results that may be expected for any future date
or period. The unaudited pro forma financial data presented below has been
prepared to give effect to the Original Offerings and the use of proceeds
therefrom as though such transactions had occurred as of March 31, 1998 for
purposes of balance sheet data and as of October 1, 1996 for purposes of the
operating data for the year ended September 30, 1997 and the six month and
twelve month periods ended March 31, 1998. The unaudited pro forma financial
data does not purport to represent what the Company's financial position or
results of operations would have been had such transactions in fact occurred on
the assumed dates or to project the Company's financial position or results of
operations for any future date or period. The information in the following
table should be read in conjunction with "Management's Discussion and Analysis
of Financial Condition and Results of Operations," "Selected Consolidated
Financial Data," "Unaudited Pro Forma Financial Information," the consolidated
financial statements of the Company and notes thereto and other financial
information pertaining to the Company included elsewhere in this Prospectus.
10
<PAGE>
SUMMARY CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
TWELVE
MONTHS
SIX MONTHS ENDED ENDED MARCH
MARCH 31, 31,
YEARS ENDED SEPTEMBER 30, (UNAUDITED) (UNAUDITED)
------------------------------------------------ ------------------ -----------
1993 1994 1995 1996 1997 1997 1998 1998
-------- -------- -------- -------- -------- -------- -------- -----------
(IN THOUSANDS, EXCEPT EMPLOYEES, TONS AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $136,008 $160,823 $185,772 $204,426 $232,161 $112,518 $132,183 $251,826
Gross profit........... 7,975 16,509 23,614 15,973 22,231 7,965 16,567 30,833
Operating income....... 827 11,588 17,302 7,932 12,597 3,417 13,334 22,514
Interest expense....... (8,261) (7670) (7,821) (8,635) (8,962) (4,517) (4,133) (8,578)
Interest income........ 193 280 543 147 12 3 179 188
Income (loss) before
extraordinary items... (6,739) 4,361 10,337 315 3,784 (1,000) 9,319 14,103
Net income (loss)(1)... (6,154) (1,107) 10,337 315 3,784 (1,000) 9,319 14,103
Other Data:
EBITDA(2).............. $ 6,138 $ 17,306 $ 24,317 $ 16,209 $ 19,755 $ 6,941 $ 16,978 $ 29,792
Adjusted EBITDA(3)..... 9,300 18,302 25,317 17,977 23,078 8,188 17,095 31,985
Capital expenditures... 3,184 2,761 12,470 4,990 5,998 2,081 2,387 6,304
Depreciation and
amortization.......... 4,616 5,275 6,041 7,259 6,959 3,424 3,328 6,863
Finished product tons
shipped............... 403,274 446,572 503,297 580,069 663,675 328,679 362,706 697,702
Billet tons shipped.... 59,604 35,503 11,072 15,638 241 -- -- 241
-------- -------- -------- -------- -------- -------- -------- --------
Total tons shipped.... 462,878 482,075 514,369 595,707 663,916 328,679 362,706 697,943
Average shape selling
price per ton......... $ 300 $ 337 $ 360 $ 340 $ 345 $ 337 $ 359 $ 361
Average billet selling
price per ton......... 209 224 235 233 260 -- -- 260
Employees at end of
period................ 395 428 545 550 563 580 583 583
Pro Forma Financial
Data:
Pro forma net interest
expense(4)(5)(6)...... -- -- -- -- 11,949 -- 5,601 11,580
Ratio of Adjusted
EBITDA to pro forma
net interest
expense(3)(5)(6)...... -- -- -- -- -- -- -- 2.8x
Ratio of pro forma
total debt to Adjusted
EBITDA(3)(5)(6)....... -- -- -- -- -- -- -- 3.7x
</TABLE>
<TABLE>
<CAPTION>
AS OF MARCH 31,
1998
(UNAUDITED)
------------------
ACTUAL PRO FORMA
-------- ---------
<S> <C> <C>
Balance Sheet Data:
Working capital............................................ $ 78,820 $ 96,715
Total assets............................................... 206,557 222,517
Long-term debt (including current portion)................. 82,010 118,868
Preferred Stock............................................ 13,301 --
Common stockholders' equity................................ 79,526 71,929
</TABLE>
- -------
(1) In fiscal 1995, 1996, and 1997 income (loss) applicable to common shares
after dividends accrued and accretion on Preferred Stock was $9.6, ($2.3),
and $1.2 million, respectively. For the six month periods ended March 31,
1997 and 1998 the income (loss) applicable to common shares after dividends
accrued and accretion on Preferred Stock was ($2.3) and $8.0 million,
respectively. For the twelve months ended March 31, 1998, income applicable
to common shares after dividends accrued and accretion on Preferred Stock
was $11.5 million.
11
<PAGE>
(2) EBITDA is defined as net income before extraordinary items plus interest
expense, income taxes, depreciation and amortization. This is the same
definition for EBITDA that is contained in the Indenture. The Company
believes that EBITDA provides additional information for determining its
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
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(3) Adjusted EBITDA represents EBITDA as adjusted to exclude non-production
strike and corporate campaign expenses as follows:
<TABLE>
<CAPTION>
TWELVE
FOR THE SIX MONTHS
MONTHS ENDED ENDED MARCH
MARCH 31, 31,
FOR YEARS ENDED SEPTEMBER 30, (UNAUDITED) (UNAUDITED)
-------------------------------------- -------------- -----------
1993 1994 1995 1996 1997 1997 1998 1998
------ ------- ------- ------- ------- ------ ------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EBITDA.................. $6,138 $17,306 $24,317 $16,209 $19,755 $6,941 $16,978 $29,792
Non-Production Strike
And Corporate Campaign
Expenses............... 3,162 996 1,000 1,768 3,323 1,247 117 2,193
------ ------- ------- ------- ------- ------ ------- -------
Adjusted EBITDA......... $9,300 $18,302 $25,317 $17,977 $23,078 $8,188 $17,095 $31,985
====== ======= ======= ======= ======= ====== ======= =======
</TABLE>
(4) Net interest expense is defined as interest expense less interest income.
(5) Gives effect to the Original Offerings and use of proceeds therefrom at an
interest rate of 9.5%. See "Unaudited Pro Forma Financial Information."
(6) Pro forma net interest expense for the six months ended September 30, 1997
of approximately $6.0 million was used to calculate pro forma net interest
expense for the last twelve months ended March 31, 1998.
12
<PAGE>
RISK FACTORS
In addition to the other information in this Prospectus, the following
factors should be considered carefully in evaluating the Company and its
business before making a decision to tender Old First Mortgage Notes in the
Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old First Mortgage Notes who do not exchange their Old First
Mortgage Notes for Exchange Notes pursuant to the Exchange Offer will continue
to be subject to the restrictions on transfer of such Old First Mortgage Notes
as set forth in the legend thereon as a consequence of the issuance of the Old
First Mortgage Notes pursuant to an exemption from, or in a transaction not
subject to, the registration requirements of the Securities Act and applicable
state securities laws. In general, the Old First Mortgage Notes may not be
offered or sold, unless registered under the Securities Act, except pursuant
to an exemption from, or in a transaction not subject to, the Securities Act
and applicable state securities laws. The Company does not currently
anticipate that it will register Old First Mortgage Notes under the Securities
Act.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old First Mortgage Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes. However, the Company
does not intend to request the SEC to consider, and the SEC has not
considered, the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If any holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the Exchange Notes to be acquired pursuant
to the Exchange Offer, such holder (i) cannot rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Old First Mortgage Notes where such Old First Mortgage Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old First Mortgage Notes acquired directly from the
Company). The Company has agreed that, for a period of the lesser of 180 days
following the consummation of the Exchange Offer or the date on which all such
broker-dealers have sold all Exchange Notes held by them, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
In addition, to comply with the securities laws of certain jurisdictions,
the Exchange Notes may not be offered or sold unless they have been registered
or qualified for sale in such jurisdiction or an exemption from registration
or qualification is available and is complied with. The Company has agreed,
pursuant to the Exchange and Registration Rights Agreement and subject to
certain specified limitations therein, to register or qualify the Exchange
Notes for offer or sale under the securities or blue sky laws of such states
as any holder of the Notes reasonably requests in writing.
13
<PAGE>
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer and avoid the restrictions on transfer
of the Old First Mortgage Notes, holders of Old First Mortgage Notes must
transmit a properly completed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at one
of the addresses set forth below under "The Exchange Offer--Exchange Agent" on
or prior to the Expiration Date. In addition, either (i) certificates for such
Old First Mortgage Notes must be received by the Exchange Agent along with the
Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer
of such Old First Mortgage Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedure for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the holder must comply
with the guaranteed delivery procedures described herein. See "The Exchange
Offer."
LEVERAGE AND CERTAIN RESTRICTIONS
As of March 31, 1998, after giving pro forma effect to the Original
Offerings and the New Credit Facility, and the application of proceeds
therefrom, the Company would have had approximately $120.0 million of senior
indebtedness outstanding. After completion of the Original Offerings, and the
application of proceeds therefrom, the Company will continue to be highly
leveraged and will devote a substantial portion of its operating income to
debt service. The indebtedness of the Company and the restrictive covenants
and tests contained in its debt instruments, including its New Credit Facility
and the Indenture relating to the First Mortgage Notes, could significantly
limit the Company's operating and financial flexibility. These covenants and
tests could also significantly impair the Company's ability to respond to
competitive pressures or adverse economic consequences, by limiting its
ability to obtain additional financing in the future for working capital,
acquisitions or general corporate or other purposes.
The availability of funds under the New Credit Facility will depend upon the
Company's continued compliance with financial and other covenants imposed by
the New Credit Facility. A Company default under the New Credit Facility could
result in a termination of the New Credit Facility and accelerate any
indebtedness outstanding thereunder. The New Credit Facility has a sliding
scale rate obligation and, therefore, is subject to changes in prevailing
interest rates.
The First Mortgage Notes will rank pari passu in right of payment with any
existing and future senior indebtedness of the Company, including obligations
of the Company arising in connection with the New Credit Facility, and will
rank senior in right of payment to all existing and future subordinated
indebtedness of the Company. Borrowings under the New Credit Facility (or any
successor facility) will be secured by a first priority lien on the inventory
and accounts receivable of Bayou Steel. See "Description of New Credit
Facility."
SECURITY FOR THE FIRST MORTGAGE NOTES
The First Mortgage Notes are secured by a first priority lien, subject to
certain exceptions, on certain existing and future real property, plant and
equipment (including certain operating equipment classified as inventory), and
certain additions or improvements thereto and all proceeds or products thereof
(the "Collateral"). The principal asset comprising the Collateral is the
Louisiana Facility. See "Description of the First Mortgage Notes--Security."
The fair market value of the Collateral is subject to fluctuations based on
factors that include, among others, the condition of the steel industry, the
ability to sell the Collateral in an orderly sale, the condition of the
national and local economies, the availability of buyers, and similar factors.
There can be no assurance that the proceeds of any sale of the Collateral, in
whole or in part, following an event of default under the Indenture would be
sufficient to satisfy payments due on the First Mortgage Notes. As described
under "Description of the First Mortgage Notes--Certain Covenants--
Restrictions on Asset Sales," the net cash proceeds of sales of Collateral
above prescribed amounts and subject to certain exceptions are required to be
14
<PAGE>
deposited in an account to serve as Collateral prior to the making of an offer
to purchase the First Mortgage Notes in an Asset Sale Offer (as defined
herein) or the application of such net cash proceeds to a Permitted Related
Acquisition (as defined herein). Property acquired in connection with a
Permitted Related Acquisition will serve as Collateral unless such property
serves as collateral under the New Credit Facility. See "Description of the
First Mortgage Notes--Security," "--Possession, Use and Release of Collateral"
and "Description of New Credit Facility."
The Company has the ability to issue additional First Mortgage Notes
subsequent to the issuance of the First Mortgage Notes offered in the Original
Offerings. While all of any such additional First Mortgage Notes will be
secured ratably by the Collateral, the proceeds from the sale of up to $20
million aggregate principal amount of any such additional First Mortgage Notes
may be invested by the Company in properties or assets that will not become
Collateral. In such event, the value of the Collateral as a percentage of the
aggregate principal amount of outstanding First Mortgage Notes would decrease.
In addition, in the event that the proceeds from the sale of any additional
First Mortgage Notes are invested in properties or assets that become
Collateral, there can be no assurance that there will be a proportionate
increase in the value of the Collateral as a percentage of the aggregate
principal amount of outstanding First Mortgage Notes. See "Description of the
First Mortgage Notes--Principal, Maturity and Interest" and "--Security."
Under the Indenture, amendments and modifications of, and waivers with
respect to, the Indenture and the First Mortgage Notes relating to
intercreditor agreements or similar arrangements to facilitate the financing,
construction, or operation of new facilities at the Louisiana Facility can be
made or given with the approval of not less than two-thirds of the aggregate
principal amount of the outstanding First Mortgage Notes. See "Description of
the First Mortgage Notes--Modification of the Indenture."
The right of the Trustee under the Indenture (as the secured party under the
various collateral documents) to foreclose upon and sell the Collateral upon
an acceleration after an Event of Default is likely to be significantly
impaired by applicable bankruptcy laws if a bankruptcy proceeding were to be
commenced by or against the Company. Under applicable federal bankruptcy laws,
secured creditors are prohibited from foreclosing upon collateral held by a
debtor in a bankruptcy case, or from disposing of collateral repossessed from
such a debtor, without bankruptcy court approval. Moreover, applicable federal
bankruptcy laws generally permit a debtor to continue to retain and to use
collateral, including cash collateral, even if the debtor is in default under
the applicable debt instruments, provided that the secured creditor is given
"adequate protection." The interpretation of the term "adequate protection"
may vary according to the circumstances, but it is intended in general to
protect the value of the secured creditor's interest in collateral. Because
the term "adequate protection" is subject to varying interpretation and
because of the broad discretionary powers of a bankruptcy court, it is
impossible to predict (i) if payments under the First Mortgage Notes would be
made following commencement of and during a bankruptcy case, (ii) whether or
when the Trustee could foreclose upon or sell the Collateral or (iii) whether
or to what extent holders of any First Mortgage Notes would be compensated for
any delay in payment or loss of value of Collateral securing the First
Mortgage Notes under the doctrine of "adequate protection." Furthermore, in
the event a bankruptcy court were to determine that the value of the
Collateral securing the First Mortgage Notes is not sufficient to repay all
amounts due on the First Mortgage Notes, the holders of the First Mortgage
Notes would become holders of "undersecured claims." Applicable federal
bankruptcy laws do not permit the payment and/or accrual of interest, costs
and attorney's fees for "undersecured claims" during a debtor's bankruptcy
case.
LIMITATIONS ON ABILITY TO PURCHASE THE FIRST MORTGAGE NOTES FOLLOWING A CHANGE
OF CONTROL
Upon the occurrence of a Change of Control, each holder of First Mortgage
Notes will have the right to require the Company to repurchase all or any part
(equal to $1,000 or any integral multiple
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thereof) of such holder's First Mortgage Notes at a repurchase price equal to
101% of the principal amount thereof, together with accrued and unpaid
interest, if any, to the date of repurchase. The Company expects that
prepayment of the First Mortgage Notes following a Change of Control would
constitute a default under the New Credit Facility. In the event that a Change
of Control occurs, the Company would likely be required to refinance the
indebtedness outstanding under the New Credit Facility and the First Mortgage
Notes. There can be no assurance that the Company would be able to refinance
such indebtedness or, if such refinancing were to occur, that such refinancing
would be on terms favorable to the Company. See "Description of the First
Mortgage Notes--Change of Control."
CYCLICAL INDUSTRY AND ECONOMIC CONDITIONS
Demand for most of the Company's products is cyclical in nature and
sensitive to general economic conditions. The steel industry is affected by
economic conditions generally, and future economic downturns may adversely
affect the Company. The merchant bar and light structural shape product market
is influenced by trends primarily in the fabricated metal products, machinery,
construction and transportation equipment industries.
COMPETITION
The Company competes with a number of domestic minimills. The domestic
minimill steel industry is characterized by vigorous competition with respect
to price, quality and service. In addition, the domestic minimill steel
industry has from time to time experienced excess production capacity, which
reinforces competitive product pricing and results in continued pressures on
industry profit margins. The high fixed costs of operating a steel minimill
encourage minimill operators to maintain high levels of output, regardless of
demand levels, which increases the downward pressures on selling prices.
Technological advancements also affect competition in the domestic minimill
steel industry by increasing the efficiency and productivity of their plants
and labor force. Several domestic minimills which are competitors of the
Company have financial resources substantially greater than those available to
the Company.
In recent years, foreign steel producers have not competed significantly
with the Company in the domestic market for structural and merchant shape
sales due to higher freight costs in the relatively low priced structural and
merchant shape market. Foreign competition could increase, however, as a
result of changes in currency exchange rates and increased steel subsidies by
foreign governments, which could adversely affect the Company's operating
results. See "Business--Competition."
FLUCTUATIONS IN RAW MATERIAL AND ENERGY COSTS
The market for steel scrap, the principal raw material used in the Company's
operations, is highly competitive and its price volatility is influenced by
periodic shortages, freight costs, speculation by scrap brokers and other
market conditions largely beyond the Company's control. Generally, increases
in finished steel prices lag behind increases in steel scrap prices, and
competition has sometimes restricted the ability of minimill producers to
raise prices to recover higher raw material costs. Although the Company
purchases steel scrap from a number of dealers in different markets and is not
dependent on any single supplier, the Company's profitability would be
adversely affected to the extent it is unable to pass on higher raw material
costs to its customers. See "Business--Raw Materials."
The Company's manufacturing process also consumes substantial volumes of
electricity and natural gas. A significant increase in the Company's
electricity costs or in the price of natural gas would adversely affect the
Company's profitability to the extent it would not be able to pass such higher
energy costs on to its customers. See "Business--Energy."
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UNIONIZED LABOR FORCE
The United Steelworkers of America (the "Union" or "USWA") represents
approximately 70% of the Company's employees as of March 31, 1998.
Approximately 320 employees at the Louisiana Facility, and approximately 95
employees at the Tennessee Facility, are covered under collective bargaining
agreements with the USWA that expire in 2002 and 2004, respectively. Of these
covered employees, approximately 90 employees at the Louisiana Facility, and
approximately 50 employees at the Tennessee Facility, are dues-paying members
of the USWA. There can be no assurance that any future collective bargaining
agreements with any labor unions will contain terms comparable to the terms
contained in the existing collective bargaining agreements. See "Business--
Employees."
COST OF COMPLIANCE WITH ENVIRONMENTAL REGULATIONS
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 to the Clean Air Act (the "1990
Amendments"), the Resource Conservation and Recovery Act, the Clean Water Act
and the Louisiana Environmental Quality Act, and the regulations promulgated
in connection therewith, concerning the discharge of contaminants which may be
emitted into the air and discharged into the waterways, and the disposal of
solid and/or hazardous waste such as electric arc furnace dust (collectively,
"Environmental Laws").
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. 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. See "Business--
Environmental Matters."
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 limited potential for contamination, the Company does not believe that
future remediation costs, if any, will be material. The Louisiana Department
of Environmental Quality ("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. 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.
See "Business--Environmental Matters."
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 disposes of it through an approved waste recycling firm. In fiscal 1990, a
small quantity of dust containing very low concentrations of radioactive
material inadvertently entered the scrap stream on one occasion. All of this
dust was captured by the emissions control system and is being held pending a
decision as to its appropriate disposal. The Company has estimated that the
ultimate disposal costs of this dust will be approximately $500,000.
TVSC, the prior owners of the Tennessee Facility, had 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, has entered into a Consent Agreement
and Order (the "Bayou Steel Consent Order") with the Tennessee
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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
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 March 31,
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. In July 1997, TVSC's former bank lenders and
certain other parties filed an adversary proceeding against the Company in the
United States Bankruptcy Court. The banks are contesting certain of the
Company's reimbursement claims, aggregating approximately $1.1 million, in
connection with remediation work performed by the Company, alleging that much
of the remediation work was not performed prior to the first anniversary of
the closing date of the acquisition and that the work performed exceeded the
scope of the remediation work required under the TVSC Consent Order. If the
banks are successful in their claims, the Company may incur costs for
remediation work that will not be reimbursed from the escrow fund. Except for
the foregoing consent orders, the Company believes that it is 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 some federal legislation
(sometimes referred to as "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
March 31, 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.
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 competitive position, results of
operations and financial condition. See "Business--Environmental Matters" and
"Management's Discussion and Analysis of Financial Condition and Results of
Operations."
FRAUDULENT TRANSFER CONSIDERATIONS
Under applicable provisions of the United States Bankruptcy Code or
comparable provisions of state fraudulent transfer or conveyance laws, if any
Subsidiary Guarantor, at the time it incurred the Subsidiary Guarantee, (a)
incurred such indebtedness with the intent to hinder, delay or defraud
creditors, or (b)(i) received less than reasonably equivalent value or fair
consideration and (ii)(A) was insolvent at the time of such incurrence, (B)
was rendered insolvent by reason of such incurrence (and the application of
the proceeds thereof), (C) was engaged or was about to engage in a business or
transaction for which the assets remaining with the Company constituted
unreasonably small capital to carry on its business, or (D) intended to incur,
or believed that it would incur, debts beyond its
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ability to pay such debts as they mature, then, in each such case, a court of
competent jurisdiction could void, in whole or in part, the Subsidiary
Guarantee issued by such Subsidiary Guarantor or, in the alternative,
subordinate such Subsidiary Guarantee to existing and future indebtedness of
the Subsidiary Guarantor. Among other things, a legal challenge of the
Subsidiary Guarantee issued by any Subsidiary Guarantor on fraudulent
conveyance grounds may focus on the benefits, if any, realized by such
Subsidiary Guarantor as a result of the issuance by the Company of the First
Mortgage Notes. To the extent a Subsidiary Guarantee was voided as a
fraudulent conveyance or held unenforceable for any other reason, the holders
of the First Mortgage Notes would cease to have any claim against such
Subsidiary Guarantor and would be creditors solely of the Company and any
Subsidiary Guarantor whose Subsidiary Guarantee was not voided or held
unenforceable. In such event, the claims of the holders of the First Mortgage
Notes against the issuer of an invalid Subsidiary Guarantee would be subject
to the prior payment of all liabilities of such Subsidiary Guarantor. There
can be no assurance that, after providing for all prior claims, there would be
sufficient assets to satisfy the claims of the holders of the First Mortgage
Notes relating to any voided portion of a Subsidiary Guarantee.
The measure of insolvency for purposes of the foregoing would likely vary
depending upon the law applied in such case. Generally, however, a Subsidiary
Guarantor would be considered insolvent if the sum of its debts, including
contingent liabilities, was greater than all of its assets at a fair
valuation, or if the present fair saleable value of its assets was less than
the amount that would be required to pay the probable liabilities on its
existing debts, including contingent liabilities, as such debts become
absolute and matured. The Company believes that, for purposes of the United
States Bankruptcy Code and state fraudulent transfer or conveyance laws, each
Subsidiary Guarantee has been issued without the intent to hinder, delay or
defraud creditors and for proper purposes and in good faith, and that each
Subsidiary Guarantor received reasonably equivalent value or fair
consideration therefor, and that after the issuance of the Subsidiary
Guarantees and the application of the net proceeds therefrom, each Subsidiary
Guarantor will be solvent, have sufficient capital for carrying on their
businesses and will be able to pay their debts as they mature. However, there
can be no assurance that a court passing on such issues would agree with the
determination of the Company.
ABSENCE OF PUBLIC MARKET FOR THE EXCHANGE NOTES
The Exchange Notes will be new securities for which there currently is no
market. Although the Company has been advised by the Initial Purchasers that
they currently intend to make a market in the Exchange Notes, they are not
obligated to do so and any such market making may be discontinued at any time
without notice. In addition, such market making activity may be limited during
the pendency of the Exchange Offer or the effectiveness of a shelf
registration statement in lieu thereof. Accordingly, there can be no assurance
as to the development or liquidity of any market for the Exchange Notes. The
Old First Mortgage Notes currently are eligible for trading by qualified
buyers in the PORTAL market.
No assurance can be given as to the liquidity of any trading market that may
develop for the Exchange Notes (or any Old First Mortgage Notes not
exchanged), the ability of holders of the Exchange Notes to sell their
Exchange Notes, or the price at which holders would be able to sell the
Exchange Notes. Future trading prices of the Exchange Notes will depend on
many factors, including, among other things, prevailing interest rates, the
Company's operating results and the market for similar securities.
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THE EXCHANGE OFFER
PURPOSE OF THE EXCHANGE OFFER
The Old First Mortgage Notes were originally issued and sold on May 22, 1998
and July 8, 1998 in transactions not registered under the Securities Act in
reliance upon the exemptions provided by Section 4(2), Rule 144A and
Regulation S of the Securities Act. In connection with the sale of the Old
First Mortgage Notes, the Company agreed to use its best efforts to file with
the Commission a registration statement relating to an exchange offer (the
"Exchange Offer Registration Statement") pursuant to which another series of
notes of the Company, the Exchange Notes, covered by such registration
statement and containing substantially the same terms as the Old First
Mortgage Notes, except as set forth in this Prospectus, would be offered in
exchange for Old First Mortgage Notes tendered at the option of the holders
thereof. In the event that either (i) the Company fails to file any of the
registration statements required by the Exchange and Registration Rights
Agreement on or prior to 60 days after the Issue Date, (ii) any of such
registration statements is not declared effective within 150 days after the
Issue Date, (iii) the Exchange Offer is not consummated on or prior to 180
days after the Issue Date, or (iv) the Shelf Registration Statement is filed
and declared effective within 150 days after the Issue Date but shall
thereafter cease to be effective (at any time that the Company is obligated to
maintain the effectiveness thereof) without being succeeded within 45 days by
an additional registration statement filed and declared effective (each such
event referred to in clauses (i) through (iv), a "Registration Default"), the
Company will be obligated to pay liquidated damages to each holder of Transfer
Restricted Securities (as defined herein), during the period of one or more
such Registration Defaults, in an amount equal to $0.192 per week per $1,000
principal amount of the First Mortgage Notes constituting Transfer Restricted
Securities held by such holder until the applicable registration statement is
filed, the Exchange Offer Registration Statement is declared effective and the
Exchange Offer is consummated or the Shelf Registration Statement is declared
effective or again becomes effective, as the case may be. All accrued
liquidated damages shall be paid to holders in the same manner as interest
payments on the First Mortgage Notes on semi-annual payment dates which
correspond to interest payment dates for the First Mortgage Notes. Following
the cure of all Registration Defaults, the accrual of liquidated damages will
cease.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old First Mortgage Notes, where such First Mortgage Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a Prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
The sole purpose of the Exchange Offer is to fulfill the obligations of the
Company with respect to the Exchange and Registration Rights Agreement.
TERMS OF THE EXCHANGE
The Company hereby offers to exchange, upon the terms and subject to the
conditions set forth herein and in the Letter of Transmittal, $1,000 in
principal amount of Exchange Notes for each $1,000 in principal amount of Old
First Mortgage Notes. The terms of the Exchange Notes are identical in all
respects to the terms of the Old First Mortgage Notes for which they may be
exchanged pursuant to this Exchange Offer, except that the Exchange Notes will
generally be freely transferable by holders thereof, and the holders of the
Exchange Notes (as well as remaining holders of any Old First Mortgage Notes)
will not be entitled to registration rights under the Exchange and
Registration Rights Agreement. See "Exchange and Registration Rights
Agreement." The Exchange Notes will evidence the same debt as the Old First
Mortgage Notes and will be entitled to the benefits of the Indenture pursuant
to which such Old First Mortgage Notes were issued. See "Description of the
First Mortgage Notes."
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The Exchange Offer is not conditioned upon any minimum aggregate principal
amount of Old First Mortgage Notes being tendered for exchange.
Based on interpretations by the staff of the SEC, as set forth in no-action
letters issued to third parties, the Company believes that Exchange Notes
issued pursuant to the Exchange Offer in exchange for Old First Mortgage Notes
may be offered for resale, resold or otherwise transferred by holders thereof
(other than any such holder which is an "affiliate" of the Company within the
meaning of Rule 405 under the Securities Act) without compliance with the
registration and prospectus delivery provisions of the Securities Act,
provided that such Exchange Notes are acquired in the ordinary course of such
holder's business and such holder has no arrangement with any person to
participate in the distribution of such Exchange Notes. However, the Company
does not intend to request the SEC to consider, and the SEC has not
considered, the Exchange Offer in the context of a no-action letter and there
can be no assurance that the staff of the SEC would make a similar
determination with respect to the Exchange Offer as in such other
circumstances. Each holder, other than a broker-dealer, must acknowledge that
it is not engaged in, and does not intend to engage in, a distribution of
Exchange Notes and has no arrangement or understanding to participate in a
distribution of Exchange Notes. If any holder is an affiliate of the Company,
is engaged in or intends to engage in or has any arrangement or understanding
with respect to the distribution of the Exchange Notes to be acquired pursuant
to the Exchange Offer, such holder (i) cannot rely on the applicable
interpretations of the staff of the SEC and (ii) must comply with registration
and prospectus delivery requirements of the Securities Act in connection with
any resale transaction. Each broker-dealer that receives Exchange Notes for
its own account pursuant to the Exchange Offer must acknowledge that it will
deliver a prospectus in connection with any resale of such Exchange Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with resales of Exchange Notes received in exchange for
Old First Mortgage Notes where such Old First Mortgage Notes were acquired by
such broker-dealer as a result of market-making activities or other trading
activities (other than Old First Mortgage Notes acquired directly from the
Company). The Company has agreed that, for a period of the lesser of 180 days
following the consummation of the Exchange Offer or the date on which all such
broker-dealers have sold all Exchange Notes held by them, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution."
Tendering holders of Old First Mortgage Notes will not be required to pay
brokerage commissions or fees or, subject to the instructions in the Letter of
Transmittal, transfer taxes with respect to the exchange of the Old First
Mortgage Notes pursuant to the Exchange Offer.
The Exchange Notes will bear interest from and including their respective
dates of issuance. Holders whose Old First Mortgage Notes are accepted for
exchange will receive accrued interest thereon to, but not including, the date
of issuance of the Exchange Notes, such interest to be payable with the first
interest payment on the Exchange Notes, but will not receive any payment in
respect of interest on the Old First Mortgage Notes accrued after the issuance
of the Exchange Notes.
EXPIRATION DATE; EXTENSIONS; TERMINATION; AMENDMENTS
The Exchange Offer expires on the Expiration Date. The term "Expiration
Date" means 5:00 p.m., New York City time, on , 1998, unless the
Company in its sole discretion extends the period during which the Exchange
Offer is open, in which event the term "Expiration Date" means the latest time
and date on which the Exchange Offer, as so extended by the Company, expires.
The Company reserves the right to extend the Exchange Offer at any time and
from time to time prior to the Expiration Date by giving written notice to
First National Bank of Commerce (the "Exchange Agent") and by timely public
announcement communicated, unless otherwise required by applicable law or
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regulation, by making a release to the Dow Jones News Service. During any
extension of the Exchange Offer, all Old First Mortgage Notes previously
tendered pursuant to the Exchange Offer will remain subject to the Exchange
Offer.
The Company expressly reserves the right to (i) terminate the Exchange Offer
and not accept for exchange any Old First Mortgage Notes for any reason,
including if any of the events set forth below under "- Conditions to the
Exchange Offer" shall have occurred and shall not have been waived by the
Company and (ii) amend the terms of the Exchange Offer in any manner, whether
before or after any tender of the Old First Mortgage Notes. If any such
termination or amendment occurs, the Company will notify the Exchange Agent in
writing and will either issue a press release or give written notice to the
holders of the Old First Mortgage Notes as promptly as practicable. Unless the
Company terminates the Exchange Offer prior to 5:00 p.m., New York City time,
on the Expiration Date, the Company will exchange the Exchange Notes for the
Old First Mortgage Notes promptly following the Expiration Date.
If the Company waives any material condition to the Exchange Offer, or
amends the Exchange Offer in any other material respect, and if at the time
that notice of such waiver or amendment is first published, sent or given to
holders of Old First Mortgage Notes in the manner specified above, the
Exchange Offer is scheduled to expire at any time earlier than the expiration
of a period ending on the fifth business day from, and including, the date
that such notice is first so published, sent or given, then the Exchange Offer
will be extended until the expiration of such period of five business days.
This Prospectus and the related Letter of Transmittal and other relevant
materials will be mailed by the Company to record holders of Old First
Mortgage Notes and will be furnished to brokers, banks and similar persons
whose names, or the names of whose nominees, appear on the lists of holders
for subsequent transmittal to beneficial owners of Old First Mortgage Notes.
EXCHANGE OFFER PROCEDURES
The tender of the Old First Mortgage Notes to the Company by a holder
thereof pursuant to one of the procedures set forth below will constitute an
agreement between such holder and the Company in accordance with the terms and
subject to the conditions set forth herein and in the Letter of Transmittal.
General Procedures. A holder of an Old First Mortgage Note may tender the
same by (i) properly completing and signing the Letter of Transmittal or a
facsimile thereof (all references in this Prospectus to the Letter of
Transmittal shall be deemed to include a facsimile thereof) and delivering the
same, together with the certificate or certificates representing the Old First
Mortgage Notes being tendered and any required signature guarantees (or a
timely confirmation of a book-entry transfer (a "Book-Entry Confirmation")
pursuant to the procedure described below), to the Exchange Agent at its
address set forth below under "--Exchange Agent" on or prior to the Expiration
Date or (ii) complying with the guaranteed delivery procedures described
below.
If tendered Old First Mortgage Notes are registered in the name of the
signer of the Letter of Transmittal and the Exchange Notes to be issued in
exchange therefor are to be issued (and any untendered Old First Mortgage
Notes are to be reissued) in the name of the registered holder, the signature
of such signer need not be guaranteed. In any other case, the tendered Old
First Mortgage Notes must be endorsed or accompanied by written instruments of
transfer in form satisfactory to the Company and duly executed by the
registered holder and the signature on the endorsement or instrument of
transfer must be guaranteed by a firm (an "Eligible Institution") that is a
member of a recognized signature guarantee medallion program (an "Eligible
Program") within the meaning of Rule 17Ad-15 under the Exchange Act. If the
Exchange Notes and/or Old First Mortgage Notes not
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exchanged are to be delivered to an address other than that of the registered
holder appearing on the note register for the Old First Mortgage Notes, the
signature on the Letter of Transmittal must be guaranteed by an Eligible
Institution.
Any beneficial owner whose Old First Mortgage Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender Old First Mortgage Notes should contact such holder
promptly and instruct such holder to tender Old First Mortgage Notes on such
beneficial owner's behalf. If such beneficial owner wishes to tender such Old
First Mortgage Notes himself, such beneficial owner must, prior to completing
and executing the Letter of Transmittal and delivering such Old First Mortgage
Notes, either make appropriate arrangements to register ownership of the Old
First Mortgage Notes in such beneficial owner's name or follow the procedures
described in the immediately preceding paragraph. The transfer of record
ownership may take considerable time.
Book-Entry Transfer. The Exchange Agent will establish the Exchange Offer
with The Depository Trust Company (the "DTC" or "Book-Entry Transfer
Facility") as eligible for the Book-Entry Transfer Facility's Automated Tender
Offer Program ("ATOP") within two business days after receipt of this
Prospectus, and any financial institution that is a participant in the Book-
Entry Transfer Facility's systems may make book-entry delivery of Old First
Mortgage Notes in accordance with the Book-Entry Transfer Facility's
procedures for such transfer under ATOP. If delivery of the Old First Mortgage
Notes is effected through book-entry transfer, Book Entry Confirmation and an
Agent's Message is necessary to tender validly such Old First Mortgage Notes.
The term "Agent's Message" means a message transmitted by the Book-Entry
Transfer Facility and forming a part of the Book-Entry Confirmation that
states that the Book-Entry Transfer Facility has received an express
acknowledgment from the participant in the Book-Entry Transfer Facility
described in such Agent's Message, stating the aggregate principal amount of
the Old First Mortgage Notes that have been tendered by such participant
pursuant to the Exchange Offer and that such participant has received this
Prospectus and the Letter of Transmittal and agrees to be bound by their terms
and that the Company may enforce such agreement against such participant.
THE METHOD OF DELIVERY OF OLD FIRST MORTGAGE NOTES AND ALL OTHER DOCUMENTS
IS AT THE ELECTION AND RISK OF THE HOLDER. IF SENT BY MAIL, IT IS RECOMMENDED
THAT REGISTERED MAIL, RETURN RECEIPT REQUESTED, BE USED, PROPER INSURANCE BE
OBTAINED, AND THE MAILING BE MADE SUFFICIENTLY IN ADVANCE OF THE EXPIRATION
DATE TO PERMIT DELIVERY TO THE EXCHANGE AGENT ON OR BEFORE THE EXPIRATION
DATE.
Unless an exemption applies under the applicable law and regulations
concerning "backup withholding" of federal income tax, the Exchange Agent will
be required to withhold, and will withhold, 31% of the gross proceeds
otherwise payable to a holder pursuant to the Exchange Offer if the holder
does not provide its taxpayer identification number (social security number or
employer identification number) and certify that such number is correct. Each
tendering holder should complete and sign the main signature form and the
Substitute Form W-9 included as part of the Letter of Transmittal, so as to
provide the information and certification necessary to avoid backup
withholding, unless an applicable exemption exists and is proved in a manner
satisfactory to the Company and the Exchange Agent.
Guaranteed Delivery Procedures. If a holder desires to accept the Exchange
Offer and time will not permit a Letter of Transmittal or Old First Mortgage
Notes to reach the Exchange Agent before the Expiration Date, a tender may be
effected if the Exchange Agent has received at the address specified below
under "--Exchange Agent" on or prior to the Expiration Date a letter or
facsimile transmission from an Eligible Institution setting forth the name and
address of the tendering holder, the names in which the Old First Mortgage
Notes are registered and, if possible, the certificate
23
<PAGE>
numbers of the Old First Mortgage Notes to be tendered, and stating that the
tender is being made thereby and guaranteeing that within three New York Stock
Exchange trading days after the date of execution of such letter or facsimile
transmission by the Eligible Institution, the Old First Mortgage Notes, in
proper form for transfer, will be delivered by such Eligible Institution
together with a properly completed and duly executed Letter of Transmittal
(and any other required documents). Unless Old First Mortgage Notes being
tendered by the above-described method (or a timely Book-Entry Confirmation)
are deposited with the Exchange Agent within the time period set forth above
(accompanied or preceded by a properly completed Letter of Transmittal and any
other required documents), the Company may, at its option, reject the tender.
Copies of a Notice of Guaranteed Delivery which may be used by Eligible
Institutions for the purposes described in this paragraph are being delivered
with this Prospectus and the related Letter of Transmittal.
A tender will be deemed to have been received as of the date when the
tendering holder's properly completed and duly signed Letter of Transmittal
accompanied by the Old First Mortgage Notes (or a timely Book-Entry
Confirmation) is received by the Exchange Agent. Issuances of Exchange Notes
in exchange for Old First Mortgage Notes tendered pursuant to a Notice of
Guaranteed Delivery or letter or facsimile transmission to similar effect (as
provided above) by an Eligible Institution will be made only against deposit
of the Letter of Transmittal (and any other required documents) and the
tendered Old First Mortgage Notes (or a timely Book-Entry Confirmation).
All questions as to the validity, form, eligibility (including time of
receipt) and acceptance for exchange of any tender of Old First Mortgage Notes
will be determined by the Company, whose determination shall be final and
binding on all parties. The Company reserves the absolute right to reject any
or all tenders not in proper form or the acceptance of which, or exchange for
which, may, in the opinion of counsel to the Company, be unlawful. The Company
also reserves the absolute right, subject to applicable law, to waive any of
the conditions of the Exchange Offer or any defects or irregularities in
tenders of any particular holder whether or not similar defects or
irregularities are waived in the case of other holders. The Company's
interpretation of the terms and conditions of the Exchange Offer (including
the Letter of Transmittal and the instructions thereto) will be final and
binding. No tender of Old First Mortgage Notes will be deemed to have been
validly made until all defects and irregularities with respect to such tender
have been cured or waived. None of the Company, the Exchange Agent or any
other person will be under any duty to give notification of any defects or
irregularities in tenders or shall incur any liability for failure to give any
such notification.
Each broker-dealer that receives Exchange Notes for its own account in
exchange for Old First Mortgage Notes, where such First Mortgage Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities, must acknowledge that it will deliver a Prospectus
in connection with any resale of such Exchange Notes. See "Plan of
Distribution."
TERMS AND CONDITIONS OF THE LETTER OF TRANSMITTAL
The Letter of Transmittal contains, among other things, the following terms
and conditions, which are part of the Exchange Offer.
The party tendering Old First Mortgage Notes for exchange (the "Transferor")
exchanges, assigns and transfers the Old First Mortgage Notes to the Company
and irrevocably constitutes and appoints the Exchange Agent as the
Transferor's agent and attorney-in-fact to cause the Old First Mortgage Notes
to be assigned, transferred and exchanged. The Transferor represents and
warrants that it has full power and authority to tender, exchange, sell,
assign and transfer the Old First Mortgage Notes, and that, when the same are
accepted for exchange, the Company will acquire good, marketable and
unencumbered title to the tendered Old First Mortgage Notes, free and clear of
all liens, restrictions, charges and encumbrances and not subject to any
adverse claim. The
24
<PAGE>
Transferor also warrants that it will, upon request, execute and deliver any
additional documents deemed by the Company or the Exchange Agent to be
necessary or desirable to complete the exchange, assignment and transfer of
tendered Old First Mortgage Notes. All authority conferred by the Transferor
will survive the death or incapacity of the Transferor and every obligation of
the Transferor shall be binding upon the heirs, legal representatives,
successors, assigns, executors and administrators of such Transferor.
By tendering Old First Mortgage Notes, the Transferor certifies that it is
not an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act, that it is not a broker-dealer that owns Old First Mortgage
Notes acquired directly from the Company or an affiliate of the Company, that
it is acquiring the Exchange Notes offered hereby in the ordinary course of
such Transferor's business and that such Transferor has no arrangement with
any person to participate in the distribution of such Exchange Notes.
WITHDRAWAL RIGHTS
Old First Mortgage Notes tendered pursuant to the Exchange Offer may be
withdrawn at any time prior to the Expiration Date.
For a withdrawal to be effective, a written or facsimile transmission of
such notice of withdrawal must be timely received by the Exchange Agent at its
address set forth below under "--Exchange Agent" on or prior to the Expiration
Date. Any such notice of withdrawal must specify the person named in the
Letter of Transmittal as having tendered Old First Mortgage Notes to be
withdrawn, the certificate numbers of Old First Mortgage Notes to be
withdrawn, the aggregate principal amount of Old First Mortgage Notes to be
withdrawn (which must be an authorized denomination), that such holder is
withdrawing his election to have such Old First Mortgage Notes exchanged, and
the name of the registered holder of such Old First Mortgage Notes, if
different from that of the person who tendered such Old First Mortgage Notes.
Additionally, the signature on the notice of withdrawal must be guaranteed by
an Eligible Institution (except in the case of Old First Mortgage Notes
tendered for the account of an Eligible Institution). The Exchange Agent will
return the properly withdrawn Old First Mortgage Notes promptly following
receipt of notice of withdrawal. All questions as to the validity of notices
of withdrawals, including time of receipt, will be determined by the Company,
in its sole discretion, and such determination will be final and binding on
all parties.
If Old First Mortgage Notes have been tendered pursuant to the procedures
for book entry transfer, the notice of withdrawal must specify the name and
number of the account at DTC to be credited with the withdrawal of Old First
Mortgage Notes, in which case a notice of withdrawal will be effective if
delivered to the Exchange Agent by written or facsimile transmission.
Withdrawals of tenders of Old First Mortgage Notes may not be rescinded. Old
First Mortgage Notes properly withdrawn will not be deemed validly tendered
for purposes of the Exchange Offer, but may be retendered at any subsequent
time on or prior to the Expiration Date by following any of the procedures
described herein.
ACCEPTANCE OF OLD FIRST MORTGAGE NOTES FOR EXCHANGE; DELIVERY OF EXCHANGE
NOTES
Upon the terms and subject to the conditions of the Exchange Offer, the
acceptance for exchange of Old First Mortgage Notes validly tendered and not
withdrawn and the issuance of the Exchange Notes will be made promptly
following the Expiration Date. For the purposes of the Exchange Offer, the
Company shall be deemed to have accepted for exchange validly tendered Old
First Mortgage Notes when, as and if the Company has given notice thereof to
the Exchange Agent.
The Exchange Agent will act as agent for the tendering holders of Old First
Mortgage Notes for the purposes of receiving Exchange Notes from the Company
and causing the Old First Mortgage
25
<PAGE>
Notes to be assigned, transferred and exchanged. Upon the terms and subject to
the conditions of the Exchange Offer, delivery of Exchange Notes to be issued
in exchange for accepted Old First Mortgage Notes will be made by the Exchange
Agent promptly after acceptance of the tendered Old First Mortgage Notes. Old
First Mortgage Notes not accepted for exchange by the Company will be returned
without expense to the tendering holders (or in the case of Old First Mortgage
Notes tendered by book-entry transfer into the Exchange Agent's account at the
Book-Entry Transfer Facility pursuant to the procedures of the Book-Entry
Transfer Facility) promptly following the Expiration Date or, if the Company
terminates the Exchange Offer prior to the Expiration Date, promptly after the
Exchange Offer is so terminated.
CONDITIONS TO THE EXCHANGE OFFER
Notwithstanding any other provision of the Exchange Offer, or any extension
of the Exchange Offer, the Company will not be required to issue Exchange
Notes in respect of any properly tendered Old First Mortgage Notes not
previously accepted and may terminate the Exchange Offer (by oral or written
notice to the Exchange Agent and by timely public announcement communicated,
unless otherwise required by applicable law or regulation, by making a release
to the Dow Jones News Service) or, at its option, modify or otherwise amend
the Exchange Offer, if (a) there shall be threatened, instituted or pending
any action or proceeding before, or any injunction, order or decree shall have
been issued by, any court or governmental agency or other governmental
regulatory or administrative agency or commission, (i) seeking to restrain or
prohibit the making or consummation of the Exchange Offer or any other
transaction contemplated by the Exchange Offer, (ii) assessing or seeking any
damages as a result thereof, or (iii) resulting in a material delay in the
ability of the Company to accept for exchange or exchange some or all of the
Old First Mortgage Notes pursuant to the Exchange Offer; (b) any statute,
rule, regulation, order or injunction shall be sought, proposed, introduced,
enacted, promulgated or deemed applicable to the Exchange Offer or any of the
transactions contemplated by the Exchange Offer by any government or
governmental authority, domestic or foreign, or any action shall have been
taken, proposed or threatened, by any government, governmental authority,
agency or court, domestic or foreign, that in the sole judgment of the Company
might directly or indirectly result in any of the consequences referred to in
clauses (a)(i) or (ii) above or, in the sole judgment of the Company, might
result in the holders of Exchange Notes having obligations with respect to
resales and transfers of Exchange Notes which are greater than those described
in the interpretations of the Commission referred to above under "- Terms of
the Exchange Offer," or would otherwise make it inadvisable to proceed with
the Exchange Offer; or (c) a material adverse change shall have occurred in
the business, condition (financial or otherwise), operations, or prospects of
the Company.
The foregoing conditions are for the sole benefit of the Company and may be
asserted by it with respect to all or any portion of the Exchange Offer
regardless of the circumstances (including any action or inaction by the
Company) giving rise to such condition or may be waived by the Company in
whole or in part at any time or from time to time in its sole discretion. The
failure by the Company at any time to exercise any of the foregoing rights
will not be deemed a waiver of any such right, and each right will be deemed
an ongoing right which may be asserted at any time or from time to time. In
addition, the Company has reserved the right, notwithstanding the satisfaction
of each of the foregoing conditions, to terminate or amend the Exchange Offer.
Any determination by the Company concerning the fulfillment or non-
fulfillment of any conditions will be final and binding upon all parties.
In addition, the Company will not accept for exchange any Old First Mortgage
Notes tendered and no Exchange Notes will be issued in exchange for any such
Old First Mortgage Notes, if at such time any stop order shall be threatened
or in effect with respect to (i) the Registration Statement of which this
Prospectus constitutes a part or (ii) qualification under the Trust Indenture
Act of 1939 (the "Trust Indenture Act") of the Indenture pursuant to which
such Old First Mortgage Notes were issued.
26
<PAGE>
EXCHANGE AGENT
First National Bank of Commerce has been appointed as the Exchange Agent of
the Exchange Offer. All executed Letters of Transmittal should be directed to
the Exchange Agent at one of the addresses set forth below. Questions and
requests for assistance, requests for additional copies of this Prospectus or
of the Letter of Transmittal and requests for Notices of Guaranteed Delivery
should be directed to the Exchange Agent addressed as follows:
In New York: By Hand By Registered or
Delivery/Overnight Certified Mail:
Delivery:
First National Bank of First National Bank of First National Bank of
Commerce Commerce Commerce
c/o First Chicago Trust Corporate Trust Services Corporate Trust Services
Company Department Department
14 Wall Street, 8th 210 Baronne Street, P.O. Box 60030
Floor, Suite 4607 Basement Level New Orleans, Louisiana
New York, New York 10002 New Orleans, Louisiana 70160-0030
70112
Attn: Teri Lucas
Attn: Teri Lucas
Via Facsimile:
(504) 623-1095
Confirm by telephone:
(504) 623-7579
For Information Call:
(504) 623-1640
DELIVERY TO AN ADDRESS OTHER THAN AS SET FORTH HEREIN, OR TRANSMISSIONS OF
INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONES SET FORTH HEREIN, WILL
NOT CONSTITUTE A VALID DELIVERY.
SOLICITATIONS OF TENDERS; EXPENSES
The Company has not retained any dealer-manager or similar agent in
connection with the Exchange Offer and will not make any payments to brokers,
dealers or others for soliciting acceptances of the Exchange Offer. The
Company will, however, pay the Exchange Agent reasonable and customary fees
for its services and will reimburse it for reasonable out-of-pocket expenses
in connection therewith. The Company will also pay brokerage houses and other
custodians, nominees and fiduciaries the reasonable out-of-pocket expenses
incurred by them in forwarding tenders for their customers. The expenses to be
incurred in connection with the Exchange Offer, including the fees and
expenses of the Exchange Agent and printing, accounting and legal fees, will
be paid by the Company.
No person has been authorized to give any information or to make any
representations in connection with the Exchange Offer other than those
contained in this Prospectus. If given or made, such information or
representations should not be relied upon as having been authorized by the
Company. Neither the delivery of this Prospectus nor any exchange made
hereunder shall, under any circumstances, create any implication that there
has been no change in the affairs of the Company since the respective dates as
of which information is given herein. The Exchange Offer is not being made to
(nor will tenders be accepted from or on behalf of) holders of Old First
Mortgage Notes in any jurisdiction in which the making of the Exchange Offer
or the acceptance thereof would not be in compliance with the laws of such
jurisdiction. However, the Company may, at its discretion, take such action as
it may deem necessary to make the Exchange Offer in any such jurisdiction and
extend the Exchange Offer to
27
<PAGE>
holders of Old First Mortgage Notes in such jurisdiction. In any jurisdiction
the securities laws or blue sky laws of which require the Exchange Offer to be
made by a licensed broker or dealer, the Exchange Offer is being made on
behalf of the Company by one or more registered brokers or dealers which are
licensed under the laws of such jurisdiction.
ACCOUNTING TREATMENT
The Exchange Notes will be recorded at the same carrying value as the Old
First Mortgage Notes, which is the principal amount as reflected in the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. The expenses of the
Exchange Offer will be capitalized for accounting purposes.
APPRAISAL RIGHTS
HOLDERS OF OLD FIRST MORTGAGE NOTES WILL NOT HAVE DISSENTERS' RIGHTS OR
APPRAISAL RIGHTS IN CONNECTION WITH THE EXCHANGE OFFER.
UNITED STATES FEDERAL INCOME TAX CONSEQUENCES OF THE EXCHANGE OFFER
The Company believes that the following summary fairly describes the
material United States federal income tax consequences expected to apply to
the exchange of Old First Mortgage Notes for Exchange Notes and the ownership
of Exchange Notes under currently applicable federal income tax law. The
following summary of the material anticipated federal income tax consequences
of the issuance of Exchange Notes and the Exchange Offer is based upon the
provisions of the Internal Revenue Code of 1986, as amended, the final,
temporary and proposed regulations promulgated thereunder, and administrative
rulings and judicial decisions now in effect, all of which are subject to
change (possibly with retroactive effect) or different interpretations. The
following summary is not binding on the Internal Revenue Service ("IRS") and
there can be no assurance that the IRS will take a similar view with respect
to the tax consequences described below. No ruling has been or will be
requested by the Company from the IRS on any tax matters relating to the
Exchange Notes or the Exchange Offer. This discussion is for general
information only and does not purport to address all of the possible federal
income tax consequences or any state, local or foreign tax consequences of the
acquisition, ownership and disposition of the Old First Mortgage Notes, the
Exchange Notes or the Exchange Offer. It is limited to investors who will hold
the Old First Mortgage Notes and the Exchange Notes as capital assets and does
not address the federal income tax consequences that may be relevant to
particular investors in light of their unique circumstances or to certain
types of investors (such as dealers in securities, insurance companies,
financial institutions, foreign corporations, partnerships, trusts,
nonresident individuals, and tax-exempt entities) who may be subject to
special treatment under federal income tax laws. PERSONS CONSIDERING THE
PURCHASE, OWNERSHIP OR DISPOSITION OF EXCHANGE NOTES SHOULD CONSULT THEIR OWN
TAX ADVISORS CONCERNING THE U.S. FEDERAL INCOME TAX CONSEQUENCES IN LIGHT OF
THEIR PARTICULAR SITUATIONS AS WELL AS ANY CONSEQUENCES ARISING UNDER THE LAWS
OF ANY STATE, LOCAL OR INTERNATIONAL TAXING JURISDICTION.
The exchange of the Old First Mortgage Notes for the Exchange Notes pursuant
to the Exchange Offer will not be treated as an exchange or other taxable
event to holders for United States federal income tax purposes because the
terms of the Exchange Notes are not materially different from the terms of the
Old First Mortgage Notes. The Exchange Notes should be treated as a
continuation of the Old First Mortgage Notes. Consequently, for United States
federal income tax purposes, no gain or loss will be realized by a holder upon
receipt of an Exchange Note; the holding period of the Exchange Note will
include the holding period of the Old First Mortgage Note exchanged therefor,
and the adjusted tax basis of the Exchange Note will be the same as the
adjusted tax basis of the Old First Mortgage Note exchanged therefor
immediately before the exchange.
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<PAGE>
A holder of an Exchange Note will be required to report stated interest on
the Exchange Note as interest income in accordance with the holder's method of
accounting for tax purposes.
The foregoing does not discuss special rules that may affect the treatment
of holders that acquired the Old First Mortgage Notes other than at par. Any
such holders should consult their tax advisors regarding the consequences of
the Exchange Offer.
OTHER
Participation in the Exchange Offer is voluntary and holders should
carefully consider whether to accept. Holders of the Old First Mortgage Notes
are urged to consult their financial and tax advisors in making their own
decisions on what action to take.
As a result of the making of, and upon acceptance for exchange of all
validly tendered Old First Mortgage Notes pursuant to the terms of this
Exchange Offer, the Company will have fulfilled a covenant contained in the
terms of the Old First Mortgage Notes and the Exchange and Registration Rights
Agreement. Holders of the Old First Mortgage Notes who do not tender their
certificates in the Exchange Offer will continue to hold such certificates and
will be entitled to all the rights, and limitations applicable thereto, under
the Indenture pursuant to which such Old First Mortgage Notes were issued,
except for any such rights under the Exchange and Registration Rights
Agreement, which by its term terminates or ceases to have further effect as a
result of the making of this Exchange Offer. See "Exchange and Registration
Rights Agreement." All untendered Old First Mortgage Notes will continue to be
subject to the restriction on transfer set forth in the Indenture. To the
extent that Old First Mortgage Notes are tendered and accepted in the Exchange
Offer, the trading market, if any, for the Old First Mortgage Notes could be
adversely affected. See "Risk Factors--Consequences of Failure to Exchange."
The Company may in the future seek to acquire untendered Old First Mortgage
Notes in open market or privately negotiated transactions, through subsequent
exchange offers or otherwise. The Company has no present plan to acquire any
Old First Mortgage Notes which are not tendered in the Exchange Offer.
29
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Exchange and Registration Rights Agreement. The Company
will not receive any cash proceeds from the issuance of the Exchange Notes
pursuant to the Exchange Offer. The proceeds from the Original Offerings were
approximately $115.3 million after deducting the Initial Purchasers' discount
and estimated expenses of the Original Offerings. The Company has applied or
intends to apply the net proceeds of the Original Offering as follows: (i)
$77.5 million to redeem, at a redemption price of 103.33%, the Notes due 2001
bearing interest at a fixed rate of 10.25%; (ii) $15.8 million to redeem, at a
redemption price of 105.5%, the Preferred Stock paying mandatory quarterly
dividends at a fixed rate of 14.5%; and (iii) $7.0 million to retire the Term
Loan currently bearing interest at LIBOR plus 1.75% (or 7.5% at March 31,
1998). The remaining proceeds of the Original Offering and the proceeds of the
Subsequent Offering will be used for general corporate purposes, including
ongoing capital expenditures. Pending application of the proceeds as described
above, the Company has invested the proceeds in short-term securities. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations--Liquidity and Capital Resources--Capital Expenditures" and
"Business--Business Strategy."
30
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of March 31, 1998 and as adjusted to reflect the Original
Offerings, including the application of a portion of the net proceeds
therefrom as described in "Use of Proceeds." This table should be read in
conjunction with the consolidated financial statements of the Company and the
notes thereto, "Selected Consolidated Financial Data," "Unaudited Pro Forma
Financial Information," and "Management's Discussion and Analysis of Financial
Condition and Results of Operations" included elsewhere herein.
<TABLE>
<CAPTION>
MARCH 31, 1998
--------------------
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)
<S> <C> <C>
Cash and temporary cash investments....................... $ 12,939 $ 27,834
======== ========
Long-term debt (including current portion):
New Credit Facility(1).................................. $ -- $ --
Term Loan............................................... 7,000 --
Notes due 2001.......................................... 75,000 --
First Mortgage Notes(2)................................. -- 118,858
Other notes payable..................................... 10 10
-------- --------
Total long-term debt.................................. 82,010 118,868
Preferred Stock........................................... 13,301 --
Common stockholders' equity:
Common stock, $.01 par value:
Class A: 24,271,127 shares authorized; 10,613,380
shares outstanding................................... 106 106
Class B: 4,302,347 shares authorized; 2,271,127 shares
outstanding.......................................... 23 23
Class C: 100 shares authorized; 100 shares
outstanding.......................................... -- --
-------- --------
Total common stock.................................... 129 129
Paid-in capital......................................... 47,769 47,769
Retained earnings(3).................................... 31,628 24,031
-------- --------
Total common stockholders' equity..................... 79,526 71,929
-------- --------
Total capitalization.................................. $174,837 $190,797
======== ========
</TABLE>
- --------
(1) The Company has replaced its current revolving credit facility with the
New Credit Facility under which the Company may borrow up to $50 million,
subject to a borrowing base. See "Description of New Credit Facility. "
(2) Represents gross proceeds to the Company from the issuance of $120.0
million aggregate principal amount at maturity of the First Mortgage
Notes.
(3) The change in retained earnings reflects the redemption premium of the
Notes due 2001 of approximately $2.5 million, the redemption premium of
the Preferred Stock of approximately $0.8 million, the accretion of
discount on the Preferred Stock of approximately $1.7 million, and the
write-off of the unamortized debt issue costs of approximately $2.6
million.
31
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
The selected consolidated financial data presented below for each of the
years in the three-year period ended September 30, 1997 and as of September
30, 1996 and 1997 have been derived from and should be read in conjunction
with the audited consolidated financial statements of the Company and the
notes thereto included elsewhere in this Prospectus. The selected consolidated
financial data presented below for each of the years in the two-year period
ended September 30, 1994 and as of September 30, 1993, 1994 and 1995 have been
derived from the audited consolidated financial statements of the Company and
the notes thereto not included elsewhere in this Prospectus. The selected
consolidated financial data presented below as of March 31, 1998 and for the
six month periods ended March 31, 1997 and 1998 have been derived from and
should be read in conjunction with the unaudited consolidated financial
statements of the Company included elsewhere in this Prospectus. The selected
consolidated balance sheet data presented below as of March 31, 1997 have been
derived from the unaudited consolidated financial statements of the Company
not included elsewhere in this Prospectus. The unaudited consolidated
financial statements have been prepared on the same basis as the audited
consolidated financial statements and include all adjustments, consisting only
of normal recurring adjustments, necessary for a fair presentation of the
Company's financial condition and results of operations for those periods.
Operating results for the six months ended March 31, 1997 and 1998 are not
necessarily indicative of the results that may be expected for any future date
or period. The information in the following table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations," "Summary Consolidated Financial Data," the
consolidated financial statements of the Company and the notes thereto and
other financial information pertaining to the Company included elsewhere in
this Prospectus.
32
<PAGE>
SELECTED CONSOLIDATED FINANCIAL DATA
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEARS ENDED SEPTEMBER 30, (UNAUDITED)
------------------------------------------------ ------------------
1993 1994 1995 1996 1997 1997 1998
-------- -------- -------- -------- -------- -------- --------
(IN THOUSANDS, EXCEPT EMPLOYEES, TONS AND PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
Statement of Operations
Data:
Net sales.............. $136,008 $160,823 $185,772 $204,426 $232,161 $112,518 $132,183
Cost of sales.......... 128,033 144,314 162,158 188,453 209,930 104,553 115,616
-------- -------- -------- -------- -------- -------- --------
Gross profit........... 7,975 16,509 23,614 15,973 22,231 7,965 16,567
Selling, general and
administrative........ 3,986 3,925 5,312 6,273 6,311 3,301 3,116
Non-production strike
and corporate campaign
expenses.............. 3,162 996 1,000 1,768 3, 323 1,247 117
-------- -------- -------- -------- -------- -------- --------
Operating income....... 827 11,588 17,302 7,932 12,597 3,417 13,334
Interest expense....... (8,261) (7,670) (7,821) (8,635) (8,962) (4,517) (4,133)
Interest income........ 193 280 543 147 12 3 179
Miscellaneous.......... 502 163 431 871 187 97 137
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
taxes................. (6,739) 4,361 10,455 315 3,834 (1,000) 9,517
Provision for taxes.... -- -- 118 -- 50 -- 198
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
extraordinary items... (6,739) 4,361 10,337 315 3,784 (1,000) 9,319
Extraordinary items.... 585 (5,468) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)(1)... $ (6,154) $ (1,107) $ 10,337 $ 315 $ 3,784 $ (1,000) $ 9,319
======== ======== ======== ======== ======== ======== ========
Other Data:
EBITDA(2).............. $ 6,138 $ 17,306 $ 24,317 $ 16,209 $ 19,755 $ 6,941 $ 16,978
Adjusted EBITDA(3)..... 9,300 18,302 25,317 17,977 23,078 8,188 17,095
Capital expenditures... 3,184 2,761 12,470 4,990 5,998 2,081 2,387
Depreciation and
amortization.......... 4,616 5,275 6,041 7,259 6,959 3,424 3,328
Ratio of earnings to
fixed charges(4)...... -- 1.5x 2.2x 1.0x 1.4x -- 3.1x
Finished product tons
shipped............... 403,274 446,572 503,297 580,069 663,675 328,679 362,706
Billet tons shipped.... 59,604 35,503 11,072 15,638 241 -- --
-------- -------- -------- -------- -------- -------- --------
Total tons shipped.... 462,878 482,075 514,369 595,707 663,916 328,679 362,706
Average shape selling
price per ton......... $ 300 $ 337 $ 360 $ 340 $ 345 $ 337 $ 359
Average billet selling
price per ton......... 209 224 235 233 260 -- --
Employees at end of
period................ 395 428 545 550 563 580 583
Balance Sheet Data:
Working capital........ $ 32,389 $ 65,186 $ 73,301 $ 70,090 $ 72,031 $ 68,898 $ 78,820
Total assets........... 138,280 156,068 197,076 199,272 196,465 196,621 206,557
Total debt............. 54,817 76,076 85,751 88,142 83,540 95,875 82,010
Preferred Stock........ -- -- 12,239 10,489 13,089 11,789 13,301
Common stockholders'
equity................ 61,231 60,124 72,605 70,328 71,512 68,027 79,526
</TABLE>
- -------
(1) In fiscal 1995, 1996, and 1997 income (loss) applicable to common shares
after dividends accrued and accretion on Preferred Stock was $9.6, ($2.3),
and $1.2 million, respectively. For the six month periods ended March 31,
1997 and 1998 the income (loss) applicable to common shares after
dividends accrued and accretion of Preferred Stock was ($2.3) and $8.0
million, respectively.
(2) EBITDA is defined as net income before extraordinary items plus interest
expense, income taxes, depreciation and amortization. This is the same
definition for EBITDA that is contained in the Indenture. The Company
believes that EBITDA provides additional information for determining its
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
EBITDA does not necessarily indicate whether cash flow will be sufficient
for cash requirements.
(3) Adjusted EBITDA represents EBITDA as adjusted to exclude non-production
strike and corporate campaign expenses.
(4) Ratio of earnings to fixed charges is defined as income before income
taxes and extraordinary items plus amortization of debt issuance costs and
interest expense divided by the sum of amortization of debt issuance costs
plus interest expense. Earnings were insufficient to cover fixed charges
in fiscal 1993 and the six months ended March 31, 1997 by approximately
$6.7 million and $1.0 million, respectively.
33
<PAGE>
UNAUDITED PRO FORMA FINANCIAL INFORMATION
The following unaudited pro forma financial information (the "Pro Forma
Financial Information") of the Company is based on the audited and unaudited
financial statements of Bayou Steel. The Pro Forma Financial Information has
been prepared to reflect adjustments to Bayou Steel's historical balance sheet
and statements of operations to give effect to (i) the refinancing of the
Notes due 2001 and the Term Loan and (ii) the redemption of the Preferred
Stock with the proceeds from the Original Offerings. The Pro Forma Financial
Information and accompanying notes should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," "Summary Consolidated Financial Data," "Selected Consolidated
Financial Data," the consolidated financial statements of the Company and the
notes thereto and other financial information pertaining to the Company
included elsewhere in this Prospectus.
The Pro Forma Financial Information has been prepared to give effect to the
Original Offerings and the use of proceeds therefrom as though such
transactions had occurred as of March 31, 1998 for purposes of the pro forma
balance sheet and as of October 1, 1996 for purposes of the pro forma
statements of operations. Management believes that the assumptions used
provide a reasonable basis on which to present the Pro Forma Financial
Information.
The Pro Forma Financial Information is presented for informational purposes
only and does not purport to be indicative of what the Company's financial
position or results of operations would actually have been had such
transactions been consummated on such date or at the beginning of the periods
indicated, nor does it purport to project the Company's results of operations
for any future period or as of any future date.
34
<PAGE>
BAYOU STEEL CORPORATION
UNAUDITED PRO FORMA BALANCE SHEET
AS OF MARCH 31, 1998
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
ASSETS HISTORICAL ADJUSTMENTS PRO FORMA
------ ---------- ----------- ---------
<S> <C> <C> <C>
Cash and temporary cash investments......... $ 12,939 $ 14,895(1) $ 27,834
Accounts receivable, net.................... 28,584 -- 28,584
Inventories................................. 71,600 -- 71,600
Prepaid expenses and other assets........... 427 -- 427
-------- -------- --------
Total current assets...................... 113,550 14,895 128,445
Property, plant and equipment............... 137,472 -- 137,472
Less-accumulated depreciation............... (47,844) -- (47,844)
-------- -------- --------
Net property, plant and equipment......... 89,628 -- 89,628
Other assets................................ 3,379 1,065 (2) 4,444
-------- -------- --------
Total assets.............................. $206,557 $ 15,960 $222,517
======== ======== ========
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current maturities of long-term debt........ 3,010 (3,000)(3) 10
Accounts payable............................ 26,264 -- 26,264
Accrued liabilities......................... 5,456 -- 5,456
-------- -------- --------
Total current liabilities................. 34,730 (3,000) 31,730
Long-term debt.............................. 79,000 39,858 (3) 118,858
Redeemable preferred stock.................. 13,301 (13,301)(3) --
Common stock................................ 129 -- 129
Paid-in capital............................. 47,769 -- 47,769
Retained earnings........................... 31,628 (7,597)(4) 24,031
-------- -------- --------
Total common stockholders' equity......... 79,526 (7,597) 71,929
-------- -------- --------
Total liabilities and common stockholders'
equity................................... $206,557 $ 15,960 $222,517
======== ======== ========
</TABLE>
See Notes to Unaudited Pro Forma Balance Sheet
35
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO UNAUDITED PRO FORMA BALANCE SHEET
(AMOUNTS IN THOUSANDS)
The accompanying unaudited pro forma balance sheet as of March 31, 1998 has
been prepared as if the Original Offerings and the use of proceeds therefrom
occurred on that date and reflects the following adjustments:
(1) Reflects the net cash remaining from the gross proceeds of $118,858
from the issuance of $120,000 aggregate principal amount at maturity of the
First Mortgage Notes after payment of (i) $77,497 to retire the Notes due
2001 (including a prepayment penalty of $2,497), (ii) $7,000 to retire the
Term Loan, (iii) $15,825 to redeem the Preferred Stock (including $1,699 to
cover unaccreted original issue discount, and a prepayment penalty of
$825), and (iv) $3,641 of estimated fees and expenses related to the
Original Offerings.
(2) Reflects the estimated deferred financing fees of $3,641 associated
with the Original Offerings, net of the write-off of $2,576 of remaining
deferred financing costs associated with the Notes due 2001 and Term Loan.
(3) Reflects the net effect on Bayou Steel's total debt and Preferred
Stock of the Original Offerings, net of the repayment of certain
indebtedness (and redemption of Preferred Stock) as follows:
<TABLE>
<S> <C>
Issuance of First Mortgage Notes pursuant to the Original
Offerings.................................................... $118,858
Repayment of Notes due 2001................................... (75,000)
Repayment of Term Loan........................................ (7,000)
Redemption of Preferred Stock................................. (13,301)
--------
Net effect on debt and Preferred Stock...................... $ 23,557
========
</TABLE>
The net effect on debt and Preferred Stock is presented in the unaudited pro
forma balance sheet as follows:
<TABLE>
<S> <C>
Reduction of current maturities of long-term debt.............. $ (3,000)
Reduction of Preferred Stock................................... (13,301)
Increase in long-term debt..................................... 39,858
--------
$ 23,557
========
</TABLE>
(4) Reflects an estimate of charges to be recognized in connection with
the Original Offerings and the use of proceeds therefrom through
adjustments to retained earnings in the unaudited pro forma balance sheet.
The pro forma adjustment is comprised of the following:
<TABLE>
<S> <C>
Notes due 2001 prepayment penalty................................. $2,497
Preferred Stock prepayment penalty................................ 825
Unaccreted discount on Preferred Stock at the date of refinancing. 1,699
Write-off of deferred financing costs associated with refinanced
debt............................................................. 2,576
------
$7,597
======
</TABLE>
The prepayment penalties, payment of unaccreted Preferred Stock discount and
the write-off of deferred financing costs reflected above have not been
included in the accompanying unaudited pro forma statements of operations;
they will be recorded as charges against earnings in the periods when the
Original Offerings and use of proceeds therefrom occurs.
These assumed adjustments have not been reflected net of a benefit for
income taxes because of Bayou Steel's historical deferred tax position, which
as of March 31, 1998 included a full valuation allowance against the Company's
net deferred tax assets, a substantial portion of which relate to available
tax net operating loss carryforwards that may not be realized in the future.
36
<PAGE>
BAYOU STEEL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE YEAR ENDED SEPTEMBER 30, 1997
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................ $232,161 $ -- $232,161
Cost of sales............................ 209,930 -- 209,930
-------- ------- --------
Gross profit............................. 22,231 -- 22,231
Selling, general and administrative...... 6,311 (361)(1) 5,950
Non-production strike and corporate
campaign expenses....................... 3,323 -- 3,323
-------- ------- --------
Operating income......................... 12,597 361 12,958
Other income (expense):
Interest expense....................... (8,962) (2,999)(2) (11,961)
Interest income........................ 12 -- 12
Miscellaneous.......................... 187 -- 187
-------- ------- --------
Income before taxes...................... 3,834 (2,638) 1,196
Provision for income taxes............... 50 -- 50
-------- ------- --------
Net income............................... 3,784 (2,638) 1,146
Dividends accrued and accretion on
preferred stock......................... (2,600) 2,600 (3) --
-------- ------- --------
Net income applicable to common and
common equivalent shares................ $ 1,184 $ (38)(4) $ 1,146 (4)
======== ======= ========
Weighted average shares outstanding:
Basic.................................. 12,885 12,885
Diluted................................ 13,707 13,707
Basic income per share................. $ 0.09 $ 0.17
Diluted income per share............... $ 0.09 $ 0.16
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
37
<PAGE>
BAYOU STEEL CORPORATION
UNAUDITED PRO FORMA STATEMENT OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 31, 1998
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
HISTORICAL ADJUSTMENTS PRO FORMA
---------- ----------- ---------
<S> <C> <C> <C>
Net sales................................ $132,183 $ -- $132,183
Cost of sales............................ 115,616 -- 115,616
-------- ------- --------
Gross profit............................. 16,567 -- 16,567
Selling, general and administrative...... 3,116 (181)(1) 2,935
Non-production strike and corporate
campaign expenses....................... 117 -- 117
-------- ------- --------
Operating income......................... 13,334 181 13,515
Other income (expense):
Interest expense....................... (4,133) (1,647)(2) (5,780)
Interest income........................ 179 -- 179
Miscellaneous.......................... 137 -- 137
-------- ------- --------
Income before taxes...................... 9,517 (1,466) 8,051
Provision for income taxes............... 198 -- 198
-------- ------- --------
Net income............................... 9,319 (1,466) 7,853
Dividends accrued and accretion on
preferred stock......................... (1,304) 1,304 (3) --
-------- ------- --------
Net income applicable to common and
common equivalent shares................ $ 8,015 $ (162)(4) $ 7,853 (4)
======== ======= ========
Weighted average shares outstanding:
Basic.................................. 12,885 12,885
Diluted................................ 13,732 13,732
Basic income per share................. $ 0.62 $ 0.65
Diluted income per share............... $ 0.58 $ 0.61
</TABLE>
See Notes to Unaudited Pro Forma Statement of Operations
38
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO UNAUDITED PRO FORMA STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
The accompanying unaudited pro forma statements of operations for the year
ended September 30, 1997 and the six months ended March 31, 1998 have been
reflected as if the Original Offerings and the use of proceeds therefrom
occurred on October 1, 1996 and reflect the following adjustments:
(1) Represents decreased expense associated with amortization of deferred
financing costs for the Original Offerings reflecting the impact of the 10
year term of the First Mortgage Notes compared to the shorter original
maturities of Bayou Steel's existing debt.
(2) Represents the incremental impact to interest expense based upon
$120,000 par value of long-term debt assumed outstanding at an interest
rate of 9.5% plus accretion of the discount to par value at which the First
Mortgage Notes were issued recognized over the ten year term of the First
Mortgage Notes.
(3) Represents the elimination of preferred dividend expense and discount
accretion.
(4) The pro forma Bayou Steel net income amounts do not include an
extraordinary charge of approximately $7,597 related to a debt
extinguishment loss for the refinancing of Bayou Steel's existing debt.
This charge, which will relate to the refinancing transaction, will be
reflected as an extraordinary loss associated with the early extinguishment
of debt included in earnings in the period when the refinancing transaction
occurs.
39
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
Bayou Steel is a leading producer of light structural shapes and merchant
bar steel products. Bayou Steel owns and operates a steel minimill and a
stocking warehouse located on the Mississippi River in LaPlace, Louisiana,
three additional stocking locations accessible to the Louisiana Facility
through the Mississippi River waterway system, and a rolling mill in Harriman,
Tennessee. 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
Company estimates that it currently has aggregate annual steel melting
capacity of approximately 610,000 tons and finished product rolling capacity
aggregating approximately 800,000 tons, with approximately 550,000 tons at the
Louisiana Facility and approximately 250,000 tons at the Tennessee Facility,
depending on the product mix. For the twelve months ended March 31, 1998, the
Company shipped 697,943 tons of steel products, generating net sales of $251.8
million and Adjusted EBITDA (as defined) of $32.0 million.
The Louisiana Facility, which was constructed in 1981 at a cost of $243
million, is a minimill consisting of an electric arc furnace, a rolling mill,
climate controlled warehouse facilities, and a deep-water dock on the
Mississippi River. 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 TVSC, which was then in bankruptcy. During the first two
years of operation, the Tennessee Facility experienced losses of approximately
$11.7 million attributable to the inexperience of the new workforce, the
change of the product mix from rebar to the higher margin merchant bar,
problems with re-starting idle equipment (some of which was relatively new and
untested), and a decrease in selling prices due to market conditions. Since
then, steel prices have improved and the Company has enhanced operational
efficiencies. The Tennessee Facility has been profitable since July 1, 1997.
The Company expects continued operational improvements at the Tennessee
Facility which should result in lower costs per ton and additional sales
volume. The backlog of unfilled cancelable orders for the Tennessee Facility's
product is at a near record high of approximately $26 million as of February
28, 1998.
From March 1993 until September 1996, the Louisiana Facility experienced a
labor disruption that had a significant impact on production for fiscal 1993.
Although the administrative, legal and security costs attributable to the
strike adversely affected the Company's results of operations through
September 1997, these costs were insignificant in the first quarter of fiscal
1998 and are not expected to affect the Company's results of operations in
future periods. The Company's new six-year labor contract provides for no
compulsory wage increases other than compensation awards under management-
controlled productivity incentive and profit sharing plans which management
believes resulted in the Louisiana Facility's production processes achieving
an 18-year productivity record in the first six months of fiscal 1998.
RESULTS OF OPERATION
Six Months Ended March 31, 1998 Compared to Six Months Ended March 31, 1997
The Company reported consolidated net income of $9.3 million before
dividends accrued and accretion on preferred stock in the first six months of
fiscal 1998 compared to a net loss of $1.0 million for the comparable period
of fiscal 1997. The $10.3 million improvement in the Company's results was due
to several significant factors. Comparing the first six months of fiscal 1998
to the same period in the prior year, shape shipment tons increased 10% and
the average selling price per ton increased 7%. Additionally, non-production
strike and corporate campaign expenses decreased by $1.1 million as a result
of the settlement of these issues. The Tennessee Facility, which recorded
40
<PAGE>
its third consecutive profitable quarter, showed significant improvement by
increasing net income by $2.9 million over the first six months of the prior
year.
The following table sets forth shipment and sales data:
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
-----------------
1997 1998
-------- --------
<S> <C> <C>
Net Sales (in thousands)............................... $112,518 $132,183
Shape shipment tons.................................... 328,679 362,706
Shape selling price per ton............................ 337 359
</TABLE>
Sales. Net sales for the first six months of 1998 increased by 17%, or $19.7
million compared to the same period of fiscal 1997 as a result of shipment
increases of 34,027 tons and a $22 per ton increase in the average selling
price resulting from the strong demand for the Company's products.
(i) Shapes. Shipments for the first six months of fiscal 1998 increased 10%
compared to the same period of fiscal 1997. The higher shipments were mainly
due to a strong economy, increases in shipments to the original equipment
manufacturing/fabricator ("OEM/FAB") market, and a good product mix. The total
increase in tons shipped for the first six months of fiscal 1998 was comprised
of 21,717 tons from the Louisiana Facility and 12,310 tons from the Tennessee
Facility. Higher production levels, due to record productivity levels enabled
the Company to capitalize on the strong demand for its products.
Overall selling price increased approximately $22 per ton or 7% during the
first six months of fiscal 1998 compared to the same period of fiscal 1997.
The Tennessee Facility benefitted from an overall improved market as well as
consistent production and availability of products. Additionally, during the
first six months of fiscal 1998, the Tennessee Facility and the Louisiana
Facility each benefitted from an increase in selling price of $30 and $20 per
ton, respectively, over the same period of fiscal 1997. The Company has not
experienced significant competition from foreign producers during the first
six months of fiscal 1998.
(ii) Billets. Due to the high productivity of the Company's rolling mills,
no billets were sold on the open market during the first six months of 1998
and 1997. The Tennessee Facility's demand for billets has been primarily
satisfied by the purchase of billets on the open market at competitive prices
while the Company internally supplied all of the Louisiana Facility's rolling
mill requirements. Depending on market conditions and its own rolling mill
requirements, the Company may sell billets on an occasional and selective
basis to domestic and export customers while purchasing additional billets
when required.
Cost of Goods Sold. Cost of goods sold was 87% of sales for the first six
months of fiscal 1998 compared to 93% of sales for the same period of fiscal
1997. The improvement was attributable to the items noted above and certain
nonrecurring charges recorded in fiscal 1997 related to a power outage in the
melting facility and the retraining and related costs of striking employees
returning to work.
A major component of cost of goods sold is the raw material scrap. Scrap
cost in the first six months of fiscal 1998 increased 4% compared to the same
period last year. As with the demand for the Company's finished goods, scrap
demand has also risen. However, the export demand for scrap has decreased
sharply allowing for a greater domestic supply and lower prices, thereby
minimizing this increase. 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"). When compared with the first six months of the prior
year, the cost to produce shredded scrap was reduced by 5%.
41
<PAGE>
Another significant portion of cost of goods sold is conversion cost, which
includes labor, energy, maintenance materials and supplies used to convert raw
materials into billets and billets into shapes. Conversion cost per ton for
the Tennessee Facility in the first six months of fiscal 1998 compared to the
same period of fiscal 1997 has improved by $3 per ton over the prior period.
This improvement is due to increased production and rolling mill yield at the
Tennessee Facility. Conversion cost at the Louisiana Facility has increased in
the second quarter by $5 per ton resulting in year-to-date conversion costs
approximating the prior year. This increase is a result of the melt shop
experiencing a decrease in yield during the second quarter of fiscal 1998.
Selling, General and Administrative Expense. Selling, general and
administrative expenses in the first six months of fiscal 1998 compared to the
comparable period of the prior fiscal year were approximately the same.
Non-Production Strike and Corporate Campaign Expenses. Non-production
strike-related expenses have decreased significantly since the settlement of
the Racketeer Influenced Corrupt Organization Act ("RICO") lawsuit and post-
strike issues at the end of fiscal 1997. Costs are $1.1 million less in the
first six months of fiscal 1998 when compared to the same period of fiscal
1997.
Net Income. Net income before dividends accrued and accretion on preferred
stock was $10.3 million better in the first six months of 1998 compared to the
same period of fiscal 1997. The primary reasons for the increase in earnings
were increased revenue from higher sales prices and volume increases,
increased metal margins and decreased non-production strike and corporate
campaign expenses. The Tennessee Facility reported its third consecutive
quarterly profit in the second quarter of fiscal 1998.
Fiscal 1997, 1996 and 1995 Year to Year Comparisons
Bayou Steel reported consolidated net income in fiscal 1997 of $3.8 million
compared to $0.3 million in fiscal 1996. The $3.5 million improvement in the
Company's results was mainly due to three factors. First, the results at the
Tennessee Facility, improved by $4.1 million. The Tennessee Facility achieved
its first quarterly profit in the fourth fiscal quarter of 1997. Second, metal
margin at the Louisiana Facility, the difference between shape selling price
and raw material ("scrap") cost, improved by 4% or $9 per ton. And third, the
Louisiana Facility shipments increased by 5% or 23,474 tons. Offsetting some
of the improvements in earnings were increased expenses of $1.6 million
related to settling the extended strike and a lawsuit related to the strike.
In addition, the price of power and key supply items increased by $2 per ton
of steel produced or $1.1 million.
The Company reported consolidated net income in fiscal 1996 of $0.3 million
compared to $10.3 million in fiscal 1995. The $10.0 million reduction in the
Company's results was mainly due to three factors. First, metal margin at the
Louisiana Facility decreased by 4% or $9 per ton. Second, the prices of
certain supply items and energy increased significantly at the Louisiana
Facility, resulting in additional expenses of $4.4 million. Third, start-up
losses at the Tennessee Facility increased by $4.6 million because of
decreased selling prices and higher than expected operating costs.
The following table sets forth the shipment and sales data for the fiscal
years indicated.
<TABLE>
<CAPTION>
YEARS ENDED SEPTEMBER 30,
--------------------------
1995 1996 1997
-------- -------- --------
<S> <C> <C> <C>
Shape Shipment Tons........................... 503,297 580,069 663,675
Average Shape Selling Price Per Ton........... $ 360 $ 340 $ 345
Billet Shipment Tons.......................... 11,072 15,638 241
Average Billet Selling Price Per Ton.......... $ 235 $ 233 $ 260
Net Sales (in thousands)...................... $185,772 $204,426 $232,161
</TABLE>
42
<PAGE>
Sales. Net sales increased by $28 million or 14% in fiscal 1997 compared to
fiscal 1996 due to increased shape shipments out of both the Louisiana and
Tennessee Facilities. This was a record shape shipment year for both
facilities. The average shape selling price also increased by 1%. Net sales
increased by $19 million or 10% in fiscal 1996 compared to fiscal 1995 due to
shipments out of the Tennessee Facility which started operations in late
fiscal 1995. The fiscal 1996 increase in shape shipments were partially offset
by an overall decreased selling price. The improvements in both years
represent a strengthening in the economy.
(i) Shapes. In fiscal 1997, the increase of 83,606 tons in shape shipments
was attributable to a strong economy and improved product mix which enabled
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 increase in shape
prices Company wide was primarily in response to a strong market demand and an
improving economy. The Company has 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 last year. Compared to last year, tons shipped to this
segment increased by 31,223 tons at the Louisiana Facility and 28,663 at the
Tennessee Facility.
In fiscal 1996, the Company increased shape shipments by 76,772 tons which
was attributable to improved product demand and the additional product line
from the Tennessee Facility. Shipments from the Louisiana Facility increased
by 5,972 tons compared to the prior year. Exports to Mexico and overseas were
minimal, while shipments to Canada were slightly less than the prior year.
More shipments, as a percentage of the total, went to steel service centers
and less to end users. The $20 per ton or 6% decrease in shape prices from the
Louisiana Facility was the result of additional capacity being shifted into
the Company's product line from mills previously producing for the special bar
quality ("SBQ") market. This unanticipated shift was due to the extreme
softness of the SBQ market. In addition, excess inventory at certain minimills
and imports in the Southwest from Mexican mills contributed to the decrease in
selling price. Shipments from the Tennessee Facility increased by 70,800 tons.
The prices for the merchant bar product line from the Tennessee Facility also
carried a lower selling price compared to the structural products from the
Louisiana Facility. Consequently, the mix of selling more merchant bar
products from the Tennessee Facility in fiscal 1996 resulted in lowering the
overall selling price by $4 per ton. The Company also expanded its market area
for merchant bar resulting in lower selling prices.
Shipments are expected to improve in fiscal 1998 mainly due to the
availability of additional production from Tennessee as operations continue to
improve. The Company plans to continue to optimize its product mix to remain
competitive and maintain its share in the structural shape and merchant bar
markets.
(ii) Billets. In fiscal 1997, billet shipments, the Company's semi-finished
product, decreased compared to fiscal 1996 due to the lack of billets
available for sale. More billets were used in Louisiana's rolling mill due to
higher production levels, resulting in fewer billets available for sale to
customers. Also, the Louisiana Facility supplied the Tennessee Facility's
rolling mill with approximately 26,500 tons of billets exhausting the
remainder of the Company's production. The rest of the Tennessee Facility's
billet requirements were purchased on the open market at competitive prices.
In fiscal 1996, billet shipments increased slightly compared to fiscal 1995
due to a large export shipment and several smaller domestic shipments. The
overall selling price of billets was consistent with the prior year. The
Company supplied approximately 29,000 tons of billets to the Tennessee
43
<PAGE>
rolling mill, exhausting the remainder of the Company's excess billet
production in fiscal 1996. The rest of the Tennessee Facility's billet
requirements were purchased on the open market at competitive prices.
In fiscal 1998, the Company will continue to supply all of the Louisiana
Facility's billet requirements for its rolling mill. Excess billets will be
shipped to Tennessee's rolling mill to partially fill its billet requirements.
The Tennessee Facility's remaining billet requirements will be purchased from
other steel mills. Depending on market conditions, the Company may sell
billets on an occasional and selective basis to domestic and export customers
while purchasing additional billets for the Tennessee Facility. The Company
will continue to evaluate its long-term billet supply strategy while reacting
to short-term market changes.
Cost of Goods Sold. Cost of goods sold was 90% of sales in fiscal 1997
compared to 92% in fiscal 1996. The percentage decrease was due to shape
selling prices increasing more than the scrap price increases and conversion
cost (the costs to convert billets into merchant bar products) at the
Tennessee Facility improving by 15%.
Cost of goods sold was 92% of sales in fiscal 1996 compared to 87% in fiscal
1995. The percent increase was due to shape selling prices decreasing more
than scrap prices, the learning curve associated with the start-up of
operations at the Tennessee Facility, the learning curve associated with the
installation of new capital improvements at Louisiana, and price increases of
certain key supply items.
(i) Raw Material. In fiscal 1996, scrap costs decreased 3% compared to
fiscal 1995 levels. The Louisiana Facility's shape selling prices decreased $9
more than scrap costs resulting in a 4% reduction in the Louisiana Facility's
metal margin. Partially offsetting the margin reduction was the best scrap
yield in the history of the Company. In fiscal 1997, scrap costs decreased an
average 4% compared to fiscal 1996. Shape selling prices increased $10 per ton
more than the scrap price decreases resulting in significantly better margins.
Scrap prices dropped in fiscal 1997 due to increased availability and the
absence of a significant export market. Pressure on scrap supply is expected
due to increased domestic capacity planned in the steel industry. This could
result in higher scrap prices.
In order to achieve better control over scrap cost (a major component of
cost of goods sold) and availability, the Company opened MRR which operates an
automobile shredder. MRR produces shredded scrap metal which is one of several
scrap types used in steel making at the minimill. This project was completed
late in fiscal 1995 and experienced normal start-up issues in fiscal 1996.
Productivity, tons produced, and costs in fiscal 1997 have improved
significantly over last year. In fiscal 1996, the market for car bodies, the
principal raw material feed for a shredder, was higher than anticipated due to
local competitive conditions and increased domestic demand for shredded
material. However, the market stabilized in fiscal 1997. The shredder
currently supplies approximately 12% of the melt shop's raw material
requirements. The processed shredded material costs considerably less than
purchasing shredded material on the open market. MRR may expand by processing
additional scrap types.
The Tennessee rolling mill Facility's principal raw material is billets
which are produced at the Louisiana Facility or purchased on the open market.
Billet cost decreased by 1% in fiscal 1997 compared to fiscal 1996. The yield
of billets rolled into shapes improved by 4% in fiscal 1997 compared to fiscal
1996 resulting in a yield savings of approximately $6 per ton. The Louisiana
Facility supplied approximately 17% of the Tennessee Facility's rolling mill's
total billet requirements in fiscal 1997. The price of billets purchased on
the open market normally follows the scrap market. Currently, the Company
purchases billets at competitive prices and believes that the supply of
billets is adequate.
44
<PAGE>
Another component of raw materials is additives, alloys and flux ("AAF").
AAF cost remained approximately the same in fiscal 1997 compared to fiscal
1996. Cost in fiscal 1997 was affected by increased consumption caused by the
production of a richer grade of products and by a moderation in prices for
some items. AAF cost increased in fiscal 1996 by 12% mainly due to increased
prices caused by reduced product availability. An anti-dumping suit against
foreign producers utilized by the Louisiana Facility and its competitors
resulted in higher duties on imported AAF. Also contributing to higher prices
was the increased domestic demand due to the high steel-making capacity
utilization. These general market conditions affected both the Company and its
competition.
(ii) Conversion Cost. Another significant portion of cost of goods sold is
conversion cost, which includes labor, energy, maintenance material, and
supplies used to convert raw materials into billets and billets into shapes.
Conversion cost per ton for the Louisiana Facility, which includes fixed and
variable costs, increased 1% in fiscal 1997 compared to fiscal 1996, and 6% in
fiscal 1996 compared to fiscal 1995.
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 the
first quarter of fiscal 1997 the Company incurred some one-time expenses
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. To shorten this process
and to promote other improvements in productivity and other cost efficiencies,
the Company introduced a productivity incentive plan. The Company experienced
two unusual equipment outages at its Louisiana Facility 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 fiscal 1996, conversion cost per ton at the Louisiana Facility increased
by 6% compared to fiscal 1995. The main increase in conversion cost was caused
by $3 million in price increase for power and natural gas. Also, as a result
of the continued impact of the second furnace learning curve and the favorable
change in billet availability in the market place, the Company returned to a
one furnace operation during the first fiscal quarter of 1996. The other
furnace serves as a back-up for significant unexpected outages. Several
operating records were established in fiscal 1996 which contributed to
offsetting increased costs of certain supply items.
In July 1995, the Tennessee Facility started operating its 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. During fiscal 1996, the Tennessee
Facility rolled 44 new section sizes which impacted productivity yet provided
opportunities for penetrating the OEM/FAB markets. Consequently, production
costs exceeded sales by $4.8 million and $1.3 million in fiscal 1996 and 1995,
respectively. The rolling mill performance has improved since start-up due to
capital improvements and the experience gained by the workforce. Comparing
fiscal 1997 to fiscal 1996, tons produced improved by 51%, conversion cost per
ton improved by 15%, productivity improved by 49%, and yield loss was reduced
by 4%. The Tennessee Facility reported its first quarterly profit of $0.2
million in the fourth fiscal quarter of 1997.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased in fiscal 1997 and 1996 compared to fiscal
1995 due to an increase in amortization expenses related to the financing of
the Tennessee Facility, additional administrative expenses related to the
Tennessee Facility, and additional franchise and property taxes.
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<PAGE>
Non-Production Strike & Corporate Campaign Expenses. In fiscal 1997 and
1996, the Company's expenses for direct out-of-pocket strike-related and
corporate campaign issues increased by $1.6 million and $0.8 million,
respectively. In fiscal 1996, these expenses increased to an average of
$147,000 per month mainly due to increased legal expenses related to the RICO
suit which the Company filed against the Union. In fiscal 1997, expenses
related to the RICO law suit and expenses related to strikers returning to
work averaged $272,000 per month. The RICO law suit against the Union was
settled on October 29, 1997. This settlement will not have a material impact
on the Company's financial position or results of operations. Non-production
strike and corporate campaign expenses should be minimal after the first
quarter of fiscal 1998.
Interest Expense and Miscellaneous. Interest expense increased in fiscal
1997 and 1996 compared to the prior fiscal year due to additional short-term
borrowings under the line of credit, term loan and higher interest rates. The
Company borrowed an average of $1.7 million under its line of credit at a
weighted average interest rate of 8.4% in fiscal 1996 and had average
borrowings of $5.4 million at a weighted average interest rate of 8.8% in
fiscal 1997.
Interest income decreased in fiscal 1997 and fiscal 1996 compared to the
prior fiscal years due to the Company having less cash to invest.
Miscellaneous income increased in fiscal 1996 compared to the prior year due
to a better collection record on credit sales and a one time sale of scrapped
inventory.
Net Income/Loss. In fiscal 1997, the Company's consolidated results improved
by $3.5 million compared to fiscal 1996 mainly due to improvement in the
Tennessee Facility's operations, stronger shape shipments, and a better metal
margin. The improvements were partially offset by increased costs associated
with non-production strike and corporate campaign expenses, increased price of
energy sources and certain supply items, and two major outages at the
Louisiana Facility which resulted in lost production.
In fiscal 1996, the Company's consolidated results were $10 million less
than fiscal 1995 mainly due to the Tennessee Facility incurring substantial
losses for fiscal 1996. The metal margin decreased substantially while prices
of certain supply items and energy increased, and the start-up costs of
several recently completed capital projects and the idle furnace at the
Louisiana Facility contributed to the reduction in results.
The Tennessee Facility operation reported an income of $0.2 million for the
fourth fiscal quarter of fiscal 1997. This was the first quarterly profit
reported by the Tennessee Facility's operation. Both facilities benefitted
from a strong metal margin. The results were adversely affected by several
factors. The price of power increased the conversion cost in the Louisiana
Facility which was caused by the power company passing on the cost for an
extended nuclear unit shutdown in the form of a fuel adjustment to their
customers.
Income Taxes. The provision for income taxes in fiscal 1997, 1996, 1995 was
minimal due to utilization of certain tax benefits including the benefit of
net operating loss carry forwards.
LIQUIDITY AND CAPITAL RESOURCES
The Company ended the second fiscal quarter of 1998 with $12.9 million in
cash and temporary cash investments and no short-term borrowings. At March 31,
1998, current assets exceeded current liabilities by a ratio of 3.27 to 1.0.
Working capital increased by $6.8 million to $78.8 million during the six
months ended March 31, 1998. As of March 31, 1998, the Company had invested
cash of $14.5 million.
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<PAGE>
Operating Cash Flow. In the first six months of fiscal 1998, cash provided
by operations was $17.9 million while $3.7 million was used in operations
during the first six months of fiscal 1997. Contributing to the significant
improvement was a decrease in inventories of $3.4 million caused by strong
demand for the Company's products along with an increase in accounts payable
of $2.5 million due to the resulting increase in production activities.
For fiscal 1997, net cash provided by operations was $12.8 million. Income,
depreciation, and amortization contributed $10.7 million in operating cash.
Inventories at the Louisiana Facility decreased as prime sales exceeded prime
production and the productivity of the rolling mill increased resulting in
fewer billets in inventory. Offsetting some of the increase in operating cash
was an increase in accounts receivable of $3.2 million caused by increased
sales by the Louisiana and Tennessee Facilities.
Capital Expenditures. Capital expenditures amounted to $6.0 million in
fiscal 1997 and $2.4 million in the first six months of fiscal 1998. The
Company spent approximately $4.4 million in fiscal 1997 at the Louisiana
Facility which was directed at reducing operating costs, increasing melt shop
and rolling capacity, and maintaining its plant. The Company also spent
approximately $1.6 million in fiscal 1997 at the Tennessee Facility on capital
projects to reduce costs, increase productivity and maintain its plant. The
capital expenditures in the first six months of fiscal 1998 were for cost
reduction, productivity enhancements, plant maintenance and safety and
environmental programs. In fiscal 1998, depending on market conditions, the
Company expects to commit approximately $14 million on various capital
projects to reduce costs and increase productivity, enhance safety and
environmental programs, and maintain the plants.
Financing Activities. The Company paid $2.2 million in dividends to the
holders of Preferred Stock and repaid $3.0 million in short-term borrowings in
fiscal 1997. Also, $1.5 million in principal on the Term Loan was paid off in
each of fiscal 1997 and the first six months of fiscal 1998.
The Company has applied or intends to apply a portion of the net proceeds of
the Original Offering to redeem all of its outstanding Notes due 2001 and
Preferred Stock and to repay its Term Loan. See "Use of Proceeds."
On June 20, 1995, the Company entered into an amendment and restatement of
its then current credit facility agreement which is used for general corporate
purposes. The terms of the amended and restated agreement call for available
borrowings up to $45 million, including outstanding letters of credit using a
borrowing base derived as a certain percentage of accounts receivable and
inventory. This five year revolving line of credit bears interest on a sliding
scale based on the quarterly leverage ratio which is defined as indebtedness
divided by EBITDA. The terms of the loan agreement impose certain restrictions
on the Company, the most significant of which require the Company to maintain
a minimum interest coverage ratio and limit the incurrence of certain
indebtedness. There were no borrowings under the line of credit as of March
31, 1998, and the amount available to borrow was $35 million.
On May 22, 1998, the Company entered into a five-year secured $50.0 million
revolving credit facility (the "New Credit Facility") with The Chase Manhattan
Bank, an affiliate of one of the Initial Purchasers. The New Credit Facility
replaced the Company's prior credit facility which was scheduled to terminate
on June 1, 2000. See "Description of New Credit Facility."
On February 12, 1998, the Company executed a letter of intent with
Northwestern Steel and Wire Company ("Northwestern") relating to the
acquisition by the Company of Northwestern, a major minimill producer of
structural steel, rod and wire products. On April 27, 1998, the Company
announced that it would not proceed with its plans to acquire Northwestern.
47
<PAGE>
The Company has no financial obligations with respect to post-employment or
post-retirement benefits other then the employee retirement plans.
The Company believes that current cash balances, internally generated funds,
the New Credit Facility, the proceeds from the Original Offering and
additional purchase money mortgages 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.
The Indenture provides certain restrictions on the ability of the Recourse
Subsidiaries to make distributions to the Company. See "Description of the
First Mortgage Notes--Certain Covenants--Limitations on Restricted Payments."
OTHER COMMENTS
Year 2000. The Company is preparing for the impact that the year 2000 is
expected to have on the electronic data processing and other information
systems relevant to the Company's business. A detailed plan has been outlined
and system changes to address this issue are well under way. The year 2000
should not significantly impact the Company's results of operations, financial
position or cash flows.
Litigation. 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.
Inflation. The Company is subject to increases in the cost of energy,
supplies, salaries and benefits, additives, alloy and scrap due to inflation.
Shape prices are influenced by supply, which varies with steel mill capacity
and utilization, and market demand.
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<PAGE>
BUSINESS
GENERAL
Bayou Steel is a leading producer of light structural shapes and merchant
bar steel products. Bayou Steel owns and operates a steel minimill and a
stocking warehouse located on the Mississippi River in LaPlace, Louisiana,
three additional stocking locations accessible to the Louisiana Facility
through the Mississippi River waterway system, and a rolling mill in Harriman,
Tennessee. 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
Company estimates that it currently has aggregate annual steel melting
capacity of approximately 610,000 tons and finished product rolling capacity
aggregating approximately 800,000 tons, with approximately 550,000 tons at the
Louisiana Facility and approximately 250,000 tons at the Tennessee Facility,
depending on the product mix. The Company has been increasing its production
at the Tennessee Facility, and for the twelve months ended March 31, 1998, the
Company shipped 697,943 tons of steel products, generating net sales of $251.8
million and Adjusted EBITDA (as defined) of $32.0 million.
The Louisiana Facility, which was constructed in 1981 at a cost of $243
million, is a minimill consisting of an electric arc furnace, a rolling mill,
climate controlled warehouse facilities, 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 a Krupp computer-controlled, electric arc furnace 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 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.
Since the acquisition, the Company has retrained the workforce, improved the
profitability of the product mix, enhanced operational efficiencies and
increased capacity utilization. The Tennessee Facility has been profitable
since July 1997, and the Company expects continued operational improvements
should result in higher capacity utilization, lower costs per ton and
additional sales volume.
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 44 states, Canada, Mexico, and overseas.
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<PAGE>
INDUSTRY OVERVIEW
Finished steel products consist of flat rolled and long products. Flat
rolled products generally consist of hot rolled, cold rolled, and coated sheet
and coil that are principally used in the automotive, construction, packaging,
electrical equipment and appliance manufacturing industries. The Company does
not produce any flat rolled products. Long products generally consist of
structural shapes, rebar, and bar and wire products. Structural shapes are
principally used for infrastructure, commercial and home construction, and
heavy manufacturing. Rebar is generally used for infrastructure projects,
parking garages, driveways, sidewalks, and swimming pools. Bar products are
used in various manufacturing and construction applications, and wire products
are used primarily in the electrical products, fencing, power generation and
distribution, and retail and construction industries.
The Company produces light structural and merchant bar products. The Company
estimates that in 1997 it accounted for approximately 16% of United States
structural products shipments, excluding flats and wide flange beams (which
the Company does produce), and approximately 3% of the merchant bar products
market. According to 1997 data compiled by the American Iron and Steel
Institute, overall domestic demand for products in the markets in which the
Company competes, measured by apparent consumption, exceeded domestic supply.
In 1997, industry sources estimate that domestic shipments of the Company's
primary products, structural products, excluding flats and wide flange beams,
totaled 2.7 million tons while demand was an estimated 2.9 million tons.
Domestic shipments of hot rolled bar totaled 8.0 million tons while demand was
8.9 million tons.
The primary determinants of a customer's purchase decision for light
structural shapes and merchant bar products are price, availability, quality
and customer service. Timely delivery required by customers to maintain
efficient inventory levels as well as high shipping costs for these products
relative to their selling price typically limit the geographic area which can
be economically served by a particular mill. As a result, a structural or bar
products mill in one region of the United States may not necessarily compete
with a similar mill in another region. Likewise, in recent years imports have
not posed a significant threat to the markets served by the Company. According
to industry sources, in 1997 imports accounted for only an estimated 11% of
the market for structural products, excluding flats and wide flange beams,
7.4% of the bar sized light structurals market and 14% of the market for hot
rolled bar products.
COMPETITIVE STRENGTHS
Advantageous Geographic Locations. The Company's production and distribution
facilities are positioned to provide the Company with access to a broad
geographic customer base and are strategically located to reduce
transportation costs for raw materials and finished products. The Louisiana
Facility, which includes a deep-water dock, is strategically located on the
Mississippi River, which reduces the Company's transportation costs and
enhances its competitive position. Both scrap and finished products may be
shipped to and from the Louisiana Facility by barge, normally the least costly
method of transportation in the steel industry. The Company also believes that
the location of the Louisiana Facility on the Mississippi River and its
network of three inland waterway inventory stocking warehouses in Chicago,
Tulsa and Pittsburgh enable it to access remote markets for its products on a
cost-effective basis. The Louisiana Facility's deep-water dock also provides
the Company with low-cost alternative sources of scrap from the Caribbean and
elsewhere, partially protecting the Company from domestic scrap price
increases.
Strong Market Position. The Company believes that it is currently the second
largest producer of structural steel products, excluding flats and wide flange
beams, in the United States and estimates that it supplied approximately 16%
of shipments of such products in the United States in 1997. In the Company's
primary geographic markets, the Company has an even larger market share as
producers of light structural products tend to serve customers located near
their facilities. The
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Company believes that its strong market position and extensive distribution
network provide it with competitive market intelligence and other advantages
from scale and vertical integration relative to smaller competitors.
Improving Operating Performance. Through efficiency and productivity
improvement efforts and targeted capital expenditures, the Company has
generated significant gains in its performance at its production facilities
over the past several years. In the first six months of fiscal 1998, the
Company achieved record productivity levels at the Louisiana and Tennessee
Facilities following record years in terms of shipments of finished products
from both facilities in fiscal 1997. The Louisiana Facility and Tennessee
Facility shipped 529,707 and 133,968 tons of rolled finished products in
fiscal 1997, respectively, and 288,138 and 74,568 tons of rolled finished
products in the first six months of fiscal 1998, respectively, as opposed to
rolled finished product shipments of 504,944 and 75,125 tons, respectively, in
fiscal 1996. Productivity has improved at the Louisiana Facility rolling mill
such that the Company had no internally produced billets available for
external sales in the first six months of fiscal 1998, despite record
production levels in the melt shop. Since its acquisition of the Tennessee
Facility in fiscal 1995, the Company has invested approximately $7.7 million
in projects to improve the facility's productivity and efficiency, which are
beginning to generate benefits. In fiscal 1997, the Tennessee Facility
realized a 4% improvement in its yield of shapes rolled from billets over
fiscal 1996, creating savings of $6 per ton. The Tennessee Facility also
realized a 51% increase in finished product tons produced, a 15% reduction in
conversion cost and a 49% increase in productivity in fiscal 1997 over fiscal
1996 levels. Such improvements continued in the first six months of 1998 as
the Tennessee Facility realized a $3 per ton conversion cost improvement over
the corresponding fiscal 1997 period.
Broad Product Offering. The Company's broad product range of light
structural steel products makes the Company an attractive supplier for steel
service centers, which prefer a supplier that offers a full range of products.
These products are used in a variety of applications and industries, including
commercial, infrastructure and home construction, and truck, trailer and ship
manufacturing and construction. The Company believes that the breadth of its
products and markets mitigates the impact of adverse conditions in any one of
the Company's markets on its overall performance.
Advantageous Labor Arrangements. The Company believes that the labor
agreements it recently entered into with its Louisiana and Tennessee
workforces advantageously position the Company for future cost savings and
efficiency enhancing opportunities. After a lengthy labor disruption at the
Louisiana Facility was settled in late 1996, the Company entered into a six-
year labor contract with the Louisiana workforce that provides for no
compulsory wage increases other than through the Company's productivity
incentive and profit-sharing plans. In 1997, the Company entered into a
similar seven and one-half year labor contract with its Tennessee workforce.
The Company believes that these incentive programs have contributed to the
record productivity levels achieved by the Company in the first six months of
fiscal 1998. As part of its strategic employee development efforts, the
Company is committed to developing a high performance work culture through
extensive training, a "pay-for-performance" culture, and individual
development efforts incentivized through a "pay-for-knowledge" program. The
Company believes that the workforce, through this program, will have an impact
in achieving operational and productivity improvements.
Experienced and Committed Management Team. Senior management of the Company
average over 12 years with the Company and 17 years in the steel industry.
Management has demonstrated its ability to successfully manage and incentivize
its labor force, achieve improvements in operating results in challenging
market conditions and integrate acquired operations.
51
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BUSINESS STRATEGY
The Company's objective is to continue to improve operating efficiencies and
reduce costs through improved production processes, higher capacity
utilization, and targeted capital investments. The Company will also consider
strategic acquisitions, such as the acquisition of the Tennessee Facility,
which complement or expand the Company's current operations or add finished
goods or raw material capacity.
Continue Operating Efficiency and Productivity Improvements. The Company
intends to continue to improve operating results through increases in
productivity and capacity utilization, reduced costs, and increased sales of
high margin shape products. Through such efforts the Louisiana Facility
lowered its labor cost by $15 per ton from 1992 through 1997, despite a $3 per
ton increase in 1997 attributable to costs incurred from the return of
previously striking employees. The Company believes that conversion cost per
ton will be reduced further through capital investments and production
incentives under its new labor contract. Additionally, the Company believes
that at a minimal capital cost, it can expand its rolling capacity at the
Louisiana Facility to approximately 600,000 tons per year. At the Tennessee
Facility, the Company will continue to expand its merchant bar production. In
fiscal 1997, the Tennessee Facility, which has an estimated annual rolling
capacity of 250,000 tons, produced 144,609 tons of merchant bar products, a
51% increase over the prior year, and its production is expected to reach over
170,000 tons in fiscal 1998. The Company expects to commit approximately $4.0
million on various capital projects at the Tennessee Facility in fiscal 1998
to continue to reduce costs and improve productivity. The Company will
continue to review capital spending opportunities that will benefit production
while reducing costs and expanding product mix in its customer markets.
Balance Melting and Rolling Capacity. The Company has approximately 610,000
tons of annual melting capacity compared to approximately 800,000 tons of
annual rolling capacity, and as a result, must meet a portion of its steel
billet requirements through purchases in the open market. The Company plans to
increase the proportion of lower cost, internally produced billets supplied to
its rolling operations through increased melt capacity at its Louisiana
Facility. The Company is in the process of installing a ladle metallurgy
furnace at the Louisiana Facility that is expected to increase melt shop
capacity to approximately 650,000 tons at a capital cost of approximately $3.2
million. The LMF station is expected to allow better sequencing of melts by
balancing the melting furnace operation with the continuous caster operation,
which the Company believes will generate approximately $500,000 to $1.0
million in annual cost savings by enabling the melt furnace to run at an
optimal rate. Management is also developing plans to implement a major melt
shop upgrade which is expected to be completed in approximately two and one
half years and would expand melt shop capacity to approximately 850,000 tons
per year. The furnace upgrade would increase the size of the furnace to accept
a larger scrap bucket, reducing the number of buckets per charge, and would
replace the existing 60 MVA transformer with an ultra-high-powered 80 MVA
transformer. The furnace upgrade is expected to generate cost savings of
approximately $7.0 to $8.0 million per year. Upon the completion of these
capital projects, the Company expects the Louisiana melt shop to have the
capacity to supply the rolling mills at the Louisiana Facility and the
Tennessee Facility with all of their billet requirements. In 1997, the melt
shop at the Louisiana Facility supplied the rolling mill at the Tennessee
Facility with only 17% of its billet requirements.
Improve Scrap Sourcing. The Company continually seeks to increase its
control over and reduce the cost of its scrap supply. In late 1995, in order
to reduce its reliance on third parties for prepared scrap metal, the Company
installed an automobile shredder on a site adjacent to the Louisiana Facility.
During 1997, the automobile shredder supplied the Company with 12% of its
total scrap requirements and all of its shredded scrap requirements at
significantly reduced costs. Since its commencement of operations, the
automobile shredder has continued to improve its efficiency and reduce costs,
lowering the Company's cost to produce shredded scrap by 5% for the first six
months
52
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of fiscal 1998 over the same period in fiscal 1997. The automobile shredder
currently operates on one shift at a production run-rate of 100,000 tons of
shredded scrap per year, and the Company intends to eventually increase its
output. To supplement its shredded scrap activities, the Company has recently
initiated the processing of other grades of scrap, including demolition scrap
(scrap from tanks, barges and railcars), to further reduce its scrap costs.
Additionally, the Company has procured approximately 25% of its scrap at
prices lower than those offered by large scrap dealers by sourcing a portion
of its scrap through smaller local dealers. The Company plans to expand the
scope of these activities and seek opportunities to improve its scrap supply
position in the future.
Pursue Strategic Acquisitions. The Company may, from time to time, seek
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.
Realize Tax Benefits of Net Operating Loss Carryforwards. 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, 1997, the
Company had approximately $280 million of net operating loss carryforwards
which could be used to offset taxable earnings of the Company, including the
earnings of acquired entities.
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, 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 at significantly reduced costs, constituting approximately 12% 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(degrees)F. During the scrap melting and refining process,
impurities are removed from the molten steel. After the scrap reaches a molten
state, it is poured from the furnace into ladles, where adjustments of
alloying elements and carbon are made to obtain the desired chemistry. The
ladles of steel are then transported to one of two four-strand continuous
casters in which the molten steel is solidified in water-cooled molds. The
casters produce long strands of steel 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(degrees)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(degrees)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
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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 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.
<TABLE>
<CAPTION>
SIZE RANGE (IN
INCHES)
-------------------
PROFILE TENNESSEE LOUISIANA
------- --------- ---------
<S> <C> <C>
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--#11)....................................... 3/8-1 3/8 N/A
Standard Beams........................................ N/A 3-6
Wide Flange Beams..................................... N/A 4-8
</TABLE>
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.
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 approximately 550 customers in 44 states, Canada, Mexico,
and overseas. The majority of the Company's finished products (approximately
64% in fiscal 1997) are sold to domestic steel service centers, while the
remainder are sold to original equipment manufacturers (approximately 25% in
fiscal 1997) and export customers (approximately 11% in fiscal 1997). 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 1997, the Company's top ten customers accounted for approximately
39% of total shipments. No single customer accounted for greater than 10% of
total sales. The Company believes
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<PAGE>
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
system that allows the customer to manage its inventory needs at the Company
was recently implemented at the location of a major customer. 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 $110
million as of September 30, 1997 and $63 million as of September 30, 1996. As
of February 28, 1998, the Company's backlog totaled $137 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 facilities 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 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.
55
<PAGE>
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
can be distributed through the Louisiana Facility or through its distribution
centers in Chicago, Pittsburgh, and Tulsa. Currently, the Tennessee Facility
is only using the Chicago stocking location. The Tennessee Facility's location
is accessible by all forms of transportation; the plant 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 1997, 1996, and
1995, 10%, 9% and 10% 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.
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.
Bar Shapes. In fiscal 1998, 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.
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 and increased steel
subsidies by foreign governments.
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
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<PAGE>
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. MRR, a division of the Company, began operating the automobile
shredder in late fiscal 1995. It is the Company's intention to expand MRR's
business activities to processing other types of unprepared scrap which would
be used by the Company, thereby decreasing the Company's demand on third
parties for prepared scrap metal. During fiscal 1997, MRR supplied 12% 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 currently has competitive
billet supply contracts with several vendors which expire on December 31,
1998.
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
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
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<PAGE>
duration of power curtailments in the fourth quarter of fiscal 1996 and 1997
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 1997 and late fiscal 1996 as they had
previously been. To a lesser extent, the Louisiana Facility's manufacturing
Facility 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. Natural gas expense increased slightly from 1996
to 1997. 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.) In fiscal 1997, natural gas prices per ton charged increased by $1
per ton due largely to market forces.
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 remediation 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 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
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<PAGE>
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 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. 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 disposes of it through an approved waste recycling firm. The dust
management costs were approximately $2.0 million in fiscal 1995, $2.0 million
in fiscal 1996 and $1.3 million in fiscal 1997. The recycling costs declined
in fiscal 1997 due to increases in recycling competition and implementation of
a new dust recycling contract. In fiscal 1990, a small quantity of dust
containing very low concentrations of radioactive material inadvertently
entered the scrap stream on one occasion. All of this dust was captured by the
emissions control system and is being held pending a decision as to its
appropriate disposal. The Company has estimated that the ultimate disposal
costs of this dust will be approximately $500,000.
TVSC, the prior owners of the Tennessee Facility, had entered into 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, has entered into the Bayou Steel Consent Order, 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 March 31, 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. In July 1997, TVSC's former bank lenders and
certain other parties filed an adversary proceeding against the Company in the
United States Bankruptcy Court. The banks are contesting certain of the
Company's reimbursement claims, aggregating approximately $1.1 million, in
connection with remediation work performed by the Company, alleging that much
of the remediation work was not performed prior to the first anniversary of
the closing date of the acquisition and that the work performed exceeded the
scope of the remediation work required under the TVSC Consent Order. If the
banks are successful in their claims, the Company may incur costs for
remediation work that will not be reimbursed from the escrow fund. Except for
the foregoing consent orders, the Company believes that it 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 March 31, 1998, the Company has not received any
notice letters under Superfund legislation.
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<PAGE>
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 the upcoming regulations will have on the
Company's competitive position, operations, or financial condition. In fiscal
1997, the Company spent approximately $200,000 on various environmental
capital projects. In fiscal 1998, the Company intends to spend approximately
$900,000 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
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 March 31, 1998, the Company had 583 employees, of whom 147 were
salaried office, supervisory and sales personnel, and 436 were hourly
employees. Approximately 415 are covered by labor contracts. During the later
part of October and early November of 1996, the Company began the process of
rehiring eligible employees that were previously on strike. All returning
employees have been integrated into the work force and there are no current
disputes with employees related to their employment, and the Company believes
its relations with employees to be good.
On March 21, 1993, the Union initiated a strike after the parties failed to
reach agreement on a new labor contract due to differences on economic issues.
As a result of a strategic contingency plan, the Company was able to avoid
complete suspension of operations by operating the minimill with fewer workers
and by utilizing a combination of temporary replacement workers, strikers who
returned to work, and salaried employees. On September 23, 1996, the Company
and Union entered into a settlement agreement which, among other issues,
resulted in a new six year labor contract. The Company considers the contract
terms to be favorable. The Company incurred in fiscal 1997 some one-time
expenditures, such as employment physicals and drug tests, training for
returning workers and existing workers, extra security, and legal expenses for
arbitration cases related to disciplinary action.
In August 1993, the Union announced a corporate campaign designed to bring
pressure on the Company from individuals and institutions with direct
financial or other interests in the Company. The Company filed a lawsuit in
federal court in Delaware under RICO against the Union for their conduct in
connection with this campaign. On October 29, 1997, the Company reached an
agreement with the Union, the effect of which was not material to the
financial position or results of operations of the Company.
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<PAGE>
In conjunction with the acquisition of the assets of TVSC the Union filed
certain charges with the NLRB. On August 16, 1996, the Company reached a
settlement with the Union which was approved by the NLRB. A seven and one half
year labor agreement was negotiated and ratified on May 16, 1997. The Company
considers the contract terms to be favorable.
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.
<TABLE>
<CAPTION>
LOCATION PROPERTY
-------- --------
<S> <C>
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........... 112,000 square foot leased warehouse facility with a dock
on the Ohio River. The original term of the lease was
from January 1, 1987 through June 30, 1992; the Company
is in the 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.
</TABLE>
The principal asset comprising the Collateral is the Louisiana Facility. See
"Description of the First Mortgage Notes--Security." None of the other
properties described above serve as Collateral.
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.
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<PAGE>
MANAGEMENT
Set forth below is information concerning the directors and executive
officers of the Company as of December 31, 1997. Directors of Bayou Steel
serve a term of one year, expiring in February 1999, or until their successors
are elected and qualified.
<TABLE>
<CAPTION>
NAME AGE CURRENT POSITION
---- --- ----------------
<S> <C> <C>
Howard M. Meyers........ 55 Chairman and Chief Executive Officer
Jerry M. Pitts.......... 46 President, Chief Operating Officer and Director
Richard J. Gonzalez..... 50 Vice President, Chief Financial Officer, Treasurer and Secretary
Timothy R. Postlewait... 47 Vice President of Plant Operations
Rodger A. Malehorn...... 55 Vice President of Commercial Operations
Henry S. Vasquez........ 47 Vice President of Human Resources
Lawrence E. Golub....... 38 Director
Jeffrey P. Sangalis..... 39 Director
Stanley S. Shuman....... 62 Director
Melvyn N. Klein......... 55 Director
Albert P. Lospinoso..... 61 Director
</TABLE>
Howard M. Meyers has been Director, Chairman of the Board, and Chief
Executive Officer of the Company since September 1986, and was also President
until September 21, 1994. Since 1984, Mr. Meyers has been a Director, Chairman
of the Board, Chief Executive Officer and President of Quexco Incorporated
("Quexco"), a privately owned company.
Jerry M. Pitts has been Director, President and Chief Operating Officer of
the Company since September 1994. He served as Executive Vice President and
Chief Operating Officer of the Company from 1991 to 1994. He served as
Executive General Manager of the Company from 1987 to 1991. From 1986 to 1987,
he served the Company as General Manager of Operations; from 1984 to 1986, he
was Superintendent of Melting Operations; and from 1980 to 1984, he was
General Foreman of Melting. Mr. Pitts worked in various management capacities
related to production and process engineering at U.S. Steel Corporation from
1974 to 1980.
Richard J. Gonzalez has been Vice President, Treasurer, and Chief Financial
Officer of the Company since July 1991 and Secretary of the Company since
September 1994. He served as General Manager, Finance of the Company from 1987
to 1991. He has served the Company since October 1983 in the capacities of
Data Processing Manager and Assistant to the Vice President of Finance and
Controller. From 1982 to 1983, he was Vice President and Chief Financial
Officer of Jimco, Incorporated. Prior to that, Mr. Gonzalez was a Manager in
the Consulting Division of the accounting firm of Arthur Andersen LLP for nine
years. Mr. Gonzalez spent three years in the U.S. Public Health Service and is
a certified public accountant.
Timothy R. Postlewait has been Vice President of Plant Operations of the
Company since July 1991. He served as General Manager, Plant Operations of the
Company from 1987 to 1991. He has served in management positions with the
Company as Superintendent, Melt Shop Operations from 1986 to 1987 and
Superintendent, Quality Assurance from 1981 to 1986. From 1977 to 1981, Mr.
Postlewait worked in management positions with Chaparral Steel Company, and
from 1972 to 1977, he worked with United Nuclear Corporation as a Senior
Engineer.
Rodger A. Malehorn has been Vice President of Commercial Operations of the
Company since July 1991. He served as General Manager, Commercial Operations
from 1987 to 1991. Mr. Malehorn has served in management-level positions with
the Company since April 1984. From 1981 to 1984, he was Vice President and
General Manager of Louisiana Scrap Metal Inc. Prior to that, Mr. Malehorn
worked for Luria Brothers & Co., Inc., a scrap recycling operation, for three
years and Lukens Steel Company for thirteen years in various management
positions relating to melt shop operations.
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<PAGE>
Henry S. Vasquez has been Vice President of Human Resources since September
1992. Prior thereto, he had been employed in various executive Human Resource
positions with Lyondell Petrochemical Inc. from April 1989 to April 1992; with
Frito Lay Company from August 1983 to April 1989; with Hydril Co. from May
1977 to August 1983; and with Stanco Industries from April 1975 to May 1977.
Lawrence E. Golub has served as a director of the Company since 1988. Mr.
Golub has been President of Golub Associates, Inc., an equity investment firm,
since August 1994. From September 1993 to August 1994, Mr. Golub was a
Managing Director of Bankers Trust Company in New York, New York. From
September 1992 to August 1993, Mr. Golub was a White House Fellow. Mr. Golub
was Managing Director of Wasserstein Perella Capital Markets from February
1990 to August 1992 and an officer of Allen & Company Incorporated, an
investment banking firm, from 1984 to February 1990. From February 21, 1991
until September 21, 1994, Mr. Golub served as a Director of the Company
elected by the Class B Common Stockholder.
Jeffrey P. Sangalis has served as a director of the Company since 1995. Mr.
Sangalis is a Partner and director of Rice Sangalis Toole & Wilson, Vice
President and Managing Director of Rice Mezzanine Lenders, L.P., Rice Partners
II, L.P. and RSTW Partners III, L.P., and Chairman and director of Jotan, Inc.
Stanley S. Shuman has served as a director of the Company since 1988. Mr.
Shuman is an Executive Vice President and Managing Director of both Allen
Holding, Inc. and Allen & Company Incorporated. Mr. Shuman is a director of
The News Corporation Limited, Hudson General Corporation, Global Asset
Management, U.S.A., and Sesac Inc.
Melvyn N. Klein has served as a director of the Company since 1988. Mr.
Klein has been a practicing attorney and a private investor in Corpus Christi,
Texas. He has been a director of Quexco since 1984. He is the sole
shareholder, sole director and President of JAAK Holding Corporation, the
Managing General Partner of GKH Partners, L.P., which is the sole General
Partner of GKH Investments, L.P., an investment fund; founder and principal of
Questor Partners Fund, L.P.; and a director of Anixter International, Inc.,
Santa Fe Energy Resources, and Hanover Compressor Company.
Albert P. Lospinoso has served as a director of the Company since 1988. Mr.
Lospinoso was Chairman of the Board of RSR Corporation ("RSR") a privately
owned, nonferrous metals recycle smelting and refining company with offices in
Dallas, Texas, and plants in Dallas, Texas; Middletown, New York;
Indianapolis, Indiana; and City of Industry, California from May 1996 to March
1997. He was Chief Executive Officer, President and director of RSR until May
1996. From July 1992 until July 1995, Mr. Lospinoso was President and Chief
Operating Officer of RSR, and for more than five years prior to that he was
the Executive Vice President, Chief Operating Officer and a director of RSR
and its predecessor companies. Since 1984, Mr. Lospinoso has been a director
of Quexco.
There are no family relationships among the directors and executive officers
of the Company.
DIRECTOR COMPENSATION
The Company pays each non-employee director $30,000 per year, payable in
quarterly installments, for serving as a director, plus expenses for each
meeting of the Board of Directors or a Committee of the Board that a director
attends. The Company does not compensate directors who are officers of the
Company for services as directors. Mr. Meyers and Mr. Pitts are the only
directors who are officers of the Company.
63
<PAGE>
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
The members of the Company's Compensation Committee are Messrs. Stanley S.
Shuman, Lawrence E. Golub, and Albert P. Lospinoso. No member of the
Compensation Committee has been an officer or employee of the Company. No
executive officer of the Company served in the last fiscal year as a director
or member of the compensation committee of another entity, one of whose
executive officers served as a director or on the Compensation Committee of
the Company.
EXECUTIVE COMPENSATION
The following table sets forth the compensation earned by the Company's
Chief Executive Officer and the four other most highly-compensated executive
officers for the fiscal years 1995 through 1997.
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
ANNUAL
COMPENSATION
----------------- ALL OTHER
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION(1)
--------------------------- ---- -------- -------- ---------------
<S> <C> <C> <C> <C>
Howard M. Meyers......................... 1997 $502,488 $ 0 $ 0
Chairman and Chief 1996 474,675 0 0
Executive Officer 1995 465,504 0 0
Jerry M. Pitts........................... 1997 300,000 0 2,549
President and Chief 1996 225,000 0 2,477
Operating Officer 1995 225,000 112,500 1,538
Timothy R. Postlewait.................... 1997 166,000 0 2,249
Vice President 1996 150,000 0 2,062
of Plant Operations 1995 150,000 63,974 1,508
Richard J. Gonzalez...................... 1997 157,000 0 2,049
Vice President, Chief Financial 1996 147,000 0 1,855
Officer, Treasurer and Secretary 1995 147,000 77,910 1,489
Rodger A. Malehorn....................... 1997 150,000 0 1,751
Vice President of 1996 132,000 0 1,636
Commercial Operations 1995 132,000 60,065 1,457
</TABLE>
- --------
(1) Includes amounts contributed by the Company to a 401(k) Plan for matching
contributions. For fiscal 1997, the Company's contributions were $2,375
for Mr. Pitts, $2,075 for Mr. Postlewait, $1,875 for Mr. Gonzalez, and
$1,463 for Mr. Malehorn. Also includes the dollar value of term life
insurance premiums paid by the Company for the benefit of these officers.
FISCAL YEAR-END OPTION VALUES
The following table presents the value of unexercised options at September
30, 1997.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES
UNDERLYING UNEXERCISED VALUE OF UNEXERCISED
OPTIONS AT IN-THE-MONEY OPTIONS AT
SEPTEMBER 30, 1997 SEPTEMBER 30, 1997(1)
------------------------- -------------------------
NAME EXERCISABLE UNEXERCISABLE EXERCISABLE UNEXERCISABLE
---- ----------- ------------- ----------- -------------
<S> <C> <C> <C> <C>
Howard M. Meyers............ 0 0 $ N/A $ N/A
Jerry M. Pitts.............. 18,000 12,000 9,000 6,000
Timothy R. Postlewait....... 9,000 6,000 4,500 3,000
Richard J. Gonzalez......... 9,000 6,000 4,500 3,000
Rodger A. Malehorn.......... 9,000 6,000 4,500 3,000
</TABLE>
- --------
(1) At September 30, 1997, the closing sales price for Bayou Steel's Class A
Common Stock on the American Stock Exchange was $4.875.
64
<PAGE>
EMPLOYEE BENEFIT PLANS
The following table specifies the estimated annual benefits upon retirement
under the Bayou Steel Corporation Retirement Plan (the "Retirement Plan") to
eligible employees of the Company of various levels of average annual
compensation and for the years of service classifications specified:
PENSION PLAN TABLE
<TABLE>
<CAPTION>
YEARS OF SERVICE
-------------------------------
AVERAGE ANNUAL COMPENSATION 10 20 30 40
--------------------------- ------- ------- ------- -------
<S> <C> <C> <C> <C>
$ 20,000................................. $ 1,200 $ 2,400 $ 3,600 $ 3,600
50,000................................. 4,035 8,070 12,105 12,105
100,000................................. 9,535 19,070 28,605 28,605
150,000................................. 15,035 30,070 45,105 45,105
200,000................................. 16,135 32,270 48,405 48,405
250,000................................. 16,135 32,270 48,405 48,405
300,000................................. 16,135 32,270 48,405 48,405
600,000................................. 16,135 32,270 48,405 48,405
</TABLE>
The Company has adopted the Retirement Plan covering eligible employees of
the Company not covered by a collective bargaining agreement. Under the terms
of the Retirement Plan, the monthly retirement benefits of a participant
payable at the participant's normal retirement date are equal to (i) .6% of
average monthly compensation, multiplied by years of credited service (not to
exceed 30 years), plus (ii) .5% of that portion, if any, of average monthly
compensation which is in excess of the participant's average social security
taxable wage base, multiplied by years of credited service (not to exceed 30
years).
Annual retirement benefits are computed on a straight life annuity basis
without deduction for Social Security or other benefits. The Tax Code limits
the amount of annual compensation that may be counted for the purpose of
calculating pension benefits, as well as the annual pension benefits that may
be paid, under the Retirement Plan. For 1997, these amounts are $160,000 and
$125,000, respectively.
Earnings of the named executive officers, for purposes of calculating
pension benefits, approximate the aggregate amounts shown in the Annual
Compensation columns of the Summary Compensation Table, except for Messrs.
Meyers, Pitts, and Postlewait whose earnings for purposes of such calculation
are subject to the $160,000 limitation discussed above.
The years of credited service under the Retirement Plan as of October 1,
1997 for each of the five most highly compensated officers of the Company are:
Howard M. Meyers, 11 years; Jerry M. Pitts, 16 years; Timothy R. Postlewait,
16 years; Richard J. Gonzalez, 14 years; and Rodger A. Malehorn, 13 years.
EMPLOYMENT CONTRACT
Pursuant to agreements between Mr. Howard M. Meyers and the Company, Mr.
Meyers is entitled to an annual cash salary equal to the greater of (x) a base
amount of $350,000 adjusted for increases in the consumer price index since
December 1985 or (y) 2% of the Company's pretax net income earned during the
immediately preceding year (or 1% if Mr. Meyers is no longer both the Chairman
and Chief Executive Officer of the Company with substantial day-to-day
managerial responsibilities).
65
<PAGE>
PRINCIPAL STOCKHOLDERS
The following table sets forth certain information as of February 28, 1998
with respect to the beneficial ownership of each class of Common Stock of the
Company by (a) each person known by the Company to own beneficially more than
5% of the Class A, Class B or Class C Common Stock of the Company, (b) each
director or named executive officer of the Company, and (c) all directors and
executive officers of the Company as a group. The information set forth below
is based upon information furnished by the persons listed. Unless otherwise
indicated, all shares shown as beneficially owned are held with sole voting
and investment power.
<TABLE>
<CAPTION>
COMMON STOCK(1)
-----------------------------------------------------
CLASS A CLASS B
-------------------------- --------------------------
NUMBER OF NUMBER OF
SHARES PERCENT SHARES PERCENT
BENEFICIALLY OUTSTANDING & BENEFICIALLY OUTSTANDING &
OWNED EXERCISABLE OWNED EXERCISABLE
------------ ------------- ------------ -------------
<S> <C> <C> <C> <C>
How & Company............ 540,300 5.09 0 0
c/o The Northern Trust
Co.
P.O. Box 92303
Chicago, Il 60675
Bayou Steel Properties
Limited(2).............. 0 0 2,271,127 100
2777 Stemmons Freeway
Dallas, TX 75207
Jeffrey P. Sangalis(3)... 822,422 7.19 0 0
Stanley S. Shuman(2)(4).. 817,880 7.71 0 0
Howard M. Meyers(2)...... 300,000 2.83 2,271,127 100
Lawrence E. Golub........ 103,000 * 0 0
Melvyn N. Klein(2)....... 60,000 * 0 0
Jerry M. Pitts(5)........ 24,204 * 0 0
Richard J. Gonzalez(6)... 13,180 * 0 0
Timothy R. Postlewait(6). 12,287 * 0 0
Rodger A. Malehorn(6).... 11,504 * 0 0
Albert P. Lospinoso(2)... 10,000 * 0 0
All directors and
executive officers as a
group(7)
(11 persons)............ 2,181,037 18.99 2,271,127 100
</TABLE>
- --------
* Less than one percent.
(1) All 100 shares of Bayou Steel's Class C Common Stock are owned by Voest-
Alpine International Corporation, Lincoln Building, Suite 4510, 60 East
42nd Street, New York, New York 10165. Holders of Class C Common Stock
have a vote on all matters, except for the election of directors. See
"Principal Shareholders--Voting Rights."
(2) All 300,000 shares of Class A Common Stock are owned by a limited
partnership in which Mr. Meyers and his wife are the sole limited partners
and of which the general partner is a corporation all of the stock of
which is owned by Mr. Meyers. Through his control of the corporate general
partner of the limited partnership, Mr. Meyers has sole voting and
dispositive power over the 300,000 shares of Class A Common Stock. The
limited partnership also owns 60% of the Common Stock of Bayou Steel
Properties Limited (the "BSPL"), a Delaware corporation.
66
<PAGE>
Through his control of the corporate general partner of the limited
partnership, Mr. Meyers controls BSPL's voting power. Since BSPL owns 100%
of the Company's Class B Common Stock, Mr. Meyers has sole voting and
dispositive control of the Class B Common Stock. The Class B Common Stock
accounts for a maximum of 60% of the voting power of the Company. Therefore
Mr. Meyers may be deemed to "control" the Company. Allen & Company
Incorporated and Messrs. Klein, Lospinoso, and Shuman are minority
stockholders of BSPL owning 2.08%, 2.77%, 0.76%, and 1.17%, respectively,
and Messrs. Lospinoso and Meyers are directors of BSPL.
(3) All 822,422 shares are subject to a warrant beneficially owned by Rice
Partners II, L.P. Mr. Sangalis is a Vice President and Managing Director
of Rice Partners II, L.P. Mr. Sangalis disclaims beneficial ownership of
such shares. In addition, Rice Partners II, L.P. owns preferred stock of
the Company pursuant to a Preferred Stock and Warrant Purchase Agreement,
dated June 13, 1995, which among other things, allows the holder to
designate a director to the Company's board.
(4) Includes 522,528 shares of Class A Common Stock owned by Allen Holding,
Inc., which owns all of the outstanding shares of Allen & Company
Incorporated; Mr. Shuman is an Executive Vice President and Managing
Director of Allen & Company Incorporated. Mr. Shuman disclaims beneficial
ownership of such shares. Includes an aggregate of 60,000 shares of Class
A Common Stock owned by trusts for the benefit of Mr. Shuman's children,
of which Mr. Shuman disclaims beneficial ownership. Mr. Shuman has no
voting or investment power, shared or otherwise, in the foregoing shares.
(5) Includes exercisable options for 18,000 shares of Class A Common Stock.
(6) Includes exercisable options for 9,000 shares of Class A Common Stock for
each of Messrs. Gonzalez, Postlewait and Malehorn.
(7) Includes 873,422 shares of Class A Common Stock, subject to exercisable
warrants and stock options held by such persons.
VOTING RIGHTS
Except as to certain matters on which holders of the Class B Common Stock
and the holders of the Class C Common Stock have class voting rights, the
holders of the Class A Common Stock, together with the holders of the Class C
Common Stock, are entitled to one vote per share and in the aggregate 40% of
the votes eligible to be cast for all matters other than the election of
directors. The holders of the Class B Common Stock are entitled to 60% of the
votes eligible to be cast for all matters other than the election of
directors. Certain transactions, such as the sale or acquisition of assets
that exceed 20% of the Company's consolidated net worth (as determined in
accordance with the Company's certificate of incorporation) require the
consent of stockholders representing 80% of the votes that may be cast.
The holders of the Class A Common Stock have the right to elect, as a class,
that number of directors which represents 40% of the number of directors then
comprising the Board of Directors and the holders of the Class B Common Stock
have the right to elect, as a class, that number of directors which represents
60% of the number of directors then comprising the Board of Directors. Except
as set forth below, the holders of the Class C Common Stock are not entitled
to elect directors. So long as the Class A Common Stock is listed on the
American Stock Exchange, if the number of shares of Class B Common Stock
outstanding is less than 12.5% of the aggregate number of outstanding shares
of Common Stock, the holders of the Class A Common Stock will, in addition to
the voting rights discussed above, be entitled to vote as a class with the
Class B Common Stock for the election of the remaining 60% of the Board of
Directors, with the holders of the Class A Common Stock entitled to one vote
per share and the holders of the Class B Common Stock entitled
67
<PAGE>
to ten votes per share. In the event that Howard M. Meyers is no longer Chief
Executive Officer of the Company or more than 1,362,676 shares (as adjusted)
of Class B Common Stock have been converted into Class A Common Stock, the
holders of the Class A, Class B and Class C Common Stock will vote together,
as a single class, in the election of directors and will be entitled to one
vote per share. The holders of Class B Common Stock have the option to convert
all or any portion of their shares of Class B Common Stock into shares of
Class A Common Stock at any time at the rate of one share of Class A Common
Stock for one share of Class B Common Stock.
With certain limited exceptions, in the absence of the full approval of the
Board of Directors of the Company and the delivery of an opinion of counsel to
the effect that the Company will not lose the benefits of its NOLs, until
December 31, 2003, transfers of shares of Class A Common Stock or Class B
Common Stock shall be null and void insofar as such transaction would cause
the transferee to attain 5% ownership of the fair market value of the
Company's Class A Common Stock or if such transferee owned Class A or Class B
Common Stock with a fair market value equal to 5% or more of the fair market
value of the Company's Class A Common Stock. In addition, except for transfers
to or for the benefit of direct or indirect beneficial owners of Class B
Common Stock, or the immediate family thereof, or transactions approved by the
holders of 75% of the then outstanding Class A Common Stock, shares of Class B
Common Stock are transferable only upon conversion of such shares into shares
of Class A Common Stock. Moreover, pursuant to an agreement executed between
the Company, BSPL and Howard M. Meyers immediately prior to the 1988 public
offering of the Class A Common Stock, if any entity acquires within a four-
year period a percentage of the voting power of BSPL in excess of 50% (the
"Percentage"), such entity shall agree to purchase through a public tender
offer a number of shares of Class A Common Stock equal to the total number of
outstanding shares of Class A Common Stock multiplied by the Percentage,
subject to certain exceptions.
The shares of common stock of BSPL owned by Mr. Howard M. Meyers may not be
sold, nor may shares of BSPL be issued, at a price which represents a premium
attributable to the underlying Class B Common Stock over the market price of
the Class A Common Stock, to any person or group if such sale, when aggregated
with all prior sales during the immediately preceding four-year period, would
result in such person or group owning more than 50% of the common stock of
BSPL, unless such person or group agrees to make a tender offer within 30 days
for an equivalent percentage of Class A Common Stock at the highest price paid
by such person or group (expressed in equivalent shares of Class B Common
Stock) for the shares of common stock of BSPL; provided that the Directors
elected by the holders of the Class A Common Stock waive the charter
restriction prohibiting a purchaser from acquiring 5% or more of the aggregate
fair market value of the Class A Common Stock. The agreement terminates when
the holders of the Class B Common Stock no longer have the right to elect a
majority of the Board of Directors of the Company.
The Company's Certificate of Incorporation provides that if Mr. Meyers
resigns, retires or is removed for cause as Chief Executive Officer of the
Company, the Class B Common Stock will no longer vote separately by class with
respect to the election of directors, and will only have one vote per share.
68
<PAGE>
DESCRIPTION OF NEW CREDIT FACILITY
On May 22, 1998, the Company entered into the New Credit Facility with The
Chase Manhattan Bank, an affiliate of one of the Initial Purchasers. The New
Credit Facility replaced the Company's prior Credit Facility which was
scheduled to terminate on June 1, 2000. The following is a summary description
of the principal terms of the New Credit Facility and is subject to, and
qualified in its entirety by reference to, the definitive New Credit Facility,
copies of which will be made available upon request to the Company.
The New Credit Facility provides that at any one time, the Company may
borrow up to the lesser of $50 million and the then current Borrowing Base (as
defined in the New Credit Facility) under the New Credit Facility. The
Borrowing Base is based on a percentage of the Company's qualifying inventory
and accounts receivable under the New Credit Facility. Up to $10 million of
the New Credit Facility is available for the issuance of standby letters of
credit, provided that the aggregate borrowings and letters of credit
outstanding under the New Credit Facility do not exceed the lesser of $50
million or the Borrowing Base. As of March 31, 1998, the Company's Borrowing
Base under the New Credit Facility would have been $50.0 million. The New
Credit Facility will terminate after five years (subject to successive one-
year extensions at the request of the Company and the approval of all the
Lenders under the New Credit Facility), at which time all amounts outstanding,
together with any and all accrued interest thereon, will be due and payable.
Borrowings under the New Credit Facility will be used by the Company to repay
certain outstanding indebtedness, to provide working capital, to finance
investments in stock (subject to certain limitations) or acquisitions of
assets of third parties (subject to certain limitations) and for other general
corporate purposes.
The New Credit Facility will bear interest on a sliding scale based on the
Company's leverage ratio, which is defined as indebtedness divided by EBITDA
for the most recent four fiscal quarters. The Company will pay interest on
outstanding amounts borrowed under the New Credit Facility, at the option of
the Company, at either (i) the Alternate Base Rate plus an applicable margin
which ranges from 0.25% to 1.00% depending on the Company's leverage ratio or
(ii) the Eurodollar Rate plus an applicable margin which ranges from 1.50% to
2.25% depending on the Company's leverage ratio.
The New Credit Facility is secured by a first priority security interest in
the inventory and accounts receivable (subject to certain exceptions) of the
Company and each of the Company's material domestic recourse subsidiaries.
The New Credit Facility contains numerous operating and financial covenants,
including a debt to capitalization ratio and interest coverage ratio and
maintenance of minimum tangible net worth.
The New Credit Facility includes, among other customary covenants, covenants
prohibiting dividends, additional debt or liens (except as specified in the
New Credit Facility), annual capital expenditures, certain acquisition
expenditures, certain investments, and sales of assets.
69
<PAGE>
DESCRIPTION OF THE FIRST MORTGAGE NOTES
As used in this "Description of the First Mortgage Notes" section,
references to the "First Mortgage Notes" refer to the Old First Mortgage Notes
and the Exchange Notes.
The Old First Mortgage Notes were and the Exchange Notes will be issued
under an indenture (the "Indenture") between the Company and First National
Bank of Commerce, New Orleans Louisiana, as trustee (the "Trustee"), a copy of
which is available from the Company upon request. The following summary of
certain provisions of the Indenture does not purport to be complete and is
subject to, and is qualified in its entirety by reference to, the Trust
Indenture Act of 1939, as amended (the "TIA"), as in effect on the date of the
Indenture. The definitions of certain capitalized terms used in the following
summary are set forth below under "--Certain Definitions."
PRINCIPAL, MATURITY AND INTEREST
The First Mortgage Notes are senior secured obligations of the Company. The
First Mortgage Notes will mature on May 15, 2008. Interest on the First
Mortgage Notes will accrue at the rate of 9 1/2% per annum and will be payable
semi-annually on May 15 and November 15 of each year, commencing November 15,
1998, to the Holders of record of First Mortgage Notes at the close of
business on the May 1 and November 1 immediately preceding such interest
payment date. Interest on the First Mortgage Notes will accrue from the most
recent date to which interest has been paid or, if no interest has been paid,
from May 22, 1998. Interest will be computed on the basis of a 360-day year
comprised of twelve 30-day months. Interest on overdue principal and (to the
extent permitted by law) on overdue installments of interest will accrue at a
rate equal to the stated rate of interest.
The Company has the ability to issue additional First Mortgage Notes
subsequent to the issuance of the First Mortgage Notes offered pursuant to the
Original Offerings as part of the series of First Mortgage Notes offered
pursuant to the Original Offerings or in one or more different series, all of
which will be equally and ratably secured by the Collateral.
As discussed below, payment of principal of, premium, if any, and interest
on, First Mortgage Notes represented by one or more permanent global First
Mortgage Notes will be made in immediately available funds.
OPTIONAL REDEMPTION
Except as described below, the Company may not redeem the First Mortgage
Notes prior to May 15, 2003. On and after May 15, 2003, the Company may, at
its option, redeem the First Mortgage Notes, in whole or in part, from time to
time, at the redemption prices set forth below (expressed as a percentage of
the principal amount thereof), in each case together with accrued and unpaid
interest, if any, to the date of redemption, if redeemed during the twelve-
month period beginning May 15 of the years indicated below:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2003........................................................... 104.750%
2004........................................................... 103.167%
2005........................................................... 101.583%
2006 and thereafter............................................ 100.000%
</TABLE>
provided, that if the date fixed for redemption is May 15 or November 15, then
the interest payable on such date shall be paid to the Holder of record on the
next preceding May 1 or November 1.
Prior to May 15, 2001, the Company may, at its option, from time to time,
redeem up to 35% of the original aggregate principal amount of the First
Mortgage Notes at a redemption price equal to 109.500% of the principal amount
thereof, together with accrued and unpaid interest, if any, to the date of
redemption, with all or a portion of the net proceeds of public sales of
common stock of the Company; provided, that at least 65% of the original
aggregate principal amount of the First
70
<PAGE>
Mortgage Notes remains outstanding immediately after the occurrence of such
redemption; and, provided, further, that such redemption shall occur within 60
days of the date of the closing of the related sale of common stock of the
Company.
At any time on or prior to May 15, 2003, the Company may, at its option,
redeem the First Mortgage Notes, in whole but not in part, upon the occurrence
of a Change of Control, upon not less than 30 nor more than 60 days prior
notice (but in no event more than 90 days after the occurrence of such Change
of Control) mailed by first-class mail to each holder's registered address, at
a redemption price equal to 100% of the principal amount thereof, together
with the Applicable Premium as of, and accrued and unpaid interest, if any,
to, the date of redemption.
"Applicable Premium" means, with respect to a First Mortgage Note at any
redemption date, the greater of (i) 1.0% of the principal amount of such First
Mortgage Note and (ii) the excess of (A) the present value at such time of (1)
the redemption price of such First Mortgage Note at May 15, 2003 (such
redemption price being described in the first paragraph under "--Optional
Redemption") plus (2) all required interest payments due on such First
Mortgage Note through May 15, 2003, computed using a discount rate equal to
the Treasury Rate plus 50 basis points, over (B) the then outstanding
principal amount of such First Mortgage Note.
"Treasury Rate" means the yield to maturity at the time of computation of
United States Treasury securities with a constant maturity (as compiled and
published in the most recent Federal Reserve Statistical Release H.15 (519)
which has become publicly available at least two business days prior to the
redemption date (or, if such Statistical Release is no longer published, any
publicly available source or similar market data)) most nearly equal to the
period from the redemption date to May 15, 2003; provided, however, that if
the period from the redemption date to May 15, 2003 is not equal to the
constant maturity of a United States Treasury security for which a weekly
average yield is given, the Treasury Rate shall be obtained by linear
interpolation (calculated to the nearest one-twelfth of a year) from the
weekly average yields of United States Treasury securities for which such
yields are given, except that if the period from the redemption date to May
15, 2003 is less than one year, the weekly average yield on actually traded
United States Treasury securities adjusted to a constant maturity of one year
shall be used.
SELECTION AND NOTICE
In the event that less than all of the First Mortgage Notes are to be
redeemed at any time, selection of First Mortgage Notes for redemption will be
made by the Trustee on a pro rata basis, by lot or by such method as the
Trustee shall deem fair and appropriate; provided, however, that no First
Mortgage Notes of $1,000 or less shall be redeemed in part. Notice of
redemption shall be mailed by first class mail at least 30 but not more than
60 days before the redemption date to each Holder to be redeemed at its
registered address. If any First Mortgage Note is to be redeemed in part only,
the notice of redemption that relates to such First Mortgage Note shall state
the portion of the principal amount thereof to be redeemed. A new First
Mortgage Note in a principal amount equal to the unredeemed portion thereof
will be issued in the name of the Holder thereof upon cancellation of the
original First Mortgage Note. On and after the redemption date, interest will
cease to accrue on First Mortgage Notes or the portion thereof called for
redemption unless the Company defaults in the payment of the redemption price
or accrued interest. First Mortgage Notes that are optionally redeemed by the
Company or that are purchased by the Company pursuant to an Asset Sale Offer
as described under "--Certain Covenants--Restrictions on Asset Sales" or
pursuant to a Change of Control Offer as described under "--Change of Control"
will be surrendered to the Trustee for cancellation.
The New Credit Facility contains certain financial covenants that may
restrict the ability of the Company to redeem the First Mortgage Notes without
the prior written consent of the Lenders. See "Description of New Credit
Facility."
71
<PAGE>
CHANGE OF CONTROL
The Indenture provides that upon a Change of Control the Company will be
obligated to make an offer to each Holder of First Mortgage Notes to
repurchase all or any part of such Holder's First Mortgage Notes at a cash
purchase price equal to 101% of the principal amount, together with accrued
and unpaid interest, if any, to the date of repurchase pursuant to the
procedures set forth in the Indenture (a "Change of Control Offer"). As more
fully described below, if the Company recapitalizes or enters into a
transaction with management which results in control of the Company being held
by persons other than the controlling Persons as of the date of the Indenture,
a Change of Control may be deemed to have occurred.
Within 30 days following any Change of Control, the Company shall send, by
first class mail, a notice to each Holder, with a copy to the Trustee, which
notice will govern the terms of the Change of Control Offer. This notice will
state, among other things, the repurchase date (which shall not be earlier
than 30 days or later than 60 days from the date such notice is mailed) and
the circumstance and relevant facts regarding such Change of Control
(including information with respect to pro forma historical income, cash flow
and capitalization after giving effect to such Change of Control). Failure to
make a Change of Control Offer as required will constitute a covenant Default
under the Indenture.
In the event a Change of Control occurs and any Holder exercises such
Holder's right to require the Company to repurchase the First Mortgage Notes,
and assuming that such repurchase constitutes a "tender offer" for purposes of
Rule 14e-1 under the Exchange Act at the time it is required, the Company will
comply with the requirements of Rule 14e-1 as then in effect with respect to
such repurchase.
A Change of Control under the Indenture could constitute a default under the
New Credit Facility. Therefore, upon the occurrence of a Change of Control,
the Lenders may accelerate their loans and the Company may be required to
prepay all of its outstanding obligations under the New Credit Facility
simultaneously with the payment of the principal of any of the First Mortgage
Notes that the Company is required to repurchase pursuant to the Indenture.
See "Description of New Credit Facility."
The definition of "Change of Control," and the other components of this
covenant, generally mean that the Company will be obligated to repurchase
First Mortgage Notes from tendering Holders if control of the Company (whether
through stock ownership or control of the Company's assets) is held by Persons
other than the controlling Persons of the Company as of the Issue Date. With
respect to the disposition of assets, the phrase "all or substantially all" as
used in the Indenture varies according to the facts and circumstances of the
subject transaction, has no clearly established meaning under New York law
(which governs the Indenture) and is subject to judicial interpretation.
Accordingly, in certain circumstances there may be a degree of uncertainty in
ascertaining whether a particular transaction would involve a disposition of
"all or substantially all" of the assets of the Company, and therefore it may
be unclear as to whether a Change of Control has occurred and whether the
Holders have the right to require the Company to repurchase First Mortgage
Notes. None of the provisions relating to a repurchase upon a Change of
Control are waivable by the Board of Directors of the Company.
RANKING
The First Mortgage Notes will rank pari passu in right of payment with any
existing and future senior Indebtedness of the Company, including obligations
of the Company arising in connection with the New Credit Facility, and will
rank senior to all subordinated Indebtedness of the Company.
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SECURITY
For the benefit of the Trustee and the Holders, the Company and its Recourse
Subsidiaries have assigned and pledged and granted a security interest in the
following property and assets: (a) the real property interests in the
minimill, stocking location, and land owned by the Company and its Recourse
Subsidiaries in LaPlace, Louisiana and the real property interests in all
other real property improvements now or hereafter located on such land,
together with all additions or improvements thereto (collectively, the
"Mortgaged Facility," which term shall be deemed to exclude the Released
Property, if any); (b) all Integral Fixtures and Equipment, and (c) all
proceeds and products of any and all of the foregoing (including Trust Moneys
and property acquired in Permitted Related Acquisitions other than property
and assets acquired with the proceeds of any Integral Fixtures and Equipment
to the extent such proceeds are converted into property and assets securing
the New Credit Facility) (the properties and assets described under clauses
(a), (b), and (c) are collectively referred to as "Collateral"). Except as
contemplated above in this paragraph, the security interest does not extend to
the inventory and accounts receivable of the Company and its Recourse
Subsidiaries because these assets secure the obligations of the Company under
the New Credit Facility (the "Lender Secured Property"). In addition, the
security interest does not extend to the Tennessee Facility or any other
property or assets of the Company or any Recourse Subsidiary. The security
interest in the Collateral is a first priority interest (to the extent
attainable by filing or possession) subject to Permitted Liens. The Company's
payment obligations under the First Mortgage Notes will be jointly and
severally, fully and unconditionally guaranteed (the "Subsidiary Guarantees")
by all of the Company's Recourse Subsidiaries, which are currently Bayou Steel
Corporation (Tennessee), a Delaware corporation, and River Road Realty
Corporation, a Louisiana corporation (the "Subsidiary Guarantors"). The
Company does not currently have any subsidiaries that are not Subsidiary
Guarantors. The guarantee of each Recourse Subsidiary is limited to the amount
which can be guaranteed by such Subsidiary under applicable Federal and state
laws relating to insolvency of debtors. The obligations of a Recourse
Subsidiary under the Subsidiary Guarantee are secured by all Collateral owned
by such Recourse Subsidiary.
The real property Collateral is mortgaged pursuant to first mortgages or
deeds of trust (the "Mortgages"), subject to Permitted Liens. See "--Certain
Covenants--Limitation on Liens." Each Mortgage executed by the Company secures
the full amount payable arising in connection with the First Mortgage Notes.
Each Mortgage executed by a Recourse Subsidiary secures all obligations
arising under its Subsidiary Guarantee. The Company may grant or establish
Permitted Easements in favor of the Released Property Facility and its owners
and operators, and the Mortgages shall be automatically subordinated to any
Permitted Easement. The Trustee shall execute and deliver any confirmation of
such subordination requested by the Company. Upon issuance of the First
Mortgage Notes, the Collateral Agent received a customary mortgagee's title
insurance policy for covered losses of up to $90 million. The personal
property to be included within the Collateral will be pledged pursuant to
security agreements which will create a first priority Lien, subject to
Permitted Liens (the "Security Agreements" and, together with the Mortgages,
the "Security Documents"). See "--Certain Covenants--Limitation on Liens."
Upon the occurrence of an Event of Default under the Indenture, the First
Mortgage Notes or the Security Documents, the Collateral Agent will have the
customary rights and remedies of a secured party under applicable law with
respect to the Collateral granted by the Company, and to the Collateral
granted by a Recourse Subsidiary upon a default under the Subsidiary
Guarantee.
The principal asset comprising the Collateral is the Mortgaged Facility
which was completed in 1981 at a cost of $243 million. The Mortgaged Facility
consists of a 472,000 square foot steel minimill and a 75,000 square foot
warehouse facility. The Mortgaged Facility forms part of a tract of land
consisting of approximately 287 acres adjacent to the Mississippi River with a
280-foot deep river loading dock. Approximately 36 undeveloped acres of such
287 acre tract may be released as Collateral. See "Possession, Use and Release
of Collateral."
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The Mortgaged Facility was appraised by an independent appraisal firm in
March 1998 on various bases and using various methods at fair market values
ranging from approximately $110 million to $125 million. The fair market value
of the Collateral is subject to fluctuations based on factors that include,
among others, the condition of the steel industry, the ability to sell the
Collateral in an orderly sale, the condition of the national and local
economies, the availability of buyers and similar factors. There can be no
assurance that the proceeds of any sale of the Collateral, in whole or in
part, pursuant to the Indenture and the Security Documents following an Event
of Default would be sufficient to satisfy payments due on the First Mortgage
Notes. To the extent that Liens on the Collateral have been granted to third
parties pursuant to "Certain Covenants--Limitation on Liens," such third
parties have or may exercise rights and remedies with respect to the property
subject to such Liens that could adversely affect the value of such Collateral
and the ability of the Collateral Agent, Trustee or the Holders to realize or
foreclose on such Collateral. In addition, the ability of the Trustee to
realize upon the Collateral may be subject to certain bankruptcy law
limitations in the event of a bankruptcy. See "--Certain Bankruptcy
Limitations" below.
The Company has the ability to issue additional First Mortgage Notes
subsequent to the issuance of the First Mortgage Notes offered pursuant to the
Original Offerings as part of the same series of First Mortgage Notes offered
pursuant to the Original Offerings or in one or more different series, all of
which will be equally and ratably secured by the Collateral. The proceeds from
the sale of up to $20 million aggregate principal amount of any such
additional First Mortgage Notes may be invested by the Company in properties
or assets that will not become Collateral. In such event, the value of the
Collateral as a percentage of the aggregate principal amount of outstanding
First Mortgage Notes would decrease. In addition, in the event that the
proceeds from the sale of any additional First Mortgage Notes are invested in
properties or assets that become Collateral, there can be no assurance that
there will be a proportionate increase in the value of the Collateral as a
percentage of the aggregate principal amount of outstanding First Mortgage
Notes.
The collateral release provisions of the Indenture permit the release of
Collateral in connection with Asset Sales of Collateral. See "--Possession,
Use and Release of Collateral." As described under "--Certain Covenants--
Restrictions on Asset Sales," the Net Cash Proceeds of such Asset Sales, above
prescribed amounts and subject to certain exceptions, are required to be
deposited in the Collateral Account prior to the making of an offer to
purchase First Mortgage Notes in an Asset Sale Offer or a Permitted Related
Acquisition. To the extent an Asset Sale Offer is not subscribed to by
Holders, the unutilized Net Cash Proceeds may be retained by the Company free
of the Lien of the Indenture and the Security Documents. In addition, the
Collateral release provisions of the Indenture permit the sale, lease,
transfer or other disposition of tangible personal property that, in the
reasonable judgement of the Company, has become worn out, obsolete or no
longer necessary to the operation of the Company's or its Subsidiaries'
business and which is disposed in the ordinary course of business, subject to
certain limitations. The collateral release provisions of the Indenture also
permit the release of up to 36 acres of undeveloped land constituting part of
the Mortgaged Facility under certain circumstances described under
"--Possession, Use and Release of Collateral."
If an Event of Default has occurred and is continuing and the Trustee has
been directed by the Holders of at least 25% in aggregate principal amount of
First Mortgage Notes to foreclose upon all or any part of the Collateral
(including the Collateral pledged by the Recourse Subsidiaries upon a default
under the Subsidiary Guarantee), the Collateral Agent will take such action to
foreclose upon the Collateral as is consistent with such directions, the
Indenture, the Security Documents and applicable law. The Collateral Agent
will thereupon foreclose upon the Collateral in accordance with instructions
from such representatives, unless Holders of a majority in aggregate principal
amount of the First Mortgage Notes shall have given contrary instructions, in
each case as provided in the Security Documents. The proceeds received by the
Collateral Agent will be applied by the Collateral Agent first to pay the
expenses of such foreclosure and fees and other amounts then payable to the
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Trustee under the Indenture, and thereafter to pay, pro rata, the principal
of, premium, if any, and interest on the First Mortgage Notes.
Dispositions of real property Collateral may be subject to delay pursuant to
an intercreditor agreement to be entered into with the Lenders (the
"Collateral Agency and Intercreditor Agreement"). The Collateral Agency and
Intercreditor Agreement will provide that the Collateral Agent will provide
access to and use of the real property and, under certain circumstances, may
delay liquidation of the real property for a period of time to permit the
agent for the Lenders to conduct an orderly liquidation of the Lender Secured
Property located on the real property (including, without limitation, the
processing of work in progress inventory). Dispositions of Collateral may also
be subject to delay pursuant to intercreditor and similar agreements with
lenders financing the construction of Released Property Facilities.
Under the laws of some states and under the federal Comprehensive
Environmental Response, Compensation and Liability Act of 1980, as amended
("CERCLA"), a secured party may be liable as an "owner or operator" for
certain costs and damages associated with releases or threatened releases of
hazardous substances on or from a mortgaged property, even though the released
environmental damage was caused by a prior owner or other third party.
Excluded from CERCLA's definition of "owner or operator," however, is a person
"who, without participating in the management of the facility, holds indicia
of ownership primarily to protect his security interest" (the "secured-
creditor exemption"). In 1996, legislation was enacted that reduced the
uncertainty concerning the meaning of the secured creditor exemption.
Nonetheless, the precise meaning of CERCLA's secured-creditor exemption
remains uncertain and continues to be the subject of litigation. Among the
situations in which a secured party faces a heightened risk of liability under
CERCLA by falling outside the scope of the exemption are (i) when a secured
party's activities begin to involve the actual management of a facility or
property and (ii) after a secured party has foreclosed on and taken title to
such a facility or property. A secured party that has taken possession of real
property may also subject itself to liabilities associated with other matters
arising directly out of its own operation of the facility, including fines and
penalties and other third party claims under environmental laws. In addition,
environmental laws and regulations may change significantly from time to time
at all levels of government, and in the past such changes have imposed
substantial new burdens upon those with an interest in real property affected
by such laws.
Under the Indenture, the Trustee may, prior to taking certain actions,
request Holders to provide an indemnification against its costs, expenses, and
liabilities. It is possible that CERCLA (or analogous) cleanup costs could
become a liability of the Trustee and cause a loss to any Holders that
provided an indemnification. In addition, such Holders may act directly rather
than through the Trustee, in specified circumstances, in order to pursue a
remedy under the Indenture. If Holders exercise that right, they could be
deemed to be secured parties that are subject to the risks discussed above.
CERTAIN BANKRUPTCY LIMITATIONS
The right of the Collateral Agent to repossess and dispose of the Collateral
upon the occurrence of an Event of Default would be significantly impaired by
applicable Bankruptcy Law in the event that a bankruptcy case were to be
commenced by or against the Company and its Subsidiaries prior to the
Collateral Agent having repossessed and disposed of the Collateral. Upon the
commencement of a case for relief under Title 11 of the United States Code, as
amended (the "Bankruptcy Code"), a secured creditor such as the Collateral
Agent is prohibited from repossessing its security from a debtor in a
bankruptcy case, or from disposing of security repossessed from such debtor,
without bankruptcy court approval. Moreover, the Bankruptcy Code permits the
debtor to continue to retain and use collateral even though the debtor is in
default under the applicable debt instruments provided
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that the secured creditor is given "adequate protection." The meaning of the
term "adequate protection" may vary according to circumstances, but it is
intended in general to protect the value of the secured creditor's interest in
the collateral and may include cash payments or the granting of additional
security, if and at such times as the court in its discretion determines, for
any diminution in the value of the collateral as a result of the stay of
repossession or disposition or any use of the collateral by the debtor during
the pendency of the bankruptcy case. A bankruptcy court may determine that a
secured creditor may not require compensation for a diminution in the value of
the collateral if the value of the collateral exceeds the debt it secures.
In view of the broad equitable powers of a bankruptcy court, it is
impossible to predict how long payments under the First Mortgage Notes could
be delayed following commencement of a bankruptcy case, whether or when the
Collateral Agent could repossess or dispose of the Collateral, the value of
the Collateral at the time of a bankruptcy petition or whether or to what
extent Holders would be compensated for any delay in payment or loss of value
of the Collateral through the requirement of "adequate protection." Any
disposition of the Collateral during a bankruptcy case would also require
permission from the bankruptcy court. Furthermore, in the event a bankruptcy
court determines the value of the Collateral is not sufficient to repay all
amounts due on the First Mortgage Notes, the Holders would hold secured claims
to the extent of the value of the Collateral to which the Holders are
entitled, and unsecured claims with respect to such shortfall. The Bankruptcy
Code only permits the payment and/or accrual of post-petition interest, costs
and attorney's fees to a secured creditor during a debtor's bankruptcy case to
the extent the value of the Collateral is determined by the bankruptcy court
to exceed the aggregate outstanding principal amount of the First Mortgage
Notes. None of the Company's Non-Recourse Subsidiaries has guaranteed
repayment of any of the First Mortgage Notes. There can be no assurance,
however, that a creditor of a Non-Recourse Subsidiary could not successfully
seek satisfaction from the Company or its Recourse Subsidiaries or that, in
the event of the bankruptcy of the Company or one or more Non-Recourse
Subsidiaries, a bankruptcy court would not consolidate the assets and debts of
the Company and its Recourse Subsidiaries with those of the Non-Recourse
Subsidiaries.
POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company and its Recourse Subsidiaries will have the right to remain in
possession and retain exclusive control of the Collateral securing the First
Mortgage Notes (other than Trust Moneys and other personal property held by,
or required to be deposited or pledged with, the Collateral Agent under the
Indenture or any Security Document), to freely operate the Collateral and to
collect, invest and dispose of any income thereon.
Release of Collateral. The Company and its Recourse Subsidiaries will have
the right to sell, exchange or otherwise dispose of any of the Collateral
(excluding Trust Moneys) (the "Released Collateral") upon delivery to the
Trustee of documents required by the Indenture (which may include, among
others, a Company Order, an Officers' Certificate and an Opinion of Counsel)
and all documentation required by the TIA prior to the release of the Released
Collateral by the Collateral Agent. Subject to certain exceptions for amounts
the Company and its Subsidiaries are permitted to retain pursuant to
"--Certain Covenants--Restrictions on Asset Sales," all cash or Cash Equivalents
received by the Collateral Agent upon an Asset Sale with respect to Collateral
will be held by the Collateral Agent as Trust Moneys under the Indenture prior
to application as provided in "--Use of Trust Moneys" below. All purchase
money and other obligations received as part of the net proceeds by the
Collateral Agent pursuant to these "--Release of Collateral" provisions shall
be held by the Collateral Agent.
As described under "--Limitations on Restricted Payments," the Company is
permitted to contribute up to 36 acres of undeveloped land constituting part
of the Mortgaged Facility to a Non-
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Recourse Subsidiary in exchange for an equity interest therein. Upon delivery
to the Trustee of documents required by the Indenture (which may include,
among others, a Company Order, an Officers' Certificate and an Opinion of
Counsel) and all documentation required by the TIA prior to the release of
such property, the Company may contribute such property free of the Lien of
the Indenture and the Security Documents.
In case a Default or an Event of Default shall have occurred and be
continuing, the Company and its Subsidiaries, while in possession of the
Collateral (other than cash and other personal property held by, or required
to be deposited or pledged with, the Collateral Agent under the Indenture or
any Security Document or with any trustee, mortgagee or other holder of a
prior Lien permitted under the Security Documents), may do any of the things
enumerated in the "--Release of Collateral" provisions only if the Trustee, in
its discretion, or the Holders of a majority in aggregate principal amount of
the outstanding First Mortgage Notes, shall consent to such action. In all
circumstances, however, the Trustee shall, if requested by the Company,
execute and deliver a disclaimer of any Lien on any Fixtures and Equipment
which are not Integral Fixtures and Equipment.
Use of Trust Moneys. All Trust Moneys shall be held by the Collateral Agent
as a part of the Collateral securing the First Mortgage Notes or the
obligations of the Recourse Subsidiaries of the Company under the Subsidiary
Guarantee. So long as no Event of Default shall have occurred and be
continuing, all Trust Moneys, other than the proceeds from the sale of
additional First Mortgage Notes, Condemnation Awards and Net Insurance
Proceeds, may, at the direction of the Company, upon delivery to the Trustee
of certain documents (that may include, among others, a Company Order, an
Officer's Certificate, and documentation required by the TIA and an Opinion of
Counsel), be applied by the Collateral Agent from time to time as provided
under "--Certain Covenants--Restrictions on Asset Sales." The proceeds from
the sale of additional First Mortgage Notes that constitute Trust Moneys shall
be applied as provided under "--Limitations on Indebtedness." Trust Moneys
from Condemnation Awards or Net Insurance Proceeds will be applied as provided
in the Indenture.
CERTAIN COVENANTS
The following is a summary of certain covenants contained in the Indenture.
Such covenants will be applicable (unless waived or amended) so long as any of
the First Mortgage Notes are outstanding.
Limitations on Indebtedness. The Indenture provides that the Company will
not, and will not permit any of its Recourse Subsidiaries to, directly or
indirectly, incur, create, assume, guarantee, become liable, contingently or
otherwise, with respect to, or otherwise become responsible for the payment of
(each event, an "incurrence") any Indebtedness unless (a) the pro forma EBITDA
Ratio of the Company and its Recourse Subsidiaries for the Reference Period
prior to the incurrence of such Indebtedness (taken as a whole and calculated
on the assumptions that such Indebtedness had been incurred and the proceeds
thereof had been applied on the first day of the Reference Period) would have
been greater than 2.00 to 1.00 and (b) no Default or Event of Default shall
have occurred and be continuing at the time of, or after giving effect to, the
incurrence of such Indebtedness.
The foregoing limitation will not apply to: (i) Indebtedness evidenced by
the First Mortgage Notes to be issued on the Issue Date and the obligations of
the Company and its Subsidiaries under the Indenture in an aggregate amount
not to exceed $110,000,000; (ii) Indebtedness of the Company or any Recourse
Subsidiary issued to the Company or any Wholly-Owned Recourse Subsidiary;
provided, that (a) any such Indebtedness is unsecured and is subordinated to
the First Mortgage Notes and (b) any subsequent issuance or transfer of any
Capital Stock or any other event which results in any such Wholly-Owned
Recourse Subsidiary ceasing to be a Wholly-Owned Recourse Subsidiary or any
transfer of such Indebtedness by any Wholly-Owned Recourse Subsidiary to
someone not a Wholly-Owned Recourse Subsidiary will, in each case, be deemed
an incurrence of
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Indebtedness under the Indenture; (iii) Indebtedness of the Company or any
Recourse Subsidiary which is existing immediately following the issuance of
the First Mortgage Notes and the application of the proceeds thereof as set
forth under "Use of Proceeds;" (iv) Indebtedness incurred under the New Credit
Facility, but not to exceed the greater of $50,000,000 or the sum of (a) 85%
of the value of the Company's consolidated qualifying accounts receivable and
(b) 60% of the value of the Company's consolidated qualifying inventory (with
each such amount to be determined in accordance with the terms of the New
Credit Facility), less the amount of Indebtedness incurred pursuant to clause
(viii) below; (v) Indebtedness incurred with respect to Interest Rate
Agreements covering floating rate Indebtedness of the Company that is
permitted under this covenant to the extent the notional principal amount of
such Interest Rate Agreements does not exceed the principal amount of the
Indebtedness to which such Interest Rate Agreements relate; (vi) Indebtedness
incurred with respect to the deferred purchase price of machinery and
equipment related to the business of the Company or its Recourse Subsidiaries
at the time of purchase and other purchase money obligations (including
Capitalized Lease Obligations) not to exceed, in the aggregate, $5,000,000;
provided, that the maturity of any such obligation does not exceed the
anticipated useful life of the asset being financed; (vii) Indebtedness
arising from the honoring of a check, draft or similar instrument drawn
against insufficient funds; provided, that such Indebtedness is extinguished
within two business days of its incurrence; (viii) the incurrence by an Asset
Backed Entity of Indebtedness in a Qualified Asset Backed Transaction that is
nonrecourse to the Company or any Subsidiary of the Company (except for
Standard Securitization Undertakings) in an aggregate principal amount
outstanding at any one time not to exceed the amount permitted under clause
(iv) above; (ix) Indebtedness of a Recourse Subsidiary outstanding on the date
on which such Recourse Subsidiary was acquired by the Company; provided,
however, that at the time such Recourse Subsidiary is acquired by the Company,
the Company would have been able to incur $1.00 of additional Indebtedness
pursuant to the immediately preceding paragraph after giving effect to the
incurrence of such Indebtedness pursuant to this clause (ix); (x) Indebtedness
(A) in respect of performance bonds, bankers' acceptances and surety or appeal
bonds provided by the Company or any of its Recourse Subsidiaries to their
customers in the ordinary course of their business, (B) in respect of
performance bonds or similar obligations of the Company or any of its Recourse
Subsidiaries for or in connection with pledges, deposits or payments made or
given in the ordinary course of business in connection with or to secure
statutory, regulatory or similar obligations, including obligations under
health, safety or environmental obligations and (C) arising from Guarantees to
suppliers, lessors, licensees, contractors, franchisees or customers of
obligations (other than Indebtedness) incurred in the ordinary course of
business; (xi) Indebtedness arising from agreements providing for
indemnification, adjustment of purchase price or similar obligations, or from
Guarantees or letters of credits, surety bonds or performance bonds securing
any obligations of the Company or any of its Recourse Subsidiaries pursuant to
such agreements, in each case incurred in connection with the disposition of
any business assets or Recourse Subsidiary of the Company (other than
Guarantees of Indebtedness or other obligations incurred by any person
acquiring all or any portion of such business assets or Recourse Subsidiary of
the Company for the purpose of financing such acquisition) in a principal
amount not to exceed the gross proceeds actually received by the Company or
any of its Recourse Subsidiaries in connection with such disposition; (xii)
Indebtedness incurred in connection with Private Activity Bonds, as such term
is defined under the Internal Revenue Code of 1986, as amended (the "Code"),
in an aggregate principal amount not to exceed $5,000,000; (xiii) other
Indebtedness of the Company and its Recourse Subsidiaries not to exceed, in
the aggregate, $15,000,000; and (xiv) any renewal, extension or refinancing
(and subsequent renewals, extensions or refinancings) of any Indebtedness of
the Company and its Recourse Subsidiaries permitted under the preceding
paragraph or under clauses (i), (iii), (vi), (ix), (x) or (xii) above;
provided, however, that in no event may Indebtedness of the Company be
renewed, extended or refinanced by means of Indebtedness of any Recourse
Subsidiary of the Company pursuant to this clause (xv). See "Prospectus
Summary--Summary Consolidated Financial Data" and "Selected Consolidated
Financial Data" for the Ratio of EBITDA to Net Interest Expense.
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In addition to the limitation imposed under the first paragraph of
"--Limitations on Indebtedness," any issuance of First Mortgage Notes in excess
of $140,000,000 shall be subject to the further requirements that (a) the
proceeds of such issuance shall be used to finance improvements to the
Mortgaged Facility, (b) Standard & Poors Rating Service and Moody's Investor
Service shall have confirmed their ratings of the First Mortgage Notes
assuming the subsequent issuance of First Mortgage Notes as contemplated for
Mortgaged Facility improvements at ratings not below the ratings assigned to
the First Mortgage Notes immediately prior to the public announcement or
disclosure to such rating agencies of the Company's plan or intention for such
construction, (c) the Mortgaged Facility improvements to be constructed must,
as conclusively established by a Board Resolution, be intended to add
supplemental production, handling or performance capacity to the then existing
Mortgaged Facility (although a portion of the intended construction may simply
replace existing improvements and Fixtures and Equipment to the extent
ancillary to such construction), (d) the Mortgage shall be amended prior to or
contemporaneously with such additional issuance to increase the maximum amount
secured by the Mortgage by an amount equal to the aggregate principal amount
of the additional issuance of First Mortgage Notes, and (e) in connection with
the issuance of such additional First Mortgage Notes, the Company shall
provide an endorsement to the original mortgagee's policy issued in connection
with the initial issuance of First Mortgage Notes (or an additional
mortgagee's title insurance policy in substantially the same form as the
mortgagee's title policy issued in connection with the initial issuance of
First Mortgage Notes) which provides mortgagee's title insurance with respect
to the Mortgaged Facility improvements in question in an amount equal to the
lesser of (i) the aggregate principal amount of the additional issuance of
First Mortgage Notes less the estimated fair market value of the personal
property to be included in the Mortgaged Facility improvements to be financed
by such First Mortgage Notes or (ii) the estimated fair market value of the
real property (including all real property improvements) to be included in the
Mortgaged Facility improvements to be financed by such First Mortgage Notes,
in each instance under clauses (e)(i) or (e)(ii), as conclusively established
by a Board Resolution. Pending application of the proceeds from any such
additional issuance of First Mortgage Notes as described above, such proceeds
will be retained by the Collateral Agent in the Collateral Account.
Limitation on Liens. The Indenture provides that the Company shall not, and
shall not permit, cause or suffer any of its Recourse Subsidiaries to, create,
incur, assume or suffer to exist any Liens of any kind upon any property or
assets of the Company or any Recourse Subsidiary, whether now owned or
hereafter acquired, except for Permitted Liens.
Limitation on Preferred Stock of Subsidiaries. The Indenture provides that
the Company will not permit any of its Recourse Subsidiaries to issue,
directly or indirectly, any Preferred Stock, except: (i) Preferred Stock
issued to and held by the Company or a Wholly-Owned Recourse Subsidiary,
except that any subsequent issuance or transfer of any Capital Stock or any
other event which results in any Wholly-Owned Recourse Subsidiary ceasing to
be a Wholly-Owned Recourse Subsidiary or any transfer of such Preferred Stock
by any Wholly-Owned Recourse Subsidiary will, in each case, be deemed an
issuance of Preferred Stock under the Indenture; (ii) Preferred Stock issued
by a Person prior to the time (a) such Person became a Recourse Subsidiary,
(b) such Person merges with or into a Recourse Subsidiary or (c) another
Recourse Subsidiary merges with or into such Person (in a transaction in which
such Person becomes a Recourse Subsidiary), in each case if such Preferred
Stock was not incurred in anticipation of such transaction; and (iii)
Preferred Stock (other than Disqualified Stock) which is exchanged for
Preferred Stock permitted to be outstanding pursuant to clauses (i) and (ii)
or which are used to refinance Indebtedness of a Recourse Subsidiary (or any
extension, renewal or refinancing thereof), having a liquidation preference
not to exceed the liquidation preference of the Preferred Stock or the
principal amount of the Indebtedness so exchanged or refinanced; provided,
that the Preferred Stock so issued in exchange (i) shall have a stated
maturity not earlier than the stated maturity of the Indebtedness or Preferred
Stock being
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refunded or refinanced and (ii) shall have an Average Life equal to or greater
than the remaining Average Life of the Indebtedness or Preferred Stock being
refunded or refinanced.
Limitations on Restricted Payments. The Indenture provides that neither the
Company nor any of its Recourse Subsidiaries shall, directly or indirectly,
declare, pay or set apart for payment, any Restricted Payment, if after giving
effect thereto: (i) a Default or an Event of Default shall have occurred and
be continuing; (ii) the Company would not be permitted to incur or become
liable with respect to at least $1.00 of additional Indebtedness as determined
in accordance with the first paragraph of the covenant "--Limitations on
Indebtedness"; or (iii) the aggregate amount of all Restricted Payments made
by the Company or any of its Recourse Subsidiaries (the amount expended or
distributed for such purposes, if other than in cash, to be valued at its fair
market value as determined in good faith by the Board of Directors of the
Company, whose determination shall be conclusive and evidenced by a Board
Resolution delivered to the Trustee) from and after the date of the Indenture,
through and including the date on which such Restricted Payment is made, would
exceed the sum of:
(a) the aggregate of 50% of the Company's Consolidated Net Income accrued
for the period (taken as one accounting period) (or if such aggregate
Consolidated Net Income shall be a deficit, minus 100% of the amount of
such deficit) commencing with the first full fiscal quarter after the Issue
Date to and including the fiscal quarter ended immediately prior to the
date of such calculation; and
(b) the aggregate net cash proceeds or the fair market value of
marketable securities received by the Company after the Issue Date from the
issuance or sale (other than to a Recourse Subsidiary) by the Company of
its Capital Stock (excluding Disqualified Stock, but including Capital
Stock other than Disqualified Stock issued upon conversion of, or exchange
for, Disqualified Stock or securities other than its Capital Stock), and
upon the exercise of warrants and rights to purchase such Capital Stock
(the "Aggregate Cash Proceeds"). For purposes of clause (b), the aggregate
net cash proceeds received by the Company (x) from the issuance of its
Capital Stock upon the conversion of, or exchange for, securities
evidencing Indebtedness of the Company, shall be calculated on the
assumption that the gross proceeds from such issuance are equal to the
aggregate principal amount (or, if discounted Indebtedness, the aggregate
accreted amount) of Indebtedness evidenced by such securities converted or
exchanged and (y) upon the conversion or exchange of other securities of
the Company shall be equal to the aggregate net proceeds of the original
sale of the securities so converted or exchanged if such proceeds of such
original sale were not previously included in any calculation for the
purposes of clause (b) of the preceding sentence, plus any additional sums
payable upon conversion or exchange.
Notwithstanding the foregoing, this provision shall not prevent (i) the
payment of any dividend within 60 days after the date of its declaration (if
the declaration of such dividend was permitted by the foregoing provision at
the time of such declaration); (ii) the repurchase, retirement or other
acquisition of any shares of the Company's Capital Stock, or any option,
warrant or other right to purchase shares of the Company's Capital Stock, or
the repayment of any subordinated Indebtedness of the Company solely in
exchange for shares of, or out of the proceeds of a substantially
contemporaneous issuance of, Capital Stock (other than Disqualified Stock);
provided, however, that such purchase, retirement or acquisition shall be
excluded from subsequent calculations of Restricted Payments; (iii) the
contribution to or other Investment in a Majority-Owned Non-Recourse
Subsidiary in an amount not to exceed $15 million; (iv) the defeasance,
redemption or repurchase of subordinated Indebtedness with the net cash
proceeds from an incurrence of subordinated refinancing Indebtedness,
provided, however, that such defeasance, redemption or repurchase shall be
excluded from subsequent calculations of Restricted Payments; (v)
distributions or payments of Receivables Fees, provided, however, that such
distributions or payments shall be
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excluded from subsequent calculations of Restricted Payments; (vi) Permitted
Investments, provided, however, that Permitted Investments shall be excluded
from subsequent calculations of Restricted Payments; (vii) Permitted Payments,
provided, however, that Permitted Payments shall be excluded from subsequent
calculations of Restricted Payments; (viii) the contribution to or other
Investment by the Company in a Wholly-Owned Non-Recourse Subsidiary; provided,
that the amount of such contribution or Investment, together with the amount
of all other contributions or Investments pursuant to this clause (viii),
shall not exceed the amount of Aggregate Cash Proceeds; and, provided,
further, that such contribution or Investment is otherwise permitted under the
first paragraph under "--Limitations on Restricted Payments" without giving
effect to clause (ii) of such paragraph; (ix) the contribution of the Released
Property to a Non-Recourse Subsidiary in exchange for an equity interest
therein; provided, that at the time of such contribution, such land is not
used or necessary in the business of the Company or any of its Recourse
Subsidiaries as conclusively determined by a Board Resolution; and (x) other
Restricted Payments not to exceed $5 million in the aggregate.
Limitations on Transactions with Stockholders and Affiliates. The Indenture
provides that the Company shall not, and shall not permit any of its Recourse
Subsidiaries to, enter into or permit to exist any transaction (or series of
related transactions), including without limitation, any loan, advance,
guarantee or capital contribution to, or for the benefit of, or any sale,
purchase, lease, exchange or other disposition of any property or the
rendering of any service, or any other direct or indirect payment, transfer or
other disposition (a "Transaction"), involving payments, with any holder of 5%
or more of any class of Capital Stock of the Company or with any Affiliate of
such holder or with any Affiliate of the Company (other than a Wholly-Owned
Recourse Subsidiary of the Company), on terms and conditions less favorable to
the Company or such Recourse Subsidiary, as the case may be, than would be
available at such time in a comparable Transaction in arm's length dealings
with an unrelated Person as determined by the Board of Directors of the
Company or a Recourse Subsidiary, such determination, in the case of any
transaction (or series of related transactions) involving aggregate
consideration in excess of $75,000 to be evidenced by a Board Resolution.
Notwithstanding the foregoing, the Company shall be entitled to grant
gratuitous Permitted Easements in connection with the construction and
operation of Released Property Facilities and shall be entitled to make
capital contributions to Subsidiaries to the extent permitted under
"--Limitations on Restricted Payments."
The provisions of the foregoing paragraph will not apply to (i) Restricted
Payments otherwise permitted pursuant to the Indenture; (ii) transactions
between the Company and one or more of its Recourse Subsidiaries; provided,
that such transactions are not otherwise prohibited by the Indenture; (iii)
reasonable and customary fees and compensation (including amounts and other
benefits paid pursuant to employee benefit plans) paid to, and indemnity
provided on behalf of, officers, directors, employees or consultants of the
Company or any Subsidiary, as determined by the Board of Directors of the
Company or any Subsidiary; (iv) payments for goods and services purchased in
the ordinary course of business on an arms-length basis; (v) transactions
effected as part of a Qualified Asset Backed Transaction; and (vi) the
provision of, and the payment for, shared administrative services to
Affiliates in the ordinary course of business.
Restrictions on Asset Sales. The Indenture provides that the Company will
not, and will not permit any of its Recourse Subsidiaries to, make any Asset
Sale, unless (a) the Company or such Recourse Subsidiary, as the case may be,
receives consideration at the time of such Asset Sale at least equal to the
fair market value (as determined in good faith by its Board of Directors or,
in the case of any Asset Sale involving aggregate consideration of $125,000 or
less, by the Chief Financial Officer of the Company or, in the case of any
Asset Sale involving aggregate consideration of $25,000 or less, by any Vice
President) of the Capital Stock or assets to be sold and (b) the consideration
therefor received by the Company or such Recourse Subsidiary is in the form of
cash, Cash Equivalents or
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assets that are useful in the steel business ("Steel Business Assets");
provided, that (A) the amount of (x) any liabilities (as shown on the
Company's or such Recourse Subsidiary's most recent balance sheet) of the
Company or any Recourse Subsidiary (other than contingent liabilities and
liabilities that are by their terms subordinated to the First Mortgage Notes
or any guarantee thereof) that are assumed by the transferee of any such
assets pursuant to a customary novation agreement that releases the Company or
such Recourse Subsidiary from further liability and (y) any non-cash
consideration received by the Company or any such Recourse Subsidiary from
such transferee that is converted by the Company or such Recourse Subsidiary
into cash within 180 days of closing such Asset Sale, shall be deemed to be
cash for purposes of this provision (to the extent of the cash received) and
(B) the Company or such Recourse Subsidiary may accept consideration
(including consideration in the form of assumption of liabilities) from such
Asset Sale in other than cash, Cash Equivalents and Steel Business Assets if
the aggregate fair market value (as determined in good faith by the Company's
Board of Directors and evidenced by a Board Resolution) of all consideration
from all Asset Sales since the date of the Indenture that is other than cash,
Cash Equivalents and Steel Business Assets ("Other Consideration") at the time
of such Asset Sale, less the sum of the amount of any cash and Cash
Equivalents and the fair market value (as determined in good faith by the
Company's Board of Directors and evidenced by a resolution of such Board) of
any Steel Business Assets realized from, or received in exchange for, any
Other Consideration prior to the time of such Asset Sale, does not exceed 5%
of total assets at the time of such Asset Sale.
Within twelve months of the date that the Available Amount equals or exceeds
$5,000,000, the Company will elect to either (a) apply or cause to be applied
the Available Amount to a Permitted Related Acquisition or the commencement
thereof (provided, that such project is completed within a reasonable time of
the commencement thereof), (b) make an offer to purchase First Mortgage Notes
(an "Asset Sale Offer") from all Holders and, in the case of an Asset Sale of
Collateral and to the extent required by the terms of any other First Mortgage
Notes issued under the Indenture, from all holders thereof up to an amount
equal to the Available Amount (rounded to the next lowest multiple of $1,000)
at a purchase price equal to 100% of the principal amount thereof plus accrued
interest thereon, if any, to the date of purchase, (c) repay other senior
Indebtedness from the Net Cash Proceeds of Asset Sales other than sales of
Collateral or (d) any combination of clauses (a), (b) and (c) above; provided,
that (i) property acquired at any time as a Permitted Related Acquisition
(other than a Permitted Related Acquisition of property securing the New
Credit Facility) that has been acquired with Collateral Proceeds shall be
subject to a first priority Lien in favor of the Collateral Agent for the
benefit of the Trustee and the Holders; (ii) pending application to a
Permitted Related Acquisition or an Asset Sale Offer, the Collateral Proceeds,
together with all Condemnation Awards and Net Insurance Proceeds received by
the Collateral Agent, will be retained by the Collateral Agent in the
Collateral Account subject to a first priority Lien in favor of the Collateral
Agent for the benefit of the Trustee and the Holders; and (iii)
notwithstanding the foregoing and as long as no Event of Default shall have
occurred and be continuing, (A) the Company and its Recourse Subsidiaries, in
the aggregate, shall be permitted to retain $1,000,000 of Net Cash Proceeds
from Asset Sales, (B) to the extent that Holders do not subscribe to an Asset
Sale Offer, the Company may retain the unutilized Available Amount and (C) the
Company and its Recourse Subsidiaries collectively may retain the Net Cash
Proceeds from the sale of any machinery, equipment, furniture, apparatus,
tools or implements or other similar property subject to the Lien of the
Security Documents, which may have become worn out, obsolete or no longer
necessary to the operation of the Company's or its Recourse Subsidiaries'
business ("Obsolete Assets") in an aggregate amount not to exceed $2,000,000
in any year, in the case of clauses (A), (B) and (C) in this clause (iii),
free of the Lien of the Security Documents, and such retained amounts shall be
released from the Collateral Account promptly upon demand.
Notwithstanding anything to the contrary in the Indenture, neither the
Company nor any of its Recourse Subsidiaries shall apply the proceeds of any
Collateral described in clause (a) in the first
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paragraph under the caption "--Security" to the purchase of collateral
securing the New Credit Facility.
Each Asset Sale Offer will be mailed to the Holders within twelve months
after the Available Amount equals or exceeds $5,000,000, with a copy to the
Trustee, will specify the purchase date (which will be no earlier than 30 days
nor more than 60 days from the date such notice is mailed) and will otherwise
comply with the procedures set forth in the Indenture and the Security
Documents.
Limitation on Dividend and Other Payment Restrictions Affecting Recourse
Subsidiaries. The Indenture provides that the Company will not, and will not
permit any of its Recourse Subsidiaries to, directly or indirectly, create,
assume or otherwise cause or suffer to exist or enter into any agreement with
any Person that would cause any consensual encumbrance or restriction of any
kind on the ability of any such Recourse Subsidiary to (a) pay dividends, in
cash or otherwise, or make any other distributions on its Capital Stock; (b)
make payments in respect of any Indebtedness owed to the Company or any of the
Company's Recourse Subsidiaries; (c) make loans or advances to the Company or
any of the Company's Recourse Subsidiaries; or (d) transfer any of its assets
to the Company or any of the Company's Recourse Subsidiaries, other than by
reason of (i) the First Mortgage Notes, the Indenture and the Security
Documents; (ii) restrictions existing under agreements in effect on the Issue
Date, including, without limitation, restrictions under the New Credit
Facility as in effect on the Issue Date; (iii) consensual encumbrances or
restrictions binding upon any Person at the time such Person becomes a
Recourse Subsidiary of the Company so long as such encumbrances or
restrictions are not created, incurred or assumed in contemplation of such
Person becoming a Recourse Subsidiary of the Company; (iv) restrictions
existing under any agreement which refinances or replaces any of the
agreements containing the restrictions in (ii) or (iii); provided, that the
terms and conditions of any such restrictions are not materially less
favorable to the Company or such Recourse Subsidiary than those under the
agreement evidencing the refinanced Indebtedness; (v) customary non-assignment
or sublease provisions of (A) any lease governing a leasehold interest of the
Company or any Recourse Subsidiaries or (B) any other contract or agreement of
the Company or any Recourse Subsidiary for the purchase or sale of goods or
services entered into in the ordinary course of business and involving, in the
case of any contract or agreement, payments of $1,000,000 or less in the
aggregate in any fiscal year; (vi) customary restrictions relating to assets
acquired with the proceeds of a purchase money obligation; (vii) any
restrictions with respect to a Recourse Subsidiary of the Company imposed
pursuant to an agreement which has been entered into for the sale or
disposition of all or substantially all of the Capital Stock or assets of such
Recourse Subsidiary; (viii) restrictions created in connection with a
Qualified Asset Backed Transaction that, in the good faith determination of
the Board of Directors, are necessary to effect such Qualified Asset Backed
Transaction; provided, that such restrictions apply only to such Asset Backed
Entity; and (ix) customary provisions contained in joint venture agreements
and other similar agreements entered into in the ordinary course of business.
Merger and Consolidation. The Indenture provides that the Company may not
consolidate with or merge into any other Person or convey, sell, assign,
transfer or lease all or substantially all of its properties and assets
(determined on a consolidated basis for the Company and its Recourse
Subsidiaries taken as a whole) in one transaction or a series of transactions
to any other Person or Persons, or permit any Person to consolidate with or
merge into the Company, or convey, sell, assign, transfer or lease all or
substantially all of such Person's properties and assets in one transaction or
a series of transactions to the Company, unless: (i) such Person is a solvent
corporation, partnership or trust organized under the laws of the United
States, one of the States thereof or the District of Columbia; (ii) the
resulting, surviving or transferee corporation, partnership or trust (if other
than the Company) assumes by a supplemental indenture executed and delivered
to the Trustee, in form satisfactory to the Trustee, all of the Company's
obligations under the First Mortgage Notes, the Indenture and the Security
Documents; (iii) immediately before and after giving effect to such
transaction or series of transactions, no Default or Event of Default shall
have occurred and be
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continuing; (iv) immediately after giving effect to such transaction or series
of transactions (including, without limitation, any Indebtedness incurred or
anticipated to be incurred in connection with or in respect of the transaction
or series of transactions), the Company, or the successor or transferee
corporation, would be permitted to incur an additional $1.00 of Indebtedness
pursuant to the Indenture; and (v) the Company or the surviving entity shall
have delivered to the Trustee an Officer's Certificate and an Opinion of
Counsel, each stating that such consolidation, merger, conveyance, sale,
transfer or lease and, if a supplemental indenture has been executed in
connection with such transaction or series of transactions, such supplemental
indenture complies with this covenant and that all conditions precedent in the
Indenture relating to the transaction or series of transactions have been
satisfied. Notwithstanding the foregoing, clause (iv) of the preceding
sentence shall not prohibit a transaction, the principal purpose of which is
(as determined in good faith by the Board of Directors of the Company and
evidenced by the resolution or resolutions thereof) to change the state of
incorporation of the Company, and such transaction does not have as one of its
purposes the evasion of the limitation on merger, consolidations and sales of
assets. Nothing contained in this section should be deemed to prevent the
Company or any Subsidiary from granting a security interest in, or a mortgage
or Lien upon, or otherwise encumbering, any of its assets, subject to the
limitations on Liens set forth in the Indenture. Notwithstanding the
foregoing, the Company and its Recourse Subsidiaries may not consolidate with
or merge into a Non-Recourse Subsidiary or convey, sell, assign, transfer or
lease all or substantially all of their properties and assets (determined,
with respect to the Company, on a consolidated basis for the Company and its
Subsidiaries taken as a whole) in one transaction or a series of transactions
to any Non-Recourse Subsidiary, or permit any Non-Recourse Subsidiary to
consolidate with or merge into the Company or any of its Recourse Subsidiaries
or convey, sell, assign, transfer or lease all or substantially all of such
Non-Recourse Subsidiary's properties and assets in one transaction or a series
of transactions to the Company or any of its Recourse Subsidiaries.
Limitation on Sale and Leaseback Transactions. The Indenture provides that
the Company will not, and will not permit any of its Recourse Subsidiaries to,
enter into, directly or indirectly, any Sale and Leaseback Transaction, with
respect to any real or tangible personal property, other than (i) a Sale and
Leaseback Transaction entered into between the Company and any of its Wholly-
Owned Recourse Subsidiaries or between Wholly-Owned Recourse Subsidiaries of
the Company, as the case may be; (ii) Capitalized Lease Obligations permitted
to be incurred by the Company or any of its Subsidiaries pursuant to the
limitations on Indebtedness set forth in the Indenture; and (iii) a Sale and
Leaseback Transaction the gross cash proceeds of which are at least equal to
the fair market value (as determined in good faith by a Board Resolution,
which determined shall be conclusive evidence of compliance with this
provision) of the property that is the subject of such Sale and Leaseback
Transaction and the transfer of assets in such Sale and Leaseback Transaction
is permitted by, and the Company applies the net proceeds of such transaction
in compliance with, the covenant described above under the caption
"--Restrictions on Asset Sales."
Limitations as to Non-Recourse Subsidiaries. The Indenture provides that the
Company will not permit any Non-Recourse Subsidiary to create, assume, incur,
guarantee or otherwise become liable in respect of any Indebtedness other than
Non-Recourse Indebtedness. Neither the Company nor any of its Recourse
Subsidiaries will sell, lease, convey or otherwise transfer to any Non-
Recourse Subsidiary any asset which is essential to the steelmaking operations
of the Company or its Recourse Subsidiaries. The Released Property shall be
deemed to be not essential to the steel making operations of the Company and
its Recourse Subsidiaries.
Limitation on Improvements to the Released Property. In the event that the
Company contributes the Released Property to a Non-Recourse Subsidiary as
permitted under "--Limitations on Restricted Payments," and new facilities are
constructed on such property, the Company covenants that such new facilities
(the "Released Property Facilities") (i) shall be designed for use in lines of
business related to the Company's or one of its Recourse Subsidiaries'
business at such time, (ii) may not be
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financed in whole or in part by the sale of additional First Mortgage Notes
under the Indenture (provided, however, that subject to the restrictions on
the use of proceeds from any future issuance of First Mortgage Notes as
provided under "--Limitations on Indebtedness," the Company may contribute
capital or otherwise invest in such Non-Recourse Subsidiary to the extent
permitted under the Indenture under "--Limitations on Restricted Payments"
even if such capital or investment is financed, directly or indirectly, by the
sale of additional First Mortgage Notes under the Indenture), (iii) may not
replace any Integral Fixtures and Equipment and (iv) if subsequently removed,
will not have a material adverse impact on the operations in the ordinary
course of business of the Mortgaged Facility, as in existence immediately
prior to commencement of the construction of the Released Property Facility
(in the case of clause (iv), as conclusively established by a Board
Resolution). The Company and the owner or operator of any Released Property
Facility may enter into shared infrastructure, supply and other agreements to
the extent permitted under the Indenture, including to the extent permitted
under "--Limitations on Transactions with Stockholders and Affiliates." The
Company may request that the Trustee execute and deliver any consents,
approvals, and agreements deemed desirable by the Company to permit
construction and operation of Released Property Facilities in accordance with
the terms of this covenant.
Impairment of Security Interest. The Indenture provides that the Company
will not, and will not permit any of its Recourse Subsidiaries to, take or
omit to take any action, which action or omission might or would have the
result of affecting or impairing the security interest in favor of the
Collateral Agent, on behalf of the Trustee and the Holders with respect to the
Collateral, and the Company shall not grant to any Person (other than the
Collateral Agent on behalf of the Trustee and the Holders) any interest
whatsoever in the Collateral, except, in either case, as expressly permitted
by the Indenture and the Security Documents.
Conflicting Agreements. The Indenture provides that the Company will not,
and will not permit any of its Recourse Subsidiaries to, enter into any
agreement or instrument that by its terms expressly (i) prohibits the Company
from redeeming or otherwise making any payments on or in respect of the First
Mortgage Notes in accordance with the terms thereof and of the Indenture, as
in effect from time to time, or (ii) requires that the proceeds received from
the sale of any Collateral be applied to repay, redeem or otherwise retire any
Indebtedness of any Person other than the Indebtedness represented by the
First Mortgage Notes of all series then outstanding, except as expressly
permitted by the Indenture or the Security Documents.
Amendment to Security Documents. The Indenture provides that the Company
will not, and will not permit any of its Recourse Subsidiaries to, amend,
modify or supplement, or permit or consent to any amendment, modification or
supplement of, any of the Security Documents in any way which would be adverse
to the Holders or which would constitute a Default under the Indenture or a
default under any Security Document.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the Company defaults in the payment of interest on any First Mortgage
Note when due and payable and such default in the payment of interest
continues for a period of 30 days;
(ii) the Company defaults in the payment of the principal, or premium, if
any, of any First Mortgage Note when due and payable at maturity, upon
acceleration, redemption, pursuant to an offer to purchase required under
the Indenture or otherwise (including failure to make payment pursuant to a
Change of Control Offer or Asset Sale Offer);
(iii) the Company fails to comply with any of its covenants or agreements
described under "--Certain Covenants--Restrictions on Asset Sales" or
"--Change of Control," and such failure continues for a period of thirty days
or the Company fails to comply with the covenant described under "--Merger and
Consolidation;"
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(iv) the Company fails to observe or perform any covenant, condition or
agreement in the First Mortgage Notes, the Indenture or the Security
Documents (other than as described in clause (i), (ii) or (iii)) and such
failure to observe or perform continues for a period of 30 days after there
has been given to the Company by the Trustee, or has been received by the
Company and the Trustee from the Holders of at least 25% of the principal
amount of the First Mortgage Notes then outstanding, a written notice
specifying such default, demanding that it be remedied and stating that the
notice is a "Notice of Default", unless, with respect to defaults under the
Security Documents, the remedy or cure of such default requires work to be
performed, acts to be done or conditions to be removed which cannot, by
their nature, reasonably be performed, done or removed within such 30-day
period, or if such remedy or cure is prevented by causes outside of the
control or responsibility of the Company, in which case no "Event of
Default" shall be deemed to have occurred until the date that is 90 days
after such written notice so long as the Company shall have commenced cure
within such 90-day period and shall diligently prosecute the same to
completion;
(v) a default in the payment of principal at final maturity under any
mortgage, indenture or instrument under which there may be issued or by
which there may be secured or evidenced any Indebtedness of the Company or
any of its Recourse Subsidiaries (or the payment of which is guaranteed now
or hereafter by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter, in a
principal amount of at least $5,000,000;
(vi) a default occurs under any mortgage, indenture or instrument under
which there may be issued or by which there may be secured or evidenced any
Indebtedness (including any interest thereon) of the Company or its
Recourse Subsidiaries (or the payment of which is guaranteed now or
hereafter by the Company or any of its Subsidiaries), whether such
Indebtedness or Guarantee now exists or shall be created hereafter, if (i)
as a result of such event of default the maturity of such Indebtedness has
been accelerated prior to its stated maturity and (ii) the principal amount
of such Indebtedness, together with the principal amount of any other
Indebtedness of the Company and its Recourse Subsidiaries the maturity of
which has been so accelerated, aggregates $5,000,000 or more;
(vii) the Company or any Subsidiary (other than a Non-Recourse
Subsidiary, unless such action or proceeding results in the Company or any
Recourse Subsidiary becoming liable or responsible for liabilities or
obligations of such Non-Recourse Subsidiary in an aggregate amount in
excess of $5,000,000 and has a material adverse effect on the ability of
the Company to satisfy its obligations under the Indenture or the Notes)
pursuant to or within the meaning of any Bankruptcy Law: (a) commences a
voluntary case or proceeding; (b) consents to the entry of an order for
relief against it in an involuntary case or proceeding; (c) consents to the
appointment of a Custodian of it or for all or substantially all of its
property; (d) makes a general assignment for the benefit of its creditors;
or (e) admits in writing its inability to pay its debts as the same become
due;
(viii) a court of competent jurisdiction enters an order or decree under
any Bankruptcy Law that: (a) is for relief against the Company or any
Subsidiary in an involuntary case; (b) appoints a Custodian of the Company
or any Subsidiary for all or substantially all of its property; or (c)
orders the liquidation of the Company or any Subsidiary; provided, that
clauses (a), (b) and (c) shall not apply to a Non-Recourse Subsidiary,
unless such action or proceeding results in the Company or any Recourse
Subsidiary becoming liable or responsible for liabilities or obligations of
such Non-Recourse Subsidiary in an aggregate amount in excess of $5,000,000
and has a material adverse effect on the ability of the Company to satisfy
its obligations under the Indenture or the Notes and in any such case the
order or decree remains unstayed and in effect for 60 days;
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(ix) the Company or any Recourse Subsidiary shall fail to discharge any
one or more judgments not covered by insurance (from which no further
appeal may be taken) in excess of $5,000,000, and such judgments shall
remain in force, undischarged, unsatisfied, unstayed and unbonded for more
than 30 days;
(x) (a) the Security Documents shall cease, for any reason, to be in full
force and effect or shall cease to be effective to grant a perfected Lien
on the Collateral with the priority purported to be created thereby, in
each case with respect to Collateral the aggregate value of which is in
excess of $3,000,000 or (b) the Security Documents shall cease, for any
reason, to be in full force and effect or shall cease to be effective to
grant a perfected Lien on the Collateral with the priority purported to be
created thereby in any case with respect to Collateral the aggregate value
of which is $3,000,000 or less and the Company or any Recourse Subsidiary,
as applicable, shall have failed to take reasonable steps to cure such
event promptly after having learned thereof; or
(xi) an event of default shall have occurred with respect to the First
Mortgage Notes of any other series and as a result of such event of default
the maturity of the First Mortgage Notes of such other series shall have
been accelerated prior to its stated maturity.
If an Event of Default (other than an Event of Default specified in
subparagraph (vii) or (viii) set forth above) occurs and is continuing, the
Trustee or the Holders of at least 25% of the principal amount of the First
Mortgage Notes then outstanding by notice to the Company (and to the Trustee
if such notice is given by the Holders) may declare the principal amount and
accrued interest on the First Mortgage Notes to be immediately due and
payable. If an Event of Default specified in section (vii) or (viii) above
occurs, the principal amount and accrued interest shall ipso facto become and
be immediately due and payable on all outstanding First Mortgage Notes without
any declaration or other act on the part of the Trustee or any Holder. The
Holders of a majority in principal amount of the then outstanding First
Mortgage Notes by notice to the Company and the Trustee may rescind an
acceleration and its consequences if all existing Events of Default, other
than the nonpayment of the principal of the First Mortgage Notes which have
become due solely by such declaration of acceleration, have been cured or
waived. The Holders of a majority in principal amount of the outstanding First
Mortgage Notes also have the right to waive certain past defaults under the
Indenture except a default in the payment of the principal of, premium, if
any, or interest on any First Mortgage Note, or in respect of a covenant or a
provision which cannot be modified or amended without the consent of all
Holders.
No Holder has the right to institute any proceeding with respect to the
Indenture, the Security Documents or any remedy thereunder, unless the Holders
of at least 25% in principal amount of the outstanding First Mortgage Notes
have made written request, and offered reasonable indemnity, to the Trustee to
institute such proceeding as Trustee, the Trustee has failed to institute such
proceeding within 15 days after receipt of such notice, and the Trustee has
not within such 15-day period received directions inconsistent with such
written request by Holders of a majority in principal amount of the
outstanding First Mortgage Notes. Such limitations do not apply, however, to
suits instituted by a Holder for the enforcement of the payment of the
principal of, premium, if any, or interest on such First Mortgage Note on or
after the respective due dates expressed in such First Mortgage Note.
The Holders of a majority in principal amount of the outstanding First
Mortgage Notes will have the right, subject to certain limitations, to direct
the time, method and place of conducting any proceeding for any remedy
available to the Trustee or exercising any trust or power conferred on the
Trustee. The Indenture provides that in case an Event of Default shall occur
and be continuing, the Trustee will exercise such of its rights and powers
under the Indenture, and use the same degree of care and skill in their
exercise, as a prudent Person would exercise or use under the circumstances in
the conduct of his or her own affairs. Subject to certain provisions of the
Indenture, the Trustee will be under no obligation to exercise any of its
rights or powers under the Indenture at the request of any of the Holders
unless they have offered to the Trustee reasonable security or indemnity
against
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the costs, expenses and liabilities which might be incurred by it in
compliance with such request. The Trustee may withhold from Holders notice of
any continuing default (except a default in payment) if it determines in good
faith that the withholding of such notice is in the interest of such Holders.
Under the Indenture, the Company is required to furnish to the Trustee
annually (i) a statement by certain officers of the Company to the effect that
to the best of their knowledge the Company is not in default in the
fulfillment of any of its obligations under such Indenture or, if there has
been such default, specifying each such default and (ii) an Opinion of Counsel
either stating that action has been taken with respect to the filing,
refiling, recording or re-recording of the Indenture as is necessary to
maintain the Lien of the Indenture or that no such action is necessary to
maintain such Lien.
MODIFICATION OF THE INDENTURE
From time to time, the Company, when authorized by a Board Resolution, and
the Trustee and the Collateral Agent (if a party thereto) may amend, waive or
supplement the Indenture, the Security Documents or the First Mortgage Notes
for certain specified purposes, including, among other things, curing
ambiguities, defects or inconsistencies, maintaining the qualification of the
Indenture under the TIA, making any change that does not adversely affect the
rights of any Holder or mortgaging, pledging, or granting a security interest
in favor of the Collateral Agent as additional security for the payment and
performance of the obligations under the Indenture, in any property or assets,
including any which are required to be mortgaged, pledged or hypothecated, or
in which a security interest is required to be granted, to the Collateral
Agent pursuant to any Security Document or otherwise; provided, that, in the
case of certain amendments to the Indenture, the Company delivers to the
Trustee an Opinion of Counsel stating that such change does not adversely
affect the rights of any Holder. Other amendments and modifications of the
Indenture, the First Mortgage Notes or the Security Documents may be made by
the Company, the Collateral Agent (if a party thereto) and the Trustee with
the consent of the Holders of not less than a majority of the aggregate
principal amount of the outstanding First Mortgage Notes; provided, that no
such modification or amendment may, without the consent of the Holder of each
outstanding First Mortgage Note affected thereby, (i) reduce the principal
amount of, extend the final maturity of or alter the redemption provisions of,
the First Mortgage Notes, (ii) change the currency in which any First Mortgage
Notes or any premium thereon is payable, (iii) reduce the percentage in
principal amount of outstanding First Mortgage Notes that must consent to an
amendment, supplement or waiver or consent to take any action under the
Indenture, the First Mortgage Notes or the Security Documents, (iv) impair the
right to institute suit for the enforcement of any payment on or with respect
to the First Mortgage Notes, (v) waive a default in payment with respect to
the First Mortgage Notes, (vi) reduce or change the rate or time for payment
of interest on the First Mortgage Notes, or (vii) affect the ranking or
security of the First Mortgage Notes.
Notwithstanding clause (vii) of the preceding paragraph, any amendment or
modification of, or waiver with respect to, the Indenture, the First Mortgage
Notes or the Security Documents requested by the Company in connection with
any intercreditor agreement or similar arrangement to facilitate the
financing, construction, or operation of Released Property Facilities shall
only require the approval of not less than a two-thirds majority of the
aggregate principal amount of the then outstanding First Mortgage Notes even
if such intercreditor agreement or similar arrangement affects the ranking or
security of the First Mortgage Notes. No such intercreditor agreement or
similar arrangement shall, however, cause the Trustee to release the Lien in
favor of the Trustee and Holders on the Collateral except in compliance with
"--Release of Collateral," "--Legal Defeasance and Covenant Defeasance," and
"--Satisfaction and Discharge of the Indenture." Further, no such
intercreditor agreement or similar arrangement shall cause the Trustee to
subordinate the Liens in favor of the Holders under the Security Documents to
Liens in favor of creditors financing Released Property Facilities.
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LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company at any time may terminate (i) all its obligations under the
First Mortgage Notes and, to the extent related thereto, the Indenture and the
Security Documents ("legal defeasance option") or (ii) its obligations to
comply with certain restrictive covenants, including certain of the covenants
described under "--Certain Covenants" above ("covenant defeasance option").
The Company may exercise its legal defeasance option notwithstanding its prior
exercise of its covenant defeasance option.
If the Company exercises its legal defeasance option, payment of the First
Mortgage Notes may not be accelerated because of an Event of Default. If the
Company exercises its covenant defeasance option, payment of the Notes may not
be accelerated because of certain Events of Default described under "Events of
Default" above (not including Events of Default relating to non-payment,
bankruptcy and insolvency events, among others) or because of the failure of
the Company to comply with certain covenants specified in the Indenture.
The Company may exercise its legal defeasance option or its covenant
defeasance option only if:
(1) the Company irrevocably deposits in trust with the Trustee money or
U.S. Government Obligations for the payment of principal and interest on
the First Mortgage Notes to maturity or redemption, as the case may be;
(2) the Company delivers to the Trustee a certain certificate from a
nationally recognized firm of independent certified public accountants
expressing their opinion that the payments of principal and interest when
due and without reinvestment on the deposited U.S. Government Obligations
plus any deposited money without investment will provide cash at such times
and in such amounts as will be sufficient to pay principal and interest
when due on all the First Mortgage Notes to maturity or redemption, as the
case may be;
(3) 91 days pass after the deposit is made and during the 91-day period
no Default relating to bankruptcy and insolvency events with respect to the
Company occurs which is continuing at the end of the period;
(4) no Default has occurred and is continuing on the date of such deposit
and after giving effect thereto;
(5) the Company delivers to the Trustee an Opinion of Counsel to the
effect that (i) the trust resulting from the deposit does not constitute,
or is qualified as, a regulated investment company under the Investment
Company Act of 1940, (ii) the Holders have a valid first priority perfected
security interest in the trust funds, and (iii) after passage of 91 days
following the deposit (except, with respect to any trust funds for the
account of any Holder who may be deemed to be an "insider" for purposes of
the Bankruptcy Code, after one year following the deposit), the trust funds
will not be subject to the effect of Section 547 of the Bankruptcy Code or
Section 15 of the New York Debtor and Creditor Law in a case commenced by
or against the Company under either such statute, and either (A) the trust
funds will no longer remain the property of the Company (and therefore,
will not be subject to the effect of any applicable bankruptcy, insolvency,
reorganization or similar laws affecting creditors' rights generally) or
(B) if a court were to rule under any such law in any case or proceeding
that the trust funds remained property of the Company, (x) assuming such
trust funds remained in the possession of the Trustee prior to such court
ruling to the extent not paid to Holders, the Trustee will hold, for the
benefit of the Holders, a valid first priority perfected security interest
in such trust funds that is not avoidable in bankruptcy or otherwise except
for the effect of Section 552(b) of the Bankruptcy Code on interest on the
trust funds accruing after the commencement of a case under such statute
and (y) the Holders will be entitled to receive adequate protection of
their interests in such trust funds if such trust funds are used in such
case or proceeding;
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(6) in the case of the legal defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel stating that (i) the Company
has received from, or there has been published by, the Internal Revenue
Service a ruling, or (ii) since the date of the Indenture there has been a
change in the applicable U.S. Federal income tax law or a regulation
clarifying existing law, in either case to the effect that, and based
thereon such Opinion of Counsel shall confirm that, the Holders will not
recognize income, gain or loss for U.S. Federal income tax purposes as a
result of such defeasance and will be subject to U.S. Federal income tax on
the same amounts, in the same manner and at the same times as would have
been the case if such defeasance had not occurred;
(7) in the case of the covenant defeasance option, the Company shall have
delivered to the Trustee an Opinion of Counsel to the effect that the
Holders will not recognize income, gain or loss for U.S. Federal income tax
purposes as a result of such covenant defeasance and will be subject to
U.S. Federal income tax on the same amounts, in the same manner and at the
same times as would have been the case if such covenant defeasance had not
occurred; and
(8) the Company shall have delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent to the defeasance and discharge of the First Mortgage Notes have
been complied with.
SATISFACTION AND DISCHARGE OF THE INDENTURE
The Indenture will cease to be of further effect with respect to the First
Mortgage Notes (except as to the surviving rights of registration of transfer
or exchange of First Mortgage Notes, as expressly provided for in the
Indenture, and as otherwise expressly provided for in the Indenture) when
either (i) all such First Mortgage Notes theretofore authenticated and issued
have been delivered (except lost, stolen or destroyed First Mortgage Notes
which have been replaced or paid, or First Mortgage Notes for whose payment
money has been deposited in trust or segregated and held in trust by the
Company and thereafter repaid to the Trustee or discharged from such trust) to
the Trustee for cancellation or (ii) all such First Mortgage Notes not
theretofore delivered to the Trustee for cancellation have become due and
payable or will become due and payable within one year and the Company has
irrevocably deposited or caused to be deposited with the Trustee funds in an
amount sufficient to pay at maturity or redemption the entire indebtedness on
such First Mortgage Notes not theretofore delivered to the Trustee for
cancellation, including interest thereon, and the Company has paid all sums
payable by it under the Indenture. The Trustee is required to acknowledge
satisfaction and discharge of the Indenture with respect to the First Mortgage
Notes on demand of the Company accompanied by an Officers' Certificate and an
Opinion of Counsel and at the cost and expense of the Company.
REGARDING THE TRUSTEE AND THE COLLATERAL AGENT
First National Bank of Commerce serves as Trustee under the Indenture and
acts as Collateral Agent under the Security Documents.
NO PERSONAL LIABILITY OF DIRECTORS, OFFICERS, EMPLOYEES AND STOCKHOLDERS
Directors, officers, employees or stockholder of the Company and the
Recourse Subsidiaries will not have any liability for any obligations of the
Company or the Recourse Subsidiaries under the First Mortgage Notes, the
Indenture or the Security Documents or for any claim based on, in respect of,
or by reason of, such obligations or their creation. Each Holder, by accepting
a First Mortgage Note, waives and releases all such liability. The waiver and
release are part of the consideration for the issue of the First Mortgage
Notes.
REPORTS
The Company shall file with the Commission, and furnish the Trustee with
copies of, all quarterly and annual reports, and any other documents,
specified pursuant to Section 13 or 15(d) of the Exchange Act.
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GOVERNING LAW
The Indenture, the Security Documents and the First Mortgage Notes shall be
governed by, and construed in accordance with, the laws of the State of New
York.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms as well as any other capitalized terms used herein for which no
definition is provided.
"Affiliate" means, with respect to any specific Person, any other Person
directly or indirectly controlling or controlled by or under direct or
indirect common control with such specific Person. For the purposes of this
definition, "control," as used with respect to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management or policies of such Person whether through the
ownership of voting securities, or by agreement or otherwise; and the terms
"controlling" and "controlled" have meanings correlative to the foregoing.
"Asset Acquisition" means (i) any capital contribution (by means of transfer
of cash or other property to others or payments for property or services for
the account or use of others, or otherwise), or purchase or acquisition of
Capital Stock by the Company or any of its Recourse Subsidiaries in any other
Person, in either case pursuant to which such Person shall become a Subsidiary
of the Company or any of its Subsidiaries or shall be merged with or into the
Company or any of its Subsidiaries or (ii) any acquisition by the Company or
any of its Recourse Subsidiaries of the assets of any Person which constitute
substantially all of an operating unit or business of such Person.
"Asset Backed Entity" means a Wholly Owned Subsidiary of the Company (or
another Person in which the Company or any Subsidiary of the Company makes an
Investment and to which the Company or any Subsidiary of the Company transfers
accounts receivable or inventory and related assets) which engages in no
activities other than in connection with the financing of accounts receivable
or inventory and which is designated by the Board of Directors of the Company
(as provided below) as an Asset Backed Entity, (a) no portion of the
Indebtedness or any other obligations (contingent or otherwise) of which (i)
is guaranteed by the Company or any Subsidiary (excluding guarantees of
obligations (other than the principal of, and interest on, Indebtedness)
pursuant to Standard Securitization Undertakings) or (ii) is recourse to or
obligates the Company or any Subsidiary of the Company in any way or any
Subsidiary of the Company, directly or indirectly, contingently or otherwise,
to the satisfaction thereof, other than pursuant to Standard Securitization
Undertakings, (b) with which neither the Company nor any Subsidiary of the
Company has any material contract, agreement, arrangement or understanding
other than on terms no less favorable to the Company or such Subsidiary than
those that might be obtained at the time from Persons that are not Affiliates
of the Company, other than fees payable in the ordinary course of business in
connection with servicing accounts receivable or inventory, and (c) to which
neither the Company nor any Subsidiary of the Company has any obligation to
maintain or preserve such entity's financial condition or cause such entity to
achieve certain levels of operating results. Any such designation by the Board
of Directors of the Company shall be evidenced to the Trustee by filing with
the Trustee a certified copy of the resolution of the Board of Directors of
the Company giving effect to such designation and an Officers' Certificate
certifying that such designation complied with the foregoing conditions.
"Asset Sale" means any direct or indirect sale, conveyance, transfer, lease
or other disposition (excluding the granting of Permitted Liens) of property,
rights or assets to any Person (including any Non-Recourse Subsidiary), other
than (a) pursuant to the sale of accounts receivable and inventory and related
assets of the type specified in the definition of "Qualified Asset Backed
Transaction" to an Asset Backed Entity for the fair market value thereof, (b)
to the Company or a Recourse Subsidiary of the Company, in one transaction or
a series of related transactions, of (i) any Capital Stock of any
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Recourse Subsidiary of the Company or (ii) any other property or asset of the
Company or any Recourse Subsidiary of the Company, in each case, other than in
the ordinary course of business and (c) sales of products in the ordinary
course of business.
"Available Amount" means the sum of Net Cash Proceeds of Asset Sales less
the sum of Net Cash Proceeds (i) previously applied to Permitted Related
Acquisitions, (ii) from the sale of Obsolete Assets not exceeding an aggregate
fair market value of $2,000,000 in any year, (iii) of $1,000,000 and (iv)
retained by the Company following an Asset Sale Offer that is not fully
subscribed as contemplated under "--Restrictions on Asset Sales."
"Average Life" means, as of the date of determination, with respect to any
Indebtedness or Preferred Stock, the quotient obtained by dividing (i) the sum
of the products of the numbers of the years from the date of determination to
the dates of each successive scheduled principal payment of such Indebtedness
or redemption or similar payment with respect to such Preferred Stock
multiplied by the amount of such payment by (ii) the sum of all such payments.
"Bankruptcy Law" means Title 11, United States Code or any similar Federal
or state law for the relief of debtors, as amended.
"Board Resolution" means a copy of a resolution certified by the Secretary
or an Assistant Secretary of the Company or its Subsidiaries, as the case may
be, to have been duly adopted by the Board of Directors of the Company or its
Subsidiaries, as the case may be, and to be in full force and effect on the
date of such certification, and delivered to the Trustee.
"Capital Stock" means, with respect to any Person, any and all shares,
interests, participations, warrants, options or other equivalents (however
designated and whether voting or non-voting) of capital stock of a corporation
and any and all equivalent ownership interests in a Person (other than a
corporation), in each case whether outstanding on the Issue Date or thereafter
issued, including, without limitation, all common stock and Preferred Stock.
"Capitalized Lease" means, as applied to any Person, any lease of any
property (whether real, personal or mixed) the discounted present value of the
rental obligations of such Person as lessee under which, in conformity with
GAAP, is required to be capitalized on the balance sheet of that Person.
"Capitalized Lease Obligation" means, at the time any determination thereof
is to be made, the amount of the liability in respect of a capital lease that
would at such time be required to be capitalized and reflected as a liability
on a balance sheet (excluding the footnotes thereto) in accordance with GAAP.
"Cash Equivalents" means, at any time, (i) any evidence of Indebtedness with
a maturity of 365 days or less issued or directly and fully guaranteed or
insured by the United States of America or any agency or instrumentality
thereof (provided that the full faith and credit of the United States of
America is pledged in support thereof); (ii) certificates of deposit or
acceptances with a maturity of 180 days or less of any financial institution
that is a member of the Federal Reserve System having combined capital and
surplus and undivided profits of not less than $250,000,000; (iii) commercial
paper with a maturity of 180 days or less issued by a corporation (except an
Affiliate of the Company) organized under the laws of any state of the United
States or the District of Columbia and rated at least A-1 by Standard & Poor's
Corporation or at least P-1 by Moody's Investors Service, Inc.
"Change of Control" means the occurrence of one or more of the following
events:
(a) the direct or indirect sale, lease, exchange or other transfer of all
or substantially all of the assets of the Company to any Person or entity
or group of Persons or entities acting in
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concert as a partnership or other group (a "Group of Persons") other than
an Affiliate of the Company;
(b) the consummation of any consolidation or merger of the Company with
or into another corporation with the effect that the stockholders of the
Company as of the date of the Indenture hold less than 51% of the combined
voting power of the outstanding voting securities of the surviving entity
of such merger or the corporation resulting from such consolidation
ordinarily having the right to vote in the election of directors (apart
from rights accruing under special circumstances) immediately after such
merger or consolidation;
(c) the stockholders of the Company shall approve any plan or proposal
for the liquidation or dissolution of the Company; and
(d) a Person or Group of Persons (other than management of the Company
and their respective Affiliates) shall, as a result of a tender or exchange
offer, open market purchases, privately negotiated purchases or otherwise,
have become the direct or indirect beneficial owner (within the meaning of
Rule 13d-3 under the Exchange Act) of securities of the Company
representing a majority of the combined voting power of the then
outstanding securities of the Company ordinarily (and apart from rights
accruing under special circumstances) having the right to vote in the
election of directors.
For purposes of this definition, the following shall not be considered a
Change of Control:
(i) Transfers of Securities of the Company among (A) Meyers; (B) any son,
daughter, stepson, stepdaughter or spouse of Meyers; (C) any lineal
descendant of an individual referred to in clause (A) or (B); (D) any trust
in which one or more of the Persons referred to in clause (A), (B) or (C)
are principal beneficiaries; and (e) any entity described in Section
501(c)(3) of the Code over which one or more of the Persons (and no other
Person) referred to in clause (A), (B) or (C) actually has and exercises
control; provided, that, if at any time any Person other than a Person
referred to in clause (A), (B) or (C) has the ability to exercise control
(whether or not shared) over any such entity, any securities of the Company
then owned by such entity shall be deemed to be beneficially owned by a
Person or Group of Persons other than a Person referred to in clause (A),
(B) or (C) for purpose of determining whether a Change of Control has
occurred; or
(ii) A merger resulting in the proportionate interest of the Class B
Common Stock held by Bayou Steel Properties Limited being held by Bayou
Steel Properties Limited's shareholders, provided such transaction shall
have no adverse effect on the Company.
"Collateral" means, collectively, all of the property and assets (including,
without limitation, Trust Moneys) that are from time to time subject to the
Lien of the Security Documents.
"Collateral Account" means the collateral account to be established pursuant
to the Indenture.
"Collateral Proceeds" means the Net Cash Proceeds received by the Collateral
Agent from the sale of Collateral.
"Company Order" means a written request or order signed in the name of the
Company by its Chairman of the Board, its Vice Chairman of the Board, its
President or a Vice President, and by its Treasurer, an Assistant Treasurer,
its Secretary or an Assistant Secretary, and delivered to the Trustee.
"Condemnation Award" means any proceeds, award or payment paid to the
mortgagee or beneficiary under the Mortgages relating to any taking of the
Collateral subject to such Mortgage by condemnation or eminent domain or
similar action, together with interest accrued thereon, less certain expenses.
"Consolidated Domestic Income Tax Expense" of any Person for any period
means, without duplication, the aggregate amount of net U.S. taxes based on
income or profits for such period of the operations of such Person and its
Consolidated Recourse Subsidiaries, determined in accordance
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with GAAP (to the extent such income or profits were included in computing
Consolidated Net Income).
"Consolidated Interest Expense" of any Person for any period means the sum
of (a) the interest expense (including amortization of original issue discount
and non-cash interest payments or accruals) of such Person and its
Consolidated Recourse Subsidiaries for such period and (b) to the extent not
included in clause (a), all commissions, discounts and other fees and charges
owed with respect to letters of credit and banker's acceptance financing, the
net cost associated with Interest Rate Agreements and Currency Agreements,
amortization of other financing fees and expenses and the interest portion of
any deferred payment obligation.
"Consolidated Interest Income" of any Person means all amounts that would be
included under interest income on a consolidated income statement of such
Person and its Consolidated Recourse Subsidiaries determined in accordance
with GAAP, less accreted amounts attributable to original issue discount
securities prior to the receipt thereof and other non-cash interest payments
or accruals.
"Consolidated Net Income" of any Person for any period means the Net Income
of such Person and its Consolidated Recourse Subsidiaries for such period,
determined on a consolidated basis in accordance with GAAP; provided, that
there shall be excluded (i) the Net Income of any Person (other than a
Consolidated Recourse Subsidiary) in which such Person or any of its
Consolidated Recourse Subsidiaries has a joint interest with a third party
except to the extent of the amount of dividends or distributions actually paid
to such Person or a Recourse Subsidiary during such period; (ii) except to the
extent includable pursuant to the foregoing clause (i), the Net Income of any
Person accrued prior to the date it becomes a Recourse Subsidiary of such
Person or is merged into or consolidated with such Person or any of its
Recourse Subsidiaries or that Person's assets are acquired by such Person or
any of its Recourse Subsidiaries; (iii) the Net Income (if positive), or any
portion thereof, of any Recourse Subsidiary of such Person to the extent that
the declaration or payment of dividends or similar distributions by that
Recourse Subsidiary to such Person or to any other Recourse Subsidiary of such
Net Income is not at the time permitted by operation of the terms of its
charter or any agreement, instrument, judgment, decree, order, statute, rule
or governmental regulation applicable to that Recourse Subsidiary; (iv)
without duplication, any gains or losses attributable to Asset Sales; (v) Net
Income, arising from the adoption of changes in accounting policy to comply
with GAAP or voluntarily by the Company with the consent of its independent
auditors that so qualify under Regulation S-X of the Securities Act; (vi) Net
Income arising in connection with a merger, combination or consolidation that
is accounted for as a pooling of interests; and (vii) foreign currency
translation gains and losses.
"Consolidated Net Worth" of any Person means as of any date all amounts that
would be included under stockholders' equity on a consolidated balance sheet
of such Person and its Consolidated Recourse Subsidiaries determined in
accordance with GAAP.
"Consolidated Recourse Subsidiary" of any Person means a Recourse Subsidiary
which for financial reporting purposes is or, in accordance with GAAP, should
be, accounted for by such Person as a consolidated Subsidiary.
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any of its Subsidiaries against fluctuations in currency values.
"Custodian" means any receiver, trustee, assignee, liquidator or similar
official under any Bankruptcy Law.
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"Default" means any event which is, or after the giving of notice or passage
of time or both would be, an Event of Default.
"Disqualified Stock" means any Capital Stock which, by its terms (or by the
terms of any security into which it is convertible or for which it is
exchangeable), or upon the happening of any event, matures or is mandatorily
redeemable, pursuant to a sinking fund obligation or otherwise, or redeemable
at the option of the holder thereof, in whole or in part on, or prior to, the
final maturity date of the First Mortgage Notes.
"EBITDA" of any Person for any period means the sum of (a) Consolidated Net
Income of such Person; (b) Consolidated Domestic Income Tax Expense of such
Person; (c) Consolidated Interest Expense of such Person; and (d) depreciation
and amortization expense determined on a consolidated basis for such Person
and its Consolidated Recourse Subsidiaries in accordance with GAAP for such
period; and (e) other non-cash charges; provided, that the amounts set forth
in clauses (b), (c), (d) and (e) will be included only to the extent such
amounts were deducted in computing Consolidated Net Income. Notwithstanding
the foregoing, the amounts set forth in clauses (b), (c), and (d) in respect
of a Recourse Subsidiary of a Person shall be added to Consolidated Net Income
to compute EBITDA of such Person only to the extent (and in the same
proportion) that the net income of such Recourse Subsidiary was included in
calculating the Consolidated Net Income of such Person.
"EBITDA Ratio" means the ratio, on a pro forma basis, of (a) EBITDA of any
Person for the Reference Period immediately prior to the date of the
transaction giving rise to the need to calculate the EBITDA Ratio (the
"Transaction Date") to (b) the Net Interest Expense of such Person during such
Reference Period; provided, that in making such computation, (i) the
incurrence of the Indebtedness giving rise to the need to calculate the EBITDA
Ratio and the application of the proceeds therefrom shall be assumed to have
occurred on the first day of the Reference Period; (ii) Asset Sales and Asset
Acquisitions which occur during the Reference Period or subsequent to the
Reference Period but prior to the Transaction Date (but including any Asset
Acquisition to be made with such Indebtedness) shall be assumed to occur on
the first day of the Reference Period; (iii) the issuance of any Indebtedness
(other than Indebtedness borrowed under a revolving credit or similar
arrangement which Indebtedness is not outstanding on the Transaction Date)
during the Reference Period or subsequent to the Reference Period but prior to
the Transaction Date and the application of the proceeds therefrom shall be
assumed to have occurred on the first day of the Reference Period; (iv) the
Consolidated Interest Expense attributable to interest on any Indebtedness
(whether existing or being incurred but not including Indebtedness borrowed
under a revolving credit or similar arrangement which Indebtedness is not
outstanding on the Transaction Date) computed on a pro forma basis and bearing
a floating interest rate shall be computed as if the rate in effect on the
date of computation had been the applicable rate for the entire period, unless
such Person or any of its Recourse Subsidiaries is a party to an Interest Rate
Agreement which has the effect of reducing the interest rate below the rate on
the date of computation, in which case such lower rate shall be used; (v)
there shall be excluded from Consolidated Interest Expense any Consolidated
Interest Expense related to any Indebtedness which was outstanding during and
subsequent to the Reference Period but is not outstanding on the Transaction
Date, except for Consolidated Interest Expense actually incurred with respect
to Indebtedness borrowed under a revolving credit or similar arrangement to
the extent the commitment thereunder remains in effect on the Transaction Date
and (vi) if the transaction giving rise to the need to calculate the EBITDA
Ratio is an Asset Acquisition, in calculating Consolidated Net Income for the
Reference Period, there shall be deducted from the calculation of expenses all
cost savings resulting from employee terminations, facilities consolidations
and closings, standardization of employee benefits and compensation practices,
consolidation of property, casualty and other insurance coverage and policies,
standardization of sales representation commissions and other contract rates,
and reductions in taxes other than income taxes (collectively, "Cost Savings
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Measures"), which cost savings the Company reasonably believes in good faith
(i) would have been achieved during the Reference Period as a result of such
Asset Acquisition, (ii) are directly attributable to such Asset Acquisition
and (iii) will have a recurring impact on the Company (regardless of whether
such cost savings could then be reflected in pro forma financial statements
under GAAP, Regulation S-X promulgated by the Commission or any other
regulation or policy of the Commission); provided, that both (A) such cost
savings and Cost Savings Measures were identified and such cost savings were
quantified in an officer's certificate delivered to the Trustee at the time of
the consummation of the Asset Acquisition, (B) with respect to each Asset
Acquisition completed prior to the 90th day preceding such date of
determination, actions were commenced or initiated by the Company within 90
days of such Asset Acquisition to effect the Cost Savings Measures identified
in such officer's certificate (regardless, however, of whether the
corresponding cost savings were ultimately achieved). For the purposes of
making the computation referred to in the preceding sentence, Asset Sales and
Asset Acquisitions which have been made by any Person which has become a
Recourse Subsidiary of the Company or been merged with or into the Company or
any Recourse Subsidiary of the Company during the Reference Period or
subsequent to the Reference Period and prior to the Transaction Date shall be
calculated on a pro forma basis (including all of the calculations referred to
in numbers (i) through (vi) of the preceding sentence) assuming such Asset
Sales or Asset Acquisitions occurred on the first day of the Reference Period.
"Fixtures and Equipment" means fixtures, machinery, tools, equipment
(including certain operating equipment classified as inventory on the
Company's books and records), and similar personal property.
"GAAP" means generally accepted accounting principles in the United States
as in effect from time to time, including, without limitation, those set forth
in the opinions and pronouncements of the Accounting Principles Board of the
American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board or in such other
statements by such other entity as may be approved by a significant segment of
the accounting profession of the United States, which are applicable as of the
date of determination.
"Guarantee" means, as applied to any Indebtedness, (a) a guarantee (other
than by endorsement of negotiable instruments for collection in the ordinary
course of business), direct or indirect, in any manner, of any part or all of
such Indebtedness, and (b) an agreement, direct or indirect, contingent or
otherwise, the practical effect of which is to assure the payment or
performance (or payment of damages in the event of nonperformance) of any part
or all of such Indebtedness, including, without limiting the foregoing, the
payment of amounts drawn under letters of credit. The amount of any Guarantee
shall be deemed to be an amount equal to the stated or determinable amount of
the primary obligation in respect of which such Guarantee is made (unless such
Guarantee shall be expressly limited to a lesser amount, in which case such
lesser amount shall apply) or, if not stated or determinable, the maximum
reasonably anticipated liability in respect thereof as determined by such
Person in good faith.
"Holder" means the registered holders of the First Mortgage Notes.
"Indebtedness" of any Person means at any date, without duplication, (a) all
obligations of such Person for borrowed money or evidenced by bonds,
debentures, notes or other similar instruments; (b) all obligations of such
Person in respect of letters of credit or other similar instruments (or
reimbursement obligations with respect thereto); (c) all obligations of such
Person to pay the deferred purchase price of property or services, except
Trade Payables; (d) all Capitalized Lease Obligations of such Person, (e) all
Indebtedness of others secured by a Lien on any asset of such Person, whether
or not such Indebtedness is assumed by such Person, provided, that, for
purposes of determining the amount of any Indebtedness of the type described
in this clause, if recourse with respect to such Indebtedness is limited to
such asset, the amount of such Indebtedness shall be limited to the fair
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market value of the asset; (f) to the extent not otherwise included, all
obligations under Interest Rate Agreements and Currency Agreements; (g) all
Guarantees of such Person in respect of Indebtedness of others; and (h) all
Disqualified Stock issued by such Person and all Preferred Stock issued by the
Recourse Subsidiaries of such Person (the amount of Indebtedness represented
by any Disqualified Stock or Preferred Stock will be the greater of the
voluntary or involuntary liquidation preference thereof).
"Integral Fixtures and Equipment" means all Fixtures and Equipment now or
hereafter located at the Mortgaged Facility other than (i) all vehicles and
mobile equipment subject to certificate of title laws, in each instance with a
fair market value of $100,000 or less and (ii) any Fixtures and Equipment
acquired (whether such acquisition is denominated as a purchase, a Capitalized
Lease or otherwise) by the Company or a Recourse Subsidiary after the Issue
Date and whose (x) acquisition adds supplemental production, handling or
performance capacity to the Mortgaged Facility rather than merely replacing
Fixtures and Equipment forming part of the Mortgaged Facility as in existence
immediately prior to the acquisition in question and (y) subsequent removal
from service will have no material adverse impact on the operations in the
ordinary course of business of the Mortgaged Facility as in existence
immediately prior to the acquisition in question, in each instance under
clauses (x) or (y), as conclusively established by a Board Resolution.
"Interest Rate Agreement" means any interest rate protection agreement,
interest rate future, interest rate option, interest rate swap, interest rate
cap or other interest rate hedge agreement, to or under which the Company or
any of its Subsidiaries is a party or a beneficiary on the date of the
Indenture or becomes a party or a beneficiary thereafter.
"Investment" of any Person means all investments in other Persons in the
form of loans, advances or capital contributions of cash or other assets
(excluding commission, travel and similar advances to officers and employees
made in the ordinary course of business), and purchases (or other acquisitions
for consideration) or guarantees of Indebtedness, Capital Stock or other
securities issued by any other Person.
"Issue Date" means May 22, 1998.
"Joint Venture" means a joint venture, partnership or other similar
arrangement, whether in corporate, partnership or other legal form; provided,
that as to any such arrangement in corporate form, such corporation shall not,
as to any Person of which such corporation is a Subsidiary, be considered to
be a Joint Venture to which such Person is a party.
"Lenders" means the lenders who are from time to time parties to the New
Credit Facility.
"Lien" means, with respect to any property, any mortgage, lien, pledge,
charge, security interest or encumbrance of any kind in respect of such
property. For the purposes of the Indenture and the Security Documents, the
Company and its Subsidiaries shall be deemed to own subject to a Lien any
property which they have acquired or hold subject to the interest of a vendor
or lessor under any conditional sales agreement, capital lease or other title
retention agreement relating to such property.
"Majority-Owned Non-Recourse Subsidiary" means a Majority-Owned Subsidiary
that is a Non-Recourse Subsidiary.
"Majority-Owned Subsidiary" means, with respect to any Person, a Subsidiary
of which more than 50% of the Capital Stock (other than any director's
qualifying stock), or in the case of a non-corporate Subsidiary, other equity
interests having ordinary voting power for the election of directors
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or other governing body of such Subsidiary, is owned by such Person or another
Majority-Owned Subsidiary of such Person.
"Meyers" means Howard M. Meyers, an individual with a business address on
the Issue Date at 2777 Stemmons Freeway, Dallas, Texas.
"Net Cash Proceeds" from a sale, transfer or other disposition (other than
from the granting of a Permitted Lien thereon) of properties or assets means
cash payments received (including any cash payments received by way of
deferred payment of principal pursuant to a note or installment receivable or
otherwise, but only as and when received (including any cash received upon
sale or disposition of such note or receivable), excluding any other
consideration received in the form of assumption by the acquiring Person of
Indebtedness or other obligations relating to such properties or assets or
received in any other non-cash form) therefrom, in each case, net of all
legal, title and recording tax expenses, commissions and other fees and
expenses incurred, and all Federal, state, provincial, foreign and local taxes
required to be accrued as a liability under GAAP as a consequence of such
sale, transfer or other disposition, and in each case net of appropriate
amounts to be provided by the Company or its Recourse Subsidiaries as a
reserve, in accordance with GAAP, against any liabilities associated with such
assets and retained by the Company or any Recourse Subsidiary after such sale,
transfer or other disposition, including, without limitation, pension and
other post-employment benefit liabilities and liabilities related to
environmental matters and the after-tax cost of any indemnification payments
(fixed and contingent) attributable to seller's indemnities to the purchaser
undertaken by the Company or any of its Recourse Subsidiaries in connection
with such sale, transfer or other disposition (but excluding any payments,
which by the terms of the indemnities will not, under any circumstances, be
made during the term of the First Mortgage Notes) and net of all payments made
on any Indebtedness which is secured by such assets, in accordance with the
terms of any Lien upon or with respect to such assets or which must by its
terms, or in order to obtain a necessary consent to such asset disposition, or
by applicable law be repaid out of the proceeds from such sale, transfer or
other disposition, and net of all distributions and other payments made to
minority interest holders in Subsidiaries or Joint Ventures as a result of
such sale, transfer or other disposition.
"Net Income" of any Person for any period means the net income (loss) of
such Person for such period, determined in accordance with GAAP, except that
(i) extraordinary items, (ii) unusual and non-recurring gains and losses and
(iii) unusual and non-recurring expenses, in the case of clauses (i), (ii) and
(iii) as determined in accordance with GAAP, shall be excluded; provided, that
non-recurring expenses shall not be excluded if the event or circumstances
giving rise to such expenses is continuing or exist on the last day of the
period for which Net Income is calculated.
"Net Insurance Proceeds" means all proceeds paid to the Collateral Agent or
any mortgagee or beneficiary under the Security Documents relating to damage
to, or loss or destruction of, improvements on equipment constituting
Collateral, together with interest earned thereon, less certain expenses.
"Net Interest Expense" means the difference between Consolidated Interest
Expense and Consolidated Interest Income; provided, that such amount shall not
be less than zero.
"New Credit Facility" means the Credit Agreement, dated as of May 22, 1998,
among the Company, the Lenders named therein, or any renewal, replacement,
refinancing or continuation thereof as each of the foregoing may be amended,
supplemented or otherwise modified from time to time.
"Non-Recourse Indebtedness" means Indebtedness of a Non-Recourse Subsidiary
where (a) neither the Company nor any Recourse Subsidiary: (i) provides any
Guarantee or credit support for
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such Indebtedness (including any undertaking, guaranty, indemnity, agreement
or instrument which would constitute Indebtedness); or (ii) is directly or
indirectly liable for such Indebtedness; and (b) no default with respect to
such Indebtedness (including any rights which the holder thereof may have to
take enforcement action against such Non-Recourse Subsidiary) would permit
(upon notice, lapse of time or both) any holder or holders of other
Indebtedness of the Company or any Recourse Subsidiary (excluding Indebtedness
in an aggregate principal amount not to exceed $5 million at any time) to
declare a default on such other Indebtedness or cause the payment thereof to
be accelerated or payable prior to its stated maturity.
"Non-Recourse Subsidiary" means a special purpose Subsidiary of the Company
or any of its Subsidiaries formed to acquire securities or assets of a third
party and which, in any case, (i) has no Indebtedness other than Non-Recourse
Indebtedness and (ii) does not, directly or indirectly, own any Indebtedness,
stock or securities of, and has no Investment in, the Company or any Recourse
Subsidiary.
"Officers' Certificate" means, when used with respect to the Company, a
certificate signed by the Chairman of the Board, the President, a Vice
Chairman of the Board or the Chief Financial Officer of the Company (or any
other officer identified by any of the foregoing officers in an Officers'
Certificate to be an executive officer of the Company) and the Secretary, an
Assistant Secretary or the Controller of the Company.
"Opinion of Counsel" means an opinion in writing signed by legal counsel,
who may be an employee of or of counsel to the Company, or who may be other
counsel satisfactory to the Trustee.
"Permitted Easements" means all rights-of-way, easements, rights of use or
similar rights (generally designated under Louisiana law as "servitudes")
granted by the Company over the Mortgaged Facility for the purpose of
constructing and operating a Released Property Facility which, in the
aggregate, do not materially (i) diminish the value of the Mortgaged Facility
or (ii) interfere with the ordinary conduct of the business of the Company and
its Recourse Subsidiaries, in each instance under clauses (i) or (ii), as
conclusively established by a Board Resolution.
"Permitted Investment" means (i) advances and loans to, and Investments in,
any Recourse Subsidiary by the Company and advances or loans to, and
Investments in, the Company or any Recourse Subsidiary of the Company by any
Subsidiary; (ii) cash and Cash Equivalents held by the Company and its
Recourse Subsidiaries; (iii) advances and loans by the Company and its
Recourse Subsidiaries to officers and employees in the ordinary course of
business not to exceed $100,000 in the aggregate at any one time outstanding;
(iv) advances or loans by the Company in connection with Currency Agreements
provided such agreements are made in the ordinary course of business; (v)
advances or loans by the Company in connection with Interest Rate Agreements
provided such agreements are made in the ordinary course of business; (vi)
Investments by the Company and its Recourse Subsidiaries in exchange for
assets sold or otherwise disposed of in accordance with the provisions
described under "--Restrictions on Asset Sales"; (vii) Investments by the
Company and its Recourse Subsidiaries in the form of advances, extensions of
credit, progress payments and prepayments for assets purchased by it in the
ordinary course of business; (viii) accounts receivable arising and trade
credit granted in the ordinary course of business and any securities received
in satisfaction or partial satisfaction thereof from financially troubled
account debtors to the extent reasonably necessary in order to prevent or
limit loss; (ix) any Investment by the Company or any Recourse Subsidiary of
the Company in a Person that is engaged in a similar business if as a result
of such Investment (a) such Person becomes a Recourse Subsidiary or (b) such
Person, in one transaction or a series of concurrent related transactions, is
merged, consolidated or amalgamated with or into, or transfers or conveys
substantially all of its assets to, or is liquidated into, the Company or a
Recourse Subsidiary; (x) any Investment acquired by the Company or any of its
Subsidiaries (a)
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in exchange for any other Investment or accounts receivable held by the
Company or any such Subsidiary in connection with or as a result of a
bankruptcy, workout, reorganization or recapitalization of the issuer of such
other Investment or accounts receivable or (b) as a result of a foreclosure by
the Company or any of its Subsidiaries with respect to any secured Investment
or other transfer of title with respect to any secured Investment in default;
(xi) Investments the payment for which consists of Capital Stock of the
Company (other than Disqualified Stock); and (xii) other Investments not to
exceed $15 million in the aggregate.
"Permitted Liens" means (i) Liens in favor of the Collateral Agent or the
Holders, including Liens created by the First Mortgage Notes, the Indenture
and the Security Documents; (ii) Liens on the Lender Secured Property to
secure the New Credit Facility and Liens on the Tulsa and Chicago stocking
locations; (iii) Liens on the property of the Company or any of its Recourse
Subsidiaries created solely for the purpose of securing purchase money
obligations; provided, that (a) such property so acquired is for use in the
Company's business and (b) no such Lien shall extend to or cover other
property or assets of the Company and its Recourse Subsidiaries other than the
respective property or assets so acquired and the principal amount of
Indebtedness secured by any such Lien shall at no time exceed the original
purchase price of such property or assets; (iv) Liens on the assets of any
entity existing at the time such entity or assets are acquired by the Company
or any of its Recourse Subsidiaries, whether by merger, consolidation,
purchase of assets or otherwise; provided, however, that such Liens (a) are
not created, incurred or assumed in connection with, or in contemplation of,
such assets being acquired by the Company or any of its Recourse Subsidiaries
and (b) do not extend to any other property of the Company or any of its
Recourse Subsidiaries; (v) Liens in existence on the date of the Indenture;
(vi) Liens securing Private Activity Bonds, as such term is defined in the
Code; provided, that any Lien permitted by this clause (vi) shall not extend
to any other property of the Company or any of its Subsidiaries; (vii) Liens
for taxes, assessments, governmental charges or claims which are not yet
delinquent or which are being contested in good faith by appropriate
proceedings, if a reserve or other appropriate provision, if any, as shall be
required in conformity with GAAP shall have been made therefor; (viii) other
Liens incidental to the conduct of the Company's and its Recourse
Subsidiaries' business or the ownership of its property and assets not
securing any Indebtedness, and which do not in the aggregate materially
detract from the value of the Company's and its Recourse Subsidiaries'
property or assets when taken as a whole, or materially impair the use thereof
in the operation of its business (including, without limitation, Liens
securing any obligation to landlords, vendors, carriers, warehousemen,
mechanics, laborers and materialman and other similar obligations arising by
operation of law not yet delinquent or which are being contested in good faith
by appropriate proceedings, if a reserve or other appropriate provision, if
any, as shall be required in conformity with GAAP shall have been made
therefor); (ix) Liens with respect to assets of a Recourse Subsidiary granted
by such Recourse Subsidiary to the Company to secure Indebtedness owing to the
Company; (x) Liens on assets owned by Non-Recourse Subsidiaries to secure Non-
Recourse Indebtedness; (xi) Liens on assets not constituting Collateral to
secure senior Indebtedness; (xii) pledges and deposits made in the ordinary
course of business in connection with workers' compensation, unemployment
insurance and other types of social security; (xiii) deposits made to secure
the performance of tenders, bids, leases, statutory obligations, surety and
appeal bonds, government contracts, performance and return-of-money bonds and
other obligations of a like nature incurred in the ordinary course of business
(exclusive of obligations for the payment of borrowed money); (xiv) zoning
restrictions, servitudes, easements, rights-of-way, mineral reservations,
building and subdivision restrictions, levee, road and other riparian
landowner obligations and other similar charges or encumbrances incurred in
the ordinary course of business which, in the aggregate, are not substantial
in amount and which do not in any case materially detract from the value of
the property subject thereto or interfere with the ordinary conduct of the
business of the Company or its Recourse Subsidiaries; (xv) Permitted
Easements; (xvi) Liens arising out of judgments or awards against the Company
or any Recourse Subsidiary with respect to which the Company or such Recourse
Subsidiary is prosecuting an appeal or proceeding for review and the
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Company or such Recourse Subsidiary is maintaining adequate reserves in
accordance with GAAP; (xvii) any interest or title of a lessor in the property
subject to any Capitalized Lease Obligation or operating lease; (xviii) Liens
on assets transferred to an Asset Backed Entity or on assets of an Asset
Backed Entity incurred in connection with a Qualified Asset Backed
Transaction; (xix) other Liens on assets with an aggregate book value not in
excess of 7 1/2% of the book value of the Company's total assets as shown on
the Company's most recent consolidated balance sheet; (xx) obligations under
Interest Rate Agreements and Currency Agreements entered into in the ordinary
course of business; (xxi) Liens by a depositary or financial institution on
funds deposited with such institution arising in the ordinary course of
business under standard account agreements or by operation of law; and (xxii)
any extension, renewal or replacement (or successive extensions, renewals or
replacements), in whole or in part, of any Lien referred to in the foregoing
clauses; provided, that the principal amount of Indebtedness secured thereby
shall not exceed the principal amount of Indebtedness so secured immediately
prior to the time of such extension, renewal or replacement, and that such
extension, renewal, or replacement Lien shall be limited to all or a part of
the property which secured the Lien so extended, renewed or replaced (plus
improvements on such property).
"Permitted Payments" means, with respect to the Company or any of its
Recourse Subsidiaries, (a) any dividend on shares of Capital Stock payable
solely in shares of Capital Stock (other than Disqualified Stock) or in
options, warrants or other rights to purchase Capital Stock (other than
Disqualified Stock); (b) any dividend, other distribution, loan or advance to
the Company by any of its Subsidiaries or by a Subsidiary to a Recourse
Subsidiary and any dividends payable by a Recourse Subsidiary on its Common
Stock; (c) any defeasance, redemption, repurchase or other acquisition for
value of any Indebtedness of the Company with the proceeds from the issuance
of (i) Indebtedness which is subordinate to the First Mortgage Notes at least
to the extent and in the manner as the Indebtedness to be defeased, redeemed,
repurchased or otherwise acquired is subordinate to the First Mortgage Notes;
provided, however, that (1) such newly-issued subordinated Indebtedness
provides for no payments of principal by way of sinking fund, mandatory
redemption, defeasance or otherwise by the Company or its Recourse
Subsidiaries (including, without limitation, at the option of the holder
thereof other than an option given to a holder pursuant to a "Change of
Control" covenant which (x) is no more favorable to the holders of such
Indebtedness than the provisions in favor of the Holders and (y) such
Indebtedness provides that the Company or its Recourse Subsidiaries will not
repurchase such Indebtedness pursuant to such provisions prior to the
Company's repurchase of the First Mortgage Notes required to be repurchased by
the Company upon a Change of Control) prior to the maturity of the
Indebtedness being replaced and (2) the proceeds of such new Indebtedness are
utilized for such purpose within 45 days of issuance or (ii) Capital Stock
(other than Disqualified Stock); and (d) the redemption or repurchase by a
Wholly-Owned Recourse Subsidiary of its Capital Stock owned by the Company or
another Wholly-Owned Recourse Subsidiary.
"Permitted Related Acquisition" means acquisitions of property and assets
used in lines of business related to the Company's or one of its Recourse
Subsidiaries' business at such time.
"Person" means any individual, corporation, partnership, joint venture,
association, joint-stock company, trust, unincorporated organization or
government or any agency or political subdivision thereof.
"Preferred Stock" means, with respect to any Person, any and all shares,
interests, participations or other equivalents (however designated) of such
Person's preferred or preference stock whether now outstanding or issued after
the Issue Date, and includes, without limitation, all classes and series of
preferred or preference stock.
"Qualified Asset Backed Transaction" means any transaction or series of
transactions that may be entered into by the Company or any of its
Subsidiaries pursuant to which the Company or any of its Subsidiaries may
sell, convey or otherwise transfer to (a) an Asset Backed Entity (in the case
of a
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transfer by the Company or any of its Subsidiaries) and (b) any other Person
(in the case of a transfer by an Asset Backed Entity), or may grant a security
interest in, inventory, any accounts receivable (whether now existing or
arising in the future) of the Company or any of its Subsidiaries, and any
assets related thereto, including, without limitation, all collateral securing
such accounts receivable, all contracts and all guarantees or other
obligations in respect of such accounts receivable, proceeds of such accounts
receivable and other assets which are customarily transferred or in respect of
which security interests are customarily granted in connection with asset
securitization transactions involving inventory or accounts receivable.
"Receivables Fees" means distributions or payments made directly or by means
of discounts with respect to any participation interest issued or sold in
connection with, and other fees paid to a Person that is not a Recourse
Subsidiary in connection with, any Qualified Asset Backed Transaction.
"Recourse Subsidiary" means any Subsidiary other than a Non-Recourse
Subsidiary.
"Reference Period" means the four fiscal quarters for which financial
information is available preceding the date of a transaction giving rise to
the need to make a financial calculation.
"Released Property" means up to 36 acres of undeveloped land comprising part
of the Mortgaged Facility, which shall be selected by the Company in one or
more parcels from the up to 80 acres of undeveloped land designated as land
subject to being released from the Mortgage on that certain survey by Lucien
Gassen, P.L.S., attached as Exhibit G to the Indenture, from and after the
time such land is released from the Lien of the Indenture and the Security
Documents as provided under "--Possession, Use and Release of Collateral."
"Restricted Investment" means any Investment in any Person other than a
Recourse Subsidiary of the Company.
"Restricted Payment" means, with respect to any Person, (a) any dividend or
other distribution on any shares of such Person's Capital Stock (other than
dividends or distributions payable in Capital Stock that is not Disqualified
Stock); (b) any payment on account of the purchase, redemption, retirement or
other acquisition of (i) any shares of such Person's Capital Stock or (ii) any
option, warrant or other right to acquire shares of such Person's Capital
Stock; (c) any defeasance, redemption, repurchase or other acquisition or
retirement of value prior to scheduled maturity, scheduled repayment or
scheduled sinking fund payment of any Indebtedness ranked subordinate in right
of payment to the First Mortgage Notes (other than in connection with the
refunding or refinancing of such Indebtedness); and (d) any Restricted
Investment; provided, however, that "Restricted Payments" shall not include
any payment or investment described in (a), (b), (c) or (d) above made by a
Subsidiary to the Company or to a Recourse Subsidiary of the Company.
"Sale and Leaseback Transaction" means, with respect to any Person, an
arrangement with any bank, insurance company or other lender or investor or to
which such lender or investor is a party, providing for the leasing by such
Person or any of its Recourse Subsidiaries of any property or asset of such
Person or any of its Recourse Subsidiaries which has been or is being sold or
transferred by such Person or such Recourse Subsidiary to such lender or
investor or to any person to whom funds have been or are to be advanced by
such lender or investor on the security of such property or asset.
"Security Documents" means, collectively, (i) the Mortgages, (ii) the
Security Agreement, (iii) the Subsidiary Guarantee and (iv) the Collateral
Agency and Intercreditor Agreement.
"Standard Securitization Undertakings" means representations, warranties,
covenants and indemnities entered into by the Company or any Subsidiary of the
Company which are reasonably customary in an accounts receivable and inventory
securitization transactions.
"Subsidiary" means, with respect to any Person, any corporation or other
entity of which 50% or more of the Capital Stock or other ownership interests
having ordinary voting power to elect a
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majority of the board of directors or other persons performing similar
functions are at the time directly or indirectly owned by such Person.
"Trade Payables" means accounts payable or any other indebtedness or
monetary obligations to trade creditors created or assumed by the Company or
its Subsidiaries in the ordinary course of business in connection with the
obtaining of materials or services.
"Trust Moneys" means all cash or Cash Equivalents received by the Collateral
Agent (a) as Net Cash Proceeds received by the Company and its Recourse
Subsidiaries from Asset Sales to be subject to the Lien of the Security
Documents in accordance with "--Restrictions on Asset Sales"; (b) as
Condemnation Awards with respect to all or any part of the Collateral; (c) as
Net Insurance Proceeds with respect to all or any part of the Collateral; (d)
as proceeds from the issuance of Securities to the extent provided under
"--Limitations on Indebtedness"; or (e) as proceeds of any other sale or other
disposition of all or any part of the Collateral by or on behalf of the
Collateral Agent or any collection, recovery, receipt, appropriation or other
realization of or from all or any part of the Collateral pursuant to the
Security Documents or otherwise.
"U.S. Government Obligations" means securities that are (x) direct
obligations of the United States of America for the payment of which its full
faith and credit is pledged or (y) obligations of a Person controlled or
supervised by and acting as an agency or instrumentality of the United States
of America, the payment of which is unconditionally guaranteed as a full faith
and credit obligation by the United States of America, which, in either case,
are not callable or redeemable at the option of the issuer thereof, and shall
also include a depository receipt issued by a bank (as defined in Section
3(a)(2) of the Securities Act) as custodian with respect to any such U.S.
Government Obligation or a specific payment of principal of or interest on any
such U.S. Government Obligation held by such custodian for the account of the
holder of such depository receipt; provided, that (except as required by law)
such custodian is not authorized to make any deduction from the amount payable
to the holder of such depository receipt from any amount received by the
custodian in respect of the U.S. Government Obligation or the specific payment
of principal of or interest on the U.S. Government Obligation evidenced by
such depository receipt.
"Wholly-Owned Non-Recourse Subsidiary" means a Wholly-Owned Subsidiary that
is a Non-Recourse Subsidiary.
"Wholly-Owned Recourse Subsidiary" means a Wholly-Owned Subsidiary that is a
Recourse Subsidiary.
"Wholly-Owned Subsidiary" means, with respect to any Person, a Subsidiary of
which at least 95% of the Capital Stock (other than any director's qualifying
stock), or in the case of a non-corporate Subsidiary, other equity interests
having ordinary voting power for the election of directors or other governing
body of such Subsidiary, is owned by such Person or another Wholly-Owned
Subsidiary of such Person.
103
<PAGE>
EXCHANGE AND REGISTRATION RIGHTS AGREEMENT
Pursuant to the Exchange and Registration Rights Agreement, the Company
agreed to (i) file the Exchange Offer Registration Statement, of which this
Prospectus forms a part, with the Commission on or prior to 60 days after the
Issue Date and (ii) use its reasonable best efforts to cause the Exchange
Offer Registration Statement to be declared effective under the Securities Act
within 150 days after the Issue Date. As soon as practicable after the
effectiveness of the Exchange Offer Registration Statement, the Company will
offer to the holders of Transfer Restricted Securities (as defined below) who
are not prohibited by any law or policy of the Commission from participating
in the Exchange Offer the opportunity to exchange their Transfer Restricted
Securities for Exchange Notes, which are identical in all material respects to
the Old First Mortgage Notes (except that the Exchange Notes will not contain
terms with respect to transfer restrictions) and which are registered under
the Securities Act. The Company will keep the Exchange Offer open for not less
than 30 days (or longer, if required by applicable law) after the date on
which notice of the Exchange Offer is mailed to the holders of the Old First
Mortgage Notes.
If (i) because of any change in law or applicable interpretations thereof by
the staff of the Commission, the Company is not permitted to effect the
Exchange Offer as contemplated by the Exchange and Registration Rights
Agreement, (ii) any Transfer Restricted Securities validly tendered pursuant
to the Exchange Offer are not exchanged for Exchange Notes within 180 days
after the Issue Date, (iii) any Initial Purchaser so requests with respect to
Old First Mortgage Notes not eligible to be exchanged for Exchange Notes in
the Exchange Offer, (iv) any applicable law or interpretations do not permit
any holder of Old First Mortgage Notes to participate in the Exchange Offer,
(v) any holder of Old First Mortgage Notes that participates in the Exchange
Offer does not receive freely transferable Exchange Notes in exchange for
tendered Old First Mortgage Notes, or (vi) the Company so elects, then the
Company will file with the Commission a shelf registration statement (the
"Shelf Registration Statement") to cover resales of Transfer Restricted
Securities by such holders who satisfy certain conditions relating to the
provision of information in connection with the Shelf Registration Statement.
For purposes of the foregoing, "Transfer Restricted Securities" means each Old
First Mortgage Note until (i) the date on which such Old First Mortgage Note
has been exchanged for a freely transferable Exchange Note in the Exchange
Offer; (ii) the date on which such Old First Mortgage Note has been
effectively registered under the Securities Act and disposed of in accordance
with the Shelf Registration Statement or (iii) the date on which such Old
First Mortgage Note is distributed to the public pursuant to Rule 144 under
the Securities Act or is salable pursuant to Rule 144(k) under the Securities
Act.
The Company will use its reasonable best efforts to have the Exchange Offer
Registration Statement or, if applicable, the Shelf Registration Statement
(each, a "Registration Statement") declared effective by the Commission as
promptly as practicable after the filing thereof, but in any event prior to
150 days after the Issue Date. Unless the Exchange Offer would not be
permitted by a policy of the Commission, the Company will commence the
Exchange Offer and will use its reasonable best efforts to consummate the
Exchange Offer as promptly as practicable, but in any event prior to 180 days
after the Issue Date. If applicable, the Company will use its reasonable best
efforts to keep the Shelf Registration Statement effective for a period of two
years after the Issue Date.
If (i) the applicable Registration Statement is not filed with the
Commission on or prior to 60 days after the Issue Date; (ii) the Exchange
Offer Registration Statement or the Shelf Registration Statement, as the case
may be, is not declared effective within 150 days after the Issue Date; (iii)
the Exchange Offer is not consummated on or prior to 180 days after the Issue
Date or (iv) the Shelf Registration Statement is filed and declared effective
within 150 days after the Issue Date but shall thereafter cease to be
effective (at any time that the Company is obligated to maintain the
104
<PAGE>
effectiveness thereof) without being succeeded within 45 days by an additional
Registration Statement filed and declared effective (each such event referred
to in clauses (i) through (iv), a "Registration Default"), the Company will be
obligated to pay liquidated damages to each holder of Transfer Restricted
Securities, during the period of one or more such Registration Defaults, in an
amount equal to $0.192 per week per $1,000 principal amount of the First
Mortgage Notes constituting Transfer Restricted Securities held by such holder
until the applicable Registration Statement is filed, the Exchange Offer
Registration Statement is declared effective and the Exchange Offer is
consummated or the Shelf Registration Statement is declared effective or again
becomes effective, as the case may be. All accrued liquidated damages shall be
paid to holders in the same manner as interest payments on the First Mortgage
Notes on semi-annual payment dates which correspond to interest payment dates
for the First Mortgage Notes. Following the cure of all Registration Defaults,
the accrual of liquidated damages will cease.
The Exchange and Registration Rights Agreement also provides that the
Company (i) shall make available for a period of 180 days after the
consummation of the Exchange Offer a prospectus meeting the requirements of
the Securities Act to any broker-dealer for use in connection with any resale
of any such Exchange Notes and (ii) shall pay all expenses incident to the
Exchange Offer and will indemnify certain holders of the Old First Mortgage
Notes (including any broker-dealer) against certain liabilities, including
liabilities under the Securities Act. A broker-dealer which delivers such a
prospectus to purchasers in connection with such resales will be subject to
certain of the civil liability provisions under the Securities Act and will be
bound by the provisions of the Exchange and Registration Rights Agreement
(including certain indemnification rights and obligations).
Each holder of Old First Mortgage Notes who wishes to exchange such Old
First Mortgage Notes for Exchange Notes in the Exchange Offer will be required
to make certain representations, including representations that (i) any
Exchange Notes to be received by it will be acquired in the ordinary course of
its business; (ii) it has no arrangement or understanding with any person to
participate in the distribution of the Exchange Notes and (iii) it is not an
"affiliate" (as defined in Rule 405 under the Securities Act) of the Company,
or if it is an affiliate, that it will comply with the registration and
prospectus delivery requirements of the Securities Act to the extent
applicable.
If the holder is not a broker-dealer, it will be required to represent that
it is not engaged in, and does not intend to engage in, the distribution of
the Exchange Notes. If the holder is a broker-dealer that will receive
Exchange Notes for its own account in exchange for Old First Mortgage Notes
that were acquired as a result of market-making activities or other trading
activities (an "Exchanging Dealer"), it will be required to acknowledge that
it will deliver a prospectus in connection with any resale of such Exchange
Notes.
Holders of the Old First Mortgage Notes will be required to make certain
representations to the Company (as described above) in order to participate in
the Exchange Offer and will be required to deliver information to be used in
connection with the Shelf Registration Statement in order to have their Old
First Mortgage Notes included in the Shelf Registration Statement and benefit
from the provisions regarding liquidated damages set forth in the preceding
paragraphs. A holder who sells Old First Mortgage Notes pursuant to the Shelf
Registration Statement generally will be required to be named as a selling
securityholder in the related prospectus and to deliver a prospectus to
purchasers, will be subject to certain of the civil liability provisions under
the Securities Act in connection with such sales and will be bound by the
provisions of the Exchange and Registration Rights Agreement which are
applicable to such a holder (including certain indemnification obligations).
For so long as the Old First Mortgage Notes are outstanding, the Company
will continue to provide to holders of the Old First Mortgage Notes and to
prospective purchasers of the First Mortgage Notes the information required by
Rule 144A(d)(4) under the Securities Act.
105
<PAGE>
The foregoing description of the Exchange and Registration Rights Agreement
is a summary only, does not purport to be complete and is qualified in its
entirety by reference to all provisions of the Exchange and Registration
Rights Agreement. The Company will provide a copy of the Exchange and
Registration Rights Agreement to prospective purchasers of Old First Mortgage
Notes identified to the Company by an Initial Purchaser upon request.
PLAN OF DISTRIBUTION
Each broker-dealer that receives Exchange Notes for its own account pursuant
to the Exchange Offer must acknowledge that it will deliver a prospectus in
connection with any resale of such Exchange Notes. This Prospectus, as it may
be amended or supplemented from time to time, may be used by a broker-dealer
in connection with resales of Exchange Notes received in exchange for Old
First Mortgage Notes where such Old First Mortgage Notes were acquired as a
result of market-making activities or other trading activities. The Company
has agreed that, for a period of the lesser of 180 days following the
consummation of the Exchange Offer or the date on which all such broker-
dealers have sold all Exchange Notes held by them, it will make this
Prospectus, as amended or supplemented, available to any broker-dealer for use
in connection with any such resale. In addition, until , 1998 (90 days
after the date of this Prospectus), all dealers effecting transactions in the
Exchange Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sales of Exchange Notes
by broker-dealers. Exchange Notes received by broker-dealers for their own
account pursuant to the Exchange Offer may be sold from time to time in one or
more transactions in the over-the-counter market, in negotiated transactions,
through the writing of options on the Exchange Notes or a combination of such
methods of resale, at market prices prevailing at the time of resale, at
prices related to such prevailing market prices or negotiated prices. Any such
resale may be made directly to purchasers or to or through brokers or dealers
who may receive compensation in the form of commissions or concessions from
any such broker-dealer or the purchasers of any such Exchange Notes. Any
broker-dealer that resells Exchange Notes that were received by it for its own
account pursuant to the Exchange Offer and any broker or dealer that
participates in a distribution of such Exchange Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of Exchange Notes and any commissions or concessions received by
any such persons may be deemed to be underwriting compensation under the
Securities Act. The Letter of Transmittal states that, by acknowledging that
it will deliver and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act.
For a period of not less than 90 days after the Expiration Date the Company
will promptly send additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company has agreed to pay all
expenses incident to the Exchange Offer other than commissions or concessions
of any brokers or dealers and will indemnify the holders of the Old First
Mortgage Notes (including any broker-dealers) against certain liabilities,
including liabilities under the Securities Act.
106
<PAGE>
LEGAL MATTERS
The validity of the Exchange Notes will be passed upon for the Company by
Jones, Walker, Waechter, Poitevent, Carrere & Denegre, L.L.P., New Orleans,
Louisiana.
EXPERTS
The consolidated balance sheets of the Company as of September 30, 1996 and
1997 and the related statements of operations, changes in equity and cash
flows for each of the three years in the period ended September 30, 1997
included elsewhere in this Prospectus have been audited by Arthur Andersen
LLP, independent public accountants, as stated in their report with respect
thereto, and are included herein in reliance upon the authority of such firm
as experts in auditing and accounting in giving such reports.
107
<PAGE>
GLOSSARY
billets...................... are long, square or rectangular strands of
steel that minimills cast from molten steel in
a continuous casting process. Billets are an
intermediate product of a type commonly
referred to as semi-finished steel.
continuous casting........... is a method of casting steel into a billet
directly from its molten form, in which steel
from the electric arc furnace is poured into a
tundish (a shallow tub-like vessel) and
carefully flows from the tundish into the
water-cooled copper mold of the caster, where
it solidifies into an extremely hot ribbon of
steel. At the bottom of the caster, torches cut
the continuously flowing solidified steel to
form billets.
conversion cost.............. is the cost of labor, energy, maintenance
material, and supplies used to convert raw
materials into billets and billets into shapes.
electric arc furnace......... is a steel making furnace where scrap or iron
substitutes are the raw materials. Heat is
supplied from electricity that arcs from
graphite electrodes to the metal bath.
merchant bar products........ are commodity steel shapes that consist of
rounds, squares, flats, angles, and channels
that fabricators, steel service centers and
manufacturers cut, bend and shape into
products. (Channels and angles that are less
than three inches in size are classified as
merchant bar products, and channels and angles
that are three inches or greater in size are
classified as structural steel shapes.)
mill stand................... is the structure that houses rolls used to
shape billets by passing the billets through
the rolls and placing pressure on the billets
as they pass.
minimill..................... is a steel production facility that uses an
electric arc furnace to melt steel scrap and/or
iron substitutes to cast the molten steel into
long strands of various shapes in a continuous
casting process, in contrast to an integrated
steel producer, which produces steel from coke
and iron ore through the use of blast furnaces
and basic oxygen furnaces. Although the
definition of what constitutes a minimill has
evolved coincident with the competitive
position of minimills within the steel
industry, two constant factors apply to the
minimill industry: the minimization of costs
and a flexible approach to available
technology.
rebar........................ is used in the construction process to
reinforce concrete and other aggregate and
cementing materials.
rod.......................... is small, round, thin semi-finished steel, less
than one inch in diameter, rolled from a billet
and coiled for further processing. Rod is
commonly drawn into wire products or used to
make bolts and nails.
G-1
<PAGE>
rolling mills................ are a series of mill stands used to shape semi-
finished steel by passing it from stand to
stand.
scrap........................ is a ferrous (iron-containing) material that
generally is remelted and recast into new
steel. Integrated steel mills use scrap for up
to 25% of their basic oxygen furnace charge;
100% of the minimills' raw materials for their
electric furnaces generally is scrap.
shredded scrap............... is fist-sized, homogenous pieces of old
automobile hulks and other light gauge steel
scrap. After cars are sent through a shredder,
the recyclable steel is separated by magnets.
Minimills consume shredded scrap in their
electric arc operations.
structural steel shapes...... are rolled flanged sections that have at least
one dimension of their cross sections three
inches or greater. The category includes beams,
channels, flats and angles.
G-2
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
BAYOU STEEL CORPORATION
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Arthur Andersen LLP............................................. F-2
Consolidated balance sheets as of September 30, 1996 and 1997 and March
31, 1998 (unaudited)..................................................... F-3
Consolidated statements of operations for the years ended September 30,
1995, 1996 and 1997, and the six months ended March 31, 1997 and 1998
(unaudited).............................................................. F-4
Consolidated statements of cash flows for the years ended September 30,
1995, 1996 and 1997, and the six months ended March 31, 1997 and 1998
(unaudited).............................................................. F-5
Consolidated statements of changes in equity for the years ended September
30, 1995, 1996 and 1997.................................................. F-6
Notes to consolidated financial statements................................ F-7
Consolidated financial statement schedules for the years ended September
30, 1995, 1996 and 1997:
Report of Arthur Andersen LLP........................................... F-19
Schedule II--Valuation and Qualifying Accounts.......................... F-20
</TABLE>
F-1
<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 subsidiary as of September 30, 1997
and 1996, and the related consolidated statements of operations, cash flows,
and changes in equity for the years ended September 30, 1997, 1996, and 1995.
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 subsidiary as of September 30, 1997 and 1996 and the results of their
operations and their cash flows for the years ended September 30, 1997, 1996,
and 1995 in conformity with generally accepted accounting principles.
ARTHUR ANDERSEN LLP
New Orleans, Louisiana
November 19, 1997, (except with
respect to Note 18, as to which
the date is July 8, 1998)
F-2
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
SEPTEMBER 30, MARCH 31,
-------------------------- 1998
ASSETS 1996 1997 (UNAUDITED)
------ ------------ ------------ ------------
<S> <C> <C> <C>
CURRENT ASSETS:
Cash and temporary cash
investments....................... $ 748,608 $ 971,477 $ 12,939,097
Receivables, net of allowance for
doubtful accounts of $352,965,
$500,459 and $560,970,
respectively...................... 24,107,566 27,162,056 28,584,415
Inventories........................ 79,856,062 75,022,554 71,600,102
Prepaid expenses................... 292,458 239,161 427,081
------------ ------------ ------------
Total current assets............. 105,004,694 103,395,248 113,550,695
------------ ------------ ------------
PROPERTY, PLANT AND EQUIPMENT:
Land............................... 3,790,398 3,790,399 3,790,399
Machinery and equipment............ 104,683,209 110,028,977 112,071,767
Plant and office building.......... 20,975,997 21,265,577 21,609,802
------------ ------------ ------------
129,449,604 135,084,953 137,471,968
Less-Accumulated depreciation...... (39,115,207) (44,946,654) (47,844,212)
------------ ------------ ------------
Net property, plant and
equipment....................... 90,334,397 90,138,299 89,627,756
------------ ------------ ------------
OTHER ASSETS......................... 3,932,594 2,931,507 3,378,579
------------ ------------ ------------
Total assets..................... $199,271,685 $196,465,054 $206,557,030
============ ============ ============
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
CURRENT LIABILITIES:
Current maturities of long-term
debt.............................. $ 1,601,851 $ 3,040,257 $ 3,010,359
Borrowings under line of credit.... 3,000,000 -- --
Accounts payable................... 24,281,494 23,749,765 26,263,478
Accrued liabilities................ 3,856,341 4,574,144 5,455,611
Accrued dividends on redeemable
preferred stock................... 2,175,000 -- --
------------ ------------ ------------
Total current liabilities........ 34,914,686 31,364,166 34,729,448
------------ ------------ ------------
LONG-TERM DEBT....................... 83,540,331 80,500,073 79,000,000
------------ ------------ ------------
COMMITMENTS AND CONTINGENCIES
REDEEMABLE PREFERRED STOCK........... 10,489,091 13,089,010 13,301,469
------------ ------------ ------------
COMMON STOCKHOLDERS' EQUITY:
Common stock, $.01 par value:
Class A: 24,271,172 authorized
and 10,613,380 outstanding
shares.......................... 106,134 106,134 106,134
Class B: 4,302,347 authorized and
2,271,127 outstanding shares.... 22,711 22,711 22,711
Class C: 100 authorized and
outstanding shares.............. 1 1 1
------------ ------------ ------------
Total common stock............... 128,846 128,846 128,846
Paid-in capital.................... 47,769,034 47,769,034 47,769,034
Retained earnings.................. 22,429,697 23,613,925 31,628,233
------------ ------------ ------------
Total common stockholders'
equity.......................... 70,327,577 71,511,805 79,526,113
------------ ------------ ------------
Total liabilities and common
stockholders'equity............. $199,271,685 $196,465,054 $206,557,030
============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-3
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEAR ENDED SEPTEMBER 30, (UNAUDITED)
---------------------------------------- --------------------------
1995 1996 1997 1997 1998
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
NET SALES............... $185,772,280 $204,425,858 $232,161,116 $112,517,624 $132,183,347
COST OF SALES........... 162,158,316 188,453,259 209,930,423 104,552,946 115,616,100
------------ ------------ ------------ ------------ ------------
GROSS PROFIT............ 23,613,964 15,972,599 22,230,693 7,964,678 16,567,247
------------ ------------ ------------ ------------ ------------
SELLING, GENERAL AND
ADMINISTRATIVE......... 5,312,402 6,272,624 6,310,688 3,300,924 3,116,094
NON-PRODUCTION STRIKE
AND CORPORATE CAMPAIGN
EXPENSES............... 999,938 1,768,197 3,323,385 1,247,120 116,952
------------ ------------ ------------ ------------ ------------
17,301,624 7,931,778 12,596,620 3,416,634 13,334,201
------------ ------------ ------------ ------------ ------------
OTHER INCOME (EXPENSE):
Interest expense........ (7,821,244) (8,634,510) (8,961,587) (4,516,955) (4,133,076)
Interest income......... 542,909 146,825 12,193 2,637 178,525
Miscellaneous........... 431,655 870,507 186,716 97,122 136,616
------------ ------------ ------------ ------------ ------------
(6,846,680) (7,617,178) (8,762,678) (4,417,196) (3,817,935)
------------ ------------ ------------ ------------ ------------
INCOME BEFORE TAXES..... 10,454,944 314,600 3,833,942 (1,000,562) 9,516,266
PROVISION FOR INCOME
TAXES.................. 118,155 ---- 49,795 ---- 197,530
------------ ------------ ------------ ------------ ------------
NET INCOME.............. 10,336,789 314,600 3,784,147 (1,000,562) 9,318,736
DIVIDENDS ACCRUED AND
ACCRETION ON PREFERRED
STOCK.................. (733,902) (2,592,418) (2,599,919) (1,299,959) (1,304,428)
------------ ------------ ------------ ------------ ------------
INCOME (LOSS) APPLICABLE
TO COMMON AND COMMON
EQUIVALENT SHARES...... $ 9,602,887 $ (2,277,818) $ 1,184,228 $ (2,300,521) $ 8,014,308
============ ============ ============ ============ ============
WEIGHTED AVERAGE COMMON
AND COMMON EQUIVALENT
SHARES OUTSTANDING:
Basic................. 12,884,607 12,884,607 12,884,607 12,884,607 12,884,607
Diluted............... 13,113,058 13,707,029 13,707,029 13,707,029 13,731,917
INCOME (LOSS) PER COMMON
AND COMMON EQUIVALENT
SHARE:
Basic income (loss)
per share............ $ .75 $ (.18) $ .09 $ (.18) $ .62
============ ============ ============ ============ ============
Diluted income (loss)
per share............ $ .73 $ (.18) $ .09 $ (.18) $ .58
============ ============ ============ ============ ============
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-4
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
SIX MONTHS ENDED
MARCH 31,
YEAR ENDED SEPTEMBER 30, (UNAUDITED)
--------------------------------------- ------------------------
1995 1996 1997 1997 1998
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM
OPERATING ACTIVITIES:
Income................. $ 10,336,789 $ 314,600 $ 3,784,147 $(1,000,562) $ 9,318,736
Depreciation........... 5,148,300 6,094,870 5,953,714 2,849,406 2,897,558
Amortization........... 893,185 1,163,952 1,005,686 574,456 429,864
Provision for
(reduction in) losses
on accounts
receivable............ (53,204) (186,039) 143,393 114,928 54,129
Changes in working
capital:
(Increase) in
receivables.......... (2,711,736) (2,000,180) (3,197,883) (2,515,372) (1,476,488)
Decrease (increase) in
inventories.......... (10,549,191) (12,161,321) 4,833,508 3,996,895 3,422,452
Decrease (increase) in
prepaid expenses..... (68,953) (35,053) 53,297 (553,472) (187,920)
(Decrease) increase in
accounts payable..... 5,648,479 2,093,010 (531,729) (6,712,925) 2,513,713
(Decrease) increase in
accrued liabilities.. 348,236 180,625 717,803 (495,356) 881,467
------------ ------------ ----------- ----------- -----------
Net cash provided by
(used in) operations. 8,991,905 (4,535,536) 12,761,936 (3,742,002) 17,853,511
------------ ------------ ----------- ----------- -----------
CASH FLOWS FROM
INVESTING ACTIVITIES:
Acquisition of
Tennessee Facility--
net of current assets. (17,056,000) -- -- -- --
Purchases of property,
plant and equipment... (12,469,603) (4,989,761) (5,997,630) (2,080,991) (2,387,015)
Proceeds from the sale
of property, plant and
equipment............. -- 210,541 240,013 -- --
------------ ------------ ----------- ----------- -----------
Net cash used by
investing activities.. (29,525,603) (4,779,220) (5,757,617) (2,080,991) (2,387,015)
------------ ------------ ----------- ----------- -----------
CASH FLOWS FROM
FINANCING ACTIVITIES:
Net (payments)
borrowings under line
of credit............. -- 3,000,000 (3,000,000) 7,800,000 --
Payments of long-term
debt.................. (325,008) (608,966) (1,601,851) (66,492) (1,529,971)
Increase in other
assets................ (2,523,043) (65,585) (4,599) (4,599) (876,936)
Proceeds from issuance
of long-term debt..... 10,000,000 -- -- -- --
Proceeds from issuance
of preferred stock and
warrants.............. 15,000,000 -- -- -- --
Payments of dividends
on preferred stock.... -- (2,783,749) (2,175,000) (2,175,000) (1,091,969)
------------ ------------ ----------- ----------- -----------
Net cash provided by
(used in) financing
activities............ 22,151,949 (458,300) (6,781,450) 5,553,909 (3,498,876)
------------ ------------ ----------- ----------- -----------
NET INCREASE (DECREASE)
IN CASH AND TEMPORARY
CASH INVESTMENTS....... 1,618,251 (9,773,056) 222,869 (269,084) 11,967,620
CASH AND TEMPORARY CASH
INVESTMENTS, beginning
balance................ 8,903,413 10,521,664 748,608 748,608 971,477
------------ ------------ ----------- ----------- -----------
CASH AND TEMPORARY CASH
INVESTMENTS, ending
balance................ $ 10,521,664 $ 748,608 $ 971,477 $ 479,524 $12,939,097
============ ============ =========== =========== ===========
SUPPLEMENTAL CASH FLOW
DISCLOSURES:
Cash paid during the
period for:
Interest (net of
amounts capitalized). $ 8,162,394 $ 8,651,413 $ 9,011,608 $ 4,345,677 $ 4,189,222
Income taxes.......... $ -- $ 42,611 $ -- $ 18,300 $ 19,200
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-5
<PAGE>
BAYOU STEEL CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY
<TABLE>
<CAPTION>
COMMON STOCK TOTAL COMMON
------------------------ PAID-IN RETAINED STOCKHOLDERS' PREFERRED
CLASS A CLASS B CLASS C CAPITAL EARNINGS EQUITY STOCK
-------- ------- ------- ----------- ----------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
BEGINNING BALANCE,
October 1, 1994........ $106,134 $22,711 $ 1 $44,890,554 $15,104,628 $60,124,028 $ --
Issuance of preferred
stock net of discount. -- -- -- -- -- -- 12,121,520
Discount from issuance
of preferred stock.... -- -- -- 2,878,480 -- 2,878,480 --
Net income............. -- -- -- -- 10,336,789 10,336,789 --
Dividends on preferred
stock................. -- -- -- -- (616,249) (616,249) --
Accretion on preferred
stock................. -- -- -- -- (117,653) (117,653) 117,653
-------- ------- ------ ----------- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1995..... 106,134 22,711 1 47,769,034 24,707,515 72,605,395 12,239,173
Net income............. -- -- -- -- 314,600 314,600 --
Dividends on preferred
stock................. -- -- -- -- (2,167,500) (2,167,500) --
Prepaid dividends on
preferred stock....... -- -- -- -- -- -- (2,175,000)
Accretion on preferred
stock................. -- -- -- -- (424,918) (424,918) 424,918
-------- ------- ------ ----------- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1996..... 106,134 22,711 1 47,769,034 22,429,697 70,327,577 10,489,091
Net income............. -- -- -- -- 3,784,147 3,784,147 --
Dividends on preferred
stock................. -- -- -- -- (2,175,000) (2,175,000) 2,175,000
Accretion on preferred
stock................. -- -- -- -- (424,919) (424,919) 424,919
-------- ------- ------ ----------- ----------- ----------- -----------
ENDING BALANCE,
September 30, 1997..... $106,134 $22,711 $ 1 $47,769,034 $23,613,925 $71,511,805 $13,089,010
======== ======= ====== =========== =========== =========== ===========
</TABLE>
The accompanying notes are an integral part of these consolidated statements.
F-6
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
1. NATURE OF OPERATIONS AND RECENT DEVELOPMENTS:
Bayou Steel Corporation (the "Company") owns and operates a steel minimill
located on the Mississippi River in LaPlace, Louisiana ("BSCL") and a rolling
mill in Harriman, Tennessee ("BSCT"). BSCL produces structural steel products
and BSCT produces merchant bar shapes. In addition, the Company operates four
stocking locations along the inland waterway system and an additional
warehouse in Tennessee. The Company's customer base is comprised of steel
service centers and original equipment manufacturers/fabricators located
throughout the United States, with export shipments going to Canada and
Mexico.
During 1995, the Company formed BSCT to acquire the assets of Tennessee
Valley Steel Corporation ("TVSC") for $26.8 million. BSCT is a wholly owned
subsidiary of the Company. During fiscal 1997 and 1996, the first two full
years of operations for BSCT, unaudited operating losses associated with this
subsidiary were approximately $2.7 million and $6.8 million, respectively.
In February 1998, the Company entered into a Letter of Intent to purchase
all of the outstanding shares of Northwestern Steel and Wire Company
("Northwestern"), a major minimill producer of structural steel, rod and wire
products. On April 27, 1998 the Company announced that it would not proceed
with its plan to purchase the outstanding shares of Northwestern. Included in
other assets as of March 31, 1998 is approximately $750,000 of costs related
to this transaction that will be expensed in the Company's third fiscal
quarter.
2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
Principles of Consolidation
The accompanying consolidated financial statements include the accounts of
BSCL and BSCT after elimination of all significant intercompany accounts and
transactions.
Basis of Interim Period Presentation
The unaudited interim consolidated financial statements as of March 31, 1998
and for the six months ended March 31, 1998 and 1997 have been prepared
pursuant to the rules and regulations of the Securities and Exchange
Commission ("SEC"). Certain information and note disclosure normally included
in annual financial statements prepared in accordance with generally accepted
accounting principles have been condensed or omitted pursuant to those rules
and regulations. However, all adjustments which, in the opinion of management,
are necessary for fair presentation have been included except adjustments
related to inventory. Inventory valuations as of March 31, 1998 are based on
last-in, first-out ("LIFO") estimates of year-end levels and prices. Actual
LIFO inventories will not be known until year-end quantities and indices are
determined.
The results for the six months ended March 31, 1998 are not necessarily
indicative of the results to be expected for the fiscal year ending September
30, 1998.
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.
F-7
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
Property, Plant and Equipment
Property, plant and equipment acquired as part of the acquisition of BSCL in
1986 and of BSCT in 1995 (see Note 1) has been recorded based on the
respective purchase prices. Betterments and improvements on property, plant
and equipment are capitalized at cost. Interest during construction of
significant additions is capitalized. Repairs and maintenance are expended as
incurred. Depreciation is provided on the units-of-production method for
machinery and equipment and on the straight-line method for buildings over an
estimated useful life of 30 years.
Cash and Temporary Cash Investments
The Company considers investments purchased with original maturities of
three months or less to be temporary cash investments.
Earnings Per Share
In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement No. 128, "Earnings per Share" ("FAS 128"), which simplifies the
computation of earnings per share. FAS 128 is effective for financial
statements issued for fiscal years ending after December 15, 1997, and it
requires restatement for all prior period earnings per share data presented.
Effective October 1, 1997, the Company adopted FAS 128, which has been
reflected retroactively for presentation of earnings per share in the
accompanying statements of operations.
Basic earnings per share was computed by deducting dividends accrued and
accretion on preferred stock from net income then dividing this amount by the
weighted average number of outstanding common shares of 12,884,607 for the
years ended September 30, 1997, 1996 and 1995 and the six months ended March
31, 1998 and 1997. In connection with the issuance of redeemable preferred
stock on June 20, 1995, 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 has an incentive award plan
under which stock options to purchase 115,000 shares of common stock at an
exercise price $4.375 per share have been granted to certain key employees.
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
stock method. Additional common stock equivalents computed for purposes of the
diluted earnings per share computation were 822,422, 822,422, 228,451, 847,310
and 822,422 for the years ended September 30, 1997, 1996 and 1995 and the six
month periods ended March 31, 1998 and 1997, respectively.
Other Accounting Pronouncements
In June 1997, the FASB issued FAS 130, "Reporting Comprehensive Income" and
FAS 131, "Disclosures About Segments of an Enterprise and Related
Information." 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 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 requirement of the Company's financial position or
results of operations.
F-8
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
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 the credit risk is minimal
due to the ongoing review of its customers' financial conditions, the
Company's sizeable customer base, and the geographical dispersion of the
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.
3. INVENTORIES:
Inventories, as of September 30, 1996 and 1997 consisted of the following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Scrap steel..................................... $ 6,567,308 $ 5,623,964
Billets......................................... 7,778,092 4,799,025
Finished product................................ 47,943,429 46,717,869
LIFO adjustments................................ (3,255,589) (2,497,697)
----------- -----------
59,033,240 54,643,161
Mill rolls, operating supplies, and other....... 20,822,822 20,379,393
----------- -----------
$79,856,062 $75,022,554
=========== ===========
</TABLE>
Decrements in the last-in, first-out ("LIFO") inventories had no material
impact on the Company's results of operations in fiscal 1997. There were
increments in the LIFO inventories in 1996. At September 30, 1996 and 1997,
the first-in, first-out ("FIFO") inventories were $62.3 million and $57.1
million, respectively. A lower of cost or market evaluation of the carrying
value of inventory was prepared at the end of each fiscal year and in fiscal
1996 lower of cost or market adjustments of $382,000 were required for the
finished goods inventory at BSCT. The market values, after adjustments, were
in excess of the carrying value of the LIFO and FIFO inventories for both
years presented.
4. PROPERTY, PLANT AND EQUIPMENT:
Property, plant and equipment of TVSC was acquired for $17.1 million during
fiscal 1995. Excluding the acquisition, capital expenditures totaled $12.5
million, $5.0 million, and $6.0 million in
F-9
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
fiscal 1995, 1996, and 1997, respectively. As of September 30, 1997, the
estimated costs to complete authorized projects under construction or contract
amounted to $2.8 million.
The Company capitalized interest of $394,000, $18,000, and $50,000 during
the years ended September 30, 1995, 1996, and 1997, respectively, related to
qualifying assets under construction. Effective July 1, 1996, estimates of
total plant production capacity were revised, due in part to production
enhancements attained by recent capital expenditures. As a result of these
revised estimates, depreciation expense decreased approximately $0.66 per ton
produced in the melt shop and $1.62 per ton produced in BSCL's rolling mill,
generating a total decrease in depreciation expense in the fourth quarter of
fiscal 1996 of approximately $318,000, or $.02 per common and common
equivalent share. Depreciation expense during the years ended September 30,
1995, 1996, and 1997 was as follows:
<TABLE>
<CAPTION>
1995 1996 1997
---------- ---------- ----------
<S> <C> <C> <C>
Inventory................................ $ 178,835 $ 140,401 $ 19,683
Cost of sales............................ 4,964,204 5,947,719 5,928,467
Selling, general and administrative...... 5,261 6,750 5,564
---------- ---------- ----------
$5,148,300 $6,094,870 $5,953,714
========== ========== ==========
</TABLE>
5. OTHER ASSETS:
Other assets consist of financing costs associated with the issuance of
long-term debt, redeemable preferred stock and warrants, and the revolving
line of credit (see Notes 6, 7, and 14) which are being amortized over the
lives of the related transactions. During fiscal 1995, the Company wrote off
$165,000 of other assets related to the previously existing revolving line of
credit and capitalized $2,176,000 of deferred financing costs related to the
term loan, redeemable preferred stock and warrants, and the amended and
restated revolving line of credit. In fiscal 1994, the Company capitalized
$3,783,000 of deferred financing costs related to a 10.25% First Mortgage
Notes ("10.25% Notes") and the 1993 amended and restated revolving line of
credit. Amortization of other assets was approximately $893,000, $1,164,000,
and $1,006,000 for the years ended September 30, 1995, 1996, and 1997,
respectively. Other assets are reflected in the accompanying balance sheets
net of accumulated amortization of $2,009,000 and $3,015,000 at September 30,
1996 and 1997, respectively.
6. LONG-TERM DEBT:
Long-term debt of as of September 30, 1996 and 1997 consists of the
following:
<TABLE>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
First Mortgage Notes (see below)................. $75,000,000 $75,000,000
Term loan (see below)............................ 10,000,000 8,500,000
Other notes payable, due monthly, bearing
interest of 8.75% secured by certain assets..... 142,182 40,330
----------- -----------
85,142,182 83,540,330
Less--current maturities......................... 1,601,851 3,040,257
----------- -----------
$83,540,331 $80,500,073
=========== ===========
</TABLE>
F-10
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
On June 20, 1995, the Company entered into a five-year term loan agreement
for $10 million. The proceeds received from the term loan were used to repay
the loan outstanding under the Company's revolving credit facility which had
been obtained to acquire substantially all of the assets of TVSC. The term
loan is partially secured by the Company's accounts receivable and
inventories. The term loan agreement calls for quarterly principal payments of
$750,000 beginning June 30, 1997 through March 31, 1999 and $1.0 million
beginning June 30, 1999 through December 31, 1999. The remaining $1.0 million
principal payment is due on the final maturity date of June 20, 2000. As of
September 30, 1997 and 1996, $3,000,000 and $1,500,000, respectively, were
classified as a current liabilities. The term loan bears interest on a sliding
scale based on the quarterly leverage ratio, as defined in the agreement. As
of September 30, 1997, the interest rate was LIBOR plus 2.5% or approximately
8.2%. Term loan interest is payable quarterly. Fair value of the term loan
approximates its carrying value.
The 10.25% Notes were issued in 1994 in order to redeem certain notes and
are secured by a first priority security interest granted by the Company,
subject to certain exceptions, in substantially all unencumbered existing and
future real and personal property, fixtures, machinery and equipment
(including certain operating equipment classified as inventory) and the
proceeds from sales thereof, whether existing or hereafter acquired. The
Indenture under which the 10.25% Notes are issued contains covenants,
including an interest expense coverage ratio, which restrict the Company's
ability to incur additional indebtedness, make dividend payments, or place
liens on the assets acquired with such indebtedness.
The 10.25% Notes bear interest at the rate of 10.25% per annum payable semi-
annually on each March and September 1, which commenced September 1, 1994. The
10.25% Notes will be redeemable, in whole or in part, at any time on and after
March 1, 1998, initially at 103.33% of the principal amount, plus accrued
interest to the date of redemption, and declining ratably to par on March 1,
2000. No principal payments are due on the 10.25% Notes until maturity in
2001. The fair value of the 10.25% Notes on September 30, 1997 was
approximately $77.3 million.
7. SHORT-TERM BORROWING ARRANGEMENT:
On June 20, 1995, the Company entered into an amendment and restatement of
its revolving line of credit agreement which is used for general corporate
purposes. The terms of the amended and restated agreement call for available
borrowings up to $45 million, including outstanding letters of credit, using a
borrowing base derived as a certain percentage of accounts receivable and
inventory. Based on these criteria, the amount available as of September 30,
1997 was $34.5 million, net of $1.8 million outstanding letters of credit. The
agreement is secured by inventory and accounts receivable at interest rates on
a sliding scale based on the quarterly leverage ratio, as defined in the
agreement. As of September 30, 1997, the interest rate was LIBOR plus 2.5% or
approximately 8.2%. The terms of the loan agreement impose certain
restrictions on the Company, the most significant of which require the Company
to maintain a minimum interest coverage ratio and limit the incurrence of
certain other indebtedness. There were no borrowings under the line of credit
as of September 30, 1997 and there were $3 million of borrowings outstanding
as of September 30, 1996. Fair value of borrowings under the line of credit
approximates the Company's carrying value.
F-11
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
The following information relates to the Company's borrowings under the line
of credit during the years ended September 30, 1995, 1996, and 1997:
<TABLE>
<CAPTION>
1995 1996 1997
----------- ---------- -----------
<S> <C> <C> <C>
Maximum amount outstanding.......... $23,300,000 $6,400,000 $13,400,000
Average amount outstanding.......... $ 2,200,000 $1,700,000 $ 5,400,000
Weighted average interest rate...... 8.9% 8.4% 8.8%
</TABLE>
8. INCOME TAXES:
The Company is subject to United States Federal income taxes and accounts
for income taxes under the provisions of Statement of Financial Accounting
Standards No. 109 "Accounting for Income Taxes" ("FAS 109"). The primary
difference between book and tax reporting of income relates to the allocation
of the carrying cost of property, plant and equipment to operations due to (a)
different depreciation methods used for tax and financial reporting purposes,
(b) a writedown of the carrying value of property, plant and equipment to
estimated net realizable value recorded for financial reporting purposes in
prior years, and (c) the sale of tax benefits discussed below.
In 1981, the Company entered into lease agreements with an unrelated
corporation whereby certain tax benefits were transferred to the unrelated
corporation as allowed under the provisions of the Economic Recovery Tax Act
of 1981. These agreements, the last of which expired in May 1997, included
various covenants not to dispose of the property covered by the agreement and
indemnification of the unrelated corporation by the former majority
stockholder against any losses which might result from a breach of the
Company's warranties and covenants, including those related to the Federal
income tax implications of the transaction. The Company recognized interest
income of approximately $50,000 and rent expense of approximately $1.4 million
for tax reporting purposes in fiscal year 1997 based upon the lease
agreements.
The Company and an individual controlling the current majority stockholder
agreed to indemnify the former majority stockholder for any payments required
to be made to the unrelated corporation caused by the Company's failure to
comply with the foregoing agreements. The former stockholder retains ownership
of the Company's Class C Common Stock which carries certain limited voting
rights including the holders' right to prevent certain transactions
(liquidation and certain mergers) which could result in liability to the
former majority stockholder under its indemnification to the unrelated
corporation. The Company's Class B Common Stock carries these same voting
rights.
As of September 30, 1997, for tax purposes, the Company had net operating
loss carryforwards ("NOLs") of approximately $280 million and $262 million
available to offset against regular tax and alternative minimum tax,
respectively. As of September 30, 1995 and 1997, the Company provided $118,115
and $49,795, respectively, for federal alternative minimum tax and state
income tax purposes. Due to generating tax losses in fiscal 1996, there was no
provision for income taxes.
The NOLs will expire in varying amounts through fiscal 2011. A substantial
portion of the available NOLs, approximately $151.2 million, expires by fiscal
2000. Even though management believes the Company will be profitable in the
future and will be able to utilize a portion of the NOLs, management does not
believe that it is likely that all of the NOLs will be utilized. FAS 109
requires recognition of future tax benefits, subject to a valuation allowance
based on the likelihood of realizing such benefits. Deferred tax assets of
approximately $103.6 million (NOLs and other temporary timing differences
F-12
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
multiplied by the federal income tax rate) and deferred tax liabilities of
approximately $8.0 million (basis differences between tax and book plant,
property and equipment multiplied by the federal income tax rate) were
recorded in fiscal 1997. However, in recording these net deferred assets, FAS
109 requires the Company to determine whether it is "more-likely-than-not"
that the Company will realize such benefits and that all negative and positive
evidence be considered (with more weight given to evidence that is "objective
and verifiable") in making the determination. FAS 109 indicates that "forming
a conclusion that a valuation allowance is not needed is difficult when there
is negative evidence such as cumulative losses in recent years"; therefore,
the Company has determined a valuation allowance of $95.6 million is required
for all of the recorded net deferred tax assets. The assessment, which is
consistent with fiscal 1996, resulted in no net deferred tax amounts reflected
in the accompanying consolidated balance sheets. In view of the fact that this
determination was based primarily on historical losses with no regard for the
impact of proposed capital expenditures and business plans, future favorable
adjustments to the valuation allowance may be required if and when
circumstances change.
9. COMMITMENTS AND CONTINGENCIES:
Strike and Corporate Campaign
On March 21, 1993, the United Steelworkers of America Local 9121 (the
"Union") initiated a strike after the parties failed to reach agreement on a
new labor contract due to differences on economic issues. On September 23,
1996, the Company and Union entered into a settlement agreement which, among
other issues, resulted in a new labor contract, ending the strike.
In August 1993, the Union announced a corporate campaign designed to bring
pressure on the Company from individuals and institutions with direct
financial or other interests in the Company. The Company filed a lawsuit in
federal court in Delaware under the Racketeer Influenced Corrupt Organizations
Act ("RICO") against the Union for their conduct in connection with this
campaign. Non-production strike and corporate campaign expenses include legal
and other charges incurred by the Company in connection with its suit against
the Union. On October 29, 1997, the Company reached an agreement with the
Union the effect of which was not material to the financial position or
results of operations of the Company.
In conjunction with the acquisition of the assets of TVSC, the Union filed a
charge with the National Labor Relations Board (the "NLRB") alleging that the
Company has violated the National Labor Relations Act relating to its refusal
to hire at BSCT certain individuals, who were former employees of TVSC. On
August 16, 1996, the Company reached a settlement with the Union which was
approved by the NLRB and resolved the issue. The Company agreed to recognize
the Union as the bargaining agent for the employees and pay 135 former
employees, who applied for work but were not employed, a settlement amount of
25% of lost wages, less interim earnings. Until interim earnings for 1996 are
known for each applicant, the liability cannot be fully determined. The
Company has developed its best estimate of the potential exposure based on
available information and has accrued amounts deemed adequate to cover the
settlement of this matter.
Environmental
The Company is subject to various federal, state, and local laws and
regulations concerning the discharge of contaminants which may be emitted into
the air, discharged into waterways, and the disposal of solids and/or
hazardous wastes such as electric arc furnace dust. In addition, in the event
F-13
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
of a release of a hazardous substance generated by the Company, the Company
could be potentially responsible for the remediation of contamination
associated with such a release. In the past, the Company's operations in some
respects have not met all of the applicable standards promulgated pursuant to
such laws and regulations. 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 courts to award them their appropriate legal fees and assess appropriate
penalties against the Company. The Company believes 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 discussed above) will not have a material adverse effect on the
Company's competitive position, operations or financial condition, or cause a
material increase in currently anticipated capital expenditures. The Company
currently has no mandated expenditures at its Louisiana facility to address
previously contaminated sites. Also, the Company is not designated as a
Potential Responsible Party ("PRP") under the Superfund legislation. At
September 30, 1997 and 1996, the Company has accrued loss contingencies for
environmental matters.
TVSC, the prior owners of the BSCT facility, had entered into a Consent
Agreement and Order (the "Voluntary Consent Order") under the Tennessee
Department of Environment and Conservation's voluntary clean up program. The
Company, in acquiring the assets of TVSC, has entered into a similar 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 process. As of September 30,
1997, investigative, remedial and risk assessment activities have resulted in
expenses of approximately $1.3 million. Estimates indicate that the future
cost for remediating the affected areas ranges from $400,000 for the lowest
cost remedy to $1,300,000 for higher cost remedies.
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
Voluntary Consent Order (with an additional $1.0 million held for one year for
such costs and other costs resulting from a breach of TVSC's representations
and warranties in the agreement). At this time, the Company does not expect
the costs of resolution of the Voluntary Consent Order to exceed funds
provided by the escrow fund. If during the remedial investigation
significantly more extensive or more toxic contamination is found, then costs
could be greater than those estimated, and to the extent these costs exceeded
the escrow funds, the Company would be liable to cover such amounts, if any.
Raw Material Supply/Contracts
The Company has commitments to purchase billets for use in the BSCT rolling
mill through December 31, 1997. As of September 30, 1997, the commitments were
approximately $5.9 million.
OTHER
The Company does not provide any post-employment or post-retirement benefits
to its employees other than those described in Note 11.
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
F-14
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
that the Company's liability, if any, under such claims or proceedings would
not materially affect its financial position or results of operations.
10. STOCK OPTION PLAN:
The Board of Directors and the Stockholders approved the 1991 Employees
Stock Option Plan (the "1991 Plan") for the purpose of attracting and
retaining key employees.
On September 21, 1994, the Board of Directors granted 115,000 incentive
stock options to purchase Class A Common Stock, exercisable at the market
price on that date of $4.375, to key employees. The options are exercisable in
five equal annual installments commencing on September 21, 1995. As of
September 30, 1997, no options were exercised, 69,000 shares were exercisable,
and 485,000 additional shares were available for grant under the 1991 Plan.
A summary of activity relating to stock options is as follows:
<TABLE>
<CAPTION>
# OF
STOCK OPTIONS
-------------
<S> <C>
Outstanding, September 30, 1996............................. 115,000
Granted..................................................... 0
Exercised................................................... 0
Canceled.................................................... 0
-------
Outstanding, September 30, 1997............................. 115,000
=======
</TABLE>
In fiscal 1997, the Company 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. As
provided under the statement, 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. There have been no additional
stock option awards granted by the Company other than those discussed above
awarded in September, 1994.
11. 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 BSCT 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 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 1996 and 1997.
F-15
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
The actuarial present value of future benefit obligations:
<TABLE>
<S> <C> <C>
<CAPTION>
1996 1997
----------- -----------
<S> <C> <C>
Vested benefit obligation............................ $ 1,230,062 $ 1,504,232
Non-vested benefit obligation........................ 64,779 125,537
----------- -----------
Accumulated benefit obligation....................... $ 1,294,841 $ 1,629,769
=========== ===========
Projected benefit obligation......................... $ 2,001,427 $ 2,441,103
Plan assets at fair value............................ (1,884,984) (2,366,508)
----------- -----------
Funded status........................................ 116,443 74,595
Unrecognized net gain (loss)......................... (170,847) 120,558
----------- -----------
Accrued pension liability............................ $ (54,404) $ 195,153
=========== ===========
Determination of net periodic pension cost:
Service cost......................................... $ 335,976 $ 390,534
Interest cost........................................ 111,708 147,959
Expected return on plan assets....................... (134,083) (168,925)
Net amortization..................................... 1,061 4,820
----------- -----------
Total net periodic pension cost.................... $ 314,662 $ 374,388
=========== ===========
</TABLE>
The primary actuarial assumptions used in determining the above benefit
obligation amounts were established on the September 30, 1996 and 1997
measurement dates and include a discount rate of 7.5% per annum on valuing
liabilities; long-term expected rate of return on assets of 9% per annum;
salary increases of 5% per annum for salaried employees; and an inflation rate
of 5% per annum.
The Company recognized expenses of $58,000 in fiscal 1995, $63,000 in fiscal
1996, and $75,000 in fiscal 1997 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 $31,000, $84,000, and $115,000 for the fiscal years
1995, 1996, and 1997, respectively, in connection with a defined contribution
plan at BSCT to which the employees contribute and the Company makes matching
contributions based on employee contributions and profit sharing contributions
based on employees' annual wages.
12. MAJOR CUSTOMERS:
No single customer accounted for 10% or more of total sales for the years
ended September 30, 1995, 1996, and 1997.
13. RELATED PARTY TRANSACTIONS:
The Company entered into an agreement on May 28, 1987 with a stockholder to
provide certain investment banking services to the Company on a competitive,
first refusal basis. During the year ended September 30, 1995, the stockholder
acted as co-manager in conjunction with the placement of preferred stock and
warrants (see Note 14) and received $160,000 for these services. The agreement
terminated on September 4, 1996 and although services were provided, no
obligation was incurred in fiscal 1996.
F-16
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
14. PREFERRED STOCK AND WARRANTS:
On June 20, 1995, the Company completed the issuance and sale of preferred
stock and warrants to purchase common stock for $15 million. The Company
issued 15,000 shares of its redeemable preferred stock and warrants to
purchase six percent of the Company's common stock (or 822,422 Class A 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 issued.
The holders of the preferred stock are entitled to receive quarterly
dividends at a rate of 14.5% per annum. If a quarterly dividend payment is not
made by the end of a quarter, the rate will increase by 3%. In addition, the
holders have a right to additional warrants, approximately 77,000 shares, in
the event that any two consecutive quarterly payments are missed or other
defined events take place. Prior to September 30, 1996, the Company declared
and recorded as a prepayment the regular dividends for fiscal 1997. The
dividend prepayment was recorded as a reduction in the balance of the
preferred stock in the accompanying 1996 balance sheet, as the Company would
have been able to apply any remaining amount against the principal balance in
the event of an early redemption of the preferred stock. The carrying amount
of the preferred stock increased as the accrued dividends were paid and
charged to retained earnings during fiscal 1997 and by periodic accretion of
the difference between the recorded value of the stock at the date of issuance
and the redemption value from 1995 through the mandatory redemption date of
June 20, 2002. The terms of the preferred stock purchase agreement impose
certain financial covenants which are generally related to covenants
associated with the revolving line of credit or the 10.25% Notes.
The preferred stock is mandatorily redeemable by the Company on June 20,
2002; however, the Company can redeem at any time after June 20, 1996,
initially at 113.0% of the outstanding balance, plus accrued dividends to the
date of redemption, and declining ratably to par on June 20, 2000. The fair
value of the preferred stock and warrants on September 30, 1997 was $17.7
million and $4 million, respectively.
15. COMMON STOCK:
Income (loss) per common and common equivalent share are based on the
weighted average number of common shares and common stock equivalent shares
outstanding of 13,113,058 for the year ended September 30, 1995 and 13,707,030
for the years ended September 30, 1996 and 1997. In connection with the
issuance of redeemable preferred stock on June 20, 1995, as 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. These warrants are considered common stock equivalents in calculating
income per common and common equivalent share for fiscal 1995, 1996 and 1997.
There was no material impact on primary or fully diluted earnings per share
for all years presented resulting from the stock options granted in September,
1994 (see Note 10).
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
(see Note 8). The Company's ability to pay dividends is subject to restrictive
covenants under the Indenture pursuant to which the Company's 10.25% Notes
were issued, the preferred stock and warrant purchase agreement, and the
Company's line of credit (see Notes 6, 7 and 14).
F-17
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
16. MISCELLANEOUS:
Miscellaneous income (expense) as of September 30, 1995, 1996, and 1997
included the following:
<TABLE>
<CAPTION>
1995 1996 1997
-------- -------- ---------
<S> <C> <C> <C>
Discount earned.............................. $211,566 $220,919 $ 174,089
Allowance for doubtful accounts.............. 53,204 186,039 (143,393)
Other income................................. 166,885 463,549 156,020
-------- -------- ---------
$431,655 $870,507 $ 186,716
======== ======== =========
</TABLE>
17. QUARTERLY FINANCIAL DATA (UNAUDITED):
<TABLE>
<CAPTION>
FISCAL YEAR 1996 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
Net Sales.................... $ 41,163 $ 52,145 $ 58,875 $ 52,243
Gross Profit................. 4,055 3,647 4,214 4,057
Net Income (Loss)............ 175 21 222 (103)
Dividends and Accretion on
Preferred Stock............. (646) (650) (650) (646)
Loss Applicable to Common and
Common Equivalent Shares.... (471) (629) (428) (750)
Loss Per Common and Common
Equivalent Shares........... (.04) (.05) (.03) (.05)
</TABLE>
<TABLE>
<CAPTION>
FISCAL YEAR 1997 QUARTERS
------------------------------------------
FIRST SECOND THIRD FOURTH
--------- --------- --------- ---------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C> <C> <C>
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>
18. REFINANCING TRANSACTION:
On May 22, 1998, the Company issued $110 million of 9.5% First Mortgage
Notes ("9.5% Notes") due 2008 the proceeds of which were used to repay its
previously existing first mortgage notes, term loan and preferred stock. In
connection with the refinancing transaction, the Company paid certain
prepayment penalties, interest during the defeasment period and wrote off
deferred financing costs resulting in an extraordinary loss on early
retirement of debt of approximately $5.5 million and a loss on redemption of
preferred stock of approximately $2.4 million.
F-18
<PAGE>
BAYOU STEEL CORPORATION
NOTES TO FINANCIAL STATEMENTS--(CONTINUED)
(INFORMATION WITH RESPECT TO MARCH 31, 1998 AND 1997 IS UNAUDITED)
The 9.5% Notes were issued at a discount of 99.048% of par value, and they
are senior obligations of the Company, secured by a first priority lien,
subject to certain exceptions, on certain existing and future real property,
plant and equipment and all additions or improvements thereto and all proceeds
and products thereof.
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 value on May 15, 2006. Prior
to May 15, 2001, the Company may, at its option, redeem up to 35% of the
original aggregate principal amount at a redemption price equal to 109.50% of
the principal amount, plus accrued interest to the date of redemption, with
all or a portion of the net proceeds of public sales of its common stock.
On July 8, 1998, the Company issued an additional $10 million of
indebtedness under the add-on provisions of the 9.5% Notes. The additional
indebtedness has been incorporated into the existing 9.5% Notes and
accordingly, bears identical terms and covenants.
BSCT 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.
<TABLE>
<CAPTION>
AS OF SEPTEMBER AS OF
30, MARCH 31,
--------------- 1998
1996 1997 (UNAUDITED)
------- ------- -----------
<S> <C> <C> <C>
Current assets................................ $17,249 $22,370 $27,344
Noncurrent assets............................. 21,043 21,647 21,313
Current liabilities........................... 16,201 23,844 27,176
Noncurrent liabilities........................ 31,096 32,922 31,831
</TABLE>
<TABLE>
<CAPTION>
SIX MONTHS
YEARS ENDED SEPTEMBER ENDED MARCH 31,
30, (UNAUDITED)
------------------------- ----------------
1995 1996 1997 1997 1998
------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
Net sales........................... $ 910 $24,466 $45,851 $20,472 $26,656
Gross profit........................ (1,349) (4,837) (702) (1,077) 1,176
Net income.......................... (2,162) (6,826) (3,279) (2,265) 587
</TABLE>
F-19
<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, 1997 and 1996 and
for each of the three years in the period ended September 30, 1997 included in
Bayou Steel Corporation's annual report to stockholders included in this
Offering Memorandum, and have issued our report thereon dated November 19,
1997. Our audits were made for the purpose of forming an opinion on the
consolidated financial statements taken as a whole. The accompanying Schedule
of Valuation and Qualifying Accounts (Schedule II) 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 19, 1997
F-20
<PAGE>
BAYOU STEEL CORPORATION
SCHEDULE II VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1995, 1996 AND 1997
<TABLE>
<CAPTION>
BALANCE ADDITIONS BALANCE
AT CHARGED AT END
BEGINNING TO OF
DESCRIPTION OF PERIOD EXPENSES OTHER(1) PERIOD
- ----------- --------- --------- -------- --------
<S> <C> <C> <C> <C>
September 30, 1995
Allowance for doubtful accounts........ $617,497 $ (53,204) $ 3,677 $567,970
-------- --------- -------- --------
September 30, 1996
Allowance for doubtful accounts........ $567,970 $(186,039) $(28,966) $352,965
-------- --------- -------- --------
September 30, 1997
Allowance for doubtful accounts........ $352,965 $ 143,393 $ 4,101 $500,459
-------- --------- -------- --------
</TABLE>
- --------
(1) (Write-offs)/recoveries of uncollectible accounts.
F-21
<PAGE>
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY REPRESEN-
TATIONS OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN OR MADE,
SUCH INFORMATION AND REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING BEEN AU-
THORIZED. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO SELL OR THE SOLICITA-
TION OF AN OFFER TO BUY ANY SECURITIES OTHER THAN THE SECURITIES TO WHICH IT
RELATES OR ANY OFFER TO SELL OR THE SOLICITATION OF AN OFFER TO BUY SUCH SECU-
RITIES IN ANY CIRCUMSTANCES IN WHICH SUCH OFFER OR SOLICITATION IS UNLAWFUL.
NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UN-
DER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION THAT THERE HAS BEEN NO CHANGE IN
THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF OR THAT THE INFORMATION CON-
TAINED HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT TO ITS DATE.
- --------------------------------------------------------------------------------
TABLE OF CONTENTS
<TABLE>
<S> <C>
Available Information...................................................... i
Summary.................................................................... 1
Risk Factors............................................................... 13
The Exchange Offer......................................................... 20
Use of Proceeds............................................................ 30
Capitalization............................................................. 31
Selected Consolidated Financial Data....................................... 32
Unaudited Pro Forma Financial Information.................................. 34
Management's Discussion and Analysis of Financial Condition and Results of
Operations................................................................ 40
Business................................................................... 49
Management................................................................. 62
Principal Stockholders..................................................... 66
Description of New Credit Facility......................................... 69
Description of the First Mortgage Notes ................................... 70
Exchange and Registration Rights Agreement................................. 104
Plan of Distribution....................................................... 106
Legal Matters.............................................................. 107
Experts.................................................................... 107
Glossary................................................................... G-1
</TABLE>
UNTIL , 1998 (90 DAYS AFTER THE DATE OF THIS PROSPECTUS), ALL DEAL-
ERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT PARTIC-
IPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS. THIS IS
IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN ACTING AS
UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR SUBSCRIPTIONS.
PROSPECTUS
$120,000,000
BAYOU STEEL CORPORATION
OFFER TO EXCHANGE REGISTERED 9 1/2% FIRST MORTGAGE NOTES DUE 2008 FOR
OUTSTANDING UNREGISTERED 9 1/2% FIRST MORTGAGE NOTES DUE 2008
[LOGO BAYOU STEEL APPEARS HERE]
----------------
PROSPECTUS
----------------
, 1998
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 20. INDEMNIFICATION OF DIRECTORS AND OFFICERS.
Section 145 of the General Corporation Law of the State of Delaware empowers
a corporation to indemnify any person who was or is a party or is threatened
to be made a party to any threatened, pending or completed action, suit or
proceeding, whether civil, criminal, administrative or investigative, by
reason of the fact that he is or was a director, officer, employee or agent of
the corporation or serves or served in these capacities for another
enterprise, if serving at the request of the corporation. Depending on the
character of the proceeding, a corporation may indemnify against expenses
(including attorneys' fees), judgments, fines and amounts paid in settlement
actually and reasonably incurred in connection with such action, suit or
proceeding if the person indemnified acted in good faith and in a manner
reasonably believed to be in or not opposed to the best interest of the
corporation, and, with respect to any criminal action or proceeding, had no
reasonable cause to believe his conduct was unlawful. In the case of an action
by or in the right of the corporation, no indemnification may be made in
respect to any claim, issue or matter as to which such person shall have been
adjudged to be liable to the corporation unless and only to the extent that
the Court of Chancery or the court in which such action or suit was brought
shall determine that despite the adjudication of liability such person is
fairly and reasonably entitled to indemnity for such expenses which the court
shall deem proper. Section 145 further provides that to the extent a director
or officer of a corporation has been successful in the defense of any action,
suit or proceeding referred to above or in the defense of any claim, issue or
matter therein, he shall be indemnified against expenses (including attorneys'
fees) actually and reasonably incurred by him in connection therewith.
Section 13 of the Company's Restated Certificate of Incorporation provides
that the Company shall provide indemnification to the fullest extent permitted
by Delaware law.
The Purchase Agreement provides that the Initial Purchasers will, severally,
indemnify the directors, officers, employees, representatives and agents of
the Company against certain liabilities, including liabilities under the
Securities Act of 1933, insofar as such liabilities arise out of or are based
on written information furnished to the Company by the Initial Purchasers.
Under an insurance policy maintained by the Company, the directors and
officers of the Company are insured, within the limits and subject to the
limitations of the policy, against certain expenses in connection with the
defense of certain claims, actions, suits or proceedings, and certain
liabilities which might be imposed as a result thereof, which may be brought
against them by reason of their being or having been directors and officers.
ITEM 21. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES.
The following is a list of all exhibits filed as part of this Registration
Statement.
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.1 Indenture, dated May 22, 1998, between Bayou Steel Corporation, Bayou
Steel Corporation (Tennessee), River Road Realty Corporation and First
National Bank of Commerce, as trustee.
4.2 Form of Exchange Note.
5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. as to the legality of the Notes.*
</TABLE>
II-1
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
10.1 Exchange and Registration Rights Agreement, dated as of May 22, 1998,
among Bayou Steel Corporation, Bayou Steel Corporation (Tennessee),
River Road Realty Corporation, Chase Securities Inc., BT Alex. Brown
Incorporated and PaineWebber Incorporated.
10.2 Credit Agreement, dated as of May 22, 1998, among Bayou Steel
Corporation, The Chase Manhattan Bank, as Agent, and the lenders party
thereto.
12.1 Statement regarding Ratio of Earnings to Fixed Charges.
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5).
24.1 Power of Attorney (included in Signature Page to the Registration
Statement).
25.1 Statement of Eligibility of First National Bank of Commerce.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Nominees.
99.4 Form of Letter to Clients.
</TABLE>
- --------
* Filed or refiled herewith. All other exhibits were previously filed.
ITEM 22. UNDERTAKINGS.
The Registrant hereby undertakes the following:
(a) For purposes of determining any liability under the Securities Act of
1933, each filing of the Registrant's annual report pursuant to Section
13(a) or 15(d) of the Exchange Act that is incorporated by reference in
this Registration Statement shall be deemed to be a new registration
statement relating to the securities offered therein, and the offering of
such securities at that time shall be deemed to be the initial bona fide
offering thereof.
(b) Insofar as indemnification for liabilities arising under the Securities
Act of 1933 may be permitted to directors, officers and controlling
persons of the registrant pursuant to the foregoing provisions described
under Item 20 or otherwise, each of the registrants has been advised that
in the opinion of the Securities and Exchange Commission such
indemnification is against public policy as expressed in the Securities
Act of 1933 and is, therefore, unenforceable. In the event that a claim
for indemnification against such liabilities (other than the payment by
any of the registrants of expenses incurred or paid by a director,
officer, or controlling person of such registrant in the successful
defense of any action, suit, or proceeding) is asserted by such director,
officer, or controlling person in connection with the securities being
registered, the registrants will, unless in the opinion of its counsel the
matter has been settled by controlling precedent, submit to a court of
appropriate jurisdiction the question whether such indemnification by it
is against public policy as expressed in the Securities Act of 1933 and
will be governed by the final adjudication of such issue.
(c) Each of the undersigned registrants hereby undertakes to respond to
requests for information that is incorporated by reference into the
prospectus pursuant to Item 4, 10(b), 11, or 13 of this form, within one
business day of receipt of such request, and to send the incorporated
document by first class mail or other equally prompt means. This includes
information contained in documents filed subsequent to the effective date
of the registration statement through the date of responding to the
request.
(d) Each of the undersigned registrants hereby undertakes to supply by means
of a post-effective amendment all information concerning a transaction,
and the company being acquired involved therein, that was not the subject
of and included in the registration statement when it became effective.
II-2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of LaPlace,
State of Louisiana, on August 3, 1998.
BAYOU STEEL CORPORATION
By: /s/
Richard J. Gonzalez
__________________________________
Richard J. Gonzalez
Vice President, Chief Financial
Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to its registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
* Chairman of the Board, August 3, 1998
- ----------------------------------- Chief Executive
HOWARD M. MEYERS Officer and Director
* President, Chief August 3, 1998
- ----------------------------------- Operating Officer and
JERRY M. PITTS Director
/s/ Richard J. Gonzalez Vice President, Chief August 3, 1998
- ----------------------------------- Financial Officer,
RICHARD J. GONZALEZ Treasurer and
Secretary
* Director August 3, 1998
- -----------------------------------
LAWRENCE E. GOLUB
* Director August 3, 1998
- -----------------------------------
MELVYN N. KLEIN
* Director August 3, 1998
- -----------------------------------
ALBERT P. LOSPINOSO
* Director August 3, 1998
- -----------------------------------
STANLEY S. SHUMAN
* Director August 3, 1998
- -----------------------------------
JEFFREY P. SANGALIS
</TABLE>
/s/ Richard J. Gonzalez
*By: ___________________________
Richard J. Gonzalez
Attorney-in-Fact
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of LaPlace,
State of Louisiana, on August 3, 1998.
BAYOU STEEL CORPORATION (TENNESSEE)
By: /s/
Richard J. Gonzalez
__________________________________
Richard J. Gonzalez
Vice President, Chief Financial
Officer,
Treasurer and Secretary
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to its registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
* Chief Executive Officer August 3, 1998
- -----------------------------------
HOWARD M. MEYERS
* President, Chief August 3, 1998
- ----------------------------------- Operating Officer
JERRY M. PITTS and Director
/s/ Richard J. Gonzalez Vice President, Chief August 3, 1998
- ----------------------------------- Financial Officer,
RICHARD J. GONZALEZ Treasurer and
Secretary
</TABLE>
/s/ Richard J. Gonzalez
*By: ____________________________
Richard J. Gonzalez
Attorney-in-Fact
II-4
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act, the registrant has duly
caused this Amendment No. 1 to its registration statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City of LaPlace,
State of Louisiana, on August 3, 1998.
RIVER ROAD REALTY CORPORATION
By: /s/
Richard J. Gonzalez
__________________________________
Richard J. Gonzalez
Vice President and Treasurer
Pursuant to the requirements of the Securities Act of 1933, as amended, this
Amendment No. 1 to its registration statement has been signed by the following
persons in the capacities and on the dates indicated.
<TABLE>
<S> <C>
SIGNATURE TITLE
DATE
* Chief Executive Officer August 3, 1998
- ----------------------------------- and Director
Howard M. Meyers
/s/ Richard J. Gonzalez Vice President and August 3, 1998
- ----------------------------------- Treasurer
Richard J. Gonzalez
</TABLE>
/s/ Richard J. Gonzalez
*By: ____________________________
Richard J. Gonzalez
Attorney-in-Fact
II-5
<PAGE>
INDEX TO EXHIBITS
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION OF EXHIBITS
------- -----------------------
<C> <S>
4.1 Indenture, dated May 22, 1998, between Bayou Steel Corporation, Bayou
Steel Corporation (Tennessee), River Road Realty Corporation and First
National Bank of Commerce, as trustee.
4.2 Form of Exchange Note.
5.1 Opinion of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. as to the legality of the Notes.*
10.1 Exchange and Registration Rights Agreement, dated as of May 22, 1998,
among Bayou Steel Corporation, Bayou Steel Corporation (Tennessee),
River Road Realty Corporation, Chase Securities Inc., BT Alex. Brown
Incorporated and PaineWebber Incorporated.
10.2 Credit Agreement, dated as of May 22, 1998, among Bayou Steel
Corporation, The Chase Manhattan Bank, as Agent, and the lenders party
thereto.
12.1 Statement regarding Ratio of Earnings to Fixed Charges.
23.1 Consent of Arthur Andersen LLP.*
23.2 Consent of Jones, Walker, Waechter, Poitevent, Carrere & Denegre,
L.L.P. (included in Exhibit 5).
24.1 Power of Attorney (included in Signature Page to the Registration
Statement).
25.1 Statement of Eligibility of First National Bank of Commerce.
99.1 Form of Letter of Transmittal.
99.2 Form of Notice of Guaranteed Delivery.
99.3 Form of Letter to Nominees.
99.4 Form of Letter to Clients.
</TABLE>
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* Filed or refiled herewith. All other exhibits were previously filed.
<PAGE>
JONES, WALKER
WAECHTER, POITEVENT
CARRERE & DENEGRE, L.L.P.
August 3, 1998
Bayou Steel Corporation
River Road
P.O. Box 5000
LaPlace, Louisiana 70068
Re: Bayou Steel Corporation
Registration Statement on Form S-4
$120,000,000 aggregate principal amount of
9 1/2% First Mortgage Notes due 2008
Gentlemen:
We have acted as your counsel in connection with the preparation of the
registration statement on Form S-4 (the "Registration Statement") filed by
Bayou Steel Corporation, a Delaware corporation (the "Company"), and Bayou
Steel Corporation (Tennessee), a Delaware Corporation, and River Road Realty
Corporation, a Louisiana corporation (collectively, the "Guarantors") with the
Securities and Exchange Commission (the "Commission") under the Securities Act
of 1933, as amended, on the date hereof with respect to the Company's offer to
exchange (the "Exchange Offer") up to $120 million aggregate principal amount
of the Company's registered 9 1/2% First Mortgage Notes due 2008 (the
"Exchange Notes") for a like principal amount of the Company's unregistered 9
1/2% First Mortgage Notes due 2008 (the "Old Notes"). The Guarantors will
jointly and severally guarantee (the "Guarantees") the Exchange Notes. The
Exchange Notes and Guarantees will be offered under an Indenture dated as of
May 22, 1998, between the Company, the Guarantors and First National Bank of
Commerce, as trustee (the "Indenture").
In so acting, we have examined originals, or photostatic or certified
copies, of the Indenture, the form of the Exchange Notes and such records of
the Company, certificates of officers of the Company and of public officials,
and such other documents as we have deemed relevant. In such examination, we
have assumed the genuineness of all signatures, the authenticity of all
documents submitted to us as originals, the conformity to original documents
of all documents submitted to us as certified or photostatic copies and the
authenticity of the originals of such documents.
Based upon the foregoing, and subject to the qualifications stated herein,
we are of the opinion that:
When the Exchange Notes issuable upon consummation of the Exchange Offer
have been (i) duly executed by the Company and authenticated by the trustee
therefor in accordance with the terms of the Indenture and (ii) duly issued
and delivered against the receipt of Old Notes surrendered in exchange
therefor, and if a court of appropriate jurisdiction were to hold that the
Exchange Notes and Guarantees were governed by and to be construed under
the laws of the State of Louisiana notwithstanding the choice in the
Exchange Notes and the Indenture of New York as the governing law, the
Exchange Notes and Guarantees will constitute the legal, valid and binding
obligations of the Company and the Guarantors, respectively, enforceable
against the Company and the Guarantors in accordance with their terms,
except as the enforcement thereof may be limited by bankruptcy, insolvency,
reorganization, moratorium or similar laws and court decisions relating to
or affecting the enforcement of creditors' rights generally and except as
enforcement thereof is subject to general principles of equity (regardless
of whether enforcement is considered in a proceeding in equity or at law).
<PAGE>
The foregoing opinion is limited in all respects to the laws of the State of
Louisiana and federal laws. We are members of the Bar of the State of
Louisiana and have neither been admitted to nor purport to be experts on the
laws of any other jurisdiction.
We consent to the filing of this opinion as an exhibit to the Registration
Statement and to the reference to us in the prospectus included therein under
the caption "Legal Matters." In giving this consent, we do not admit that we
are within the category of persons whose consent is required under Section 7
of the Securities Act of 1933, as amended, or the general rules and
regulations of the Commission promulgated thereunder.
Very truly yours,
JONES, WALKER, WAECHTER, POITEVENT,
CARRERE & DENEGRE, L.L.P.
By: /s/ Lisa M. Buchanan
-----------------------------
Lisa M. Buchanan, Partner
<PAGE>
EXHIBIT 23.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the use of our
reports and to all references to our Firm included in or made a part of this
Registration Statement.
/s/ ARTHUR ANDERSEN LLP
New Orleans, Louisiana
August 3, 1998
