<PAGE>
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
/X/ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended JUNE 30, 1998
-----------------------------
OR
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
------------------- --------------------------
Commission file number 0-16254
STEEL OF WEST VIRGINIA, INC.
------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
DELAWARE 55-0684304
(State or other jurisdiction I.R.S. Employer
of incorporation or organization) Identification No.
17TH STREET AND 2ND AVENUE, HUNTINGTON, WEST VIRGINIA 25703
------------------------------------------------------------------
(Address of principal executive offices, Zip Code)
(304) 696-8200
------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
------ ------
The number of shares outstanding of each of the issuer's classes of common
stock, as of June 30, 1998, is as follows:
6,010,795 shares of common stock, par value $.01 per share.
<PAGE>
STEEL OF WEST VIRGINIA, INC.
AND SUBSIDIARIES
INDEX
Page
Number
PART I. FINANCIAL INFORMATION
Item 1. Condensed Consolidated Financial Statements (Unaudited)
Condensed Consolidated Balance Sheets as of 3
June 30, 1998 and December 31, 1997
Condensed Consolidated Statements of Income for 4
the Three-Month and Six-Month Periods Ended
June 30, 1998 and 1997
Condensed Consolidated Statements of Cash Flows 5
for the Three-Month and Six-Month Periods Ended
June 30, 1998 and 1997
Notes to Condensed Consolidated Financial Statements 6
Item 2. Management's Discussion and Analysis of 9
Financial Condition and Results of Operations
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders 11
Item 6. Exhibits and Reports on Form 8-K 12
2
<PAGE>
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED BALANCE SHEETS
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
June 30 December 31
1998 1997
------------ ------------
<S> <C> <C>
ASSETS
CURRENT ASSETS
Cash $ 0 $ 0
Receivables, net of allowances of $609 15,435 11,181
Inventories 25,938 20,918
Deferred income taxes 1,555 1,555
Other current assets 519 660
------------ ------------
TOTAL CURRENT ASSETS 43,447 34,314
Property, plant, and equipment 66,624 61,002
Goodwill 17,428 17,770
Other assets 463 629
------------ ------------
TOTAL ASSETS $ 127,962 $ 113,715
============ ============
LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES
Overdraft $ 861 $ 968
Accounts payable 9,542 10,880
Accrued payroll and benefits payable 4,072 3,509
Income taxes payable 13 71
Other current liabilities 2,023 1,385
Current maturities of long-term debt 3,691 1,891
------------ ------------
TOTAL CURRENT LIABILITIES 20,202 18,704
Long-term debt 45,481 34,339
Deferred income taxes 5,494 6,194
Other long-term liabilities 179 176
------------ ------------
TOTAL LIABILITIES 71,356 59,413
STOCKHOLDERS' EQUITY
Common stock, $.01 par value: 12,000,000
voting shares authorized, 7,116,095 and
7,100,602 issued, including treasury stock 71 71
Paid-in capital 26,785 26,663
Treasury stock - 1,105,300 shares at cost (11,483) (11,483)
Retained earnings 41,233 39,051
------------ ------------
TOTAL STOCKHOLDERS' EQUITY 56,606 54,302
------------ ------------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 127,962 $ 113,715
============ ============
</TABLE>
NOTE: The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date.
See notes to condensed consolidated financial statements.
3
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands, except share and per share data)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended June 30
June 30
1998 1997 1998 1997
-------------------------------- -------------------------------
<S> <C> <C> <C> <C>
Net sales $ 34,510 $ 27,923 $ 66,670 $ 52,351
Cost of sales 30,430 23,675 59,224 44,042
--------------- ---------------- --------------- --------------
GROSS PROFIT 4,080 4,248 7,446 8,309
Selling and administrative expenses 1,451 1,646 2,930 3,055
Interest Expense 967 235 1,317 495
Loss (Gain) on disposal of assets 221 (230) (275) (453)
Other income (108) (276) (286) (343)
--------------- ---------------- --------------- --------------
INCOME BEFORE INCOME TAXES 1,549 2,873 3,760 5,555
Income Taxes 654 1,216 1,578 2,353
--------------- ---------------- --------------- --------------
NET INCOME $ 895 $ 1,657 $ 2,182 $ 3,202
=============== ================ =============== ==============
BASIC AND DILUTED EARNINGS PER
COMMON SHARE $.15 $.28 $.36 $.53
==== ==== ==== ====
Weighted average common shares outstanding:
Basic 6,011,103 5,994,114 6,010,949 5,992,987
Diluted 6,022,198 5,994,937 6,016,937 5,993,398
</TABLE>
See notes to condensed consolidated financial statements.
4
<PAGE>
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
(In thousands)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30 June 30
1998 1997 1998 1997
------------------------- -------------------------
<S> <C> <C> <C> <C>
CASH (USED IN) PROVIDED FROM OPERATIONS
Net income $ 895 $ 1,657 $ 2,182 $ 3,202
Adjustments for items not
affecting funds from
operations:
Depreciation and
amortization 2,125 1,326 3,897 2,650
Loss (Gain) on disposal of assets 220 (230) (275) (453)
Other 110 (53) 630 (211)
Working capital changes
related to operations (5,834) (2,011) (9,666) (4,089)
---------- ---------- ---------- ----------
CASH (USED IN) PROVIDED FROM OPERATIONS (2,484) 689 (3,232) 1,099
INVESTMENT ACTIVITIES
Additions to property, plant,
and equipment (1,506) (5,579) (9,603) (8,989)
FINANCING ACTIVITIES
Revolving credit and term loans 4,882 4,991 13,388 9,226
Long-term debt repayments (223) (201) (446) (1,970)
---------- ---------- ---------- ----------
4,659 4,790 12,942 7,256
INCREASE (DECREASE) IN CASH $ 669 $ (100) $ 107 $ (634)
========== ========== ========== ==========
</TABLE>
See notes to condensed consolidated financial statements.
5
<PAGE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
STEEL OF WEST VIRGINIA, INC. AND SUBSIDIARIES
June 30, 1998
NOTE A--BASIS OF PRESENTATION
The accompanying unaudited condensed consolidated financial statements include
the accounts of Steel of West Virginia, Inc. (the Company) and its wholly-owned
subsidiaries SWVA, Inc. and Marshall Steel, Inc. Such condensed financial
statements have been prepared in accordance with generally accepted accounting
principles for interim financial information and with the instructions to Form
10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of
the information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of management, all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three-month and
six-month periods ended June 30, 1998 are not necessarily indicative of the
results that may be expected for the year ending December 31, 1998. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Company's Annual Report on Form 10-K for the year ended
December 31, 1997.
The preparation of the condensed consolidated financial statements in conformity
with generally accepted accounting principles requires that management make
certain estimates and assumptions that affect the amounts reported in the
financial statements and accompanying notes. Actual results could differ from
those estimates.
Basic earnings per share excludes any dilutive effects of stock options and is
computed by dividing net income by the weighted average shares of common stock
outstanding for the period. Diluted earnings per share is computed by dividing
net income by the weighted average shares of common stock outstanding for the
period plus the shares that would be outstanding assuming the exercise of
dilutive stock options.
NOTE B--INVENTORIES
Inventories consist of the following (in thousands):
June 30 December 31
1998 1997
------------- -------------
Raw materials $ 2,576 $ 2,354
Work-in-process 9,294 8,240
Finished goods 13,529 10,731
Manufacturing supplies 5,374 4,068
------- -------
30,773 25,393
Less LIFO reserve 4,835 4,475
------- -------
$25,938 $20,918
======= =======
At the end of each year, management determines inventory levels based on a
physical inventory. The amount of inventories at June 30, 1998, has been
determined based upon inventory levels indicated by perpetual inventory
accounting records. In addition, an actual valuation of inventory under the LIFO
method can be made only at the end of each year based on the inventory levels
and costs at that time. Accordingly, interim LIFO calculations must necessarily
be based on management's estimates of expected year-end inventory levels and
costs. Since these are subject to many forces beyond management's control,
interim results are subject to the final year-end LIFO inventory valuation.
NOTE C--CREDIT ARRANGEMENTS
A summary of indebtedness under the Company's credit arrangements is as follows
(in thousands):
6
<PAGE>
June 30 December 31
1998 1997
------------- -------------
Capital Expenditure Line Term Loan #1 $ 2,990 $ 3,420
Capital Expenditure Line Term Loan #2 28,000 20,000
Revolver 17,929 12,541
Other notes payable 253 269
------- -------
TOTAL 49,172 36,230
Less current maturities of long-term debt (3,691) (1,891)
------- -------
$45,481 $34,339
======== =======
The Company maintains a senior financing agreement that, as last amended
April 1998, provides for up to $21,000,000 of revolving credit borrowings and
capital expenditure line term loans. The interest rates on the Company's
existing revolving credit lines and term loans vary based on the Chemical
Bank prime rate or LIBOR plus 1 3/4%; and the annual revolving credit line
commitment fee is 1/8% of the unused balance. As of June 30, 1998, the
revolving credit line loan balance, due January 1, 2001, was $17,929,000, and
the unused borrowing availability approximated $3,071,000.
Under the terms of its senior financing agreement, the Company is permitted to
convert its Capital Expenditure Line Term Loan #1 indebtedness to a fixed
interest rate. Effective with the April 1998 amendment, the Company's borrowing
availability under the Capital Expenditure Line Term Loan #2 was increased to
$28,000,000 to finance current machinery and equipment expenditures, as governed
by a percentage of such expenditures. The Company is permitted, at its election
through January 1, 1999, to convert such indebtedness to a fixed interest rate.
The Capital Expenditure Line Term Loan #1 portion of the loan agreement is
required to be repaid in quarterly installments of $215,000, with a final
principal payment of $195,000 on October 1, 2001. The Capital Expenditure Line
Term Loan #2 will be repaid in 40 equal quarterly installments of principal over
ten years commencing July 1, 1998.
The Company's senior lending agreement may be terminated by the Company or, on
or after January 1, 2001 and upon 90 days written notice, by the lender. The
agreement contains various restrictive covenants, including specified levels of
working capital and net worth (as defined in the agreement). In addition,
capital expenditures and dividends are limited to the annual amounts set forth
in the agreement. At June 30, 1998, the Company's retained earnings available
for dividends is $2,630,000. As a result of the lending agreement, substantially
all of the Company's property, plant, and equipment, inventory and accounts
receivable are subject to a third party's security interests.
NOTE D--COMMITMENTS AND CONTINGENCIES
The Company is principally self-insured for employees' medical care costs and
workers' compensation claims up to certain specified dollar limits. Under the
medical care program, the Company is insured by a private carrier for individual
claims in excess of specified dollar limits. The Company also has excess
coverage provided by the West Virginia Workers' Compensation Fund (a state
agency) for certain work related injuries. In connection with the self-insured
workers' compensation program, the Company has obtained an irrevocable standby
letter of credit in the amount of $1,000,000 (through July 1999). A liability
has been established for those illnesses and injuries occurring on or before
June 30, 1998, for which an amount of expected loss could be reasonably
estimated.
7
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
NET SALES
Net sales increased 23.6% in the second quarter of 1998 to $34,510,000 up
$6,587,000 from the second quarter of 1997, primarily due to an increase in
tonnage of products shipped. Finished tonnage sales increased to 58,762 tons in
the second quarter of 1998 from 45,070 tons for the second quarter of 1997.
Billet sales decreased to 584 tons for the second quarter of 1998 from 1,370
tons in the second quarter of 1997. The average selling price per ton for
finished products decreased to $585 in the second quarter of 1998 compared to
$611 per ton in the second quarter of 1997. The average selling price per ton
for billets decreased to $261 in the second quarter of 1998 compared to $273 in
the second quarter of 1997.
Net sales for the six months ended June 30, 1998 increased 27.4% to $66,670,000
from $52,351,000 for the comparable period in 1997, primarily due to an increase
in tonnage of products shipped. Finished tonnage sales increased to 109,685 tons
for the six months ended June 30, 1998 from 82,526 tons for the comparable
period in 1997. Billet sales decreased to 1,281 tons for the same period in
1998, from 3,380 tons for the comparable period in 1997.
COST OF SALES
Cost of sales increased to 88.2% of net sales or $30,430,000 for the second
quarter of 1998 from 84.8% of net sales or $23,675,000 for the second quarter of
1997. The percent increase in cost of goods sold was principally due to the
effect of electricity shortages and power interruptions, as well as higher alloy
and mill roll expense. It is likely the Company's operations will continue to be
affected by the electricity shortages and power interruptions during the summer
months. The increased costs were offset, in part, by a $520,000 favorable
settlement with one of the Company's vendors.
Cost of sales for the six months ended June 30, 1998 increased to 88.8% of net
sales or $59,224,000 from 84.1% of net sales or $44,042,000 for the comparable
period in 1997. This increase in cost of goods sold was principally due to the
effect of a shut down of approximately two weeks of the #2 Mill in the first
quarter for installation and start-up of new equipment, electricity shortages
and power interruptions in the second quarter, and higher alloy and mill roll
expense.
SELLING, GENERAL, AND ADMINISTRATIVE EXPENSES
Selling, general, and administrative expenses for the second quarter of 1998
were $1,451,000 as compared to $1,646,000 for the second quarter of 1997. This
decrease was due primarily to lower legal and professional fees. As a percentage
of net sales, selling and administrative expense was 4.2% in the second quarter
of 1998 and 5.9% for the comparable period in 1997.
Selling, general, and administrative expenses for the six month period ended
June 30, 1998 were $2,930,000, compared to $3,055,000 for the comparable period
in 1997. This decrease was due primarily to lower legal fees. As a percentage of
net sales, selling and administrative expense was 4.4% in the six month period
ended June 30, 1998, compared to 5.8% for the comparable period in 1997.
INTEREST EXPENSE, GAIN ON DISPOSAL OF ASSETS AND OTHER OPERATING INCOME
Interest expense for the second quarter of 1998 was $967,000, compared to
$235,000 for the second quarter of 1997 due to increased borrowings associated
with the Company's recently completed Phase II expansion and modernization
program. The Company recognized a loss on the disposal of assets during the
second quarter of 1998 in the amount of $221,000 as compared to a $230,000 gain
in the second quarter of 1997. Other operating income for the second quarter of
1998 was $108,000 compared to $276,000 for the second quarter of 1997.
Interest expense for the six months ended June 30, 1998 was $1,317,000, compared
to $495,000 for the comparable period in 1997. Interest expense increased
primarily due to increased borrowings associated with the Company's recently
completed Phase
8
<PAGE>
II expansion and modernization program. As a percentage of net sales,
interest expense was 2.0% in the six month period ended June 30, 1998,
compared to .9% for the comparable period in 1997. The Company recognized a
gain on disposal of assets of $275,000 for the six months ended June 30, 1998
compared to a gain on the disposal of assets of $453,000 for the six months
ended June 30, 1997. Other operating income for the six months ended June 30,
1998 was $286,000 of income compared to $343,000 of income for the comparable
period in 1997.
NET INCOME
Net income for the second quarter of 1998 decreased by $762,000 to $895,000 from
$1,657,000 for the second quarter of 1997. As a percentage of net sales, net
income was 2.6% for the second quarter of 1998, compared to 5.9% for the second
quarter of 1997. Net income for the six months ended June 30, 1998 was
$2,182,000, compared to $3,202,000 for the comparable period in 1997. As a
percentage of net sales, net income was 3.3% in the six month period ended June
30, 1998, compared to 6.1% for the comparable period in 1997. The decreases in
net income were caused by lower gross margins due to the reasons discussed
above, and an increase in interest expense.
LIQUIDITY AND SOURCES OF CAPITAL
The Company's primary ongoing cash needs are for working capital, debt service
and capital expenditures. The Company's three sources of liquidity are
internally generated funds, a capital expenditure term loan line, and the
Company's revolving credit facility, which the Company anticipates will be
sufficient for its ongoing cash needs. Working capital at the end of the second
quarter of 1998 was $23,245,000, compared to $15,610,000 at the end of the prior
fiscal year. This increase in working capital was funded by proceeds from the
Company's credit arrangements with its senior lender. The Company's expenditures
for required capital replacements are currently anticipated to average
approximately $1,000,000 to $2,000,000 annually over the next several years.
The Company completed Phase II of its expansion and modernization program for
the Huntington, West Virginia plant, in February 1998. The project, costing
approximately $36,000,000 (not including capitalized interest), was funded
with a combination of internally generated cash and bank debt.
From time to time, the Company evaluates discretionary capital expenditures and
acquisition opportunities. Any such expenditures would be subject to
availability of funds and approval by the Company's Board of Directors.
YEAR 2000 ISSUES
The "Year 2000 problem", as it has come to be known, refers to the fact
that many computer programs use only the last two digits to refer to a year, and
therefore recognize a year that begins with "20" as instead beginning with "19".
For example, the year 2000 would be read as being the year 1900. If not
corrected, this problem could cause many computer applications to fail or create
erroneous results.
The Company has modified and tested all of the critical applications of
its information technology ("IT"), the result of which is that all such critical
applications are now Year 2000 compliant. The Company believes that virtually
all of the non-critical applications of its IT will be made Year 2000 compliant
prior to January 1, 1999. The Company has retained the services of an
independent consultant to direct and, together with the Company's internal IT
personnel, implement its compliance program. The total amount of the payments
made to date and to be made hereafter to such independent consultant are not
expected to be material. Based on the Company's analysis to date, the Company
believes that its material non-IT systems are either Year 2000 compliant, or do
not need to be made Year 2000 compliant in order to continue to function in
substantially the same manner in the year 2000. The Company intends to continue
its analysis of whether its non-IT systems require any Year 2000 remediation.
The Company's Year 2000 compliance work has not caused, nor does the Company
expect that it will cause, a deferral on the part of the Company of any material
IT or non-IT projects.
In response to the Company's inquiries, the Company has received
questionnaires from approximately 50% of its significant vendors, and customers
representing approximately 33 1/3% of the Company's 1997 net sales, with regard
to their Year 2000 compliance efforts. Virtually all of these companies have
indicated
9
<PAGE>
that they are endeavoring to become Year 2000 compliant prior to January 1,
2000. However, there can be no assurance that any of the Company's vendors or
customers, including those that responded to the Company's questionnaire,
will be Year 2000 compliant prior to such date. The Company is unable to
predict the ultimate affect that the Year 2000 problem may have upon the
Company, in that there is no way to predict the impact that the problem will
have nation-wide or world-wide and how the Company will in turn be affected,
and, in addition, the Company cannot predict the number and nature of its
vendors and customers who will fail to become Year 2000 compliant prior to
January 1, 2000. Significant Year 2000 difficulties on the part of vendors or
customers could have a material adverse impact upon the Company. The Company
intends to monitor the progress of its vendors and customers in becoming Year
2000 compliant. The Company has not to date formulated a contingency plan to
deal with the potential non-compliance of vendors and customers, but will be
considering whether such a plan would be feasible.
FORWARD LOOKING STATEMENTS
Any Forward Looking Statements contained herein are subject to the section on
Forward Looking Statements contained in the Company's Annual Report on Form 10-K
for the year ended December 31, 1997, including the following risk factors set
forth therein: the cyclical and capital intensive nature of the industry;
pressure resulting from foreign and domestic competition; reduction in demand
for the Company's products and industry pricing; volatility of electricity
prices and raw material costs, especially steel scrap, resulting in reduced
profit margins; excess industry capacity resulting in reduced profit margins;
and the cost of compliance with environmental regulations. In addition, the
Forward Looking Statements contained herein are also subject to the Company's
ability to effectively integrate new equipment.
PART II. OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
At the Annual Meeting of the Stockholders held on May 28, 1998, for which
proxies for the meeting were solicited pursuant to Regulation 14A of the
Securities Exchange Act of 1934, the stockholders elected five directors, each
for a term of one year. The tabulation of the votes cast for each nominee for
director was as follows:
Name of Nominee Voted For
- --------------- ---------
Stephen A. Albert 5,167,993
Timothy R. Duke 5,170,593
Albert W. Eastburn 5,170,593
Daniel N. Pickens 5,170,593
Paul E. Thompson 5,169,793
At the Annual Meeting of Stockholders, the stockholders also approved the
following:
(1) an Amendment to the Company's Certificate of Incorporation to authorize
5,000,000 additional shares of common stock, by a vote of 4,908,824 shares
in favor, 638,169 shares against and 17,700 shares abstained;
(2) the appointment of Ernst & Young as independent auditors, by a vote of
5,559,834 shares in favor, 1,624 shares against and 3,235 shares abstained.
10
<PAGE>
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibit
3.1 Certificate of Incorporation of Steel of West Virginia,
Inc. (the "Company"), as amended.
10 Amendment, dated April 3, 1998, to the Financing Agreement,
dated December 30, 1986, between The CIT Group/Business
Credit, Inc., SWVA, Inc., and Charter Acquisition Corporation.
27 Financial Data Schedule
(b) Reports on Form 8-K
None
11
<PAGE>
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THE
REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON ITS BEHALF BY THE
UNDERSIGNED THEREUNTO DULY AUTHORIZED.
DATED: August 10, 1998 STEEL OF WEST VIRGINIA, INC.
------------------------------
(Registrant)
/s/ Timothy R. Duke
-------------------------------------
Timothy R. Duke, President and
Chief Executive Officer
/s/ Mark G. Meikle
-------------------------------------
Mark G. Meikle, Vice President,
Treasurer and Chief Financial Officer
12
<PAGE>
Exhibit 3.1
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
I, THE UNDERSIGNED, in order to form a corporation for the purposes
hereinafter stated, under and pursuant to the provisions of the General
Corporation Law of the State of Delaware, do hereby certify as follows:
FIRST: The name of the corporation is Charter Steel, Inc.
SECOND: The registered office of the corporation is to be located at
229 South State Street, in the City of Dover, in the County of Kent, in the
State of Delaware. The name of its registered agent at that address in The
Prentice-Hall Corporation System, Inc.
THIRD: The purpose of the corporation is to engage in any lawful
act or activity for which a corporation may be organized under the General
Corporation Law of the State of Delaware.
Without limiting in any manner the scope and generality of the
foregoing, it is hereby provided that the corporation shall have the power to do
all and everything necessary suitable and proper for the accomplishment of any
of the purposes or the attainment of any of the objects or the furtherance of
any of the powers of which a corporation may be organized under the General
Corporation Law of the State of Delaware, whether alone or in association with
other corporations, firms or individuals, and to do every other act or acts,
thing or things incidental or appurtenant to or growing out of or connected with
the corporation's business or powers or any part or parts thereof, provided the
same be not inconsistent with said General Corporation Law; and it shall have
the power to conduct and carry on its business, or any part thereof, and to have
one or more offices, and to exercise any or all of its corporate powers and
rights, in the State of Delaware, and in the various other states, territories,
colonies and dependencies of the United States, in the District of Columbia, and
in all or any foreign countries.
FOURTH: The total number of shares of stock which the corporation is
authorized to issue is One Thousand (1,000) shares of Common Stock, par value of
$.01 per share.
<PAGE>
FIFTH: The name and address of the sole incorporator are as
follows:
NAME ADDRESS
---- -------
Marilynn K. Beatty 488 Madison Avenue
New York, New York 10022
SIXTH: The following provisions are inserted for the management of
the business and for the conduct of the affairs of the corporation, and for
further definition, limitation and regulation of the powers of the corporation
and its directors and stockholders:
1. The number of directors of the corporation shall be such as from
time to time shall be fixed by, or in the manner provided in the by-laws.
Election of directors need not be by ballot unless the by-laws so provide.
2. The Board of Directors shall have power without the assent or
vote of the stockholders:
(a) To make, alter, amend, change, add or repeal the by-laws of
the corporation; to fix and vary the amount to be reserved for any
proper purpose; to authorize and cause to be executed mortgages and
liens upon all or any part of the property of the corporation; to
determining the use and disposition of any surplus or net profits; and
to declare dividends; to fix the record date and the date for the
payment of any dividends; and
(b) To determine from time to time whether and to what extent,
and at what times and places, and under what conditions and
regulations, the accounts and books of the corporation (other than the
stock ledger) or any of them, shall be open to the inspection of the
stockholders.
3. The directors in their discretion may submit any contract or act
for approval or ratification by the written consent of the stockholders, or
at any annual meeting of the stockholders or at any special meeting of the
stockholders called for the purpose of considering any such act or
contract, and any contract or act that shall be approved or ratified by the
written consent or vote of the holders of a majority of the stock of the
corporation (which in the case of a meeting is represented in person or by
proxy at such meeting, provided a lawful quorum of stockholders be there
represented in person or by proxy) shall be as valid and as binding upon
the corporation and upon all the stockholders as though it had been
approved or ratified by every stockholder of the corporation, whether or
not the contract or act would otherwise be open to legal attack because of
the directors' interest, or for any other reason.
4. In addition to the powers and authorities hereinbefore or by
statute expressly conferred upon them, the directors are hereby empowered
to exercise all such
2
<PAGE>
powers and do all such acts and things as may be exercised or done by the
corporation; subject, nevertheless, to the provisions of the statutes of
Delaware, of this certificate, and to any by-laws from time to time made by
the stockholders; provided, however, that no by-laws so made shall
invalidate any prior act of the directors which would have been valid if
such by-laws had not been made.
5. No director of the Corporation shall be liable to the Corporation
or its stockholders for monetary damages for any breach of fiduciary duty
as a director, except for liability (i) for any breach of the director's
duty of loyalty to the Corporation or its stockholders, (ii) for acts or
omissions not in good faith or which involve intentional misconduct or a
knowing violation of law, (iii) under Section 174 of the Delaware General
Corporation Law, or (iv) for any transaction from which the director
derived an improper personal benefit.
SEVENTH: The corporation shall, to the full extent permitted by
Section 145 of the General corporation Law of the State of Delaware as amended
from time to time, indemnify all persons whom it may indemnify pursuant thereto.
EIGHTH: Whenever a compromise or arrangement is proposed between the
corporation and its creditors or any class of them and/or between the
corporation and its stockholders or any class of them, any court of equitable
jurisdiction within the State of Delaware may, on the application in a summary
way of the corporation or any creditor or stockholders thereof or on the
application of any receiver or receivers appointed for the corporation under the
provisions of Section 291 of Title 8 of the Delaware Code or on the application
of trustees in dissolution or of any receiver or receivers appointed for the
corporation under the provisions of Section 279 of Title 8 of the Delaware Code,
order a meeting of the creditors or class of creditors, and/or of the
stockholders or class of stockholders of the corporation, as the case may be, to
be summoned in such manner as the said court directs. If a majority in number
representing three-fourths in value of the creditors or class of creditors,
and/or of the stockholders of class of stockholders of the corporation, as the
case may be, agree to any compromise or arrangement and the said reorganization
of the corporation as a consequence of such compromise or arrangement, the said
compromise or arrangement and the said reorganization shall, if sanctioned by
the court to which the said application has been made, be binding on all the
creditors or class of creditors, and/or on all the stockholders or class of
stockholders, of the corporation, as the case may be, and also on the
corporation.
NINTH: The corporation reserves the right to amend, alter, change
or repeal any provision contained in this certificate of incorporation in the
manner now or hereafter prescribed by law, and all rights and powers conferred
herein on stockholders, directors and officers are subject to this reserved
power.
3
<PAGE>
IN WITNESS WHEREOF, I have hereunto set my hand and seal this 7th day
of November, 1986.
/s/ Marilynn K. Beatty
-------------------------------
MARILYNN K. BEATTY
Sole Incorporator
4
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (herein called the "Corporation") is
Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking Article "FOURTH" thereof and by substituting in lieu of said
Article the following new Article:
"FOURTH: The total number of shares of stock which the
Corporation is authorized to issue is Twenty Thousand (20,000) shares of
Common Stock, par value of $.01 per share."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section 241
of the General Corporation Law of the State of Delaware by unanimous written
consent of the sole Incorporator dated December 12, 1986, said amendment having
been duly adopted by the sole Incorporator prior to the election of any
directors of the Corporation and prior to the receipt of any payment for any of
the Corporation's stock.
IN WITNESS WHEREOF, Charter Steel, Inc. has caused this Certificate to
be signed by its sole Incorporator this 12th day of December, 1986.
Charter Steel, Inc.
By: /s/ Marilynn K. Beatty
------------------------------
Marilynn K. Beatty,
Sole Incorporator
5
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (herein call the "Corporation") is
Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking Article "FOURTH" thereof and by substituting in lieu of said
Article the following new Article:
"FOURTH: The total number of shares of stock which the
corporation is authorized to issue is Forty Thousand (40,000) shares of
Common Stock of which (a) twenty thousand (20,000) shall be designated
Class A Common Stock with a par value of $.01 per share and shall entitle
the holders thereof to one (1) vote per share, and (b) twenty thousand
(20,000) shall be designated Class B Common Stock with a par value of $.01
per share and shall not entitle the holders thereof to any voting rights
with respect thereto. Every reference in the General Corporation Law of
the State of Delaware, this Certificate of Incorporation or the By-Laws of
the corporation to a majority or other proportion or percentage of capital
stock shall refer to a majority or other proportion or percentage of the
aggregate votes of the outstanding shares of Class A Common Stock. In
every other respect, the rights and privileges of the shares of Class A
Common Stock and Class B Common Stock shall be identical. A holder of
shares of Class B Common Stock, other than the initial holder thereof,
shall have the right at any time and from time to time upon notice to the
corporation to convert such shares into shares of Class A Common Stock on
the basis of one share of Class A Common stock for each share of Class B
Common Stock so converted. Shares of Class B Common Stock which shall have
been converted into shares of Class A Common Stock shall thereafter not be
issued by the corporation. At such time as all shares of Class B Common
Stock shall have been converted into shares of Class A Common Stock, then
(i) no shares of Class B Common Stock shall thereafter be issued by the
corporation; (ii) the Class A Common Stock shall thereafter be designated
"Common Stock"; and (iii) the total number of shares of capital stock which
the corporation shall thereafter be authorized to issue shall be changed to
40,000 shares of Common stock, without
6
<PAGE>
designation as to class."
3. The amendment of the Certificate of Incorporation herein
certified has been duly adopted in accordance with the provisions of Section 241
of the General Corporation Law of the State of Delaware by unanimous written
consent of the sole Incorporator dated December 19, 1986, said amendment having
been duly adopted by the sole Incorporator prior to the election of any
directors of the Corporation and prior to the receipt of any payment for any of
the Corporation's stock.
IN WITNESS WHEREOF, CHARTER STEEL, INC. has caused this Certificate to
be signed by its sole Incorporator this 19th day of December, 1986.
CHARTER STEEL, INC.
By: /s/ Marilynn K. Beatty
--------------------------------
Marilynn K. Beatty
Sole Incorporator
7
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
CHARTER STEEL, INC.
It is hereby certified that:
1. The name of the corporation (hereinafter called the
"Corporation") is Charter Steel, Inc.
2. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article "FIRST" thereof and by substituting in lieu of
said Article, the following new Article:
"FIRST: The name of the Corporation is Steel of West Virginia,
Inc."
3. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article "FOURTH" thereof and by substituting in lieu of
said Article, the following new Article:
"FOURTH: The total number of shares of capital stock that may be
issued by the Corporation is Eight Million Five Hundred Thousand
(8,500,000) shares of which (a) 8,000,000 shares shall be common stock, par
value $.01 per share, which shall be designated Common Stock ("Voting
Common Shares"), and (b) 500,000 shares shall be common stock, par value
$.01 per share, which shall be designated Non-voting Common Stock
("Non-voting Common Shares") (the Voting Common Shares and Non-voting
Common Shares shall hereinafter collectively be referred to as "Common
Shares"). Each of the currently outstanding shares of Class A Common
Stock, par value $.01 per share, shall be automatically converted and split
into three hundred forty (340) Voting Common Shares and the currently
outstanding shares of Class B Common Stock, par value $.01 per share, shall
be automatically converted and split into three hundred forty (340)
Non-voting Common Shares; with the result that (i) the 9,280 currently
outstanding shares of Class A Common Shares shall be converted and split
into a total of 3,155,200 shares of Common Stock and (ii) the 729 currently
outstanding shares of Class B Common Stock shall be converted and split
into a total of 244,800 shares of Non-voting Common Stock. No fractional
Common Shares or script representing fractional shares shall be issued upon
such automatic conversion, but in lieu thereof, there shall be paid and
amount in cash at the rate of $1.382 per share.
8
<PAGE>
The designations, rights, powers and preferences of, and the
qualifications, limitations and restrictions on, the shares of each such series
of Common Shares of the Corporation are as follows:
1. DIVIDENDS. Dividends may be paid upon the outstanding Common
Shares (on a pro rata basis among all such shares outstanding as of the record
date fixed by the Board of Directors for the relevant dividend) from time to
time when and as declared by the Board of Directors out of any funds legally
available therefor.
2. LIQUIDATION. Upon any liquidation, dissolution or winding up of
the affairs of the Corporation, the then holders of record of the outstanding
Common Shares shall be entitled to receive pro rata any and all assets of the
Corporation remaining available for distribution.
3. VOTING RIGHTS. Except as otherwise provided by the Delaware
General Corporation Law or any other applicable statute or by any express
provision of this Certificate:
(a) the holders of record of Voting Common Shares shall be
entitled to one vote for each share for the election of directors and upon all
other matters submitted to a voted of stockholders of the Corporation;
(b) the holders of record of Non-voting Common Shares shall not
be entitled to notice of, or to attend or vote at, any annual or special meeting
of the stockholders of the Corporation.
Except as otherwise provided in this Section 3 or in Sections 4,
5 and 6 below, Common Shares of each series shall have the identical rights,
powers and preferences and be subject to the identical qualifications,
limitations and restrictions.
4. OPTIONAL CONVERSION OF NON-VOTING COMMON SHARES INTO VOTING
COMMON SHARES
(a) Each holder of one or more Non-voting Common Shares shall
have the right, at that holder's option, to convert those Non-voting Common
Shares into Voting Common Shares at the rate of one Non-voting Common Share for
one Voting Common share, subject to and in accordance with the terms and
conditions of this Section 4; PROVIDED, HOWEVER, that no such holder of
Non-voting Common Shares that is a Regulated person shall be entitled to effect
any such conversion thereof if the conversion would cause that holder to be in
violation of any rules or regulations of the Board of Governors of the Federal
Reserve System as shall be in effect and applicable to that holder at the time
of the proposed conversion (the "Bank Regulations"). For the purposes hereof,
the term "Regulated Person" shall mean an entity that is subject to regulation
by the Board of Governors of the Federal Reserve System. In connection with any
such conversion of Non-Voting Common Shares, the holder proposing to effect that
conversion shall provide to the Corporation, together with the notice of
conversion required pursuant to Section 4(c) below, a certificate confirming
either that it is not a Regulated Person or that the conversion would not cause
it to be in violation of the Bank Regulations, together with such supporting
information as the Corporation shall reasonably require to confirm the accuracy
of that certificate.
9
<PAGE>
(b) Non-voting Common Shares shall be convertible into fully
paid and non-assessable Voting Common Shares at the rate herein specified,
without payment or adjustment for any dividends declared and unpaid on the
Non-voting Common Shares surrendered for conversion to the date of conversion.
Any such declared and unpaid dividends shall constitute a debt of the
Corporation, payable without interest to the converting holder on the date fixed
by the Board of Directors as the record date for such dividend.
(c) To convert some or all of his Non-voting Common Shares into
Voting Common Shares, the holder thereof shall surrender to the Corporation the
certificate(s) evidencing those Non-voting Common Shares, duly endorsed to the
Corporation or in blank, and shall give written notice to the Corporation that
he elects to convert the same into Voting Common Shares and the name(s) in which
the holder wishes the certificate(s) evidencing the shares issuable upon such
conversion to be issued. As soon as reasonably practicable thereafter, the
Corporation shall deliver to that holder, or to his nominee(s), one or more
certificates evidencing the number of shares to which the holder shall be
entitled as aforesaid. Non-voting Common Shares shall be deemed to have been
converted as of the date of surrender thereof for conversion as aforesaid, and
the person(s) entitled to receive the shares issuable upon such conversion shall
be treated for all purposes as the record holder(s) of those shares on that
date, and each such share shall be deemed outstanding on that date.
(d) The issuance of certificates evidencing Voting Common Shares
upon conversion of Non-voting Common Shares shall be made without charge to the
converting holder for any tax in respect of the issuance of such certificates;
PROVIDED, HOWEVER, that the Corporation shall not be required to pay any tax
which may be payable in respect of any transfer involved in the issuance and
delivery upon any such conversion of any certificate representing shares in a
name other than that of the holder of the Non-voting Common Shares so converted,
and the Corporation shall not be required to issue or deliver such certificates
unless or until the person(s) requesting the issuance thereof shall have paid to
the Corporation the amount of such tax or shall have established to the
satisfaction of the Corporation that such tax has been paid.
(e) The corporation shall at all times reserve and keep
available out of its authorized but unissued Voting Common Shares, solely for
the purpose of effecting the conversion of Non-voting Common Shares pursuant to
this Section 4 and Section 5 below, the full number of whole Voting Common
Shares then deliverable upon the conversion of all of the Non-voting Common
shares convertible into Voting Common Shares at the time outstanding.
5. AUTOMATIC CONVERSION OF NON-VOTING COMMON SHARES INTO VOTING
COMMON SHARES
(a) Non-voting Common Shares shall be automatically converted,
on a one-for-one basis, into fully paid and non-assessable Voting Common Shares
(i) upon the sale of any such shares pursuant to a public offering registered
under the Securities Act of 1933 (the "Act"), (ii) upon the sale of any such
shares in a broker's transaction or transaction directly with a market maker
within the meaning of Rule 144 under the act (a "Permitted Sale") or (iii) with
respect to the shares of any holder of Non-voting Common Shares, at such time as
the total number of Voting Common Shares and Non-voting Common Shares of such
holder would represent less than 5% of the total number of Voting Common Shares
outstanding, taking into account the number of Voting Common Shares which will
be held upon the conversion of the
10
<PAGE>
Non-voting Common Shares to Voting Common Shares. Each of the events described
in clauses (i), (ii) and (iii) herein shall hereinafter be referred to as a
"Conversion Event".
(b) Upon the occurrence of a Conversion Event, holders of
Non-voting Common Shares shall surrender for cancellation to the Corporation the
certificate(s) which, immediately prior to a Conversion Event, represented
outstanding Non-voting Common Shares and, in the case of a Permitted Sale, a
certificate confirming that such shares were obtained in a Permitted Sale,
together with such supporting information as the Corporation shall reasonably
require to confirm the accuracy of the certificate. As soon as reasonably
practicable after the surrender of said certificate(s), the Corporation shall
deliver to the holder of such certificate(s), or to his nominee(s), one or more
certificates evidencing the number of Voting Common Shares into which those
Non-voting Common Shares shall have been automatically converted as a result of
such Conversion Event. No payment or adjustment shall be made for any dividends
declared and unpaid on the Non-voting Common Shares surrendered to the date of
such Conversion Event. Any such declared and unpaid dividends shall constitute
a debt of the Corporation, payable without interest to the holder of the
converted Non-voting Common Shares on the date fixed by the Board of directors
as the record date for such dividend. The Voting Common Shares into which the
Non-voting Common Shares shall be converted as a result of a Conversion Event
shall be deemed to have been issued at the time of the Conversion Event.
6. AUTOMATIC CONVERSION OF VOTING COMMON SHARES INTO NON-VOTING
COMMON SHARES
(a) In the event that the amount of Voting Common Shares held by
Regulated Person is in an amount equal to or greater than 5% of the total number
of Voting Common Shares outstanding, an amount of such Regulated Person's Voting
Common Shares sufficient to bring such Regulated Person's holdings of Voting
Common Shares to less than 5% shall be automatically converted, on a one-for-one
basis, into fully paid and non-assessable Non-voting Common Shares which event
shall hereinafter be referred to as a "Subsequent Conversion Event"; and
(b) Upon such occurrence of a Subsequent Conversion Event,
holders of Voting Common Shares shall surrender for cancellation to the
Corporation the certificate(s) which, immediately prior to a Subsequent
Conversion Event, represented outstanding Voting Common Shares together with
such supporting information as the Corporation shall reasonable require to
confirm the accuracy of the certificate. As soon as reasonably practicable
after the surrender of said certificate(s), the Corporation shall deliver to the
holder of such certificate(s), or to his nominee(s), one or more certificates
evidencing the number of Non-voting Common Shares into which those Voting Common
Shares shall have been automatically converted pursuant to Section 6 (a) hereof.
No payment or adjustment shall be made for any dividends declared and unpaid on
the Voting Common Shares surrendered to the date of such Subsequent Conversion
Event. Any such declared and unpaid dividends shall constitute a debt of the
Corporation, payable without interest to the holder of the converted Voting
Common Shares on the date fixed by the Board of Directors as the record date for
such dividend. The Non-voting Common Shares into which the Voting Common Shares
shall be converted pursuant to Section 6 (a) hereof as a result of a Subsequent
Conversion Event shall be deemed to have been issued at the time of the
"Subsequent Conversion Event."
4. The amendment of the Certificate of Incorporation herein
certified has been
11
<PAGE>
duly adopted in accordance with the provisions of Section 242 of the General
Corporation Law of the state of Delaware by unanimous written consent of the
Board of Directors and by written consent of the holders of a majority of the
outstanding stock of the Corporation pursuant to Section 228(c) of the General
Business Law, written notice of the adoption of the amendments herein having
been given to those stockholders who have not consented in writing thereto.
IN WITNESS WHEREOF, Charter Steel, Inc. has caused this Certificate to
be signed by its Chairman of the Board and attested by its Secretary this 24th
day of August, 1987.
CHARTER STEEL, INC.
By: /s/ Patricia R. Merrick
-------------------------------
Patricia R. Merrick
Chairman of the Board
ATTEST:
/s/ Eric M. Mencher
- ------------------------------
Eric M. Mencher
Assistant Secretary
12
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STEEL OF WEST VIRGINIA, INC.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
Steel of West Virginia, Inc.
SECOND: The corporation hereby amends its Certificate of
Incorporation as follows:
Paragraph FOURTH of the Certificate of Incorporation, relating to the
capital stock of the corporation is hereby amended to read, in its entirety, as
follows:
FOURTH: The total number of shares of capital stock that the
corporation shall have authority to issue is twelve million (12,000,000) shares
of Common Stock, par value $.01 per share.
THIRD: The amendment effected herein was authorized by vote of a
majority of stockholders at the annual meeting of stockholders of the
corporation pursuant to Section 242 of the General Corporation Law of the State
of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 16th day of
November, 1995.
By: /s/ Timothy R. Duke
-------------------------------
Name: Timothy R. Duke
Title: Vice President
ATTESTED AND ACKNOWLEDGED:
/s/ Stephen A. Albert
- ------------------------------
Name: Stephen A. Albert
Title: Secretary
13
<PAGE>
CERTIFICATE OF AMENDMENT
OF
CERTIFICATE OF INCORPORATION
OF
STEEL OF WEST VIRGINIA, INC.
The undersigned corporation, in order to amend its Certificate of
Incorporation, hereby certifies as follows:
FIRST: The name of the corporation is:
Steel Of West Virginia, Inc.
SECOND: The corporation hereby amends its Certificate of Incorporation as
follows:
Paragraph FOURTH of the Certificate of Incorporation, relating to the
capital stock of the corporation, is hereby amended to read, in its entirety, as
follows:
"FOURTH: The total number of shares of capital stock that the corporation
shall have authority to issue is seventeen million (17,000,000) shares of Common
Stock, par value $.01 per share."
THIRD: The amendment effected herein was authorized by vote of a
majority of the outstanding shares of the corporation at the annual meeting of
stockholders of the corporation pursuant to Section 242 of the General
Corporation Law of the State of Delaware.
IN WITNESS WHEREOF, we hereunto sign our names and affirm that the
statements made herein are true under the penalties of perjury, this 2nd day of
June, 1998.
By: /s/ Timothy R. Duke
-------------------------------
Name: Timothy R. Duke
Title: President
ATTESTED AND ACKNOWLEDGED:
/s/ Stephen A. Albert
- ---------------------------------
Name: Stephen A. Albert
Title: Secretary
14
<PAGE>
Exhibit 10
1998 Amendment Agreement
April 3, 1998
SWVA, Inc.
17th Street and 2nd Avenue
Huntington, WV 25726
Gentlemen:
We refer to the Financing Agreement between us dated December 30, 1986, as
amended (the "Financing Agreement"). Capitalized terms used herein and defined
in the Financing Agreement shall have the meanings set forth in said Financing
Agreement unless otherwise specifically defined herein.
You have requested that we increase the Line of Credit (including the maximum
amount of advances against Eligible Inventory thereunder) and the Additional
CAPEX Term Loan Line of Credit. We have agreed to the foregoing subject to, and
in accordance with, the terms, provisions and conditions hereof.
Effective immediately pursuant to mutual understanding, the Financing Agreement
shall be, and hereby is, amended as follows:
1) The definitions of Line of Credit, Additional CAPEX Term Loans and
Additional CAPEX Term Loan Line of Credit in Section 1 of the Financing
Agreement shall be, and each hereby is, deleted and the following shall be, and
hereby is substituted in lieu thereof:
"Line of Credit shall mean the sum of $21,000,000."
"Additional CAPEX Term Loans shall mean the term loans made and to be made to
the Company by CITBC in the aggregate principal amount of up to $28,000,000, as
more fully described in Section 3 of this Financing Agreement."
"Additional CAPEX Term Loan Line of Credit shall mean the commitment of CITBC to
make Additional CAPEX Term Loans to the Company pursuant to Section 3 of this
Financing Agreement in the aggregate amount not to exceed $28,000,000."
2) Section 2, Paragraph 1 of the Financing Agreement shall be, and hereby is
amended to provide that the maximum aggregate advances against Eligible
Inventory under clause (b) (i) and (ii) shall not exceed $10,000,000 in the
aggregate.
3) It is further agreed that:
(a) The term "Obligations" as used in the Financing Agreement shall also
include, without limitation, all present and future indebtedness, liabilities
and obligations of the Company to CITBC pursuant to the Line of Credit and the
Additional CAPEX Term Loans (as amended and increased hereby).
(b) The form of Amended and Restated Promissory Note attached hereto shall be
annexed to the Financing Agreement as Exhibit C and shall evidence the
Additional CAPEX Term Loans (as amended
<PAGE>
and increased hereby). Such Amended and Restated Promissory Note is being
executed and delivered in substitution for, and not in payment of, the
Promissory Note dated April 3, 1997 in the original principal amount of
$23,000,000 evidencing the Additional CAPEX Term Loans (the "Original Note").
It is the intention of the parties hereto that such Amended and Restated
Promissory Note and the Amended Mortgage Documents referred to herein below
shall not constitute a novation of the Obligations evidenced by the Original
Note, but merely a restatement and, where applicable, a substitution of the
terms governing and evidencing the Additional CAPEX Term Loan Obligations
evidenced thereby and as amended and increased hereby. Without limiting the
generality of the foregoing, the liens securing all or any part of such
Obligations and all Collateral (including but not limited to all Collateral
subject to the Amended Mortgage Documents) do and shall continue (without any
break in continuity thereof) to secure payment of all Obligations of the Company
under such Amended and Restated Promissory Note. The principal amount of the
Amended and Restated Promissory Note includes the portion of the outstanding
principal balance of the Original Note that has not been repaid on the date
hereof, which amount is equal to $ and is due and owing without
offset, counterclaim or deduction. The Original Note will be marked "Canceled
by Substitution".
(c) The Additional CAPEX Term Loans (as amended and increased hereby) shall (i)
incur interest at the rate specified in Section 7, Paragraph 2 of the Financing
Agreement and (ii) be secured by all Collateral.
(d) The effectiveness of the foregoing amendments, including, but not limited
to the extension of Additional CAPEX Term Loans (as amended and increased
hereby) shall be conditioned upon the fulfillment of the following conditions
precedent to CITBC's reasonable satisfaction:
(i) The Company simultaneously executing and delivering to CITBC the Amended and
Restated Promissory Note referred to in Paragraph 8(b) above and Mortgages,
Deeds of Trust and/or amendments and/or modifications to our existing Mortgages
or Deeds of Trust (herein "Amended Mortgage Documents") confirming and granting
to CITBC first mortgage liens upon the Company's Real Estate to secure the Line
of Credit and the Additional CAPEX Term Loans (as amended and increased hereby).
(ii) Our receipt of certified resolutions authorizing the execution, delivery
and performance of the transactions contemplated by this amendment.
(iii) Parent signing below to confirm that the term "Obligations" as defined and
used in the Guaranty and Pledge Agreement executed by Parent in favor of CITBC
shall also include, without limitation, all indebtedness, liabilities and
obligations of the Company to CITBC arising in connection with the Line of
Credit and the Additional CAPEX Term Loans (as amended and increased hereby).
(iv) Marshall Steel, Inc. ("Marshall") signing below to confirm that the term
"Obligations" as defined and used in the Guaranty, Security Agreement and
Negative Pledge Agreement executed by Marshall in favor of CITBC shall also
include, without limitation, all present and future indebtedness, liabilities
and obligations of the Company to CITBC arising in connection with the Line of
Credit and the Additional CAPEX Term Loans (as amended and increased hereby).
(v) CITBC's receipt of title insurance and a current survey (in form and
substance satisfactory to CITBC) with respect to the Real Estate to be subject
to the Mortgages and/or Deeds of Trust referred to in paragraph 8(d)(i) no later
than sixty (60) days after the date hereof.
(vi) The absence of any Default or Event of Default under the Financing
Agreement.
(e) By signing below you confirm your agreement to (i) pay to us an
Accommodation and Documentation Fee equal to $13,750 in the aggregate upon
execution of this amendment, and (ii) reimburse us for all of our Out-of-Pocket
Expenses incurred in connection with this amendment and the transactions
contemplated hereby. All such amounts may, at our option, be charged to your
loan amount under the Financing Agreement when due.
Except as set forth herein no other change in the terms or provisions of the
Financing Agreement is intended or implied. If the foregoing is in accordance
with your understanding, kindly so indicate by signing and returning the
enclosed copy of this letter.
<PAGE>
Parent and Marshall have signed below to confirm their respective agreements to
subparagraphs (iii) and (iv) of paragraph 8(f) above.
THE CIT GROUP/BUSINESS
CREDIT, INC.
By: /s/ B. Bernier
Title: Vice President
Read and Agreed to:
SWVA, INC.
By: /s/ Mark Meikle
Title: Vice President & CFO
Confirmed:
STEEL OF WEST VIRGINIA, INC.
By: /s/ Mark Meikle
Title: Vice President & CFO
MARSHALL STEEL, INC.
By: /s/ Mark Meikle
Title: Vice President & CFO
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> JUN-30-1998
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 15,435
<ALLOWANCES> 609
<INVENTORY> 25,938
<CURRENT-ASSETS> 43,447
<PP&E> 101,549
<DEPRECIATION> (34,925)
<TOTAL-ASSETS> 127,962
<CURRENT-LIABILITIES> 20,202
<BONDS> 49,172
0
0
<COMMON> 71
<OTHER-SE> 56,535
<TOTAL-LIABILITY-AND-EQUITY> 127,962
<SALES> 66,670
<TOTAL-REVENUES> 66,670
<CGS> 59,224
<TOTAL-COSTS> 59,224
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 1,317
<INCOME-PRETAX> 3,760
<INCOME-TAX> 1,578
<INCOME-CONTINUING> 2,182
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,182
<EPS-PRIMARY> .36
<EPS-DILUTED> .36
</TABLE>
