<PAGE> 1
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 December 31, 1998
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from ____________ to ______________
Commission File #1-10459
GENEVA STEEL COMPANY
(Exact name of registrant as specified in its charter)
UTAH 93-0942346
(State of Incorporation) (I.R.S. Employer Identification No.)
10 South Geneva Road
Vineyard, Utah
(Address of principal executive offices)
84058
(Zip Code)
Registrant's telephone number, including area code: (801) 227-9000
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 [ ]
Indicate the number of shares outstanding of each class of the issuer's common
stock, as of the latest practicable date.
14,975,265 and 18,451,348 shares of Class A and Class B common stock,
respectively, outstanding as of January 19, 1999.
<PAGE> 2
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS
(Dollars in thousands)
(Unaudited)
ASSETS
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
--------- ---------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ -- $ --
Accounts receivable, net 27,094 63,430
Inventories 95,087 113,724
Deferred income taxes 16,201 8,118
Prepaid expenses and other 2,889 2,964
Related party receivable -- 270
--------- ---------
Total current assets 141,271 188,506
--------- ---------
Property, plant and equipment:
Land 1,990 1,990
Buildings 16,119 16,119
Machinery and equipment 643,551 640,363
Mineral property and development costs 1,000 1,000
--------- ---------
662,660 659,472
Less accumulated depreciation (259,198) (248,298)
--------- ---------
Net property, plant and equipment 403,462 411,174
--------- ---------
Other assets 5,008 5,485
--------- ---------
$ 549,741 $ 605,165
========= =========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 2 of 22
<PAGE> 3
GENEVA STEEL COMPANY
CONDENSED BALANCE SHEETS (Continued)
(Dollars in thousands)
(Unaudited)
LIABILITIES AND STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
--------- ---------
<S> <C> <C>
Current liabilities:
Senior notes $ 325,000 $ 325,000
Revolving credit facility 57,234 60,769
Accounts payable 23,394 34,117
Accrued liabilities 18,405 25,005
Accrued payroll and related taxes 7,439 9,454
Accrued dividends payable 28,317 25,315
Accrued interest payable 13,586 5,080
Accrued pension and profit
sharing costs 2,682 2,182
--------- ---------
Total current liabilities 476,057 486,922
--------- ---------
Deferred income tax liabilities 16,201 8,118
--------- ---------
Redeemable preferred stock 57,106 56,917
--------- ---------
Stockholders' equity:
Preferred stock -- --
Common stock:
Class A 88,348 87,979
Class B 9,741 10,110
Warrants to purchase Class A
common stock 5,360 5,360
Accumulated deficit (103,010) (47,749)
Class A common stock held in
treasury, at cost (62) (2,492)
--------- ---------
Total stockholders' equity 377 53,208
--------- ---------
$ 549,741 $ 605,165
========= =========
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed balance sheets.
Page 3 of 22
<PAGE> 4
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF OPERATIONS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(In thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
--------- ---------
<S> <C> <C>
Net sales $ 78,699 $ 181,513
Cost of sales 108,237 169,720
--------- ---------
Gross margin (29,538) 11,793
Selling, general and administrative
expenses 9,703 5,892
--------- ---------
Income (loss) from operations (39,241) 5,901
--------- ---------
Other income (expense):
Interest and other income 144 84
Interest expense (10,721) (10,271)
--------- ---------
(10,577) (10,187)
--------- ---------
Loss before benefit for income taxes (49,818) (4,286)
Benefit for income taxes -- (1,571)
--------- ---------
Net loss (49,818) (2,715)
Less redeemable preferred stock dividends and
accretion for original issue discount 3,191 2,801
--------- ---------
Net loss applicable to common shares $ (53,009) $ (5,516)
========= =========
Basic and diluted net loss per common share $ (3.30) $ (.35)
========= =========
Weighted average common shares outstanding 16,042 15,943
========= =========
</TABLE>
The accompanying notes to condensed financial statements are an integral
part of these condensed statements.
Page 4 of 22
<PAGE> 5
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
Increase (Decrease) in Cash and Cash Equivalents
<TABLE>
<CAPTION>
1998 1997
-------- --------
<S> <C> <C>
Cash flows from operating activities:
Net loss $(49,818) $ (2,715)
Adjustments to reconcile net loss
to net cash provided by
operating activities:
Depreciation 11,045 11,797
Amortization 478 478
Deferred income taxes -- (1,884)
Gain on asset disposal (119) --
(Increase) decrease in current
assets--
Accounts receivable, net 36,336 (12,849)
Inventories 18,637 (9,703)
Prepaid expenses and other 345 2,620
Increase (decrease) in current
liabilities--
Accounts payable (10,723) 11,216
Accrued liabilities (5,829) (152)
Accrued payroll and related taxes (1,837) (1,341)
Accrued interest payable 8,506 8,478
Accrued pension and profit
sharing costs 500 (265)
-------- --------
Net cash provided by operating
activities 7,521 5,680
-------- --------
Cash flows from investing activities:
Purchases of property, plant and equipment (3,355) (4,841)
Proceeds from sale of property, plant and
equipment 140 --
-------- --------
Net cash used for investing activities $ (3,215) $ (4,841)
-------- --------
</TABLE>
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 5 of 22
<PAGE> 6
GENEVA STEEL COMPANY
CONDENSED STATEMENTS OF CASH FLOWS (Continued)
THREE MONTHS ENDED DECEMBER 31, 1998 AND 1997
(Dollars in thousands)
(Unaudited)
<TABLE>
<CAPTION>
1998 1997
------- -------
<S> <C> <C>
Cash flows from financing activities:
Proceeds from issuance of long-term debt $ 1,282 $ 4,263
Payments on long-term debt (4,817) (5,274)
Change in bank overdraft (771) 168
Other -- 4
------- -------
Net cash used for financing activities (4,306) (839)
------- -------
Net change in cash and cash
equivalents -- --
Cash and cash equivalents at beginning
of period -- --
------- -------
Cash and cash equivalents at end
of period $ -- $ --
======= =======
Supplemental disclosures of cash flow information:
Cash paid during the period for:
Interest (net of amount capitalized) $ 1,738 $ 1,315
</TABLE>
Supplemental schedule of noncash financing activities:
For the three months ended December 31, 1998 and 1997, the Company
increased the redeemable preferred stock by $189 and $185, respectively,
for the accretion required over time to amortize the original issue
discount on the redeemable preferred stock incurred at the time of
issuance. At December 31, 1998, the Company had accrued dividends payable
of $28,317.
The accompanying notes to condensed financial statements are
an integral part of these condensed statements.
Page 6 of 22
<PAGE> 7
GENEVA STEEL COMPANY
NOTES TO CONDENSED FINANCIAL STATEMENTS
(Unaudited)
(1) VOLUNTARY FILING FOR RELIEF UNDER CHAPTER 11 OF THE UNITED STATES
BANKRUPTCY CODE
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first fiscal quarter of 1999 were severely affected by,
among other things, a dramatic surge in steel imports beginning in the summer of
1998. As a consequence of record-high levels of low-priced steel imports and the
resultant deteriorating market conditions, the Company's overall price
realization and shipments declined precipitously. Decreased liquidity made it
impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing operations to reduce costs and by pursuing trade cases against dumped
and/or subsidized steel imports. The Company, as previously disclosed, did not
make the $9 million interest payment due January 15, 1999 under the terms of the
Company's 9 1/2% Senior Notes due 2004. The Bankruptcy Code generally prohibits
the Company from making payments on unsecured pre-petition debt, including the
9 1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as
provided in a confirmed plan of reorganization. The Company will continue
operations in Chapter 11 utilizing a recently approved $125 million
debtor-in-possession credit facility (see Note 5).
(2) INTERIM CONDENSED FINANCIAL STATEMENTS
The accompanying condensed financial statements of Geneva Steel Company
have been prepared pursuant to the rules and regulations of the Securities and
Exchange Commission. Certain information and disclosures normally included in
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to such rules and
regulations. The accompanying unaudited condensed financial statements reflect
all adjustments (consisting only of normal recurring adjustments) which, in the
opinion of management, are necessary to present fairly the financial position
and results of operations of the Company.
It is suggested that these condensed financial statements be read in
conjunction with the financial statements and notes thereto included in the
Company's latest Annual Report on Form 10-K.
Page 7 of 22
<PAGE> 8
(3) INVENTORIES
Inventories were comprised of the following components (in thousands):
<TABLE>
<CAPTION>
December 31, September 30,
1998 1998
-------- --------
<S> <C> <C>
Raw materials $ 28,403 $ 29,250
Semi-finished and finished goods 60,857 78,746
Operating materials 5,827 5,728
-------- --------
$ 95,087 $113,724
======== ========
</TABLE>
(4) BASIC AND DILUTED NET INCOME (LOSS) PER COMMON SHARE
Basic net income (loss) per common share is calculated based upon the
weighted average number of common shares outstanding during the periods. Diluted
net income (loss) per common share is calculated based upon the weighted average
number of common shares outstanding plus the assumed exercise of all dilutive
securities using the treasury stock method. For the three-months ended December
31, 1998 and 1997, stock options and warrants prior to conversion are not
included in the calculation of diluted net loss per common share because their
inclusion would be antidilutive. Class B common stock is included in the
weighted average number of common shares outstanding at one share for every ten
shares outstanding because the Class B common stock is convertible to Class A
common stock at this same rate.
The net loss for the three-months ended December 31, 1998 and 1997 was
adjusted for redeemable preferred stock dividends and the accretion required
over time to amortize the original issue discount on the redeemable preferred
stock incurred at the time of issuance.
(5) $125 MILLION DEBTOR-IN-POSSESSION CREDIT FACILITY
On February 19, 1999, the U.S. District Court for the District of Utah
granted the Company's motion to approve a new $125 million debtor-in-possession
credit facility with Congress Financial Corporation (the "Credit Facility"). The
Credit Facility expires on the earlier of the consummation of a plan of
reorganization or February 19, 2001. The Credit Facility replaced the Company's
previous revolving credit facility with a syndicate of banks led by Citicorp
USA, Inc. as agent, and by including the property, plant and equipment in the
collateral base, is intended to provide additional liquidity and strengthen the
Company's ability to continue serving customers and paying vendors in the
ordinary course of business. The Credit Facility is secured by, among other
things, accounts receivable; inventory; and property, plant and equipment. The
Credit Facility has been consummated, with funds becoming available on February
22, 1999. Actual borrowing availability is subject to a borrowing base
calculation and the right of the lender to establish various reserves, which it
has done. The amount available to the Company under the Credit Facility is
expected to be approximately 60%, in the aggregate, of eligible inventories,
plus 85% of eligible accounts receivable, plus 80% of the orderly liquidation
value of eligible equipment up to a maximum of $40 million, less any reserves on
the various collateral established by the lender. Borrowing availability under
the Credit Facility is also subject to other covenants. As of February 28, 1999,
the Company's eligible inventories, accounts receivable and eligible equipment
supported access to $77.5 million under
Page 8 of 22
<PAGE> 9
the Credit Facility. As of February 28, 1999, the Company had $12.0 million
available under the Credit Facility, with $65.5 million in borrowings. During
March 1999, the Company expects to attain significant additional borrowing
availability (up to $20 million, less any applicable reserves) once an appraisal
of the Company's property, plant and equipment is completed by the lender. There
can, however, be no assurance as to the amount of additional availability that
will be provided or that the lender will not take additional reserves in the
future.
(6) MANNESMANN MARKETING AGREEMENT
On November 2, 1998, the Company signed a new, three-year agreement with
Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann will
be responsible for the marketing of the Company's steel products throughout the
continental United States. Mannesmann previously marketed the Company's products
in fifteen midwestern states and to certain customers in the eastern United
States. The Company expects that this new arrangement will strengthen its
domestic sales efforts. The Company's existing sales force will remain Company
employees, but will be directed by Mannesmann. The Company has also made several
other organizational changes designed to improve product distribution and
on-time delivery.
The Mannesmann agreement requires Mannesmann to purchase and pay for the
Company's finished goods inventory as soon as it has been assigned to or
otherwise identified with a particular order. Mannesmann then sells the product
to end customers at the same sales price Mannesmann paid the Company plus a
variable commission. The Company remains responsible for customer credit and
product quality problems. The Company estimates that when fully implemented, the
new arrangement will reduce its working capital balances and, as a result,
improve the Company's liquidity. Although the company estimates that full
implementation of the Mannesmann agreement will have a positive net liquidity
effect; the agreement will also reduce inventory and accounts receivable
balances otherwise included in the Company's borrowing base under its Credit
Facility. Termination of the Mannesmann agreement would have a negative impact
on the cash flow and resulting liquidity of the Company. Full implementation of
the Mannesmann agreement is expected to be completed during the third quarter of
fiscal 1999. There can be no assurance that the Mannesmann agreement can be
fully implemented as scheduled or that the new sales approach will be
successful.
(7) RELATED PARTY TRANSACTION
On November 24, 1998, the Company's Chief Executive Officer paid the
remaining balance due under his note with the Company.
Page 9 of 22
<PAGE> 10
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first fiscal quarter of 1999 were severely affected by,
among other things, a dramatic surge in steel imports beginning in the summer of
1998. As a consequence of record-high levels of low-priced steel imports and the
resultant deteriorating market conditions, the Company's overall price
realization and shipments declined precipitously. Decreased liquidity made it
impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing operations to reduce costs and by pursuing trade cases against dumped
and/or subsidized steel imports (See Results of Operations). The Company, as
previously disclosed, did not make the $9 million interest payment due January
15, 1999 under the terms of the Company's 9 1/2% Senior Notes due 2004. The
Bankruptcy Code generally prohibits the Company from making payments on
unsecured pre-petition debt, including the 9 1/2% Senior Notes due 2004 and the
11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of
reorganization. The Company will continue operations in Chapter 11 utilizing a
recently approved $125 million debtor-in-possession credit facility (See
Liquidity and Capital Resources).
Results of Operations
The following table sets forth the percentage relationship of certain cost
and expense items to net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
--------------------------
1998 1997
----- -----
<S> <C> <C>
Net sales 100.0% 100.0%
Cost of sales 137.5 93.5
----- -----
Gross margin (37.5) 6.5
Selling, general and administrative expenses 12.4 3.2
----- -----
Income (loss) from operations (49.9) 3.3
----- -----
Other income (expense):
Interest and other income 0.2 0.1
Interest expense (13.6) (5.7)
----- -----
(13.4) (5.6)
----- -----
Loss before benefit for income taxes (63.3) (2.3)
Benefit for income taxes -- (0.8)
----- -----
Net loss (63.3)% (1.5)%
===== =====
</TABLE>
Page 10 of 22
<PAGE> 11
The following table sets forth the sales product mix as a percentage of
net sales for the periods indicated:
<TABLE>
<CAPTION>
Three Months Ended
December 31,
-------------------------
1998 1997
----- -----
<S> <C> <C>
Plate 64.0% 53.2%
Sheet 12.8 20.6
Pipe 9.0 12.9
Slab 11.1 11.1
Non-Steel 3.1 2.2
----- -----
100.0% 100.0%
===== =====
</TABLE>
THREE MONTHS ENDED DECEMBER 31, 1998 COMPARED WITH THREE MONTHS ENDED DECEMBER
31, 1997
Net sales decreased 56.6% due to decreased shipments of approximately
272,200 tons and decreased overall average selling prices for the three months
ended December 31, 1998 as compared to the same period in the previous fiscal
year. The weighted average sales price (net of transportation costs) per ton of
plate, pipe, sheet and slab products decreased by 9.4%, 9.4%, 13.7% and 20.4%,
respectively, in the three months ended December 31, 1998 compared to the same
period in the previous fiscal year. Shipped tonnage of plate, pipe, sheet and
slab products decreased approximately 112,900 tons or 42.5%, 35,800 tons or
66.6%, 84,400 tons or 68.9%, and 39,100 tons or 45.4%, respectively, between the
two periods. The decreases in prices and volume were primarily a result of
increased supply from imports as discussed below, as well as other market
factors.
During the fourth quarter of fiscal year 1998 and the first quarter of
fiscal year 1999, order entry, shipments and pricing for all of the Company's
products were adversely affected by, among other things, increased imports. As a
result of the increased supply of imports and other market conditions, the
Company's overall price realization and shipments are expected to remain at
relatively low levels during the second and third quarters of fiscal year 1999
and negatively impact the financial performance of the Company during such
periods. The high inventories of imported steel products has created a short
order delivery time, resulting in a low backlog of orders. As of January 31,
1999, the Company had estimated total orders on hand of approximately 46,500
tons compared to approximately 421,700 tons as of January 31, 1998.
Foreign competition is a significant factor in the steel industry and has
adversely affected product prices in the United States and tonnage sold by
domestic producers. The intensity of foreign competition is substantially driven
by fluctuations in the value of the United States dollar against several other
currencies as well as the level of demand for steel in the United States economy
relative to steel demand in foreign economies. In addition, many foreign steel
producers are controlled or subsidized by foreign governments whose decisions
concerning production and exports may be influenced in part by political and
social policy considerations as well as by prevailing market conditions and
profit opportunities.
Historically, coiled and flat plate imports have represented approximately
20% of total U.S. consumption. In the summer of 1998, the steel industry began
Page 11 of 22
<PAGE> 12
experiencing an unprecedented surge in imports. Approximately 40% of recent
domestic plate and hot rolled sheet consumption has been supplied by imports.
Imports have similarly increased in each of the Company's other product lines.
The surge in imports from various countries is in part the result of depressed
economies in various regions, which have greatly reduced steel consumption,
causing steel producers to dramatically increase exports to the United States,
one of the few strong markets for steel consumption. The Company, as well as
other domestic steel producers, believes that foreign producers are selling
product into the U.S. market at dumped and/or subsidized prices and are
adversely affecting domestic shipments and pricing.
While a previous import surge in 1996 primarily involved cut-to-length
plate, the current surge includes all of the Company's products. As a result,
from May 1998 to December 1998, the Company's plate and sheet prices fell by
20.2% and 25.9%, respectively. Concurrently, the Company has been forced to
reduce production by approximately 50%, resulting in higher costs per ton and
production inefficiencies, as well as a significant decline in operating results
and cash flow. During the three months ended December 31, 1998, the Company's
total shipments were approximately 255,700 tons, as compared to 527,900 tons for
the same period in the previous year.
On September 30, 1998, the Company and eleven other domestic steel
producers filed anti-dumping actions against hot-rolled coiled steel imports
form Russia, Japan and Brazil. The group also filed a subsidy (countervailing
duty) case against Brazil (all cases described in this paragraph are referred to
as the "Coiled Products Cases"). In mid November 1998, the International Trade
Commission (the "ITC") made a unanimous affirmative preliminary injury
determination. Preliminary dumping margins ranging from 25% to 71% for various
producers in Japan and Brazil were announced by the Department of Commerce
("DOC") on February 12, 1999, and preliminary margins ranging from 71% to 218%
for various producers in Russia were announced on February 22, 1999, with final
margins to be announced between May-July 1999. Countervailing duties ranging
from 7% to 9% were also announced with respect to Brazil. The ITC is expected to
make its final injury determination between July-September 1999. If affirmative,
the final determinations by the ITC and DOC will result in duties against
imported hot-rolled coil products from the offending countries that are not the
subject of a suspension agreement. Under applicable law, the U.S. Administration
may settle some or all of the cases if the settlement has the effect of removing
the injury or threat of injury caused by the imports. Settlements, called
suspension agreements, typically involve import volume and/or price limitations.
The U.S. Administration has reached a tentative suspension agreement with Russia
that will allow imports of the subject product in the amount of 343,750 metric
tons in 1999 and 750,000 metric tons in each year thereafter through 2004.
Hot-rolled imports from Russia in 1998 were 3.4 million metric tons. The
agreement also includes price floors.
Imports of hot-rolled coil products from Japan and Brazil that arrive in
the U.S. after mid-November 1998 are at risk that duties eventually imposed in
the Coiled Products Cases could be applied retroactively to that date.
Consequently, the Company expects that such imports will likely decline, as well
imports of Russian product pursuant to the above-described suspension agreement.
As a result, the Company expects that its production levels, shipments and
pricing of those products will increase as imports decline and excess inventory
levels are reduced.
Page 12 of 22
<PAGE> 13
On February 22, 1999, five domestic steel producers filed anti-dumping
actions against cut-to-length plate imports from Czech Republic, France, India,
Indonesia, Italy, Macedonia, Japan and South Korea. Also, countervailing duty
suits were filed against France, India, Indonesia, Italy, Macedonia and South
Korea (all cases described in this paragraph are referred to as the
"Cut-to-length Plate Cases"). The Company expects a preliminary injury
determination to be made by the ITC in April 1999. After May 1999, imports from
some of the countries subject to the Cut-to-length Plate Cases arriving in the
United States could potentially be at risk that duties eventually imposed in the
future could be applied retroactively to that date. Consequently, such imports
may decline. The Company anticipates that preliminary dumping margins will be
announced by the DOC between July-August 1999 with final margins announced
between October 1999-January 2000. A final injury determination by the ITC is
expected 45 days after announcement of final dumping margins.
With respect to both the Coiled Products Cases and the Cut-to-length Plate
Cases, there can be no assurance that the trade cases will be successful, that
duties will be imposed, that imports from countries not named in the Coiled
Products Cases or the Cut-to-length Plate Cases will not increase or that
domestic shipments or prices will rise. The Company continues to monitor imports
of all its products and may file additional trade cases or take other trade
action in the future. Existing trade laws and regulations may be inadequate to
prevent the adverse impact of such an unprecedented world steel crisis;
consequently, imports could pose continuing or increasing problems for the
domestic steel industry and the Company.
Five-year sunset reviews of various cut-to-length plate cases decided in
1994 will begin in September 1999. The Company and other U.S. producers are
allowed to participate in these reviews in support of a five year extension of
the orders. The outcome of these reviews cannot currently be predicted, but the
failure to extend such dumping duties could have a material adverse effect.
Domestic competition remains intense and imported steel continues to
adversely affect the market. Moreover, additional production capacity is being
added in the domestic market. The Company sells substantially all of its
products in the spot market at prevailing market prices. The Company believes
its percentage of such sales is significantly higher than that of most of the
other domestic integrated producers. Consequently, the Company may be affected
by price increases or decreases more quickly than many of its competitors. The
Company intends to react to price increases or decreases in the market as
required by competitive conditions.
On November 2, 1998, the Company signed a new, three-year agreement with
Mannesmann Pipe and Steel ("Mannesmann"). Under the agreement, Mannesmann will
be responsible for the marketing of the Company's steel products throughout the
continental United States. Mannesmann previously marketed the Company's products
in fifteen midwestern states and to certain customers in the eastern United
States. The Company expects that this new arrangement will strengthen its
domestic sales efforts. The Company's existing sales force will remain Company
employees, but will be directed by Mannesmann. The Company has also made several
other organizational changes designed to improve product distribution and
on-time delivery.
The Mannesmann agreement requires Mannesmann to purchase and pay for the
Company's finished goods inventory as soon as it has been assigned to or
otherwise
Page 13 of 22
<PAGE> 14
identified with a particular order. Mannesmann then sells the product to end
customers at the same sales price Mannesmann paid the Company plus a variable
commission. The Company remains responsible for customer credit and product
quality problems. The Company estimates that when fully implemented, the new
arrangement will reduce its working capital balances and, as a result, improve
the Company's liquidity. Although the Company estimates that full implementation
of the Mannesmann agreement will have a positive net liquidity effect, the
agreement will also reduce inventory and accounts receivable balances otherwise
included in the Company's borrowing base under its credit facility. Termination
of the Mannesmann agreement would have a negative impact on the cash flow and
resulting liquidity of the Company. Full implementation of the Mannesmann
agreement is expected to be completed during the third quarter of fiscal 1999.
There can be no assurance that the Mannesmann agreement can be fully implemented
as scheduled or that the new sales approach will be successful.
Cost of sales includes raw materials, labor costs, energy costs,
depreciation and other operating and support costs associated with the
production process. The Company's cost of sales, as a percentage of net sales,
increased to 137.5% for the three months ended December 31, 1998 as compared to
93.5% for the same period in the previous fiscal year. The overall average cost
of sales per ton shipped increased approximately $102 per ton between the two
periods, primarily as a result of higher steelmaking and rolling costs caused by
the production inefficiencies associated with operating at less than 50% of
capacity. As described above, the significant surge in foreign imports and
resulting low level of orders caused production levels to be less than 50% of
capacity. Operating costs per ton have increased in part because fixed costs are
allocated over fewer tons. In addition, a lower of cost or market inventory
adjustment of approximately $1.7 million increased cost of sales in the three
months ended December 31, 1998.
Depreciation costs included in cost of sales decreased approximately $0.7
million for the three months ended December 31, 1998 compared with the same
period in the previous fiscal year. This decrease was due to decreases in the
asset base as a result of approximately $16.3 million of impaired fixed assets
being written-down at the end of fiscal year 1998.
Selling, general and administrative expenses for the three months ended
December 31, 1998 increased approximately $3.8 million as compared to the same
period in the previous fiscal year. These higher expenses were due to increased
expenses of approximately $4 million for allowance of doubtful accounts
associated with the depressed steel market that is affecting certain of the
Company's customers. These higher expenses were offset in part by cost savings
from staff and support personnel reductions. The Company's selling, general and
administrative expenses in future periods will be negatively impacted by
anticipated professional fees and other expenses associated with the filing of
Chapter 11 under the Bankruptcy Code.
Interest expense increased approximately $0.5 million during the three
months ended December 31, 1998 as compared to the same period in the previous
fiscal year as a result of higher average levels of borrowing.
Page 14 of 22
<PAGE> 15
LIQUIDITY AND CAPITAL RESOURCES
The Company's liquidity requirements arise from capital expenditures and
working capital requirements, including interest payments. In the past, the
Company has met these requirements principally from the sale of equity; the
incurrence of long-term indebtedness, including borrowings under the Company's
credit facilities; equipment lease financing and cash provided by operations.
In March 1993, the Company issued in a public offering $135 million
principal amount of 11 1/8% senior notes (the "11 1/8% Senior Notes" and,
together with the 9 1/2% Senior Notes discussed below, the "Senior Notes"). The
11 1/8% Senior Notes mature in 2001, are unsecured and require interest payments
semi-annually on March 15 and September 15. Since March 1998, the 11 1/8% Senior
Notes are redeemable, in whole or in part, at the option of the Company, subject
to certain redemption premiums. The Bankruptcy Code generally prohibits the
Company from making payments on unsecured pre-petition debt, including the
9 1/2% Senior Notes due in January 2004 and the 11 1/8% Senior Notes due in
March 2001, except as provided in a confirmed plan of reorganization.
In connection with the offering of the 11 1/8% Senior Notes, the Company
issued $40 million of 14% cumulative redeemable exchangeable preferred stock
(the "Redeemable Preferred Stock") at a price of $100 per share and warrants to
purchase an aggregate of 1,132,000 shares of Class A common stock. The
Redeemable Preferred Stock consists of 400,000 shares, no par value, with a
liquidation preference of approximately $151 per share as of December 31, 1998.
Dividends accrue at a rate equal to 14% per annum of the liquidation preference
and, except as provided below, are payable quarterly in cash from funds legally
available therefor. For dividend periods ending before April 1996, the Company
had the option to add dividends to the liquidation preference in lieu of payment
in cash. Prior to April 1996, the Company elected to add the dividends to the
liquidation preference. The Redeemable Preferred Stock is exchangeable, at the
Company's option, into subordinated debentures of the Company due 2003 (the
"Exchange Debentures"). The Company is obligated to redeem all of the Redeemable
Preferred Stock in March 2003 from funds legally available therefor. The
Company's ability to pay cash dividends on the Redeemable Preferred Stock is
subject to the covenants and tests contained in the indentures governing the
Senior Notes and in the Company's Revolving Credit Facility. Restricted payment
limitations under the Company's Senior Notes precluded payment of the quarterly
preferred stock dividends beginning with the dividend due June 15, 1996. Unpaid
dividends were approximately $28.3 million at December 31, 1998. The Company
will not pay dividends on the Redeemable Preferred Stock during the pendency of
its Chapter 11 proceeding. Unpaid dividends accumulate until paid and accrue
additional dividends at a rate of 14% per annum. As a result of the Company's
inability to pay four full quarterly dividends, the holders of the Redeemable
Preferred Stock elected two directors on May 30, 1997. The right of such holders
to elect directors continues until the Company has paid all dividends in arrears
and has paid the dividends due for two consecutive quarters thereafter. Both the
Redeemable Preferred Stock and/or the Exchange Debentures are redeemable, at the
Company's option, subject to certain redemption premiums. The warrants to
purchase the Company's Class A common stock are exercisable at $11 per share,
subject to adjustment in certain circumstances, and expire in March 2000.
In February 1994, the Company completed a public offering of $190 million
principal amount of 9 1/2% senior notes (the "9 1/2% Senior Notes"). The 9 1/2%
Senior Notes mature in 2004, are unsecured and require interest payments
Page 15 of 22
<PAGE> 16
semi-annually on January 15 and July 15. After January 1999, the 9 1/2% Senior
Notes are redeemable, in whole or in part, at the option of the Company, subject
to certain redemption premiums. In January 1999, the Company did not make a $9.5
million interest payment due on the 9 1/2% Senior Notes. As stated earlier, the
Bankruptcy Code generally prohibits the Company from making payments on
unsecured pre-petition debt, including the 9 1/2% Senior Notes due in January
2004 and the 11 1/8% Senior Notes due in March 2001, except as provided in a
confirmed reorganization.
On February 19, 1999, the U.S. District Court for the District of Utah
granted the Company's motion to approve a new $125 million debtor-in-possession
credit facility with Congress Financial Corporation (the "Credit Facility"). The
Credit Facility expires on the earlier of the consummation of a plan of
reorganization or February 19, 2001. The Credit Facility replaced the Company's
previous revolving credit facility with a syndicate of banks led by Citicorp
USA, Inc. as agent, and by including the property, plant and equipment in the
collateral base, is intended to provide additional liquidity and strengthen the
Company's ability to continue serving customers and paying vendors in the
ordinary course of business. The Credit Facility is secured by, among other
things, accounts receivable; inventory; and property, plant and equipment. The
Credit Facility has been consummated, with funds becoming available on February
22, 1999. Actual borrowing availability is subject to a borrowing base
calculation and the right of the lender to establish various reserves, which it
has done. The amount available to the Company under the Credit Facility is
expected to be approximately 60%, in the aggregate, of eligible inventories,
plus 85% of eligible accounts receivable, plus 80% of the orderly liquidation
value of eligible equipment up to a maximum of $40 million, less any reserves on
the various collateral established by the lender. Borrowing availability under
the Credit Facility is also subject to other covenants. As of February 28, 1999,
the Company's eligible inventories, accounts receivable and eligible equipment
supported access to $77.5 million under the Credit Facility. As of February 28,
1999, the Company had $12.0 million available under the Credit Facility, with
$65.5 million in borrowings. During March 1999, the Company expects to attain
significant additional borrowing availability (up to $20 million, less any
applicable reserves) once an appraisal of the Company's property, plant and
equipment is completed by the lender. There can, however, be no assurance as to
the amount of additional availability that will be provided or that the lender
will not take additional reserves in the future.
The terms of the Credit Facility include cross default and other customary
provisions. Covenants contained in the Credit Facility include, among others, a
limitation on dividends and distributions on capital stock of the Company,
limitations on the incurrence of additional indebtedness unless certain
financial tests are satisfied, a limitation on mergers, consolidations and
dispositions of assets and limitations on liens.
Besides the above-described financing activities, the Company's major
source of liquidity over time has been cash provided by operating activities.
Net cash provided by operating activities was $7.5 million for the three months
ended December 31, 1998, as compared with net cash provided by operating
activities of $5.7 million for the three months ended December 31, 1997. The
sources of cash for operating activities during the three months ended December
31, 1998, included depreciation and amortization of $11.5 million, a decrease in
accounts receivable of $36.3 million associated primarily with the
implementation of the Mannesmann agreement and reduced sales volume, a decrease
in inventories of $18.6 million as
Page 16 of 22
<PAGE> 17
a result of lower production levels and an increase in accrued interest payable
of $8.5 million. These sources of cash were offset in part by a net loss of
$49.8 million, a decrease in accounts payable of $10.7 million, a decrease in
accrued liabilities of $5.8 million and, a decrease in accrued payroll and
related taxes of $1.8 million.
Capital expenditures were $3.4 million and $4.8 million for the three
months ended December 31, 1998 and 1997, respectively. Capital expenditures for
fiscal year 1999 are estimated at approximately $15 to $20 million, which
includes implementation of new business and financial software and various other
projects designed to reduce costs and increase product quality and throughput.
Given current market conditions and the uncertainties created thereby, the
Company is continuing to closely monitor its capital spending levels. The
Company is implementing SAP software, an enterprise-wide business system. The
Company expects to benefit significantly from such implementation, including
addressing the year 2000 issues inherent in its mainframe legacy systems. The
project is currently estimated to cost $8.0 to $10.0 million ($6.0 million of
which has been spent as of December 31, 1998), with implementation completed in
1999 (see year 2000 discussion below). The Company is, however, currently
experiencing various operations disruptions associated with implementation of
the SAP software, which are expected to continue in the near future. There can
be no assurance that in the near term the Company will realize the expected
benefits of SAP or that the disruptions will not continue for a longer than
expected time. Depending on market, operational, liquidity and other factors,
the Company may elect to adjust the design, timing and budgeted expenditures of
its capital plan.
The Company is a member of a limited liability Company which has entered
into a cooperative agreement with the United States Department of Energy ("DOE")
for the demonstration of a cokeless ironmaking facility and associated power
generation and air separation facilities. As of December 31, 1998, the Company
had spent (net of DOE reimbursement) approximately $1.2 million in connection
with the project. Expenditures on the project are subject to government cost
sharing arrangements. Completion of the project remains subject to several
contingencies.
YEAR 2000 ISSUES
The Company is actively assessing and correcting potential year 2000
information system issues in the following areas: (i) the Company's information
technology systems; (ii) the Company's non-information technology systems (i.e.,
machinery, equipment and devices which utilize built-in or embedded technology);
and (iii) third party suppliers and customers. The Company is undertaking its
year 2000 review in the following phases: awareness (education and sensitivity
to the year 2000 issue), identification (identifying the equipment processes or
systems which are susceptible to the year 2000 issue), assessment (determining
the potential impact of year 2000 on the equipment, processes and systems
identified during the previous phase and assessing the need for testing and
remediation), testing/verification (testing to determine if an item is year 2000
ready or the degree to which it is deficient), and implementation (carrying out
necessary remedial efforts to address year 2000 readiness, including validation
of upgrades, patches or other year 2000 fixes).
During fiscal year 1997, the Company selected and started the
implementation of SAP software, an enterprise-wide business system. This system
affects nearly every aspect of the Company's operations. During fiscal year
1998, the Company
Page 17 of 22
<PAGE> 18
installed new year 2000 compliant HP computer hardware and SAP modules for
financial accounting, purchasing and accounts payable, raw materials inventory
control and accounts receivable. The human resource and payroll module was
implemented on January 1, 1999. On February 1, 1999, the Company began and is
currently in the process of implementing the last phase of the SAP
implementation, including sales and distribution, materials management,
production planning, and product costing and other management information
systems. This completes the year 2000 compliance of all of the Company's
business systems. The HP hardware, operating systems and software installed are
year 2000 ready. The Company expects to test these hardware, operating systems
and software applications in the first six months of 1999 to confirm year 2000
readiness. The Company has identified other hardware, operating systems and
software applications used in its process control and other information systems
and is in the process of obtaining year 2000 compliance information from the
providers of such hardware, operating systems and applications software. The
Company expects to work with vendors to test the year 2000 readiness of such
hardware, operating systems and software application systems. The Company is
also reviewing and testing internally developed software applications for the
year 2000 issue.
The Company has substantially completed inventorying its non-information
technology systems and is assessing the year 2000 issues to determine
appropriate testing and remediation. The Company anticipates completing the
assessment of its major non-information technology systems and to start any
necessary testing and implementation efforts for business critical
non-information technology systems in the third quarter of calendar 1999.
The Company has significant relationships with various third parties, and
the failure of any of these third paries to achieve year 2000 compliance could
have a material adverse impact on the Company's business, operating results and
financial condition. These third parties include energy and utility suppliers,
financial institutions, material and product suppliers, transportation
providers, and the Company's significant customers. The Company expects to
audit/review each major third-party supplier to confirm their year 2000
readiness. The audit/review process will continue into the first and second
calendar quarters of 1999.
Through December 31, 1998, the Company has incurred approximately $6.0
million in costs to improve the Company's information technology systems and for
year 2000 readiness efforts. Of this amount, most represents the costs of
consulting, implementing and transitioning to new computer hardware and software
for its SAP enterprise-wide business systems. More than 90% of these costs have
been capitalized. Training and re-engineering efforts have been expensed. The
Company anticipates incurring an additional $2 to $4 million in connection with
the year 2000 readiness efforts. The Company expects to have all year 2000
readiness efforts completed by September 30, 1999.
The Company is in the process of preparing contingency plans for critical
areas to address year 2000 failures if remedial efforts are not fully
successful. The Company's contingency plans are expected to target the Company's
most reasonably likely worst case scenarios and to include items such as
maintaining an inventory buffer, providing for redundant information technology
systems and establishing alternative third-party logistics. The Company's
contingency plans will be based in part on the results of third-party supplier
questionnaires, and thus are not fully developed at this time. Completion of
initial contingency plans is targeted for the summer of 1999 (which plans will
thereafter be revised from time to time as deemed appropriate).
Page 18 of 22
<PAGE> 19
No assurance can be given that the Company will not be materially
adversely affected by year 2000 issues. The Company may experience material
unanticipated problems and costs caused by undetected errors or defects in its
internal information technology and non-information technology systems. In
addition, the failure of third-parties to timely address their year 2000 issues
could have a material adverse impact on the Company's business, operations and
financial condition. If, for example, third party suppliers become unable to
deliver necessary materials, parts or other supplies, the Company would be
unable to timely manufacture products. Similarly, if shipping and freight
carriers were unable to ship product, the Company would be unable to deliver
product to customers.
The foregoing discussion of the Company's year 2000 readiness includes
forward-looking statements, including estimates of the timeframes and costs for
addressing the known year 2000 issues confronting the Company, and is based on
management's current estimates, which were derived using numerous assumptions.
There can be no assurance that these estimates will be achieved, and actual
events and results could differ materially from those anticipated. Specific
factors that might cause such material differences include, but are not limited
to, the availability of personnel with required remediation skills, the ability
of the Company to identify and correct or replace all relevant computer code and
the success of third parties with whom the Company does business in addressing
their year 2000 issues.
FACTORS AFFECTING FUTURE RESULTS
This report contains a number of forward-looking statements, including,
without limitation, statements contained in this report relating to the
Company's ability to improve and optimize operations as well as ontime delivery
and customer service, the Company's objective to increase higher-margin sales
while reducing lower-margin sales, the Company's ability to compete with the
additional production capacity being added in the domestic market, the Company's
ability to compete against imports and the effect of imports and trade cases on
the domestic market, the outcome of trade cases, the Company's expectation that
prices and shipments will remain lower at least in the second and third fiscal
quarters of 1999, the potential commercial and liquidity benefits of the
Mannesmann agreement, the successful implementation of the Mannesmann agreement,
the Company's ability to successfully reorganize under Chapter 11 of the United
States Bankruptcy Code, continued access to and adequacy of the Credit Facility,
the Company's ability to restrict capital spending, the effect of SAP
implementation, the Company's plan to become year 2000 compliant, the effect of
inflation and any other statements contained herein to the effect that the
Company or its management "believes," "expects," "anticipates," "plans" or other
similar expressions. There are a number of important factors that could cause
actual events or the Company's actual results to differ materially from those
indicated by such forward-looking statements. These factors include, without
limitation, those set forth herein.
The Company's future operations will be impacted by, among other factors,
pricing, product mix, throughput levels and production efficiencies. The Company
has efforts underway to improve throughput rates and production efficiencies and
to continue shifting its product mix to higher-margin products. There can be no
assurance that the Company's efforts will be successful or that sufficient
demand will exist to support the Company's throughput capacity. Pricing and
shipment levels in future periods are key variables to the Company's future
operating results that remain subject to significant uncertainty. These
variables will be
Page 19 of 22
<PAGE> 20
affected by several factors including the level of imports, future capacity
additions, product demand and other market factors.
The short-term and long-term liquidity of the Company also is dependent upon
several other factors, including continued access to the Company's Credit
Facility; reaction by vendors, customers and others to the Company's bankruptcy
filing; cash needs to fund working capital as volume increases; availability of
capital; foreign currency fluctuations; competitive and market forces; capital
expenditures and general economic conditions. Moreover, the United States steel
market is subject to cyclical fluctuations that may affect the amount of cash
internally generated by the Company and the ability of the Company to obtain
external financing. In addition, because of the Company's recent bankruptcy
filing and liquidity position, the Company's financial flexibility is limited.
Many of the foregoing factors, of which the Company does not have complete
control, may materially affect the performance and financial condition of the
Company.
Inflation can be expected to have an effect on many of the Company's
operating costs and expenses. Due to worldwide competition in the steel
industry, the Company may not be able to pass through such increased costs to
its customers.
Page 20 of 22
<PAGE> 21
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
On February 1, 1999, the Company filed a voluntary petition for relief
under Chapter 11 of the United States Bankruptcy Code in the United States
Bankruptcy Court for the District of Utah, Central Division. The filing was made
necessary by a lack of sufficient liquidity. The Company's operating results for
fiscal 1998 and for the first fiscal quarter of 1999 were severely affected by,
among other things, a dramatic surge in steel imports beginning in the summer of
1998. As a consequence of record-high levels of low-priced steel imports and the
resultant deteriorating market conditions, the Company's overall price
realization and shipments declined precipitously. Decreased liquidity made it
impossible for the Company to service its debt and fund ongoing operations.
Therefore, the Company sought protection under Chapter 11 of the Bankruptcy
Code. The Company has responded to the surge in imports by significantly
decreasing operations to reduce costs and by pursuing trade cases against dumped
and/or subsidized steel imports. The Bankruptcy Code generally prohibits the
Company from making payments on unsecured pre-petition debt, including the 9
1/2% Senior Notes due 2004 and the 11 1/8% Senior Notes due 2001, except as
provided in a confirmed plan of reorganization. The Company will continue
operations in Chapter 11 utilizing a recently approved $125 million
debtor-in-possession credit facility.
ITEM 3. DEFAULTS UPON SENIOR SECURITIES
The Company did not make its interest payment of approximately $9.0
million due January 15, 1999 on the Company's 9 1/2% Senior Notes, which
resulted in a default under the terms thereof. The default was not cured by the
Company, and therefore resulted in a cross default with respect to the Company's
11 1/8% Senior Notes. As described above, the Company filed a voluntary petition
for relief under Chapter 11 of the United States Bankruptcy Code on February 1,
1999. The Bankruptcy Code generally prohibits the Company from making payments
on unsecured pre-petition debt, including the 9 1/2% Senior Notes due 2004 and
the 11 1/8% Senior Notes due 2001, except as provided in a confirmed plan of
reorganization. Interest payment defaults under the Senior Notes are excluded
as a cross default under the terms of the Credit Facility.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
<TABLE>
<CAPTION>
Exhibit Filed
Number Exhibit Herewith
------ ------- --------
<S> <C> <C>
10.1 Loan and Security Agreement by and between
Congress Financial Corporation and Geneva X
Steel Company as Debtor and Debtor-in-
Possession as Borrower, dated February 19,
1999
27 Financial Data Schedule X
</TABLE>
Page 21 of 22
<PAGE> 22
(b) Reports on Form 8-K.
On February 17, 1999, the Company filed a current report on Form 8-K to
report the Company's voluntary filing for relief under Chapter 11 of the United
States Bankruptcy Code.
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.
GENEVA STEEL COMPANY
By: /s/ Dennis L. Wanlass
-------------------------------------
Vice President, Treasurer and
Chief Financial Officer
Dated: March 12, 1999
Page 22 of 22
<PAGE> 1
EXHIBIT 10.1
LOAN AND SECURITY AGREEMENT
by and between
CONGRESS FINANCIAL CORPORATION
as Lender
and
GENEVA STEEL COMPANY
as Debtor and Debtor-in-Possession
as Borrower
Dated: February 19, 1999
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 1. DEFINITIONS.........................................................................................1
SECTION 2. CREDIT FACILITIES..................................................................................20
2.1 Revolving Loans....................................................................................20
2.2 Letter of Credit Accommodations....................................................................21
2.3 Supplemental Revolving Loans.......................................................................23
2.4 Availability Reserves..............................................................................24
SECTION 3. INTEREST AND FEES..................................................................................24
3.1 Interest...........................................................................................24
3.2 Closing Fee........................................................................................25
3.3 Syndication Fee....................................................................................25
3.4 Servicing Fees.....................................................................................25
3.5 Unused Line Fee....................................................................................26
3.6 Changes in Laws and Increased Costs of Loans.......................................................26
SECTION 4. CONDITIONS PRECEDENT...............................................................................27
4.1 Conditions Precedent to Initial Loans and Letter of Credit Accommodations..........................27
4.2 Conditions Precedent to All Loans and Letter of Credit Accommodations..............................29
SECTION 5. GRANT OF SECURITY INTEREST.........................................................................29
SECTION 6. COLLECTION AND ADMINISTRATION......................................................................30
6.1 Borrower's Loan Account............................................................................30
6.2 Statements.........................................................................................30
6.3 Collection of Accounts.............................................................................30
6.4 Payments...........................................................................................31
6.5 Authorization to Make Loans........................................................................32
6.6 Use of Proceeds....................................................................................33
SECTION 7. COLLATERAL REPORTING AND COVENANTS.................................................................33
7.1 Collateral Reporting...............................................................................33
7.2 Accounts Covenants.................................................................................34
7.3 Inventory Covenants................................................................................35
7.4 Equipment and Real Property Covenants..............................................................36
7.5 Power of Attorney..................................................................................37
7.6 Right to Cure......................................................................................37
7.7 Access to Premises.................................................................................38
SECTION 8. REPRESENTATIONS AND WARRANTIES.....................................................................38
</TABLE>
(i)
<PAGE> 3
<TABLE>
<S> <C>
8.1 Corporate Existence, Power and Authority; Subsidiaries.............................................38
8.2 Financial Statements; No Material Adverse Change...................................................39
8.3 Chief Executive Office; Collateral Locations.......................................................39
8.4 Priority of Liens; Title to Properties.............................................................39
8.5 Tax Returns........................................................................................39
8.6 Litigation.........................................................................................40
8.7 Compliance with Other Agreements and Applicable Laws...............................................40
8.8 Environmental Compliance...........................................................................39
8.9 Employee Benefits..................................................................................41
8.10 Bank Accounts......................................................................................43
8.11 Financing Order....................................................................................43
8.12 Super Priority Administrative Expense..............................................................43
8.13 Accuracy and Completeness of Information...........................................................43
8.14 Survival of Warranties; Cumulative.................................................................43
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS.................................................................43
9.1 Maintenance of Existence...........................................................................43
9.2 New Collateral Locations...........................................................................44
9.3 Compliance with Laws, Regulations, Etc.............................................................44
9.4 Payment of Taxes and Claims........................................................................45
9.5 Insurance..........................................................................................45
9.6 Financial Statements and Other Information.........................................................46
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc............................................49
9.8 Encumbrances.......................................................................................49
9.9 Indebtedness.......................................................................................50
9.10 Loans, Investments, Guarantees, Etc................................................................53
9.11 Dividends and Redemptions..........................................................................55
9.12 Transactions with Affiliates.......................................................................55
9.13 Additional Bank Accounts...........................................................................55
9.14 Compliance with ERISA..............................................................................55
9.15 Costs and Expenses.................................................................................56
9.16 Further Assurances.................................................................................57
SECTION 10. EVENTS OF DEFAULT AND REMEDIES.....................................................................57
10.1 Events of Default.................................................................................57
10.2 Remedies..........................................................................................60
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW...................................................................61
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial Waiver.............................61
11.2 Waiver of Notices.................................................................................63
11.3 Amendments and Waivers............................................................................63
11.4 Waiver of Counterclaims...........................................................................63
11.5 Indemnification...................................................................................63
</TABLE>
(ii)
<PAGE> 4
<TABLE>
<S> <C>
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS..................................................................64
12.1 Term..............................................................................................64
12.2 Notices...........................................................................................65
12.3 Partial Invalidity................................................................................65
12.4 Successors........................................................................................65
12.5 Inconsistency with Financing Order................................................................65
12.6 Entire Agreement..................................................................................65
</TABLE>
(iii)
<PAGE> 5
INDEX TO
EXHIBITS AND SCHEDULES
<TABLE>
<S> <C>
Exhibit A Information Certificate
Schedule 1.37 Existing Lenders
Schedule 1.38 Existing Letters of Credit
Schedule 8.1 Existing Defaults
Schedule 8.4 Existing Liens
Schedule 8.9 ERISA Matters
Schedule 8.10 Bank Accounts
Schedule 9.9 Existing Indebtedness
Schedule 9.10 Existing Loans, Advances and Guarantees
</TABLE>
(iv)
<PAGE> 6
LOAN AND SECURITY AGREEMENT
This Loan and Security Agreement dated February 19, 1999 is entered
into by and between Congress Financial Corporation, a Delaware corporation
("Lender") and Geneva Steel Company, a Utah corporation, as debtor and
debtor-in-possession ("Borrower").
W I T N E S S E T H:
WHEREAS, Borrower has filed a Chapter 11 case under the Bankruptcy Code
which is currently pending in the United States Bankruptcy Court for the
District of Utah; and
WHEREAS, Borrower has requested that Lender enter into certain
financing arrangements with Borrower pursuant to which Lender may make loans and
provide other financial accommodations to Borrower; and
WHEREAS, Lender is willing to make such loans and provide such
financial accommodations on the terms and conditions set forth herein and in the
Financing Order (as hereinafter defined);
NOW, THEREFORE, in consideration of the mutual conditions and
agreements set forth herein, and for other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:
SECTION 1. DEFINITIONS
All terms used herein which are defined in Article 1 or Article 9 of
the Uniform Commercial Code shall have the meanings given therein unless
otherwise defined in this Agreement. All references to the plural herein shall
also mean the singular and to the singular shall also mean the plural unless the
context otherwise requires. All references to Borrower and Lender pursuant to
the definitions set forth in the recitals hereto, or to any other person herein,
shall include their respective successors and assigns, including, without
limitation, as to Borrower, as debtor and debtor-in-possession under the
Bankruptcy Code, and any trustee or other fiduciary hereafter appointed as its
legal representative or with respect to the property of the estate of Borrower
under Chapter 11 or Chapter 7 of the Bankruptcy Code and any successor upon the
conclusion of the Chapter 11 Case. The words "hereof", "herein", "hereunder",
"this Agreement" and words of similar import when used in this Agreement shall
refer to this Agreement as a whole and not any particular provision of this
Agreement and as this Agreement now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced. The word
"including" when used in this Agreement shall mean "including, without
<PAGE> 7
limitation". An Event of Default shall exist or continue or be continuing
until such Event of Default is waived in accordance with Section 11.3 or is
cured in a manner satisfactory to Lender, if such Event of Default is capable of
being cured as determined by Lender. Any accounting term used herein unless
otherwise defined in this Agreement shall have the meanings customarily given to
such term in accordance with GAAP. For purposes of this Agreement, the following
terms shall have the respective meanings given to them below:
1.1 "Accounts" shall mean all present and future rights of Borrower to
payment for goods sold or leased or for services rendered, which are not
evidenced by instruments or chattel paper, and whether or not earned by
performance.
1.2 "Adjusted Eurodollar Rate" shall mean, with respect to each
Interest Period for any Eurodollar Rate Loan, the rate per annum (rounded
upwards, if necessary, to the next one-sixteenth (1/16) of one (1%) percent)
determined by dividing (a) the Eurodollar Rate for such Interest Period by (b) a
percentage equal to: (i) one (1) minus (ii) the Reserve Percentage. For purposes
hereof, "Reserve Percentage" shall mean the reserve percentage, expressed as a
decimal, prescribed by any United States or foreign banking authority for
determining the reserve
requirement which is or would be applicable to deposits of United States dollars
in a non-United States or an international banking office of Reference Bank used
to fund a Eurodollar Rate Loan or any Eurodollar Rate Loan made with the
proceeds of such deposit, whether or not the Reference Bank actually holds or
has made any such deposits or loans. The Adjusted Eurodollar Rate shall be
adjusted on and as of the effective day of any change in the Reserve Percentage.
1.3 "Affiliate" shall mean, with respect to a specified Person, any
other Person (a) which directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control with, such specified
person; (b) which beneficially owns or holds five (5%) percent or more of any
class of the Voting Stock or other equity interest of such specified person; or
(c) of which five (5%) percent or more of the Voting Stock or other equity
interest is beneficially owned or held by such specified person or a Subsidiary
of such specified person. For purposes of this definition, "control" (including,
with correlative meanings, the terms "controlling", "controlled by" and "under
common control with") when used with respect to any specified person shall mean
the possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of such person, whether through the
ownership of Voting Stock, by agreement or otherwise.
1.4 "Availability Reserves" shall mean, as of any date of
determination, such amounts as Lender may from time to time establish and revise
in good faith reducing the amount of Revolving Loans and Letter of Credit
Accommodations which would otherwise be available to Borrower under the lending
formula(s) provided for herein: (a) to reflect events, conditions, contingencies
or risks which, as determined by Lender in good faith, do or have a reasonable
likelihood of, adversely affecting either (i) the Collateral or any other
property which is security for the Obligations or its value, (ii) the business
or operations of Borrower or any Obligor or (iii) the security interests and
other rights of Lender in the Collateral (including the enforceability,
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perfection and priority thereof), including, without limitation, the maximum
amount of any indebtedness or claim which may have a lien or administrative
claim upon property of the estate of Borrower superior to or on a parity with
the lien and security interest or administrative claim of Lender therein or
thereon (including, without limitation, the fees and expenses of the Clerk of
the Bankruptcy Court and the Office of United States Trustee pursuant to Section
1930(a) of the Bankruptcy Code and fees and expenses of professionals whose
retention is approved by Bankruptcy Court during the Chapter 11 Case pursuant to
Section 327 or Section 1103 of the Bankruptcy Code), or (b) to reflect Lender's
good faith belief that any collateral report or financial information furnished
by or on behalf of Borrower or any Obligor to Lender is or may have been
incomplete, inaccurate or misleading in any material respect or (c) to reflect
outstanding Letter of Credit Accommodations as provided in Section 2.2 hereof or
(d) in respect of any state of facts which Lender determines in good faith
constitutes an Event of Default or may, with notice or passage of time or both,
constitute an Event of Default, or (e) to reflect amounts which may be payable
by Borrower to Mannesmann under the Mannesmann Agreement. To the extent Lender
may revise the lending formula set forth in Section 2.1 hereof or establish new
criteria or revise existing criteria for Eligible Accounts and Eligible
Inventory so as to address any event, condition, contingency or risk in a manner
satisfactory to Lender, Lender shall not establish an Availability Reserve for
the same purpose. The amount of any Availability Reserve established by Lender
shall have a reasonable relationship to the event, condition or other matter
which is the basis for such Availability Reserve as determined by Lender in good
faith.
1.5 "Bankruptcy Code" shall mean the United States Bankruptcy Code,
being Title 11 of the United States Code, as the same now exists or may from
time to time hereafter be amended, modified, recodified or supplemented,
together with all official rules, regulations and interpretations thereunder or
related thereto.
1.6 "Bankruptcy Court" shall mean the United States Bankruptcy Court
for the District of Utah.
1.7 "Blocked Accounts" shall have the meaning set forth in Section 6.3
hereof.
1.8 "Business Day" shall mean any day other than a Saturday, Sunday, or
other day on which commercial banks are authorized or required to close under
the laws of the State of New York or the Commonwealth of Pennsylvania or the
State of Utah, and a day on which the Reference Bank and Lender are open for the
transaction of business, except that if a determination of a Business Day shall
relate to any Eurodollar Rate Loans, the term Business Day shall also exclude
any day on which banks are closed for dealings in dollar deposits in the London
interbank market or other applicable Eurodollar Rate market.
1.9 "Capital Leases" shall mean, as applied to any Person, any lease of
(or any agreement conveying the right to use) any property (whether real,
personal or mixed) by such
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Person as lessee which in accordance with GAAP, is required to be reflected
as a liability on the balance sheet of such Person.
1.10 "Capital Stock" shall mean, with respect to any Person, any and
all shares, interests, participations or other equivalents (however designated)
of such Person's capital stock, partnership interests or limited liability
company interests at any time outstanding, and any and all rights, warrants or
options exchangeable for or convertible into such capital stock or other
interests (but excluding any debt security that is exchangeable for or
convertible into such capital stock).
1.11 "Cash Equivalents" shall mean, at any time, (a) any evidence of
Indebtedness with a maturity date of one hundred eighty (180) 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; (b)
certificates of deposit or bankers' acceptances with a maturity of one hundred
eighty (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; (c) commercial paper (including variable rate
demand notes) with a maturity of one hundred eighty (180) days or less issued by
a corporation (except an Affiliate of Borrower) organized under the laws of any
State of the United States of America or the District of Columbia and rated at
least A-1 by Standard & Poor's Ratings Service, a division of The McGraw-Hill
Companies, Inc. or at least P-1 by Moody's Investors Service, Inc.; (d)
repurchase obligations with a term of not more than thirty (30) days for
underlying securities of the types described in clause (a) above entered into
with any financial institution having combined capital and surplus and undivided
profits of not less than $250,000,000; (e) repurchase agreements and reverse
repurchase agreements relating to marketable direct obligations issued or
unconditionally guaranteed by the United States of America or issued by any
governmental agency thereof and backed by the full faith and credit to the
United States of America, in each case maturing within one hundred eighty (180)
days or less from the date of acquisition; provided, that, the terms of such
agreements comply with the guidelines set forth in the Federal Financial
Agreements of Depository Institutions with Securities Dealers and Others, as
adopted by the Comptroller of the Currency on October 31, 1985; and (f)
investments in money market funds and mutual funds which invest substantially
all of their assets in securities of the types described in clauses (a) through
(e) above.
1.12 "Change of Control" shall mean (a) the transfer (in one
transaction or a series of transactions) of all or substantially all of the
assets of Borrower to any Person or group (as such term is used in Section
13(d)(3) of the Exchange Act); (b) the liquidation or dissolution of Borrower or
the adoption of a plan by the stockholders of Borrower relating to the
dissolution or liquidation of Borrower; (c) the acquisition by any Person or
group (as such term is used in Section 13(d)(3) of the Exchange Act), except for
one or more Permitted Holders, of beneficial ownership, directly or indirectly,
of fifty (50%) percent or more of the voting power of the total outstanding
Voting Stock of Borrower or the Board of Directors of Borrower; or (d) during
any period of two (2) consecutive years, individuals who at the beginning of
such period constituted
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<PAGE> 10
the Board of Directors of Borrower (together with any new directors who have
been appointed by any Permitted Holder, or whose nomination for election by the
stockholders of Borrower, as the case may be, was approved by a vote of at least
fifty-one percent (51%) of the directors then still in office who were either
directors at the beginning of such period or whose election or nomination for
election was previously so approved) cease for any reason to constitute a
majority of the Board of Directors of Borrower then still in office.
1.13 "Chapter 11 Case" shall mean the Chapter 11 Case of Borrower under
the Bankruptcy Code referred to as In re Geneva Steel Company, currently pending
in the Bankruptcy Court.
1.14 "Code" shall mean the Internal Revenue Code of 1986, as the same
now exists or may from time to time hereafter be amended, modified, recodified
or supplemented, together with all rules, regulations and interpretations
thereunder or related thereto.
1.15 "Collateral" shall have the meaning set forth in Section 5 hereof.
1.16 "Collateral Access Agreement" shall mean an agreement in writing,
in form and substance satisfactory to Lender, from any lessor of premises to
Borrower, or any other person to whom any Collateral (including Inventory,
Equipment, bills of lading or other documents of title) is consigned or who has
custody, control or possession of any such Collateral or is otherwise the owner
or operator of any premises on which any of such Collateral is located, pursuant
to which such lessor, consignee or other person, inter alia, acknowledges the
first priority security interest of Lender in such Collateral, agrees to waive
any and all claims such lessor, consignee or other person may, at any time, have
against such Collateral, whether for processing, storage of otherwise, and
agrees to permit Lender access to, and the right to remain on, the premises of
such lessor, consignee or other person so as to exercise Lender's rights and
remedies and otherwise deal with such Collateral and in the case of any person
who at any time has custody, control or possession of any bills of lading or
other documents of title, agrees to hold such bills of lading or other documents
as bailee for Lender and to follow all instructions of Lender with respect
thereto.
1.17 "Contaminant" means any waste, pollutant, hazardous substance,
toxic substance, hazardous waste and any substance regulated or forming the
basis of liability under any Environmental Law, including, without limitation,
any special waste, petroleum or petroleum-derived substance or waste, or any
constituent of such substance or waste.
1.18 "11 1/8% Senior Note Agreements" shall mean, individually and
collectively, each and all of the following (as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced): (a) the 11 1/8% Senior Notes, (b) the 11 1/8% Senior Note Indenture,
and (c) all agreements, documents and instruments at any time executed and/or
delivered in connection therewith.
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1.19 "11 1/8% Senior Note Indenture" shall mean the Indenture, dated
March 15, 1993, between Borrower and the 11 1/8% Senior Note Trustee with
respect to the 11 1/8% Senior Notes, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
1.20 "11 1/8% Senior Notes" shall mean, individually and collectively,
the 11 1/8% Senior Notes due 2001 issued by Borrower pursuant to the 11 1/8%
Senior Note Indenture, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.21 "11 1/8% Senior Note Trustee" shall mean Bankers Trust Company, as
trustee and its successors and assigns, and any replacement or other trustee
under the 11 1/8% Senior Note Indenture.
1.22 "Eligible Accounts" shall mean Accounts created by Borrower which
are and continue to be acceptable to Lender based on the criteria set forth
below. In general, Accounts shall be Eligible Accounts if:
(a) such Accounts arise from the actual and bona fide sale and
delivery of goods by Borrower or rendition of services by Borrower in the
ordinary course of its business which transactions are completed in accordance
with the terms and provisions contained in any documents related thereto
(provided, that, sales made pursuant to the Mannesmann Agreement in effect on
the date hereof shall be deemed in the ordinary course), except that goods sold
to Mannesmann under the Mannesmann Agreement (as in effect on the date hereof)
may from time to time hereafter be held by Borrower in accordance with the terms
of the Mannesmann Agreement (provided, that, any such goods are identified in
the records of Borrower as inventory of Mannesmann and reported to Lender as
inventory of Mannesmann);
(b) such Accounts are not unpaid more than the earlier of: (i)
ninety (90) days after the original due date for them or (ii) one hundred twenty
(120) days after the original invoice date for them (or in the case of any
Accounts which are subject to a bona fide dispute, one hundred fifty (150) days
after the original invoice date for them);
(c) such Accounts comply with the terms and conditions
contained in Section 7.2(c) of this Agreement;
(d) such Accounts do not arise from sales on consignment,
guaranteed sale, sale and return, sale on approval, or other terms under which
payment by the account debtor may be conditional or contingent (except pursuant
to the Mannesmann Agreement as in effect on the date hereof);
(e) the chief executive office of the account debtor with
respect to such Accounts is located in the United States of America or Canada
(provided, that, at any time promptly upon
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<PAGE> 12
Lender's request, Borrower shall execute and deliver, or cause to be executed
and delivered, such other agreements, documents and instruments as may be
required by Lender to perfect the security interests of Lender in those Accounts
of an account debtor with its chief executive office or principal place of
business in Canada in accordance with the applicable laws of the Province of
Canada in which such chief executive office or principal place of business is
located and take or cause to be taken such other and further actions as Lender
may request to enable Lender as secured party with respect thereto to collect
such Accounts under the applicable Federal or Provincial laws of Canada) or, at
Lender's option, if the chief executive office and principal place of business
of the account debtor with respect to such Accounts is located other than in the
United States of America or Canada, then if either: (i) the account debtor has
delivered to Borrower an irrevocable letter of credit issued or confirmed by a
bank satisfactory to Lender and payable only in the United States of America and
in U.S. dollars, sufficient to cover such Account, in form and substance
satisfactory to Lender and if required by Lender, the original of such letter of
credit has been delivered to Lender or Lender's agent and the issuer thereof
notified of the assignment of the proceeds of such letter of credit to Lender,
or (ii) such Account is subject to credit insurance payable to Lender issued by
an insurer and on terms and in an amount acceptable to Lender, or (iii) such
Account is otherwise acceptable in all respects to Lender (subject to lending
formula with respect thereto as Lender may determine);
(f) such Accounts do not consist of progress billings, bill
and hold invoices or retainage invoices, except as to bill and hold invoices, if
Lender shall have received an agreement in writing from the account debtor, in
form and substance satisfactory to Lender, confirming the unconditional
obligation of the account debtor to take the goods related thereto and pay such
invoice and except for invoices representing Accounts arising under the
Mannesmann Agreement where the goods sold to Mannesmann may be held by Borrower
so long as the goods are identified in the records of Borrower and reported to
Lender as inventory of Mannesmann;
(g) the account debtor with respect to such Accounts has not
asserted a counterclaim, defense or dispute and does not have, and does not
engage in transactions which may give rise to, any right of setoff against such
Accounts (but the portion of the Accounts of such account debtor in excess of
the amount at any time and from time to time owed by Borrower to such account
debtor or claimed owed by such account debtor may be deemed Eligible Accounts);
(h) there are no facts, events or occurrences which in the
good faith determination of the Lender impair the validity, enforceability or
collectability of such Accounts or reduce the amount payable or delay payment
thereunder;
(i) such Accounts are subject to the first priority, valid and
perfected security interest of Lender and any goods giving rise thereto are not,
and were not at the time of the sale thereof, subject to any liens except those
permitted in this Agreement;
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<PAGE> 13
(j) neither the account debtor nor any officer or employee of
the account debtor with respect to such Accounts is an officer, employee other
Affiliate of Borrower;
(k) the account debtors with respect to such Accounts are not
any foreign government, the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, unless, if the
account debtor is the United States of America, any State, political
subdivision, department, agency or instrumentality thereof, upon Lender's
request, the Federal Assignment of Claims Act of 1940, as amended or any similar
State or local law, if applicable, has been complied with in a manner
satisfactory to Lender;
(l) there are no proceedings or actions which are threatened
or pending against the account debtors with respect to such Accounts which could
reasonably be expected to result in any material adverse change in any such
account debtor's financial condition;
(m) such Accounts of a single account debtor (other than
Mannesmann, with respect to Accounts arising under the Mannesmann Agreement as
in effect on the date hereof) or its Affiliates do not constitute more than
fifteen percent (15%) of all otherwise Eligible Accounts (but the portion of the
Accounts not in excess of such percentage may be deemed Eligible Accounts);
(n) such Accounts are not owed by an account debtor who has
Accounts unpaid more than the earlier of: (i) ninety (90) days after the
original due date for them or (ii) one hundred twenty (120) days after the date
of the original invoice date for them (or in the case of any Accounts which are
subject to a bona fide dispute, one hundred fifty (150) days) which constitute
more than fifty percent (50%) of the total Accounts of such account debtor;
(o) such Accounts are owed by account debtors whose total
indebtedness to Borrower does not exceed the credit limit with respect to such
account debtors as determined by Borrower consistent with its current practice
and as is reasonably acceptable to Lender (but the portion of the Accounts not
in excess of such credit limit may be deemed Eligible Accounts); and
(p) such Accounts are owed by account debtors deemed
creditworthy at all times by Borrower consistent with its current practice and
who are reasonably acceptable to Lender.
General criteria for Eligible Accounts may be established and revised from time
to time by Lender in good faith based on an event, condition or other
circumstance arising after the date hereof, or existing on the date hereof to
the extent Lender has no written notice thereof from Borrower, which adversely
affects or could reasonably be expected to adversely affect the Accounts in the
good faith determination of Lender. Any Accounts which are not Eligible Accounts
shall nevertheless be part of the Collateral.
1.23 "Eligible Equipment" shall mean Equipment owned by Borrower, which
is in marketable condition located at premises of Borrower in Utah County, Utah
and acceptable to
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Lender in all respects. In general, Eligible Equipment shall not include:
(a) Equipment at premises other than those owned and controlled by Borrower,
except for Equipment at all locations leased by such Borrower if Lender shall
have received a Collateral Access Agreement from the owner and lessor of such
premises in form and substance satisfactory to Lender; (b) Equipment subject to
a security interest or lien in favor of any person other than Lender; (c)
Equipment which is not subject to the first priority, valid and perfected
security interest of Lender; (d) Equipment not included in the appraisal
received or to be received by Lender as described in Section 1.85 hereof as it
may be supplemented; and (e) worn-out, obsolete, damaged or defective Equipment
or Equipment not used or usable in the ordinary course of such Borrower's
business as presently conducted. General criteria for Eligible Equipment may be
established and revised from time to time by Lender in good faith based on an
event, condition or other circumstance arising after the date hereof, or
existing on the date hereof to the extent Lender has no written notice thereof
from Borrower, which adversely affects or could reasonably be expected to
adversely affect the Equipment in the good faith determination of Lender. Any
Equipment which is not Eligible Equipment shall nevertheless be part of the
Collateral.
1.24 "Eligible Inventory" shall mean Inventory consisting of raw
materials, refractories, scrap, spare parts and types of finished goods held for
resale in the ordinary course of the business of Borrower and other types of
Inventory that are readily saleable, in each case which are acceptable to Lender
based on the criteria set forth below. In general, Eligible Inventory shall not
include (a) packaging and shipping materials; (b) Inventory at premises other
than those owned and controlled by Borrower, except Inventory at premises leased
by Borrower if Lender has received a Collateral Access Agreement from the owner,
lessor and operator of such premises duly authorized, executed and delivered by
such owner, lessor and operator; (c) Inventory subject to a security interest or
lien in favor of any person other than Lender except those permitted in this
Agreement; (d) bill and hold goods; (e) Inventory which is not subject to the
first priority, valid and perfected security interest of Lender; and (f)
Inventory purchased or sold on consignment. General criteria for Eligible
Inventory may be established and revised from time to time by Lender in good
faith based on an event, condition or other circumstance arising after the date
hereof, or existing on the date hereof to the extent Lender has no written
notice thereof from Borrower, which adversely affects or could reasonably be
expected to adversely affect the Inventory in the good faith determination of
Lender. Any Inventory which is not Eligible Inventory shall nevertheless be part
of the Collateral.
1.25 "Environmental Laws" shall mean all foreign, Federal, State and
local laws (including common law), legislation, rules, codes, licenses, permits
(including any conditions imposed therein), authorizations, judicial or
administrative decisions, injunctions or agreements between Borrower and any
Governmental Authority, (a) relating to pollution and the protection,
preservation or restoration of the environment (including air, water vapor,
surface water, ground water, drinking water, drinking water supply, surface
land, subsurface land, plant and animal life or any other natural resource), or
to human health or safety, (b) relating to the exposure to, or the use, storage,
recycling, treatment, generation, manufacture, processing, distribution,
transportation, handling, labeling, production, release or disposal, or
threatened release, of
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<PAGE> 15
Hazardous Materials, or (c) relating to all laws with regard to
recordkeeping, notification, disclosure and reporting requirements respecting
Hazardous Materials. The term "Environmental Laws" includes (i) the Federal
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
the Federal Superfund Amendments and Reauthorization Act, the Federal Water
Pollution Control Act of 1972, the Federal Clean Water Act, the Federal Clean
Air Act, the Federal Resource Conservation and Recovery Act of 1976 (including
the Hazardous and Solid Waste Amendments thereto), the Federal Solid Waste
Disposal and the Federal Toxic Substances Control Act, the Federal Insecticide,
Fungicide and Rodenticide Act, and the Federal Safe Drinking Water Act of 1974,
(ii) applicable state counterparts to such laws, and (iii) any common law or
equitable doctrine that may impose liability or obligations for injuries or
damages due to, or threatened as a result of, the presence of or exposure to any
Hazardous Materials.
1.26 "Environmental Liabilities and Costs" shall mean, as to any
Person, all liabilities, obligations, responsibilities, Remedial Actions,
losses, damages, punitive damages, consequential damages, treble damages, costs
and expenses (including, without limitation, all fees, disbursements and
expenses of counsel, experts and consultants and costs of investigation and
feasibility studies), fines, penalties, sanctions and interest incurred as a
result of any claim or demand by any other Person, whether based in contract,
tort, implied or express warranty, strict liability, criminal or civil statute,
including, without limitation, any thereof arising under any Environmental Law,
permit, order or agreement with any Governmental Authority or any other Person,
and which relate to any environmental, health or safety condition, or a Release
or threatened Release.
1.27 "Environmental Lien" means any security interest, mortgage, lien,
pledge, charge or other encumbrance in favor of any Governmental Authority for
Environmental Liabilities and Costs.
1.28 "Equipment" shall mean all of Borrower's now owned and hereafter
acquired equipment, machinery, computers and computer hardware and software
(whether owned or licensed), vehicles, tools, furniture, fixtures, all
attachments, accessions and property now or hereafter affixed thereto or used in
connection therewith, and substitutions and replacements thereof, wherever
located.
1.29 "ERISA" shall mean the United States Employee Retirement Income
Security Act of 1974, as the same now exists or may hereafter from time to time
be amended, modified, recodified or supplemented, together with all rules,
regulations and interpretations thereunder or related thereto.
1.30 "ERISA Affiliate" shall mean any person required to be aggregated
with Borrower or any of its Subsidiaries under Sections 414(b), 414(c), 414(m)
or 414(o) of the Code.
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1.31 "ERISA Event" means, with respect to Borrower or any ERISA
Affiliate, (a) a Reportable Event with respect to a Title IV Plan or a
Multiemployer Plan; (b) the withdrawal of Borrower or any ERISA Affiliate from a
Title IV Plan subject to Section 4063 of ERISA during a plan year in which it
was a substantial employer, as defined in Section 4001(a)(2) of ERISA; (c) the
complete or partial withdrawal of Borrower or any ERISA Affiliate from any
Multiemployer Plan; (d) the filing of a notice of intent to terminate a Title IV
Plan or the treatment of a plan amendment as a termination under Section 4041 of
ERISA; (e) the institution of proceedings to terminate a Title IV Plan or
Multiemployer Plan by the PBGC, or (f) any other event or condition which might
reasonably be expected to constitute grounds under Section 4042 of ERISA for the
termination of, or the appointment of a trustee to administer, any Title IV Plan
or Multiemployer Plan or the imposition of any liability under Title IV of
ERISA, other than PBGC premiums due but not delinquent under Section 4007 of
ERISA.
1.32 "Eurodollar Rate" shall mean with respect to the Interest Period
for a Eurodollar Rate Loan, the interest rate per annum equal to the arithmetic
average of the rates of interest per annum (rounded upwards, if necessary, to
the next one-sixteenth (1/16) of one (1%) percent) at which Reference Bank is
offered deposits of United States dollars in the London interbank market (or
other Eurodollar Rate market selected by Borrower and approved by Lender) on or
about 9:00 a.m. (New York time) two (2) Business Days prior to the commencement
of such Interest Period in amounts substantially equal to the principal amount
of the Eurodollar Rate Loans requested by and available to Borrower in
accordance with this Agreement, with a maturity of comparable duration to the
Interest Period selected by Borrower.
1.33 "Eurodollar Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Adjusted Eurodollar Rate in accordance
with the terms hereof.
1.34 "Event of Default" shall mean the occurrence or existence of any
event or condition described in Section 10.1 hereof.
1.35 "Excess Availability" shall mean the amount, as determined by
Lender, calculated at any time, equal to: (a) the lesser of: (i) the amount of
the Revolving Loans available to Borrower as of such time based on the
applicable lending formulas multiplied by the Net Amount of Eligible Accounts
and the Value of Eligible Inventory, as determined by Lender, plus the amount of
the Supplemental Revolving Loan Limit (as then in effect), and subject to the
sublimits and Availability Reserves from time to time established by Lender
hereunder, and (ii) the Maximum Credit minus (b) the sum of: (i) the amount of
all then outstanding and unpaid Obligations, plus (ii) the aggregate amount of
all then outstanding and unpaid trade payables and other obligations of Borrower
arising after the date of commencement of the Chapter 11 Case which are more
than ninety (90) days after the invoice date as of such time, plus (iii) the
amount of checks issued by Borrower to pay trade payables, but not yet sent.
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1.36 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
the same now exists or may from time to time hereafter be amended, modified,
recodified or supplemented, together with all rules, regulations and
interpretations thereunder or related thereto.
1.37 "Existing Lenders" shall mean the existing lenders to Borrowers
for whom Citicorp USA, Inc. is acting as agent providing the pre-petition
secured revolving credit facility to Borrowers listed on Schedule 1.37 hereto
(and including Citicorp USA, Inc. in its capacity as agent for such lenders).
1.38 "Existing Letters of Credit" shall mean, collectively, the letters
of credit issued for the account of Borrower by Citibank, N.A. or any of the
other Existing Lenders listed on Schedule 1.38 hereto.
1.39 "Financing Agreements" shall mean, collectively, this Agreement
and all notes, guarantees, security agreements and other agreements, documents
and instruments now or at any time hereafter executed and/or delivered by
Borrower or any Obligor in connection with this Agreement, as the same now exist
or may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced.
1.40 "Financing Order" shall mean the Interim Order Pursuant to Section
364(c) of the Bankruptcy Code and Rule 4001 of the Federal Rules of Bankruptcy
Procedure (i) Authorizing Debtor to Obtain Emergency Post-Petition Financing and
Incur Post-Petition Indebtedness, Granting Senior Liens and Priority
Administrative Expense Status, Modifying the Automatic Stay, Authorizing Debtor
to Enter Into Agreements with Congress Financial Corporation, as Lender and (ii)
Prescribing Form and Manner of Notice and Time for Interim Hearing under Federal
Rule of Bankruptcy Procedure 4001(c) entered by the United States Bankruptcy
Court for the District of Utah in the Chapter 11 Case and such further interim,
permanent and/or supplemental orders relating thereto or authorizing the
granting of credit by Lender to Borrower pursuant to Section 364 of the
Bankruptcy Code.
1.41 "GAAP" shall mean generally accepted accounting principles in the
United States of America as in effect from time to time as set forth in the
opinions and pronouncements of the Accounting Principles Board and the American
Institute of Certified Public Accountants and the statements and pronouncements
of the Financial Accounting Standards Board which are applicable to the
circumstances as of the date of determination consistently applied.
1.42 "Governmental Authority" shall mean any nation or government, any
state, province, or other political subdivision thereof, any central bank (or
similar monetary or regulatory authority) thereof, any entity exercising
executive, legislative, judicial, regulatory or administrative functions of or
pertaining to government, and any corporation or other entity owned or
controlled, through stock or capital ownership or otherwise, by any of the
foregoing.
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1.43 "Hazardous Materials" shall mean any hazardous, toxic or dangerous
substances, materials and wastes, including hydrocarbons (including naturally
occurring or man-made petroleum and hydrocarbons), flammable explosives,
asbestos, urea formaldehyde insulation, radioactive materials, biological
substances, polychlorinated biphenyls, pesticides, herbicides and any other kind
and/or type of pollutants or contaminants (including materials which include
hazardous constituents), sewage, sludge, industrial slag, solvents and/or any
other similar substances, materials, or wastes and including any other
substances, materials or wastes that are or become regulated under any
Environmental Law (including any that are or become classified as hazardous or
toxic under any Environmental Law).
1.44 "Indebtedness" shall mean, with respect to any Person, any
liability, whether or not contingent, (a) in respect of borrowed money (whether
or not the recourse of the lender is to the whole of the assets of such Person
or only to a portion thereof) or evidenced by bonds, notes, debentures or
similar instruments; (b) representing the balance deferred and unpaid of the
purchase price of any property or services (except any such balance that
constitutes an account payable to a trade creditor (whether or not an Affiliate)
created, incurred, assumed or guaranteed by such Person in the ordinary course
of business of such Person in connection with obtaining goods, materials or
services arising after the date of the commencement of the Chapter 11 Case that
is not overdue by more than ninety (90) days, unless the trade payable is being
contested in good faith); (c) all obligations as lessee under leases which have
been, or should be, in accordance with GAAP recorded as Capital Leases; (d) any
contractual obligation, contingent or otherwise, of such Person to pay or be
liable for the payment of any indebtedness described in this definition of
another Person, including, without limitation, any such indebtedness, directly
or indirectly guaranteed, or any agreement to purchase, repurchase, or otherwise
acquire such indebtedness, obligation or liability or any security therefor, or
to provide funds for the payment or discharge thereof, or to maintain solvency,
assets, level of income, or other financial condition; (e) all obligations with
respect to redeemable stock and redemption or repurchase obligations under any
Capital Stock or other equity securities issued by such Person; (f) all
reimbursement obligations and other liabilities of such Person with respect to
surety bonds (whether bid, performance or otherwise), letters of credit,
banker's acceptances or similar documents or instruments issued for such
Person's account; and (g) all indebtedness of such Person in respect of
indebtedness of another Person for borrowed money or indebtedness of another
Person otherwise described in this definition which is secured by any consensual
lien, security interest, collateral assignment, conditional sale, mortgage, deed
of trust, or other encumbrance on any asset of such Person, whether or not such
obligations, liabilities or indebtedness are assumed by or are a personal
liability of such Person, all as of such time.
1.45 "Information Certificate" shall mean the Information Certificate
of Borrower constituting Exhibit A hereto containing material information with
respect to Borrower, its business and assets provided by or on behalf of
Borrower to Lender in connection with the preparation of this Agreement and the
other Financing Agreements and the financing arrangements provided for herein.
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1.46 "Interest Period" shall mean for any Eurodollar Rate Loan, a
period of approximately one (1), two (2), or three (3) months duration as
Borrower may elect, the exact duration to be determined in accordance with the
customary practice in the applicable Eurodollar Rate market; provided, that,
Borrower may not elect an Interest Period which will end after the last day of
the then-current term of this Agreement.
1.47 "Interest Rate" shall mean (a) as to Revolving Loans which are
Prime Rate Loans, a rate equal to one-quarter (1/4%) percent per annum in excess
of the Prime Rate and, as to Revolving Loans which are Eurodollar Rate Loans, a
rate of two and one-quarter (2 1/4%) percent per annum in excess of the Adjusted
Eurodollar Rate and (b) as to Supplemental Revolving Loans which are Prime Rate
Loans, a rate equal to one and one-quarter (1 1/4%) percent per annum in excess
of the Prime Rate and as to Supplemental Revolving Loans which are Eurodollar
Rate Loans, three and one-quarter (3 1/4%) percent per annum in excess of the
Adjusted Eurodollar Rate (and as to Eurodollar Rate Loans, whether Revolving
Loans or Supplemental Revolving Loans, based on the Eurodollar Rate applicable
for the Interest Period selected by Borrower as in effect three (3) Business
Days after the date of receipt by Lender of the request of Borrower for each
such Eurodollar Rate Loans in accordance with the terms hereof, whether such
rate is higher or lower than any rate previously quoted to Borrower) (on the
same basis as described above); provided, that, notwithstanding anything to the
contrary contained herein, the Interest Rate shall mean the rate of two (2%)
percent per annum in excess of the applicable rate otherwise payable as provided
above, at Lender's option, without notice, (i) either (A) for the period on and
after the date of termination or non-renewal hereof until such time as all
Obligations are indefeasibly paid in full, or (B) for the period from and after
the date of the occurrence of any Event of Default, and for so long as such
Event of Default is continuing as determined by Lender and (ii) on the Revolving
Loans at any time outstanding in excess of the amounts available to Borrower
under Section 2 (whether or not such excess(es) arise or are made with or
without Lender's knowledge or consent and whether made before or after an Event
of Default).
1.48 "Inventory" shall mean all of Borrower's now owned and hereafter
existing or acquired raw materials, work in process, finished goods and all
other inventory of whatsoever kind or nature, wherever located.
1.49 "Letter of Credit Accommodations" shall mean the letters of
credit, merchandise purchase or other guaranties which are from time to time
either (a) issued or opened by Lender for the account of Borrower or any Obligor
or (b) with respect to which Lender has agreed to indemnify the issuer or
guaranteed to the issuer the performance by Borrower of its obligations to such
issuer (including the Existing Letters of Credit.)
1.50 "Loans" shall mean the Revolving Loans and the Supplemental
Revolving Loans.
1.51 "Mannesmann" shall mean Mannesmann Pipe & Steel Corporation, a New
York corporation, and its successors and assigns.
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1.52 "Mannesmann Agreement" shall mean the Amended and Restated Sales
Representation Agreement, effective as of November 16, 1998, between Borrower
and Mannesmann, as the same now exists or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced.
1.53 "Material Adverse Effect" shall mean a material adverse effect on
(a) the condition (financial or otherwise), business, performance, operations or
properties of Borrower; (b) the legality, validity or enforceability of this
Agreement or any of the other Financing Agreements; (c) the legality, validity,
enforceability, perfection or priority of the security interests and liens of
Lender upon the Collateral or any other property which is security for the
Obligations; (d) the Collateral or any other property which is security for the
Obligations, or the value of the Collateral or such other property; (e) the
ability of Borrower to repay the Obligations or of Borrower to perform its
obligations under this Agreement or any of the other Financing Agreements; or
(f) the ability of Lender to enforce the Obligations or realize upon the
Collateral or otherwise with respect to the rights and remedies of Lender under
this Agreement or any of the other Financing Agreements.
1.54 "Maximum Credit" shall mean at any time the lesser of (a)
$125,000,000 or (b) the maximum amount of Loans and Letter of Credit
Accommodations which Lender may provide to Borrower as set forth in the
Financing Order as then in effect.
1.55 "Mortgage" shall mean the Deed of Trust and Security Agreement,
dated of even date herewith, by Borrower in favor of Lender (or a trustee on
behalf of Lender) with respect to certain of the Real Property and related
assets of Borrower located in the State of Utah, as the same now exists or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced.
1.56 "Multiemployer Plan" means a multiemployer plan, as defined in
Section 4001(a)(3) of ERISA, and to which any Borrower or any ERISA Affiliate is
making, is obligated to make, has made or been obligated to make, contributions
on behalf of participants who are or were employed by any of them.
1.57 "Net Amount of Eligible Accounts" shall mean the gross amount of
Eligible Accounts less (a) sales, excise or similar taxes included in the amount
thereof and (b) returns, discounts, claims, credits and allowances of any nature
at any time issued, owing, granted, outstanding, available or claimed with
respect thereto.
1.58 "9 1/2% Senior Note Agreements" shall mean, individually and
collectively, each and all of the following (as the same now exist or may
hereafter be amended, modified, supplemented, extended, renewed, restated or
replaced): (a) the 9 1/2% Senior Notes, (b) the 9 1/2% Senior Note Indenture,
and (c) all agreements, documents and instruments at any time executed and/or
delivered in connection therewith.
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1.59 "9 1/2% Senior Note Indenture" shall mean the Indenture, dated
January 15, 1994, between Borrower and the 9 1/2% Senior Note Trustee with
respect to the Senior Notes, as the same now exists or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.60 "9 1/2% Senior Notes" shall mean, individually and collectively,
the 9 1/2% Senior Notes due 2004 issued by Borrower pursuant to the 9 1/2%
Senior Note Indenture, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced.
1.61 "9 1/2% Senior Note Trustee" shall mean Bankers Trust Company, and
its successors and assigns, and any replacement or other trustee under the 9
1/2% Senior Note Indenture.
1.62 "Obligations" shall mean any and all Revolving Loans, the
Supplemental Revolving Loans, Letter of Credit Accommodations and all other
obligations, liabilities and indebtedness of every kind, nature and description
owing by Borrower to Lender and/or its affiliates, including principal,
interest, charges, fees, costs and expenses, however evidenced, whether as
principal, surety, endorser, guarantor or otherwise, whether arising under this
Agreement or otherwise, whether now existing or hereafter arising, whether
arising before, during or after the initial or any renewal term of this
Agreement or after the conversion or dismissal of the Chapter 11 Case, or
before, during or after the confirmation of any plan of reorganization in the
Chapter 11 Case (and including any principal, interest, fees, costs, expenses
and other amounts owed to Lender by Borrower in the Chapter 11 Case or any
similar case or proceeding), whether direct or indirect, absolute or contingent,
joint or several, due or not due, primary or secondary, liquidated or
unliquidated, secured or unsecured, and however acquired by Lender.
1.63 "Obligor" shall mean any guarantor, endorser, acceptor, surety or
other person liable on or with respect to the Obligations or who is the owner of
any property which is security for the Obligations, other than Borrower.
1.64 "Payment Account" shall have the meaning set forth in Section 6.3
hereof.
1.65 "PBGC" shall mean the Pension Benefit Guaranty Corporation, or any
successor thereto.
1.66 "Pension Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is not
an individual account plan, as defined in Section 3(34) of ERISA, and which
Borrower or, if a Title IV Plan or a Plan subject to Section 412 of the Code,
any ERISA Affiliate maintains, contributes to or has an obligation to contribute
to on behalf of participants who are or were employed by any of them.
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1.67 "Permit" means any permit, approval, authorization, license,
variance or permission required from a Governmental Authority under any
applicable law, regulation or court order or decree.
1.68 "Permitted Holders" shall mean Robert J. Grow and Joseph A. Cannon
and their respective heirs, executors, administrators, successors and assigns.
1.69 "Person" or "person" shall mean any individual, sole
proprietorship, partnership, corporation (including any corporation which elects
subchapter S status under the Code), limited liability company, limited
liability partnership, business trust, unincorporated association, joint stock
corporation, trust, joint venture or other entity or any government or any
agency or instrumentality or political subdivision thereof.
1.70 "Plan" shall mean an employee benefit plan, as defined in Section
3(3) of ERISA, which Borrower maintains, contributes to or has an obligation to
contribute to on behalf of participants who are or were employed by any of them.
1.71 "Prime Rate" shall mean the rate from time to time publicly
announced by First Union National Bank, or its successors, as its prime rate,
whether or not such announced rate is the best rate available at such bank.
1.72 "Prime Rate Loans" shall mean any Loans or portion thereof on
which interest is payable based on the Prime Rate in accordance with the terms
thereof.
1.73 "Qualified Plan" shall mean an employee pension benefit plan, as
defined in Section 3(2) of ERISA (other than a Multiemployer Plan), which is
intended to be tax-qualified under Section 401(a) of the Code, and which
Borrower or, if subject to Section 412 of the Code, any ERISA Affiliate
maintains, contributes to or has an obligation to contribute to on behalf of
participants who are or were employed by any of them.
1.74 "Real Property" shall mean all now owned and hereafter acquired
real property of Borrower, including leasehold interests, together with all
buildings, structures, and other improvements located thereon and all licenses,
easements and appurtenances relating thereto, wherever located, including the
real property and related assets more particularly described in the Mortgage
located in the State of Utah.
1.75 "Records" shall mean all of Borrower's present and future books of
account of every kind or nature, purchase and sale agreements, invoices, ledger
cards, bills of lading and other shipping evidence, statements, correspondence,
memoranda, credit files and other data relating to the Collateral or any account
debtor, together with the tapes, disks, diskettes and other data and software
storage media and devices, file cabinets or containers in or on which the
foregoing are stored (including any rights of Borrower with respect to the
foregoing maintained with or by any other person).
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1.76 "Reference Bank" shall mean First Union National Bank, or such
other money center bank as Lender may from time to time designate.
1.77 "Release" shall mean, as to any Person, any release, spill,
emission, leaking, pumping, injection, deposit, disposal, discharge, dispersal,
leaching or migration of a Contaminant into the indoor or outdoor environment or
into or out of any property owned or operated by such Person, including, without
limitation, the movement of Contaminants through or in the air, soil, surface
water, ground water or property.
1.78 "Remedial Action" shall mean all actions required or voluntarily
undertaken to (a) clean up, remove, treat or in any other way address
Contaminants in the indoor or outdoor environment, (b) prevent the Release or
threat of Release or minimize the further Release of Contaminants so they do not
migrate or endanger or threaten to endanger public health or welfare or the
indoor or outdoor environment, or (c) perform pre-remedial studies and
investigations and post-remedial monitoring and care.
1.79 "Reportable Event" shall mean any of the events described in
Section 40432(b)(1), (2), (3), (5), (6), (8), or (9) of ERISA.
1.80 "Revolving Loan Limit" shall mean, at any time, the amount equal
to: (a) the Maximum Credit minus (b) the then outstanding principal amount of
the Supplemental Revolving Loans.
1.81 "Revolving Loans" shall mean the loans now or hereafter made by
Lender to or for the benefit of Borrower on a revolving basis (involving
advances, repayments and readvances) as set forth in Section 2.1 hereof.
1.82 "Senior Note Agreements" shall mean, collectively, the 11 1/8%
Senior Note Agreements and the 9 1/2% Senior Note Agreements.
1.83 "Subsidiary" or "subsidiary" shall mean, with respect to any
Person, any corporation, limited or general partnership, trust, association or
other business entity of which an aggregate of at least a majority of the
outstanding Capital Stock or other interests entitled to vote in the election of
the board of directors of such corporation (irrespective of whether, at the
time, Capital Stock of any other class or classes of such corporation shall have
or might have voting power by reason of the happening of any contingency),
managers, trustees or other controlling persons, or an equivalent controlling
interest therein, of such Person is, at the time, directly or indirectly, owned
by such Person and/or one or more subsidiaries of such Person.
1.84 "Supplemental Revolving Loans" shall mean the loans now or
hereafter made by Lender to or for the benefit of Borrower on a revolving basis
(involving advances, repayments and readvances) as set forth in Section 2.3
hereof.
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1.85 "Supplemental Revolving Loan Limit" shall mean $20,000,000;
provided, that, (a) such amount shall be increased to the amount equal to the
lesser of $40,000,000 or eighty (80%) percent of the appraised orderly
liquidation value of the Eligible Equipment and such other assets as may be
acceptable to Lender for such purpose, in each case with such value determined
by a written appraisal, conducted at the expense of Borrower, by independent
appraisers acceptable to Lender, which is addressed to Lender and upon which
Lender is expressly permitted to rely, provided, that, (i) such increase shall
be effective as of the first Business Day after the date of the receipt by
Lender of such appraisal and (ii) the Supplemental Revolving Loan Limit shall
not so increase if prior to the receipt by Lender of the appraisal referred to
in clause (i) above, an Event of Default shall exist or have occurred and (b)
the Supplemental Revolving Loan Limit shall decrease as provided in Section 2.3
hereof.
1.86 "Title IV Plan" shall mean a Pension Plan, other than a
Multiemployer Plan, which is covered by Title IV of ERISA.
1.87 "Unfunded Pension Liability" shall mean, as of any determination
date, the aggregate amount, if any, of the amount by which the present value of
all accrued benefits under each Title IV Plan exceed the fair market value of
all assets of such Title IV Plan allocable to such benefits in accordance with
Title IV of ERISA, all determined as of the most recent valuation date for each
such Title IV Plan using the actuarial assumptions in effect under such Title IV
Plan.
1.88 "Value" shall mean, as determined by Lender in good faith, with
respect to Inventory, the lower of (a) cost computed on a weighted average cost
basis consistent with the current practice of Borrower or (b) market value.
1.89 "Voting Stock" shall mean with respect to any Person, (a) one (1)
or more classes of Capital Stock of such Person having general voting powers to
elect at least a majority of the board of directors, managers or trustees of
such Person, irrespective of whether at the time Capital Stock of any other
class or classes have or might have voting power by reason of the happening of
any contingency, and (b) any Capital Stock of such Person convertible or
exchangeable without restriction at the option of the holder thereof into
Capital Stock of such Person described in clause (a) of this definition.
1.90 "Welfare Benefit Plan" means an employee welfare benefit plan, as
defined in Section 3(1) of ERISA, which Borrower maintains, contributes to, or
contributed to prior to the date hereof, or has an obligation to contribute to,
on behalf of its former or active employees (or their beneficiaries).
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SECTION 2. CREDIT FACILITIES
2.1 Revolving Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Revolving Loans to Borrower from time to time in
amounts requested by Borrower up to the amount equal to the sum of:
(i) eighty-five (85%) percent of the Net Amount of
Eligible Accounts, plus
(ii) the lesser of: (A) the sum of sixty (60%)
percent of the Value of Eligible Inventory or (B)
$100,000,000, less
(iii) any Availability Reserves.
(b) Lender may, in its discretion, from time to time, upon not
less than five (5) days prior notice to Borrower, (i) reduce the lending formula
with respect to Eligible Accounts to the extent that Lender reasonably
determines in good faith that: (A) the dilution with respect to the Accounts for
any period (based on the ratio of (1) the aggregate amount of reductions in
Accounts other than as a result of payments in cash to (2) the aggregate amount
of total sales) has increased above historical levels, or (B) the general
creditworthiness of account debtors has declined to the extent such decline
adversely affects the likelihood of payment of the Accounts owing by account
debtors or (ii) reduce the lending formula(s) with respect to Eligible Inventory
to the extent that Lender determines that: (A) the number of days of the
turnover of the Inventory for any period has changed in any material respect or
(B) the liquidation value of the Eligible Inventory, or any category thereof,
has decreased, or (C) the nature or mix of the Inventory has deteriorated. Any
such reduction in the lending formula shall have a reasonable relationship to
the event, condition or circumstance which is the basis for such reduction as
determined in good faith by Lender and if the event, condition or circumstance
which was the basis for such reduction shall cease to exist (as determined by
Lender in good faith), Lender shall thereafter increase the lending formula that
was reduced as a result thereof to the percentage in effect prior to the
occurrence of such event, condition or circumstance.
(c) Except in Lender's discretion, (i) the aggregate amount of
the Revolving Loans and Letter of Credit Accommodations outstanding at any time
shall not exceed the Revolving Loan Limit and (ii) the aggregate amount of the
Loans and the Letter of Credit Accommodations outstanding at any time shall not
exceed the Maximum Credit. In the event that the outstanding amount of any
component of the Loans, or the aggregate amount of the outstanding Loans and
Letter of Credit Accommodations, exceed the amounts available under the lending
formulas, the Revolving Loan Limit, the sublimits for Letter of Credit
Accommodations set forth in Section 2.2(d) or the Maximum Credit, as applicable,
such event shall not limit, waive or otherwise affect any rights of Lender in
that circumstance or on any future occasions and Borrower shall, upon
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demand by Lender, which may be made at any time or from time to time,
immediately repay to Lender the entire amount of any such excess(es) for which
payment is demanded.
(d) For purposes only of applying the sublimit on Revolving
Loans based on Eligible Inventory pursuant to Section 2.1(a)(ii)(B), Lender may
treat the then undrawn amounts of outstanding Letter of Credit Accommodations
for the purpose of purchasing Eligible Inventory as Revolving Loans to the
extent Lender is in effect basing the issuance of the Letter of Credit
Accommodations on the Value of the Eligible Inventory being purchased with such
Letter of Credit Accommodations. In determining the actual amounts of such
Letter of Credit Accommodations to be so treated for purposes of the sublimit,
the outstanding Revolving Loans and Availability Reserves shall be attributed
first to any components of the lending formulas in Section 2.1(a) that are not
subject to such sublimit, before being attributed to the components of the
lending formulas subject to such sublimit.
2.2 Letter of Credit Accommodations.
(a) Subject to and upon the terms and conditions contained
herein, at the request of Borrower, Lender agrees to provide or arrange for
Letter of Credit Accommodations for the account of Borrower containing terms and
conditions acceptable to Lender and the issuer thereof. Any payments made by
Lender to any issuer thereof and/or related parties in connection with the
Letter of Credit Accommodations shall constitute additional Revolving Loans to
Borrower pursuant to this Section 2.
(b) In addition to any charges, fees or expenses charged by
any bank or issuer in connection with the Letter of Credit Accommodations,
Borrower shall pay to Lender a letter of credit fee at a rate equal to one and
one-half (1 1/2%) percent per annum on the daily outstanding balance of the
Letter of Credit Accommodations for the immediately preceding month (or part
thereof), payable in arrears as of the first day of each succeeding month,
except that Borrower shall pay to Lender such letter of credit fee, at Lender's
option, without notice, at a rate equal to three and one-half (3 1/2%) percent
per annum on such daily outstanding balance for: (i) the period from and after
the date of termination or non-renewal hereof until Lender has received full and
final payment of all Obligations (notwithstanding entry of a judgment against
Borrower) and (ii) the period from and after the date of the occurrence of an
Event of Default for so long as such Event of Default is continuing as
determined by Lender. Such letter of credit fee shall be calculated on the basis
of a three hundred sixty (360) day year and actual days elapsed and the
obligation of Borrower to pay such fee shall survive the termination or
non-renewal of this Agreement.
(c) No Letter of Credit Accommodations shall be available
unless on the date of the proposed issuance of any Letter of Credit
Accommodations, the Revolving Loans available to Borrower (subject to the
Maximum Credit and any Availability Reserves) are equal to or greater than: (i)
if the proposed Letter of Credit Accommodation is for the purpose of purchasing
Eligible Inventory, the sum of (A) the percentage equal to one hundred (100%)
percent minus the
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then applicable percentage set forth in Section 2.1(a)(ii)(A) above of the Value
of such Eligible Inventory, plus (B) freight, taxes, duty and other amounts
which Lender estimates must be paid in connection with such Inventory upon
arrival and for delivery to one of Borrower's locations for Eligible Inventory
within the United States of America and (ii) if the proposed Letter of Credit
Accommodation is for any other purpose, an amount equal to one hundred (100%)
percent of the face amount thereof and all other commitments and obligations
made or incurred by Lender with respect thereto. Effective on the issuance of
each Letter of Credit Accommodation, an Availability Reserve shall be
established in the applicable amount set forth in Section 2.2(c)(i) or Section
2.2(c)(ii).
(d) Except in Lender's discretion, the amount of all
outstanding Letter of Credit Accommodations and all other commitments and
obligations made or incurred by Lender in connection therewith shall not at any
time exceed $30,000,000. At any time an Event of Default exists or has occurred
and is continuing, upon Lender's request, Borrower will either furnish cash
collateral to secure the reimbursement obligations to the issuer in connection
with any Letter of Credit Accommodations or furnish cash collateral to Lender
for the Letter of Credit Accommodations, and in either case, the Revolving Loans
otherwise available to Borrower shall not be reduced as provided in Section
2.2(c) to the extent of such cash collateral.
(e) Borrower shall indemnify and hold Lender harmless from and
against any and all losses, claims, damages, liabilities, costs and expenses
which Lender may suffer or incur in connection with any Letter of Credit
Accommodations and any documents, drafts or acceptances relating thereto,
including any losses, claims, damages, liabilities, costs and expenses due to
any action taken by any issuer or correspondent with respect to any Letter of
Credit Accommodation. Borrower assumes all risks with respect to the acts or
omissions of the drawer under or beneficiary of any Letter of Credit
Accommodation and for such purposes the drawer or beneficiary shall be deemed
Borrower's agent. Borrower assumes all risks for, and agrees to pay, all
foreign, Federal, State and local taxes, duties and levies relating to any goods
subject to any Letter of Credit Accommodations or any documents, drafts or
acceptances thereunder. Borrower hereby releases and holds Lender harmless from
and against any acts, waivers, errors, delays or omissions, whether caused by
Borrower, by any issuer or correspondent or otherwise with respect to or
relating to any Letter of Credit Accommodation except for the gross negligence
or wilful misconduct of Lender as determined pursuant to a final non-appealable
order of a court of competent jurisdiction. The provisions of this Section
2.2(e) shall survive the payment of Obligations and the termination or
non-renewal of this Agreement.
(f) Nothing contained herein shall be deemed or construed to
grant Borrower any right or authority to pledge the credit of Lender in any
manner. Lender shall have no liability of any kind with respect to any Letter of
Credit Accommodation provided by an issuer other than Lender unless Lender has
duly executed and delivered to such issuer the application or a guarantee or
indemnification in writing with respect to such Letter of Credit Accommodation.
Borrower shall be bound by any interpretation made in good faith by Lender, or
any other issuer or correspondent under or in connection with any Letter of
Credit Accommodation or any
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documents, drafts or acceptances thereunder, notwithstanding that such
interpretation may be inconsistent with any instructions of Borrower. Lender
shall have the sole and exclusive right and authority to, and Borrower shall
not: (i) at any time an Event of Default exists or has occurred and is
continuing, (A) approve or resolve any questions of non-compliance of documents,
(B) give any instructions as to acceptance or rejection of any documents or
goods or (C) execute any and all applications for steamship or airway
guaranties, indemnities or delivery orders, and (ii) at all times, (A) grant any
extensions of the maturity of, time of payment for, or time of presentation of,
any drafts, acceptances, or documents, and (B) agree to any amendments,
renewals, extensions, modifications, changes or cancellations of any of the
terms or conditions of any of the applications, Letter of Credit Accommodations,
or documents, drafts or acceptances thereunder or any letters of credit included
in the Collateral. Lender may take such actions either in its own name or in
Borrower's name and shall act in a commercially reasonable manner in its good
faith determination.
(g) Any rights, remedies, duties or obligations granted or
undertaken by Borrower to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement in favor of any issuer or
correspondent relating to any Letter of Credit Accommodation, shall be deemed to
have been granted or undertaken by Borrower to Lender. Any duties or obligations
undertaken by Lender to any issuer or correspondent in any application for any
Letter of Credit Accommodation, or any other agreement by Lender in favor of any
issuer or correspondent relating to any Letter of Credit Accommodation, shall be
deemed to have been undertaken by Borrower to Lender and to apply in all
respects to Borrower.
2.3 Supplemental Revolving Loans.
(a) Subject to and upon the terms and conditions contained
herein, Lender agrees to make Supplemental Revolving Loans to Borrower from time
to time in amounts requested by Borrower, up to the amount at any one time
outstanding equal to the Supplemental Revolving Loan Limit as then in effect.
Borrower may not request Supplemental Revolving Loans, and Lender shall not make
Supplemental Revolving Loans, except as Lender may otherwise determine, so long
as there are any Revolving Loans available to Borrower under Section 2.1 hereof.
All Loans shall first be deemed to constitute Revolving Loans up to the amounts
available to Borrower under Section 2.1 hereof and only thereafter shall
constitute Supplemental Revolving Loans.
(b) Except in Lender's discretion, the aggregate outstanding
principal amount of the Supplemental Revolving Loans shall not exceed the
Supplemental Revolving Loan Limit as then in effect.
(c) The Supplemental Revolving Loan Limit shall be reduced
monthly, automatically and without further action, regardless of the value of
any Collateral, effective on the first day of each month after the date of the
permanent Financing Order in an amount equal to $1,000,000 for each month,
provided, that, if the orderly liquidation value of the Eligible
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Equipment and such other collateral as is acceptable to Lender for such purpose
based on the appraisals to be delivered to Lender pursuant to Section 1.85
hereof (the "Appraised Equipment Value") is greater than $51,000,000, then the
Supplemental Revolving Loan Limit shall not be reduced by $1,000,000 each month
until the first day of the number of months after the date of the permanent
Financing Order calculated as follows: (i) the amount equal to the Appraised
Equipment Value minus 50,000,000 divided by (ii) 1,000,000.
(d) On each date when any reduction to the Supplemental
Revolving Loan Limit becomes effective as set forth herein, Borrower shall
automatically, absolutely and unconditionally, without notice or demand, make a
payment to Lender in respect of the then outstanding principal amount of the
Supplemental Revolving Loans in an amount equal to the excess of the aggregate
principal amount of the Supplemental Revolving Loans over the Supplemental
Revolving Loan Limit as so reduced. Subject to Section 12.1(c) hereof, all such
payments in respect of the Supplemental Revolving Loans shall be without premium
or penalty. All interest accrued on the principal amount of the Supplemental
Revolving Loans paid pursuant to this Section shall be paid, or may be charged
by Lender to the loan account(s) of Borrower, at Lender's option, on the date of
such payment.
2.4 Availability Reserves. All Revolving Loans otherwise available to
Borrower pursuant to the lending formulas and subject to the Maximum Credit and
other applicable limits hereunder shall be subject to Lender's continuing right
to establish and revise Availability Reserves in a manner consistent with the
criteria and conditions included in the definition thereof.
SECTION 3. INTEREST AND FEES
3.1 Interest.
(a) Borrower shall pay to Lender interest on the outstanding
principal amount of the non-contingent Obligations at the Interest Rate. All
interest accruing hereunder on and after the date of any Event of Default or
termination or non-renewal hereof shall be payable on demand.
(b) Borrower may from time to time request that Prime Rate
Loans be converted to Eurodollar Rate Loans or that any existing Eurodollar Rate
Loans continue for an additional Interest Period. Such request from Borrower
shall specify the amount of the Prime Rate Loans which will constitute
Eurodollar Rate Loans (subject to the limits set forth below) and the Interest
Period to be applicable to such Eurodollar Rate Loans. Subject to the terms and
conditions contained herein, three (3) Business Days after receipt by Lender of
such a request from Borrower, such Prime Rate Loans shall be converted to
Eurodollar Rate Loans or such Eurodollar Rate Loans shall continue, as the case
may be, provided, that, (i) no Event of Default exists or has occurred and is
continuing, (ii) no party hereto shall have sent any notice of termination or
non-renewal of this Agreement, (iii) Borrower shall have
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complied with such customary procedures as are established by Lender and
specified by Lender to Borrower from time to time for requests by Borrower for
Eurodollar Rate Loans, (iv) no more than four (4) Interest Periods may be in
effect at any one time, (v) the aggregate amount of the Eurodollar Rate Loans
must be in an amount not less than $5,000,000 or an integral multiple of
$1,000,000 in excess thereof, (vi) the maximum amount of the Eurodollar Rate
Loans at any time requested by Borrower shall not exceed the amount equal to
ninety percent (90%) of the lowest principal amount of the Revolving Loans which
it is anticipated will be outstanding during the applicable Interest Period, as
determined by Lender (but with no obligation of Lender to make such Revolving
Loans) and (vii) Lender shall have determined that the Interest Period or
Adjusted Eurodollar Rate is available to Lender through the Reference Bank and
can be readily determined as of the date of the request for such Eurodollar Rate
Loan by Borrower. Any request by Borrower to convert Prime Rate Loans to
Eurodollar Rate Loans or to continue any existing Eurodollar Rate Loans shall be
irrevocable. Notwithstanding anything to the contrary contained herein, Lender
and Reference Bank shall not be required to purchase United States Dollar
deposits in the London interbank market or other applicable Eurodollar Rate
market to fund any Eurodollar Rate Loans, but the provisions hereof shall be
deemed to apply as if Lender and Reference Bank had purchased such deposits to
fund the Eurodollar Rate Loans.
(c) Any Eurodollar Rate Loans shall automatically convert to
Prime Rate Loans upon the last day of the applicable Interest Period, unless
Lender has received and approved a request to continue such Eurodollar Rate Loan
at least three (3) Business Days prior to such last day in accordance with the
terms hereof. Any Eurodollar Rate Loans shall, at Lender's option, upon notice
by Lender to Borrower, convert to Prime Rate Loans in the event that (i) an
Event of Default shall exist or have occurred, (ii) this Agreement shall
terminate or not be renewed, or (iii) the aggregate principal amount of the
Prime Rate Loans which have previously been converted to Eurodollar Rate Loans
or existing Eurodollar Rate Loans continued, as the case may be, at the
beginning of an Interest Period shall at any time during such Interest Period
exceed either (A) the aggregate principal amount of the Loans then outstanding,
or (B) the sum of the then outstanding principal amount of the Term Loan plus
the Revolving Loans then available to Borrower under Section 2 hereof. Borrower
shall pay to Lender, upon demand by Lender (or Lender may, at its option, charge
any loan account of Borrower) any amounts required to compensate Lender, the
Reference Bank or any participant with Lender for any loss (including loss of
anticipated profits), cost or expense incurred by such person, as a result of
the conversion of Eurodollar Rate Loans to Prime Rate Loans pursuant to any of
the foregoing.
(d) Interest shall be payable by Borrower to Lender monthly in
arrears not later than the first day of each calendar month and shall be
calculated on the basis of a three hundred sixty (360) day year and actual days
elapsed. The interest rate on non-contingent Obligations (other than Eurodollar
Rate Loans) shall increase or decrease by an amount equal to each increase or
decrease in the Prime Rate effective on the first day of the month after any
change in such Prime Rate is announced based on the Prime Rate in effect on the
last day of the month in which any such change occurs. In no event shall charges
constituting interest payable by Borrower to Lender exceed the maximum amount or
the rate permitted under any applicable law
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or regulation, and if any such part or provision of this Agreement is in
contravention of any such law or regulation, such part or provision shall be
deemed amended to conform thereto.
3.2 Closing Fee. Borrower shall pay to Lender as a closing fee the
amount of $625,000, which shall be earned and payable in full as of the date
hereof.
3.3 Syndication Fee. Borrower shall pay to Lender as a syndication fee
the amount of $312,500, which shall be earned and payable in full on the date
hereof.
3.4 Servicing Fees.
(a) Borrower shall pay to Lender annually a servicing fee in
an amount equal to $100,000 in respect of Lender's services for each year (or
part thereof) while this Agreement remains in effect and for so long thereafter
as any of the Obligations are outstanding, which fee shall be fully earned as of
and payable in advance on the date hereof and on the first day of each year
hereafter.
(b) In addition, Borrower shall pay to Lender annually as a
supplemental servicing fee the amount or $100,000 in respect of Lender's
services for each year (or part thereof) while this Agreement remains in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be earned in advance on the date hereof and on the first day of each year
hereafter and payable $50,000 on the date hereof and $50,000 on the date one
hundred eighty (180) days after the date hereof and as to any year hereafter,
payable $50,000 on the anniversary of the date hereof and $50,000 on the date
one hundred eighty (180) days thereafter, provided, that, as to any year, the
entire amount of such fee shall become immediately due and payable on the
earlier of (i) Lender's demand at any time on or after the occurrence of an
Event of Default or (ii) the termination or non-renewal of the financing
provided for herein.
3.5 Unused Line Fee. Borrower shall pay to Lender monthly an unused
line fee at a rate equal to one-half (1/2%) percent per annum calculated upon
the amount by which the Maximum Credit exceeds the average daily principal
balance of the outstanding Loans and Letter of Credit Accommodations during the
immediately preceding month (or part thereof) while this Agreement is in effect
and for so long thereafter as any of the Obligations are outstanding, which fee
shall be payable on the first day of each month in arrears.
3.6 Changes in Laws and Increased Costs of Loans.
(a) Notwithstanding anything to the contrary contained herein,
all Eurodollar Rate Loans shall, upon notice by Lender to Borrower, convert to
Prime Rate Loans in the event that (i) any change in applicable law or
regulation (or the interpretation or administration thereof) shall either (A)
make it unlawful for Lender, Reference Bank or any participant to make or
maintain Eurodollar Rate Loans or to comply with the terms hereof in connection
with the Eurodollar Rate Loans, or (B) shall result in the increase in the costs
to Lender, Reference Bank or any participant
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of making or maintaining any Eurodollar Rate Loans by an amount deemed by Lender
to be material, or (C) reduce the amounts received or receivable by Lender in
respect thereof, by an amount deemed by Lender to be material or (ii) the cost
to Lender, Reference Bank or any participant of making or maintaining any
Eurodollar Rate Loans shall otherwise increase by an amount deemed by Lender to
be material. Borrower shall pay to Lender, upon demand by Lender (or Lender may,
at its option, charge any loan account of Borrower) any amounts required to
compensate Lender, the Reference Bank or any participant with Lender for any
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of the foregoing, including, without limitation, any such
loss, cost or expense incurred by reason of the liquidation or reemployment of
deposits or other funds acquired by such person to make or maintain the
Eurodollar Rate Loans or any portion thereof. A certificate of Lender setting
forth the basis for the determination of such amount necessary to compensate
Lender as aforesaid shall be delivered to Borrower and shall be conclusive,
absent manifest error.
(b) If any payments or prepayments in respect of the
Eurodollar Rate Loans are received by Lender other than on the last day of the
applicable Interest Period (whether pursuant to acceleration, upon maturity or
otherwise), including any payments pursuant to the application of collections
under Section 6.3 or any other payments made with the proceeds of Collateral,
Borrower shall pay to Lender upon demand by Lender (or Lender may, at its
option, charge any loan account of Borrower) any amounts required to compensate
Lender, the Reference Bank or any participant with Lender for any additional
loss (including loss of anticipated profits), cost or expense incurred by such
person as a result of such prepayment or payment, including, without limitation,
any loss, cost or expense incurred by reason of the liquidation or reemployment
of deposits or other funds acquired by such person to make or maintain such
Eurodollar Rate Loans or any portion thereof.
SECTION 4. CONDITIONS PRECEDENT
4.1 Conditions Precedent to Initial Loans and Letter of Credit
Accommodations. Each of the following is a condition precedent to Lender making
the initial Loans and providing the initial Letter of Credit Accommodations
hereunder:
(a) the Financing Order shall have been entered in the Chapter
11 Case by the Bankruptcy Court, in form and substance satisfactory to Lender,
and shall be in full force and effect and no stay with respect to same shall be
pending;
(b) no trustee, or other disinterested person with expanded
powers pursuant to Section 1104(c) of the Bankruptcy Code, shall have been
appointed or designated with respect to Borrower or its respective business,
properties or assets, including, without limitation the Collateral and any other
property which is security for the Obligations;
(c) this Agreement, the other Financing Agreements and all
guaranties, instruments and documents thereunder, shall have been duly
authorized by the Financing Order then in effect
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entered by the Bankruptcy Court in the Chapter 11 Case, and no stay with respect
to same shall be pending;
(d) Lender shall have received, in form and substance
satisfactory to Lender, a release agreement to evidence and effectuate the
termination by the Existing Lenders (including Citicorp USA, Inc., as agent on
behalf of the Existing Lenders) to Borrower of their respective financing
arrangements with Borrower and the termination and release by it or them, as the
case may be, of any interest in and to any assets and properties of Borrower and
each Obligor, duly authorized, executed and delivered by Citicorp USA, Inc. and
each of the Existing Lenders;
(e) all requisite corporate action and proceedings in
connection with this Agreement and the other Financing Agreements shall be
satisfactory in form and substance to Lender, and Lender shall have received all
information and copies of all documents, including records of requisite
corporate action and proceedings which Lender may have requested in connection
therewith, such documents where requested by Lender or its counsel to be
certified by appropriate corporate officers or governmental authorities;
(f) Lender shall have completed a field review appropriate
under the circumstances, as determined in good faith by Lender, of the Records
and such other information with respect to the Collateral as Lender may require
to determine the amount of Loans available to Borrower (including, without
limitation, current perpetual inventory records and/or roll-forwards of Accounts
and Inventory through the date two (2) Business Days prior to the date of the
initial Loans and test counts of the Inventory in a manner satisfactory to
Lender, together with such supporting documentation as may be necessary or
appropriate, and other documents and information that will enable Lender to
accurately identify and verify the Collateral), the results of which each case
shall be satisfactory to Lender, prior to the date hereof;
(g) Lender shall have received, in form and substance
satisfactory to Lender, all consents, waivers, acknowledgments and other
agreements from third persons which Lender may deem necessary or desirable in
order to permit, protect and perfect its security interests in and liens upon
the Collateral or to effectuate the provisions or purposes of this Agreement and
the other Financing Agreements, including, without limitation, Collateral Access
Agreements by owners and lessors of leased premises of Borrower and by
warehouses at which Collateral is located;
(h) Lender shall have received, in form and substance
satisfactory to Lender, such opinion letters of counsel to Borrower with respect
to the Financing Agreements and such other matters as Lender may request; and
(i) the other Financing Agreements and all instruments and
documents hereunder and thereunder shall have been duly executed and delivered
to Lender, in form and substance satisfactory to Lender.
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4.2 Conditions Precedent to All Loans and Letter of Credit
Accommodations. Each of the following is an additional condition precedent to
Lender making Loans and/or providing Letter of Credit Accommodations to
Borrower, including the initial Loans and Letter of Credit Accommodations and
any future Loans and Letter of Credit Accommodations:
(a) all representations and warranties contained herein and in
the other Financing Agreements shall be true and correct in all material
respects with the same effect as though such representations and warranties had
been made on and as of the date of the making of each such Loan or providing
each such Letter of Credit Accommodation and after giving effect thereto, except
to the extent that such representations and warranties expressly relate solely
to an earlier date (in which case such representations and warranties shall have
been true and accurate on and as of such earlier date);
(b) no law, regulation, order, judgment or decree of any
Governmental Authority shall exist, and no action, suit, investigation,
litigation or proceeding shall be pending or threatened in any court or before
any arbitrator or Governmental Authority, which (i) purports to enjoin,
prohibit, restrain or otherwise affect (A) the making of the Loans or providing
the Letter of Credit Accommodations, or (B) the consummation of the transactions
contemplated pursuant to the terms hereof or the other Financing Agreements or
(ii) has or could reasonably be expected to have a Material Adverse Effect; and
(c) no Event of Default and no act, condition or event which,
with notice or passage of time or both, would constitute an Event of Default,
shall exist or have occurred and be continuing on and as of the date of the
making of such Loan or providing each such Letter of Credit Accommodation and
after giving effect thereto.
SECTION 5. GRANT OF SECURITY INTEREST
To secure payment and performance of all Obligations, Borrower hereby
grants to Lender a continuing security interest in, a lien upon, and a right of
set off against, and hereby assigns to Lender as security, the following
property and interests in property of Borrower, whether now owned or hereafter
acquired or existing, and wherever located (collectively, the "Collateral"):
5.1 Accounts;
5.2 all present and future contract rights, general intangibles
(including tax and duty refunds, registered and unregistered patents,
trademarks, service marks, copyrights, trade names, applications for the
foregoing, trade secrets, goodwill, processes, drawings, blueprints, customer
lists, licenses, whether as licensor or licensee, choses in action and other
claims and existing and future leasehold interests in equipment, real estate and
fixtures), chattel paper, documents, instruments, investment property, letters
of credit, bankers' acceptances and guaranties;
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5.3 all present and future monies, securities and other investment
property, credit balances, deposits, deposit accounts and other property of
Borrower now or hereafter held or received by or in transit to Lender or its
affiliates or at any other depository or other institution from or for the
account of Borrower, whether for safekeeping, pledge, custody, transmission,
collection or otherwise, and all present and future liens, security interests,
rights, remedies, title and interest in, to and in respect of Accounts and other
Collateral, including (a) rights and remedies under or relating to guaranties,
contracts of suretyship, letters of credit and credit and other insurance
related to the Collateral, (b) rights of stoppage in transit, replevin,
repossession, reclamation and other rights and remedies of an unpaid vendor,
lienor or secured party, (c) goods described in invoices, documents, contracts
or instruments with respect to, or otherwise representing or evidencing,
Accounts or other Collateral, including returned, repossessed and reclaimed
goods, and (d) deposits by and property of account debtors or other persons
securing the obligations of account debtors;
5.4 Inventory;
5.5 Equipment;
5.6 Real Property;
5.7 all other property in Borrower's estate in the Chapter 11 Case in
which Lender is granted a security interest or lien pursuant to the Financing
Order; and
5.8 Records; and
5.9 all products and proceeds of the foregoing, in any form, including
insurance proceeds and all claims against third parties for loss or damage to or
destruction of any or all of the foregoing.
SECTION 6. COLLECTION AND ADMINISTRATION
6.1 Borrower's Loan Account. Lender shall maintain one or more loan
account(s) on its books in which shall be recorded (a) all Loans, Letter of
Credit Accommodations and other Obligations and the Collateral, (b) all payments
made by or on behalf of Borrower and (c) all other appropriate debits and
credits as provided in this Agreement, including fees, charges, costs, expenses
and interest. All entries in the loan account(s) shall be made in accordance
with Lender's customary practices as in effect from time to time.
6.2 Statements. Lender shall render to Borrower each month a statement
setting forth the balance in the Borrower's loan account(s) maintained by Lender
for Borrower pursuant to the provisions of this Agreement, including principal,
interest, fees, costs and expenses. Each such statement shall be subject to
subsequent adjustment by Lender but shall, absent manifest errors or
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omissions, be considered correct and deemed accepted by Borrower and
conclusively binding upon Borrower as an account stated except to the extent
that Lender receives a written notice from Borrower of any specific exceptions
of Borrower thereto within thirty (30) days after the date such statement has
been mailed by Lender. Until such time as Lender shall have rendered to Borrower
a written statement as provided above, the balance in Borrower's loan account(s)
shall be presumptive evidence of the amounts due and owing to Lender by
Borrower.
6.3 Collection of Accounts.
(a) By no later than March 1, 1999, Borrower shall establish
and maintain, at its expense, blocked accounts ("Blocked Accounts") with
Citibank, N.A. or such other bank as is acceptable to Lender into which Borrower
shall promptly deposit and direct its account debtors to directly remit all
payments on Accounts and all payments constituting proceeds of Inventory or
other Collateral in the identical form in which such payments are made, whether
by cash, check or other manner. The banks at which the Blocked Accounts are
established shall enter into an agreement, in form and substance satisfactory to
Lender, providing that all items received or deposited in the Blocked Accounts
are the property of Lender, that the depository bank has no lien upon, or right
to setoff against, the Blocked Accounts, the items received for deposit therein,
or the funds from time to time on deposit therein and that the depository bank
will wire, or otherwise transfer, in immediately available funds, on a daily
basis, all funds received or deposited into the Blocked Accounts to such bank
account of Lender as Lender may from time to time designate for such purpose
("Payment Account"). Lender shall instruct the depository banks at which the
Blocked Accounts are maintained to transfer the funds on deposit in the Blocked
Accounts to such operating bank account of Borrower as Borrower may specify in
writing to Lender until such time as Lender shall notify the depository bank
otherwise. At any time after March 1, 1999, Lender may instruct the depository
banks at which the Blocked Accounts are maintained to transfer all funds
received or deposited into the Blocked Accounts to the Payment Account at any
time that either: (i) an Event of Default shall exist or have occurred, or (ii)
Excess Availability shall be less than $15,000,000. Borrower agrees that all
payments made to such Blocked Accounts or other funds received and collected by
Lender, whether on the Accounts or as proceeds of Inventory or other Collateral
or otherwise shall be Collateral.
(b) For purposes of calculating the amount of the Loans
available to Borrower and for purposes of calculating interest on the
Obligations, such payments will be applied (conditional upon final collection)
to the Obligations on the Business Day of receipt by Lender of immediately
available funds in the Payment Account provided such payments and notice thereof
are received in accordance with Lender's usual and customary practices as in
effect from time to time and within sufficient time to credit Borrower's loan
account on such day, and if not, then on the next Business Day.
(c) Borrower shall, acting as trustee for Lender, receive, as
the property of Lender, any monies, checks, notes, drafts or any other payment
relating to and/or proceeds of Accounts or other Collateral which come into
their possession or under their control and immediately upon
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receipt thereof, shall deposit or cause the same to be deposited in the Blocked
Accounts, or remit the same or cause the same to be remitted, in kind, to
Lender. In no event shall the same be commingled with Borrower's own funds.
Borrower agrees to reimburse Lender on demand for any amounts owed or paid to
any bank at which a Blocked Account is established or any other bank or person
involved in the transfer of funds to or from the Blocked Accounts arising out of
Lender's payments to or indemnification of such bank or person. The obligation
of Borrower to reimburse Lender for such amounts pursuant to this Section 6.3
shall survive the termination or non-renewal of this Agreement.
6.4 Payments. All Obligations shall be payable to the Payment Account
as provided in Section 6.3 or such other place as Lender may designate from time
to time. Lender may apply payments received or collected from Borrower or for
the account of Borrower (including the monetary proceeds of collections or of
realization upon any Collateral) to such of the Obligations, whether or not then
due, in such order and manner as Lender determines, provided, that, (a) such
payments shall be applied to Supplemental Revolving Loans before being applied
to any Revolving Loans and (b) such payments shall be applied to Prime Rate
Loans before being applied to Eurodollar Rate Loans. At Lender's option, all
principal, interest, fees, costs, expenses and other charges provided for in
this Agreement or the other Financing Agreements may be charged directly to the
loan account(s) of Borrower. Borrower shall make all payments to Lender on the
Obligations free and clear of, and without deduction or withholding for or on
account of, any setoff, counterclaim, defense, duties, taxes, levies, imposts,
fees, deductions, withholding, restrictions or conditions of any kind. If after
receipt of any payment of, or proceeds of Collateral applied to the payment of,
any of the Obligations, Lender is required to surrender or return such payment
or proceeds to any Person for any reason, then the Obligations intended to be
satisfied by such payment or proceeds shall be reinstated and continue and this
Agreement shall continue in full force and effect as if such payment or proceeds
had not been received by Lender. Borrower shall be liable to pay to Lender, and
does hereby indemnify and hold Lender harmless for the amount of any payments or
proceeds surrendered or returned. This Section 6.4 shall remain effective
notwithstanding any contrary action which may be taken by Lender in reliance
upon such payment or proceeds. This Section 6.4 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
6.5 Authorization to Make Loans. Lender is authorized to make the Loans
and provide the Letter of Credit Accommodations based upon telephonic or other
instructions received from anyone purporting to be an officer of Borrower or
other authorized person or, at the discretion of Lender, if such Loans are
necessary to satisfy any Obligations. All requests for Loans or Letter of Credit
Accommodations hereunder shall specify the date on which the requested advance
is to be made or Letter of Credit Accommodations established (which day shall be
a Business Day) and the amount of the requested Loan. Requests received after
12:00 noon New York City time on any day shall be deemed to have been made as of
the opening of business on the immediately following Business Day. All Loans and
Letter of Credit Accommodations under this Agreement shall be conclusively
presumed to have been made to, and at the request of and for the benefit of,
Borrower when deposited to the credit of Borrower or otherwise disbursed or
established in
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accordance with the instructions of Borrower or in accordance with the terms and
conditions of this Agreement.
6.6 Use of Proceeds. Borrower shall use the initial proceeds of the
Loans provided by Lender to Borrower hereunder only for: (a) payments to each of
the persons listed in the disbursement direction letter furnished by Borrowers
to Lender on or about the date hereof, (b) costs, expenses and fees in
connection with the preparation, negotiation, execution and delivery of this
Agreement and the other Financing Agreements, (c) for payments expressly
provided for in the Financing Order or any other Order of the Bankruptcy Court,
and (d) for Borrowers' working capital and other proper corporate purposes. All
other Loans made or Letter of Credit Accommodations provided by Lender to
Borrower pursuant to the provisions hereof shall be used by Borrower only for
general operating, working capital and other proper corporate purposes of
Borrower not otherwise prohibited by the terms hereof. None of the proceeds will
be used, directly or indirectly, for the purpose of purchasing or carrying any
margin security or for the purposes of reducing or retiring any indebtedness
which was originally incurred to purchase or carry any margin security or for
any other purpose which might cause any of the Loans to be considered a "purpose
credit" within the meaning of Regulation U of the Board of Governors of the
Federal Reserve System, as amended.
SECTION 7. COLLATERAL REPORTING AND COVENANTS
7.1 Collateral Reporting.
(a) Borrower shall provide Lender with the following documents
in a form satisfactory to Lender:
(i) on a regular basis as required by Lender, a
schedule of sales made, credits issued and cash received;
(ii) on a monthly basis or more frequently as Lender
may request (but no more than twice monthly so long as no Event of Default
exists or has occurred and is continuing), (A) perpetual inventory reports, (B)
inventory reports by location and category (including the tonnage by location
and category), (C) reports of inventory of Mannesmann held by Borrower, (D)
agings of accounts payable (and including information indicating the status of
payments to owners and lessors of the leased premises of Borrower) and (E)
agings of accounts receivable;
(iii) upon Lender's request, (A) copies of customer
statements and credit memos, remittance advices and reports, and copies of
deposit slips and bank statements, (B) copies of shipping and delivery
documents, and (C) copies of purchase orders, invoices and delivery documents
for Inventory and Equipment acquired by Borrower;
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(iv) such other reports as to the Collateral as
Lender shall request from time to time; and
(b) If any of Borrower's records or reports of the Collateral
are prepared or maintained by an accounting service, contractor, shipper or
other agent, Borrower hereby irrevocably authorizes such service, contractor,
shipper or agent at any time that an Event of Default exists or has occurred and
is continuing to deliver such records, reports, and related documents to Lender
and to follow Lender's instructions with respect to further services.
7.2 Accounts Covenants.
(a) Borrower shall notify Lender promptly of: (i) any material
delay in Borrower's performance of any of its obligations to any material
account debtor or the assertion of any claims, offsets, defenses or
counterclaims by any material account debtor, or any disputes with account
debtors, or any settlement, adjustment or compromise thereof in each case
involving $1,000,000 or more, (ii) all material adverse information relating to
the financial condition of any material account debtor and (iii) any event or
circumstance which, to Borrower's knowledge would cause Lender to consider any
then existing Accounts as no longer constituting Eligible Accounts. No credit,
discount, allowance or extension or agreement for any of the foregoing shall be
granted to any account debtor without Lender's consent, except in the ordinary
course of Borrower's business in accordance with practices and policies or
pursuant to the Mannesmann Agreement as in effect on the date hereof. So long as
no Event of Default exists or has occurred and is continuing, Borrower shall
settle, adjust or compromise any claim, offset, counterclaim or dispute with any
account debtor. At any time that an Event of Default exists or has occurred and
is continuing, after notice to Borrower as to any Account or Accounts, Lender
shall, at its option, have the exclusive right to settle, adjust or compromise
any claim, offset, counterclaim or dispute with account debtors or grant any
credits, discounts or allowances.
(b) Without limiting the obligation of Borrower to deliver any
other information to Lender, Borrower shall promptly report to Lender any return
of Inventory by any one account debtor if the Inventory so returned in such case
has a value in excess of $1,000,000. At any time that Inventory is returned,
reclaimed or repossessed, the Account (or portion thereof) which arose from the
sale of such returned, reclaimed or repossessed Inventory shall not be deemed an
Eligible Account.
(c) With respect to each Account: (i) the amounts shown on any
invoice delivered to Lender or schedule thereof delivered to Lender shall be
true and complete, (ii) no payments shall be made thereon except payments
immediately delivered to Lender pursuant to the terms of this Agreement, (iii)
no credit, discount, allowance or extension or agreement for any of the
foregoing shall be granted to any account debtor except as reported to Lender in
accordance with this Agreement and except for credits, discounts, allowances or
extensions made or given in the ordinary course of Borrower's business in
accordance with practices and policies previously disclosed to Lender and except
pursuant to the terms of the Mannesmann Agreement as in effect
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on the date hereof, (iv) there shall be no setoffs, deductions, contras,
defenses, counterclaims or disputes existing or asserted with respect thereto
except as reported to Lender in accordance with the terms of this Agreement and
except for the rights of Mannesmann under the Mannesmann Agreement as in effect
on the date hereof, (v) none of the transactions giving rise thereto will
violate any applicable State or Federal laws or regulations, all documentation
relating thereto will be legally sufficient under such laws and regulations and
all such documentation will be legally enforceable in accordance with its terms.
(d) Lender shall have the right at any time or times, in
Lender's name or in the name of a nominee of Lender, to verify the validity,
amount or any other matter relating to any Account or other Collateral, by mail,
telephone, facsimile transmission or otherwise.
(e) Borrower shall deliver or cause to be delivered to Lender,
with appropriate endorsement and assignment, with full recourse to Borrower, all
chattel paper and instruments which Borrower now owns or may at any time acquire
immediately upon Borrower's receipt thereof, except that so long as no Event of
Default shall exist or have occurred and Excess Availability is greater than
$15,000,000, Borrower shall not be required to deliver to Lender chattel paper
or instruments of less than $500,000 in any one case or $2,000,000 in the
aggregate.
(f) Lender may, at any time or times that an Event of Default
exists or has occurred and is continuing, (i) notify any or all account debtors
that the Accounts have been assigned to Lender and that Lender has a security
interest therein and Lender may direct any or all accounts debtors to make
payment of Accounts directly to Lender, (ii) extend the time of payment of,
compromise, settle or adjust for cash, credit, return of merchandise or
otherwise, and upon any terms or conditions, any and all Accounts or other
obligations included in the Collateral and thereby discharge or release the
account debtor or any other party or parties in any way liable for payment
thereof without affecting any of the Obligations, (iii) demand, collect or
enforce payment of any Accounts or such other obligations, but without any duty
to do so, and Lender shall not be liable for its failure to collect or enforce
the payment thereof nor for the negligence of its agents or attorneys with
respect thereto and (iv) take whatever other reasonable action Lender may in
good faith deem necessary or desirable for the protection of its interests. At
any time that an Event of Default exists or has occurred and is continuing, at
Lender's request, all invoices and statements sent to any account debtor shall
state that the Accounts and such other obligations have been assigned to Lender
and are payable directly and only to Lender and Borrower shall deliver to Lender
such originals of documents evidencing the sale and delivery of goods or the
performance of services giving rise to any Accounts as Lender may require.
7.3 Inventory Covenants. With respect to the Inventory: (a) Borrower
shall at all times maintain inventory records reasonably satisfactory to Lender,
keeping correct and accurate records itemizing and describing the kind, type,
quality and quantity of Inventory, Borrower's cost therefor and daily
withdrawals therefrom and additions thereto; (b) Borrower shall conduct a
physical count of the Inventory at least once each year consistent with the past
practice of Borrower, but at any time or times as Lender may request on or after
an Event of Default, and
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promptly following such physical inventory shall supply Lender with a report in
the form and with such specificity as may be reasonably satisfactory to Lender
concerning such physical count; (c) Borrower shall not remove any Inventory from
the locations set forth or permitted herein, without the prior written consent
of Lender, except for sales of Inventory in the ordinary course of Borrower's
business and except to move Inventory directly from one location set forth or
permitted herein to another such location; (d) upon Lender's request, Borrower
shall, at its expense, no more than once in any twelve (12) month period, but at
any time or times as Lender may request on or after an Event of Default, deliver
or cause to be delivered to Lender written reports or appraisals as to the
Inventory in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (e) Borrower shall produce, use, store and maintain
the Inventory with all reasonable care and caution and in accordance with
applicable standards of any insurance and in conformity with applicable laws
(including the requirements of the Federal Fair Labor Standards Act of 1938, as
amended and all rules, regulations and orders related thereto); (f) Borrower
assumes all responsibility and liability arising from or relating to the
production, use, sale or other disposition of the Inventory, except as provided
in the Mannesmann Agreement as in effect on the date hereof; (g) Borrower shall
not sell Inventory to any customer on approval, or any other basis which
entitles the customer to return or may obligate Borrower to repurchase such
Inventory except as otherwise provided in the Mannesmann Agreement as in effect
on the date hereof and except pursuant to the current policies of Borrower as
disclosed to Lender; (h) Borrower shall keep the Inventory in good and
marketable condition; and (i) within thirty (30) days after the date hereof,
Borrower shall not, without prior written notice to Lender (or such other notice
or report as Lender may from time to time require), acquire or accept any
Inventory on consignment or approval (provided, that, as of the date hereof and
during such thirty (30) day period, such Inventory is identified separately as
consignment Inventory on any reports to Lender) .
7.4 Equipment and Real Property Covenants. With respect to the
Equipment and Real Property: (a) upon Lender's request, Borrower shall, at its
expense, no more than once in any twelve (12) month period, but at any time or
times as Lender may request on or after an Event of Default, deliver or cause to
be delivered to Lender written reports or appraisals as to the Equipment and/or
the Real Property in form, scope and methodology acceptable to Lender and by an
appraiser acceptable to Lender, addressed to Lender and upon which Lender is
expressly permitted to rely; (b) Borrower shall keep the Equipment that is
currently in use or hereafter acquired by Borrower in good order, repair,
operational and marketable condition (ordinary wear and tear excepted); (c)
Borrower shall use the Equipment that is currently in use or hereafter acquired
with all reasonable care and caution and in accordance with applicable standards
of any insurance and in conformity with all applicable laws; (d) the Equipment
is and shall be used in Borrower's business and not for personal, family,
household or farming use; (e) Borrower shall not remove any Equipment from the
locations set forth or permitted herein, except to the extent necessary to have
any Equipment repaired or maintained in the ordinary course of the business of
Borrower or to move Equipment directly from one location set forth or permitted
herein to another such location and except for the movement of motor vehicles
used by or for the benefit
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of Borrower in the ordinary course of business and except as otherwise permitted
herein; (f) the Equipment is now and shall remain personal property and Borrower
shall not permit any of the Equipment to be or become a part of or affixed to
real property; and (g) Borrower assumes all responsibility and liability arising
from the use of the Equipment and Real Property.
7.5 Power of Attorney. Borrower hereby irrevocably designates and
appoints Lender (and all persons designated by Lender) as Borrower's true and
lawful attorney-in-fact, and authorizes Lender, in Borrower's or Lender's name,
to: (a) at any time an Event of Default or act, condition or event which with
notice or passage of time or both would constitute an Event of Default exists or
has occurred and is continuing (i) demand payment on Accounts or other proceeds
of Inventory or other Collateral, (ii) enforce payment of Accounts by legal
proceedings or otherwise, (iii) exercise all of Borrower's rights and remedies
to collect any Account or other Collateral, (iv) sell or assign any Account upon
such terms, for such amount and at such time or times as the Lender deems
advisable, (v) settle, adjust, compromise, extend or renew an Account, (vi)
discharge and release any Account, (vii) prepare, file and sign Borrower's name
on any proof of claim in bankruptcy or other similar document against an account
debtor, (viii) notify the post office authorities to change the address for
delivery of Borrower's mail to an address designated by Lender, and open and
dispose of all mail addressed to Borrower, and (ix) do all acts and things which
are necessary, in Lender's determination, to fulfill Borrower's obligations
under this Agreement and the other Financing Agreements and (b) at any time to
(i) take control in any manner of any item of payment or proceeds thereof
received in or for deposit in the Blocked Accounts or otherwise received by
Lender, (ii) have access to any lockbox or postal box into which Borrower's mail
is deposited, (iii) endorse Borrower's name upon any items of payment or
proceeds thereof and deposit the same in the Lender's account for application to
the Obligations, (iv) endorse Borrower's name upon any chattel paper, document,
instrument, invoice, or similar document or agreement relating to any Account or
any goods pertaining thereto or any other Collateral, (v) sign Borrower's name
on any verification of Accounts and notices thereof to account debtors and (vi)
execute in Borrower's name and file any UCC financing statements or amendments
thereto. Borrower hereby releases Lender and its officers, employees and
designees from any liabilities arising from any act or acts under this power of
attorney and in furtherance thereof, whether of omission or commission, except
as a result of Lender's own gross negligence or wilful misconduct as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
7.6 Right to Cure. Lender may, at its option, (a) upon notice to
Borrower, cure any default by Borrower under any material agreement with a third
party which affects the Collateral, its value or the ability of Lender to
collect, sell or otherwise dispose of the Collateral or the rights and remedies
of Lender therein or the ability of Borrower to perform its obligations under
the other Financing Agreements, (b) pay or bond on appeal any judgment entered
against Borrower, (c) discharge taxes, liens, security interests or other
encumbrances at any time levied on or existing with respect to the Collateral
and (d) pay any amount, incur any expense or perform any act which, in Lender's
judgment, is necessary or appropriate to preserve, protect, insure or maintain
the Collateral and the rights of Lender with respect thereto. Lender may add any
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reasonable amounts so expended to the Obligations and charge Borrower's account
therefor, such amounts to be repayable by Borrower on demand. Lender shall be
under no obligation to effect such cure, payment or bonding and shall not, by
doing so, be deemed to have assumed any obligation or liability of Borrower. Any
payment made or other action taken by Lender under this Section shall be without
prejudice to any right to assert an Event of Default hereunder and to proceed
accordingly.
7.7 Access to Premises. From time to time as requested by Lender, at
the cost and expense of Borrower, (a) Lender or its designee shall have complete
access to all of Borrower's premises during normal business hours and after
notice to Borrower, or at any time and without notice to Borrower if an Event of
Default exists or has occurred and is continuing, for the purposes of
inspecting, verifying and auditing the Collateral and all of Borrower's books
and records, including the Records, and (b) Borrower shall promptly furnish to
Lender such copies of such books and records or extracts therefrom as Lender may
request, and (c) Lender or its designee may use during normal business hours
such of Borrower's personnel, equipment, supplies and premises as may be
reasonably necessary for the foregoing and if an Event of Default exists or has
occurred and is continuing for the collection of Accounts and realization of
other Collateral.
SECTION 8. REPRESENTATIONS AND WARRANTIES
Borrower hereby represents and warrants to Lender the following (which
shall survive the execution and delivery of this Agreement), the truth and
accuracy of which are a continuing condition of the making of Loans and
providing Letter of Credit Accommodations by Lender to Borrower:
8.1 Corporate Existence, Power and Authority; Subsidiaries. Borrower is
a corporation duly organized and in good standing under the laws of its state of
incorporation and is duly qualified as a foreign corporation and in good
standing in all states or other jurisdictions where the nature and extent of the
business transacted by it or the ownership of assets makes such qualification
necessary, except for those jurisdictions in which the failure to so qualify
would not have a material adverse effect on Borrower's financial condition,
results of operation or business or the rights of Lender in or to any of the
Collateral. The execution, delivery and performance of this Agreement, the other
Financing Agreements and the transactions contemplated hereunder and thereunder
are all within Borrower's corporate powers, have been duly authorized and are
not in contravention of law or the terms of Borrower's certificate of
incorporation, by-laws, or other organizational documentation, or any indenture,
agreement or undertaking to which Borrower is a party or by which Borrower or
its property are bound except as set forth on Schedule 8.1 hereof. This
Agreement and the other Financing Agreements constitute legal, valid and binding
obligations of Borrower enforceable in accordance with their respective terms.
Borrower does not have any Subsidiaries except as set forth on the Information
Certificate. Any such Subsidiaries do not have any material assets other than
the investment by Vineyard Management
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Company in CPICOR Management Company and the federal grant described in the
Borrower's Annual Report on Form 10-K for the fiscal year ended September 30,
1998 and any proceeds of a loan or capital contribution from Borrower permitted
under Section 9.10 hereof.
8.2 Financial Statements; No Material Adverse Change. All financial
statements relating to Borrower which have been or may hereafter be delivered by
Borrower to Lender have been prepared in accordance with GAAP and fairly present
the financial condition and the results of operation of Borrower as at the dates
and for the periods set forth therein. Except as disclosed in any interim
financial statements furnished by Borrower to Lender prior to the date hereof
and the Geneva Steel Company Business Plan through the year 2003 prepared as of
December 1998 for the period through January 31, 1999 delivered by Borrower to
Lender prior to the date of this Agreement, there has been no material adverse
change in the assets, liabilities, properties and condition, financial or
otherwise, of Borrower, since the date of the most recent audited financial
statements furnished by Borrower to Lender prior to the date of this Agreement.
8.3 Chief Executive Office; Collateral Locations. The chief executive
office of Borrower and Borrower's Records concerning Accounts are located only
at the address set forth below and its only other places of business and the
only other locations of Collateral, if any, are the addresses set forth in the
Information Certificate, subject to the right of Borrower to establish new
locations in accordance with Section 9.2 below. The Information Certificate
correctly identifies any of such locations which are not owned by Borrower and
sets forth the owners and/or operators thereof, other than the locations of
Inventory currently in transit to locations set forth on the Information
Certificate.
8.4 Priority of Liens; Title to Properties. The security interests and
liens granted to Lender under this Agreement and the other Financing Agreements
constitute valid and perfected first priority liens and security interests in
and upon the Collateral subject only to the liens indicated on Schedule 8.4
hereto and the other liens permitted under Section 9.8 hereof. Borrower has good
and marketable title to all of its properties and assets subject to no liens,
mortgages, pledges, security interests, encumbrances or charges of any kind,
except those granted to Lender and such others as are specifically listed on
Schedule 8.4 hereto or permitted under Section 9.8 hereof.
8.5 Tax Returns. Borrower has filed, or caused to be filed, in a timely
manner all tax returns, reports and declarations which are required to be filed
by it (without requests for extension except as previously disclosed in writing
to Lender). All information in such tax returns, reports and declarations is
complete and accurate in all material respects. Borrower has paid or caused to
be paid all taxes due and payable or claimed due and payable in any assessment
received by it, except taxes the validity of which are being contested in good
faith by appropriate proceedings diligently pursued and available to Borrower
and with respect to which adequate reserves have been set aside on its books.
Adequate provision has been made for the payment of all accrued and unpaid
Federal, State, county, local, foreign and other taxes whether or not yet due
and payable and whether or not disputed.
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8.6 Litigation. Except as set forth on the Information Certificate,
there is no present investigation by any Governmental Authority pending, or to
the best of Borrower's knowledge threatened, against or affecting Borrower, its
assets or business and there is no action, suit, proceeding or claim by any
Person pending, or to the best of Borrower's knowledge threatened, against
Borrower or its assets or goodwill, or against or affecting any transactions
contemplated by this Agreement, which if adversely determined against Borrower
would result in any material adverse change in the assets or business of
Borrower or would impair the ability of Borrower to perform its obligations
hereunder or under any of the other Financing Agreements to which it is a party
or of Lender to enforce any Obligations or realize upon any Collateral.
8.7 Compliance with Other Agreements and Applicable Laws. Borrower is
not in default in any respect under, or in violation in any respect of any of
the terms of, any agreement, contract, instrument, lease or other commitment to
which it is a party or by which it or any of its assets are bound where such
default or violation would have a Material Adverse Effect except for the default
under the Senior Note Agreements as a result of the failure to make the payment
due thereunder and Borrower is in compliance in all material respects with all
applicable provisions of laws, rules, regulations, licenses, permits, approvals
and orders of any foreign, Federal, State or local Governmental Authority.
8.8 Environmental Compliance.
(a) The operations of Borrower and, to the Borrower's
knowledge, its tenants comply with all applicable Environmental Laws other than
such non-compliance the consequences of which in the aggregate would not give
rise to any Environmental Liabilities and Costs that are reasonably likely to
have a Material Adverse Effect.
(b) Borrower has obtained all environmental, health and safety
Permits necessary for its operations, and all such Permits are in good standing
and Borrower is in compliance with the terms and conditions of such Permits
other than such failures to obtain, lack of good standing and non-compliance the
consequences of which in the aggregate would give rise to any Environmental
Liabilities and Costs that are not reasonably likely to have a Material Adverse
Effect.
(c) Borrower does not currently, and has not previously owned
or leased real property or operations subject to any threatened or outstanding
order or judgment from, or consent decree or similar agreement in response
thereto with, any Governmental Authority or other Person or subject to any
judicial or docketed administrative proceeding respecting (i) Environmental
Laws, (ii) Remedial Action, or (iii) any Environmental Liabilities and Costs
arising from a Release or threatened Release, other than those the consequences
of which in the aggregate would give rise to any Environmental Liabilities and
Costs that are not reasonably likely to have a Material Adverse Effect.
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(d) There are no conditions or circumstances associated with
the currently or previously owned or leased Real Property or operations of
Borrower or to Borrower's knowledge, their respective tenants, which would give
rise to any Environmental Liabilities and Costs other than those which in the
aggregate are not reasonably likely to have a Material Adverse Effect.
(e) Borrower does not own or operate a treatment or storage
facility, but does own a disposal facility, requiring a permit under the
Resource Conservation and Recovery Act, 42 U.S.C.Section 6901 et seq., the
regulations thereunder or any state analog. Pursuant to undertakings by USX
Corporation, Borrower is in compliance with all applicable financial
responsibility requirements of all Environmental Laws, including, without
limitation, those contained in 40 C.F.R., parts 264 and 265, subpart H, and any
state equivalents.
(f) Borrower has not failed to file any notice required under
any applicable Environmental Law reporting a Release, the consequences of which
in the aggregate would give rise to Environmental Liabilities and Costs that
would have a Material Adverse Effect.
(g) No Environmental Lien and, to Borrower's knowledge, no
unrecorded Environmental Lien has attached to any property owned, leased or
operated by Borrower, except as permitted by Section 9.8(f) hereof.
(h) There is not now on or in the property owned, leased or
operated by Borrower (i) any underground storage tanks or surface impoundments,
(ii) any polychlorinated biphenyls ("PCBs'") used in electrical or other
equipment, or (iii) to the knowledge of Borrower, any asbestos-containing
material, the existence of any of which is reasonably likely to have a Material
Adverse Effect.
8.9 Employee Benefits.
(a) Schedule 8.9 sets forth by category all Plans, all
Qualified Plans and all unfunded Pension Plans and all other Plans subject to
Section 412 of the Code as of the date hereof. There are no Title IV Plans or
Multiemployer Plans as of the date hereof, except as set forth on Schedule 8.9
hereto. Except as set forth on Schedule 8.9 hereto, there are no Welfare Benefit
Plans that provide post-retirement life insurance or medical benefits (other
than continuation coverage required to be provided pursuant to Section 4980B of
the Code and which are required to be paid one hundred (100%) percent by the
recipient, the recipient's spouse or the recipient's parent) as of the date
hereof.
(b) Each Qualified Plan has received a favorable determination
letter from the Internal Revenue Service with respect to its qualification under
Section 401 of the Code, and the trusts created under each such Qualified Plan
are exempt from tax under the provisions of Section 501 of the Code and, to the
knowledge of Borrower, nothing has occurred which would cause the loss of such
qualification or tax-exempt status.
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(c) Each Plan (other than a Multiemployer Plan) is in
compliance in all material respects with applicable provisions of ERISA and the
Code, including, without limitation, the filing of reports required under the
Code or ERISA which are true and correct in all material respects as of the date
filed, and with respect to each such Plan, and all required contributions and
benefits have been paid in accordance with the provisions of each such Plan.
(d) There are no pending or, to the knowledge of Borrower,
threatened claims, actions or lawsuits (other than claims for benefits in the
normal course) asserted or instituted against Borrower or any ERISA Affiliate
with respect to a Title IV Plan. To the knowledge of Borrower, there are no
pending or threatened claims, actions or lawsuits (other than claims for
benefits in the normal course), asserted or instituted against (i) any Plan or
its assets, or (ii) any fiduciary with respect to any Plan.
(e) Within the last five years, neither Borrower nor any ERISA
Affiliate has engaged in a transaction which resulted in a Title IV Plan with
any Unfunded Pension Liability being transferred outside of the "controlled
group" (within the meaning of Section 4001(a)(14) of ERISA) of any such entity.
(f) Borrower and each ERISA Affiliate has complied in all
material respects with the notice and continuation coverage requirements of
Section 4980B of the code and the regulations thereunder.
(g) Borrower has not engaged in a prohibited transaction, as
defined in Section 4975 of the Code or Section 406 of ERISA, in connection with
any Plan, which would subject or has any reasonable likelihood of subjecting
Borrower (after giving effect to any exemption) to a material tax on prohibited
transactions imposed by Section 4975 of the Code or any other material
liability.
(h) Neither Borrower nor any ERISA Affiliate has any liability
under any terminated "employee benefit plan", as defined in Section 3(2) of
ERISA, of any related or unrelated entity or any Multiemployer Plan other than
liability for benefit payments payable in the ordinary course.
(i) The present value of any liability as of the date hereof
with respect to any unfunded Pension Plan of Borrower is reflected on the
audited financial statements referred to in Section 9.6 or is provided on
Schedule 8.9, together with the assumptions utilized in the calculations.
(j) Except as set forth on Schedule 8.9, as supplemented from
time to time by the Borrower, none of the assets of any Plan (other than a
Multiemployer Plan) are invested in a guaranteed annuity contract with any
insurance company that is not rated the highest available rating by Standard &
Poor's Corporation, Moody's Investors Service and A.M. Best Company, Inc.
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8.10 Bank Accounts. All of the deposit accounts, investment accounts or
other accounts in the name of or used by Borrower maintained at any bank or
other financial institution are set forth on Schedule 8.10 hereto, subject to
the right of Borrower to establish new accounts in accordance with Section 9.13
below.
8.11 Financing Order. The Financing Order has been duly entered, is
valid, subsisting and continuing and has not been vacated, modified, reversed on
appeal, or vacated or modified by any Bankruptcy Judge or District Court Judge
and is not subject to any pending stay.
8.12 Super-Priority Administrative Expense. All Obligations incurred
during the pendency of the Chapter 11 Case or thereafter shall, in addition to
being secured by the Collateral, constitute claims entitled to super-priority
under Section 364(c)(1) of the Bankruptcy Code, as more fully set forth in the
Financing Order.
8.13 Accuracy and Completeness of Information. All information
furnished by or on behalf of Borrower in writing to Lender in connection with
this Agreement or any of the other Financing Agreements or any transaction
contemplated hereby or thereby, including all information on the Information
Certificate is true and correct in all material respects on the date as of which
such information is dated or certified and when taken as a whole does not omit
any material fact necessary in order to make such information not misleading. No
event or circumstance has occurred which has had or could reasonably be expected
to have a material adverse affect on the business, assets or prospects of
Borrower, which has not been fully and accurately disclosed to Lender in
writing.
8.14 Survival of Warranties; Cumulative. All representations and
warranties contained in this Agreement or any of the other Financing Agreements
shall survive the execution and delivery of this Agreement and shall be deemed
to have been made again to Lender on the date of each additional borrowing or
other credit accommodation hereunder and shall be conclusively presumed to have
been relied on by Lender regardless of any investigation made or information
possessed by Lender. The representations and warranties set forth herein shall
be cumulative and in addition to any other representations or warranties which
Borrower shall now or hereafter give, or cause to be given, to Lender.
SECTION 9. AFFIRMATIVE AND NEGATIVE COVENANTS
9.1 Maintenance of Existence. Borrower shall at all times preserve,
renew and keep in full, force and effect its corporate existence and rights and
franchises with respect thereto and maintain in full force and effect all
permits, licenses, trademarks, tradenames, approvals, authorizations, leases and
contracts necessary to carry on the business as presently or proposed to be
conducted. Borrower shall give Lender thirty (30) days prior written notice of
any proposed change in its corporate name, which notice shall set forth the new
name and Borrower shall deliver to Lender a copy of the amendment to the
Certificate of Incorporation of Borrower
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providing for the name change certified by the Secretary of State of the
jurisdiction of incorporation of Borrower as soon as it is available.
9.2 New Collateral Locations. Borrower may open any new location within
the continental United States provided Borrower (a) gives Lender thirty (30)
days prior written notice of the intended opening of any such new location and
(b) executes and delivers, or causes to be executed and delivered, to Lender
such agreements, documents, and instruments as Lender may deem reasonably
necessary or desirable to protect its interests in the Collateral at such
location, including UCC financing statements.
9.3 Compliance with Laws, Regulations, Etc.
(a) Borrower shall, and shall cause any Subsidiary to, at all
times, comply in all respects with all laws, rules, regulations, licenses,
permits, approvals and orders applicable to it and duly observe all requirements
of any Federal, State or local Governmental Authority (including ERISA, the
Code, the Occupational Safety and Health Act of 1970, as amended, the Fair Labor
Standards Act of 1938, as amended, and all statutes, rules, regulations, orders,
permits and stipulations relating to environmental pollution and employee health
and safety, including all of the Environmental Laws) where the failure to so
comply or observe the same would have a Material Adverse Effect.
(b) Within thirty (30) days after the date hereof, Lender
shall have received all existing environmental audits of Borrower's plants and
the Real Property conducted by any independent environmental engineering firm
and such other information with respect to the compliance by Borrower with
applicable Environmental Laws as Lender may reasonably require.
(c) Borrower shall establish and maintain, at its expense, a
system to assure and monitor its continued compliance with all Environmental
Laws in all of its operations, which system shall include annual reviews of such
compliance by employees or agents of Borrower who are familiar with the
requirements of the Environmental Laws. Copies of all environmental surveys,
audits, assessments, feasibility studies and results of remedial investigations
shall be made available by Borrower to Lender. Borrower shall take prompt and
appropriate action to respond to any non-compliance with any of the
Environmental Laws and shall regularly report to Lender on such response.
(d) Upon receipt of any notification or otherwise obtaining
knowledge of any Release or other event that could result in Borrower incurring
material Environmental Liabilities and Costs, Borrower shall, at its cost,
conduct or pay for consultants to conduct, such tests or assessments of
environmental conditions at such operations or properties (if any), including,
without limitation, the investigation and testing of subsurface conditions, and
shall take such remedial, investigational or other action as any Governmental
Authority requires (except where contested in good faith, by proper proceedings
and where the consequence of such contest is not reasonably likely to have a
Material Adverse Effect) or as is appropriate and consistent with good
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business practice. If, in the reasonable judgement of Lender such Environmental
Liabilities and Costs would have a Material Adverse Effect, and if the
consultant selected by Borrower is not reasonably acceptable to Lender, Lender
shall (i) select a consultant of its own choosing to monitor the work of
Borrower's consultant and Borrower shall pay for all reasonable costs incurred
by Lender's consultant in connection with performing such monitoring activities,
and (ii) promptly notify Borrower of such determination and appointment. Nothing
contained in this Agreement shall be construed as limiting or impeding
Borrower's rights and obligations to take any and all actions necessary and
desirable to address any Release or Environmental Liabilities and Costs or to
comply with all Environmental Laws.
(e) Borrower shall not, shall not permit any Subsidiary to,
and shall not knowingly permit any lessee or any other Person to, dispose of any
Contaminant by placing it in or on the ground or waters of any property owned or
leased by the Borrower or any of its Subsidiaries, except for such dispositions
the consequences of which in the aggregate are not reasonably likely to have a
Material Adverse Effect.
(f) Borrower shall indemnify and hold harmless Lender, its
directors, officers, employees, agents, invitees, representatives, successors
and assigns, from and against any and all losses, claims, damages, liabilities,
costs, and expenses (including attorneys' fees and legal expenses) directly or
indirectly arising out of or attributable to the use, generation, manufacture,
reproduction, storage, release, threatened release, spill, discharge, disposal
or presence of a Hazardous Material, including the costs of any required or
necessary repair, cleanup or other remedial work with respect to any property of
Borrower and the preparation and implementation of any closure, remedial or
other required plans. All representations, warranties, covenants and
indemnifications in this Section 9.3 shall survive the payment of the
Obligations and the termination or non-renewal of this Agreement.
9.4 Payment of Taxes and Claims. Borrower shall, and shall cause any
Subsidiary to, duly pay and discharge all taxes, assessments, contributions and
governmental charges upon or against it or its properties or assets, except for
taxes the validity of which are being contested in good faith by appropriate
proceedings diligently pursued and available to Borrower or such Subsidiary, as
the case may be, and with respect to which adequate reserves have been set aside
on its books. Borrower shall be liable for any tax or penalties imposed on
Lender as a result of the financing arrangements provided for herein and
Borrower agrees to indemnify and hold Lender harmless with respect to the
foregoing, and to repay to Lender on demand the amount thereof, and until paid
by Borrower such amount shall be added and deemed part of the Loans, provided,
that, nothing contained herein shall be construed to require Borrower to pay any
income or franchise taxes attributable to the income of Lender from any amounts
charged or paid hereunder to Lender. The foregoing indemnity shall survive the
payment of the Obligations and the termination or non-renewal of this Agreement.
9.5 Insurance. Borrower shall, and shall cause any Subsidiary
to, at all times, maintain with financially sound and reputable insurers
insurance with respect to the Collateral against loss
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or damage and all other insurance of the kinds and in the amounts customarily
insured against or carried by corporations of established reputation engaged in
the same or similar businesses and similarly situated. Said policies of
insurance shall be satisfactory to Lender as to form, amount and insurer
(including self-insurance). Borrower shall furnish certificates, policies or
endorsements to Lender as Lender shall require as proof of such insurance, and,
if Borrower fails to do so, Lender is authorized, but not required, to obtain
such insurance at the expense of Borrower. By no later than March 1, 1999, all
policies shall provide for at least thirty (30) days prior written notice to
Lender of any cancellation or reduction of coverage and that Lender may act as
attorney for Borrower in obtaining, and at any time an Event of Default exists
or has occurred and is continuing, adjusting, settling, amending and canceling
such insurance. By no later than March 1, 1999, Borrower shall cause Lender to
be named as a loss payee and an additional insured (but without any liability
for any premiums) under such insurance policies and Borrower shall obtain
non-contributory lender's loss payable endorsements to all insurance policies in
form and substance satisfactory to Lender. Such lender's loss payable
endorsements shall specify that the proceeds of such insurance shall be payable
to Lender as its interests may appear and further specify that Lender shall be
paid regardless of any act or omission by Borrower or any of its Affiliates. At
its option, Lender may apply any insurance proceeds received by Lender at any
time to the cost of repairs or replacement of Collateral and/or to payment of
the Obligations, whether or not then due, in any order and in such manner as
Lender may determine or if no Loans are outstanding, hold such proceeds as cash
collateral for the Obligations. At any time promptly upon Lender's request,
Lender shall receive, at Borrower's expense, in form and substance satisfactory
to Lender, a valid and effective title insurance policy issued by a company and
agent acceptable to Lender (i) insuring the priority, amount and sufficiency of
the Mortgage, (ii) insuring against matters that would be disclosed by surveys
and (iii) containing any legally available endorsements, assurances or
affirmative coverage requested by Lender for protection of its interests. By no
later than March 1, 1999, Lender shall have received evidence of insurance and
loss payee endorsements required hereunder and under the other Financing
Agreements, in form and substance satisfactory to Lender, and certificates of
insurance policies and/or endorsements naming Lender as loss payee.
9.6 Financial Statements and Other Information.
(a) Borrower shall, and shall cause any Subsidiary to, keep
proper books and records in which true and complete entries shall be made of all
dealings or transactions of or in relation to the Collateral and the business of
Borrower and its Subsidiaries in accordance with GAAP and Borrower shall furnish
or cause to be furnished to Lender: (i) within thirty (30) days after the end of
each fiscal month, monthly unaudited consolidated financial statements, and
unaudited consolidating financial statements (including in each case balance
sheets, statements of income and loss, statements of cash flow, and statements
of shareholders' equity), all in reasonable detail, fairly presenting the
financial position and the results of the operations of Borrower and its
Subsidiaries as of the end of and through such fiscal month and (ii) within
ninety (90) days after the end of each fiscal year, audited consolidated
financial statements and audited consolidating financial statements of Borrower
and its Subsidiaries (including in each
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case balance sheets, statements of income and loss, statements of cash flow and
statements of shareholders' equity), and the accompanying notes thereto, all in
reasonable detail, fairly presenting the financial position and the results of
the operations of Borrower and its Subsidiaries as of the end of and for such
fiscal year, together with the unqualified opinion of independent certified
public accountants, which accountants shall be an independent accounting firm
selected by Borrower and reasonably acceptable to Lender, that such financial
statements have been prepared in accordance with GAAP, and present fairly the
results of operations and financial condition of Borrower and its Subsidiaries
as of the end of and for the fiscal year then ended.
(b) Borrower shall promptly notify Lender in writing of the
details of (i) any material loss, damage, investigation, action, suit,
proceeding or claim relating to the Collateral or any other property which is
security for the Obligations or which would result in any material adverse
change in Borrower's business, properties, assets, goodwill or condition,
financial or otherwise and (ii) the occurrence of any Event of Default or event
which, with the passage of time or giving of notice or both, would constitute an
Event of Default.
(c) Borrower shall promptly after the sending or filing
thereof furnish or cause to be furnished to Lender copies of all reports which
Borrower sends to its stockholders generally and copies of all reports and
registration statements which Borrower files with the Securities and Exchange
Commission, any national securities exchange or the National Association of
Securities Dealers, Inc.
(d) Borrower shall furnish to Lender: (i) promptly and in any
event within ten (10) Business Days after any officer of Borrower or any ERISA
Affiliate knows or has reason to know that any ERISA Event has occurred, a
written statement of the chief financial officer or other appropriate officer of
Borrower or ERISA Affiliate describing such event and the action, if any, which
Borrower or such ERISA Affiliate proposes to take with respect thereto; (ii)
promptly and in any event within ten (10) Business Days after any officer of
Borrower or any ERISA Affiliate knows or has reason to know that a contribution
or payment under any Plan has been not made when due (except for contributions
to defined contribution plans that are de minimis in amount and result from
reasonable administrative delays and which are timely corrected in the ordinary
course) a written statement of the chief financial officer of Borrower or such
ERISA Affiliate describing such event and the action, if any, which Borrower or
such ERISA Affiliate proposes to take with respect thereto; (iii) promptly and
in any event within thirty (30) days after the filing thereof by Borrower, with
respect to any Pension Plan, and by any ERISA Affiliate, with respect to any
Pension Plan subject to Section 412 of the Code, a copy of each annual report
(Form 5500 Series, including Schedule B thereto), and upon request by a Lender
with respect to any other Plan including any Multiemployer Plan to the extent
Borrower may obtain such report through reasonable efforts; (iv) promptly and in
any event within ten (10) Business Days after receipt thereof, a copy of any
adverse notice, determination letter, ruling or opinion Borrower or any ERISA
Affiliate receives from the Department of Labor or Internal Revenue Service with
respect to any Plan and, at the request of Lender, a copy of any favorable
notice, determination
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letter, ruling or opinion with respect thereto from any such Governmental
Authority; (v) promptly and in any event within ten (10) Business Days after
receipt of knowledge or written notice of commencement thereof, notice of any
action, suit or proceeding before any Governmental Authority or arbitrator
affecting Borrower or any ERISA Affiliate with respect to any Plan, except those
which in the aggregate have no reasonable likelihood of having a Material
Adverse Effect; (vi) promptly and in any event within ten (10) days after notice
or knowledge thereof by an officer of Borrower, notice that Borrower has become
liable to pay the tax on prohibited transactions imposed by Section 4975 of the
Code, and a copy of Form 5330 as soon as available thereafter; (vii) promptly,
and in any event within ten (10) Business Days after an officer of Borrower
receives notice of the commencement thereof, notice of all actions, suits and
proceedings before any domestic or foreign Governmental Authority or arbitrator
affecting Borrower, except those which in the aggregate have no reasonable
likelihood of having a Material Adverse Effect; (viii) promptly and in any event
within forty-five (45) days of any officer of the Borrower learning of any of
the following, written notice of any of the following: (A) except for the
amounts contemplated by the Geneva Steel Company Business Plan through the year
2003 prepared as of December 1998 previously delivered by Lender; knowledge
that Borrower is or could reasonably be expected to be liable for Environmental
Liabilities and Costs of $1,000,000 or more in any twelve (12) month period as a
result of a Release or threatened Release; (B) the receipt by Borrower of
written notification that any real or personal property of Borrower is subject
to any Environmental Lien; (C) the receipt, after the date hereof, by Borrower
of any written notice from a Governmental Authority of any violation of any
applicable law, regulation, court order or decree involving environmental,
health or safety matters, except for violations the consequence of which in the
aggregate are not reasonably likely to subject Borrower to Environmental
Liabilities and Costs of $500,000 or more in any twelve (12) month period;
provided, that, from and after the date the aggregate of all Environmental
Liabilities and Costs under Section 9.6(d)(viii)(C) in any twelve (12) month
period exceeds $1,000,000, Borrower shall furnish written notice of each
subsequent violation which individually is reasonably likely to subject Borrower
to Environmental Liabilities and Costs in excess of $250,000, (D) the
commencement of any judicial or administrative proceeding or investigation by
any Governmental Authority alleging a violation of any law or regulation
involving environmental, health or safety matters other than those the
consequences of which in the aggregate are not reasonably likely to subject
Borrower to Environmental Liabilities and Costs of $500,000 or more in any
twelve (12) month period; provided, that, from and after the date the aggregate
of all Environmental Liabilities and Costs under Section 9.6(d)(viii)(C) in any
twelve (12) month period exceeds $1,000,000, Borrower shall furnish written
notice of each subsequent violation which individually is reasonably likely to
subject Borrower to Environmental Liabilities and Costs in excess of $250,000,
(E) any proposed acquisition of stock, assets or real estate, or any proposed
leasing of property by Borrower other than those the consequences of which in
the aggregate have no reasonable likelihood of subjecting Borrower to
Environmental Liabilities and Costs of $250,000 or more in any twelve (12) month
period.
(e) Borrower shall furnish or cause to be furnished to Lender
such budgets, forecasts, projections and other information respecting the
Collateral and the business of
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Borrower, as Lender may, from time to time, reasonably request. Lender is hereby
authorized to deliver a copy of any financial statement or any other information
relating to the business of Borrower to any court or other government agency or
to any participant or assignee or prospective participant or assignee. Borrower
hereby irrevocably authorizes and directs all accountants or auditors if an
Event of Default exists or has occurred and is continuing, to deliver to Lender,
at Borrower's expense, copies of the financial statements of Borrower and any
reports or management letters prepared by such accountants or auditors on behalf
of Borrower and to disclose to Lender such information as they may have
regarding the business of Borrower. Any documents, schedules, invoices or other
papers delivered to Lender may be destroyed or otherwise disposed of by Lender
one (1) year after the same are delivered to Lender, except as otherwise
designated by Borrower to Lender in writing.
9.7 Sale of Assets, Consolidation, Merger, Dissolution, Etc. Borrower
shall not, and shall not permit any Subsidiary to, directly or indirectly,
(a) merge into or with or consolidate with any other Person or
permit any other Person to merge into or with or consolidate with it, or
(b) sell, assign, lease, transfer, abandon or otherwise
dispose of any Capital Stock or Indebtedness to any other Person or any of its
assets to any other Person, except for (i) sales of Inventory in the ordinary
course of business, (ii) the disposition of worn-out or obsolete Equipment so
long as (A) any proceeds are paid to Lender and (B) such sales do not involve
Equipment having an aggregate fair market value in excess of $5,000,000 for all
such Equipment disposed of in any fiscal year of Borrower, or
(c) form or acquire any Subsidiaries, or
(d) wind up, liquidate or dissolve, or
(e) agree to do any of the foregoing.
9.8 Encumbrances. Borrower shall not, and shall permit any
Subsidiary to, create, incur, assume or suffer to exist any security interest,
mortgage, pledge, lien, charge or other encumbrance of any nature whatsoever on
any of its assets or properties, including the Collateral, except: (a) liens and
security interests of Lender; (b) liens securing the payment of taxes, either
not yet overdue or the validity of which are being contested in good faith by
appropriate proceedings diligently pursued and available to Borrower or such
Subsidiary, as the case may be and with respect to which adequate reserves have
been set aside on its books; (c) non-consensual statutory liens (other than
liens securing the payment of taxes) arising in the ordinary course of
Borrower's or such Subsidiary's business to the extent: (i) such liens secure
Indebtedness which is not overdue or (ii) such liens secure Indebtedness
relating to claims or liabilities which are fully insured and being defended at
the sole cost and expense and at the sole risk of the insurer or being contested
in good faith by appropriate proceedings diligently pursued and available to
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Borrower or such Subsidiary, in each case prior to the commencement of
foreclosure or other similar proceedings and with respect to which adequate
reserves have been set aside on its books; (d) zoning restrictions,
easements, licenses, covenants and other restrictions affecting the use of real
property which do not interfere in any material respect with the use of such
real property or ordinary conduct of the business of Borrower or such Subsidiary
as presently conducted thereon or materially impair the value of the real
property which may be subject thereto; (e) purchase money security interests in
Equipment (including Capital Leases) and purchase money mortgages on real estate
not to exceed $15,000,000 in the aggregate at any time outstanding so long as
such security interests and mortgages do not apply to any property of Borrower
other than the Equipment or real estate so acquired, and the Indebtedness
secured thereby does not exceed the cost of the Equipment or real estate so
acquired, as the case may be; (f) Environmental Liens, that (i) are being
contested in good faith by appropriate proceedings, unless such contest is
reasonably likely to have a Material Adverse Effect, (ii) do not materially
interfere with the business operations of Borrower as presently conducted and,
(iii) the consequences of which in the aggregate would not subject Borrower to
Environmental Liabilities and Costs in excess of $5,000,000 in any twelve (12)
month period (after the application of insurance and indemnification proceeds
receivable with respect to which the insurer or indemnifying party, as the case
may be, does not contest or dispute); (g) the security interests and liens set
forth on Schedule 8.4 hereto; (h) the claim to assets and properties of Borrower
by professionals whose retention is approved by the Bankruptcy Court during the
Chapter 11 Case pursuant to Section 327 and Section 1103 of the Bankruptcy Code
for fees and expenses in connection with services rendered after the
commencement of the Chapter 11 Case to the extent permitted under the Financing
Order; (i) reclamation claims of suppliers to Borrower arising prior to the
commencement of the Chapter 11 Case to the extent permitted under the Bankruptcy
Code and which are subject and subordinate to the security interests of Lender;
and (j) security interests in and liens upon Equipment not included in the
appraisal delivered to Lender as described in Section 1.85 hereof or Real
Property acquired after the date hereof to secure not more than $2,000,000 in
the aggregate of the Indebtedness permitted under Section 9.9(f) below.
9.9 Indebtedness. Borrower shall not, and shall not permit any
Subsidiary to, incur, create, assume, become or be liable in any manner with
respect to, or permit to exist, any Indebtedness, except:
(a) the Obligations;
(b) purchase money Indebtedness (including Capital Leases) to
the extent not incurred or secured by liens (including Capital Leases) in
violation of any other provision of this Agreement;
(c) Indebtedness of Borrower under interest swap agreements,
interest rate cap agreements, interest rate collar agreements, interest rate
exchange agreements, commodity swap agreements and similar contractual
agreements entered into for the purpose of protecting a Person against
fluctuations in interest rates or raw materials; provided, that, such
arrangements
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are with banks or other financial institutions that have combined capital and
surplus and undivided profits of not less than $100,000,000 and are not for
speculative purposes and such Indebtedness shall be unsecured;
(d) Indebtedness of Borrower up to the principal amount of
$190,000,000 evidenced by the 9 1/2% Senior Notes, as reduced by payments of
principal in respect thereof, plus interest thereon at the rate provided for in
the 9 1/2% Senior Notes as in effect on the date hereof; provided, that: (i)
Borrower may only make regularly scheduled payments of principal and interest or
other mandatory payments in respect of such Indebtedness in accordance with the
terms of the 9 1/2% Senior Notes as in effect on the date hereof, (ii) Borrower
shall not, directly or indirectly, (A) amend, modify, alter or change the terms
of the 9 1/2% Senior Note Agreements or any agreements, documents or instruments
executed and/or delivered in connection therewith as in effect on the date
hereof except, that, Borrower may, after prior written notice to Lender, amend,
modify, alter or change the terms thereof so as to extend the maturity thereof
or defer the timing of any payments in respect thereof, or to forgive or cancel
any portion of such Indebtedness (other than pursuant to payments thereof), or
to reduce the interest rate or any fees in connection therewith, or to make any
covenants contained therein less restrictive or burdensome as to Borrower, or
(B) redeem, retire, defease, purchase or otherwise deposit or invest any sums
for such purpose, (iii) Borrower shall furnish to Lender copies of all notices
or demands either received from the 9 1/2% Senior Note Trustee or any of the
holders of the 9 1/2% Senior Notes, or on its or their behalf, promptly after
receipt thereof, or sent by Borrower or any of its Affiliates, or on its or
their behalf, to the 9 1/2% Senior Note Trustee or any other representative of
the holders of the Senior Notes, concurrently with the sending thereof, as the
case may be, and (iv) such Indebtedness is and shall at all times be unsecured;
(e) Indebtedness of Borrower up to the principal amount of
$135,000,000 evidenced by the 11 1/8% Senior Notes in each case as reduced by
payments of principal in respect thereof, plus interest thereon at the rate
provided for in the 11 1/8% Senior Notes as in effect on the date hereof;
provided, that: (i) Borrower may only make regularly scheduled payments of
principal and interest or other mandatory payments in respect of such
Indebtedness in accordance with the terms of the 11 1/8% Senior Notes as in
effect on the date hereof, (ii) Borrower shall not, directly or indirectly, (A)
amend, modify, alter or change the terms of the 11 1/8% Senior Note Agreements
or any agreements, documents or instruments executed and/or delivered in
connection therewith as in effect on the date hereof except, that, Borrower may,
after prior written notice to Lender, amend, modify, alter or change the terms
thereof so as to extend the maturity thereof or defer the timing of any payments
in respect thereof, or to forgive or cancel any portion of such Indebtedness
(other than pursuant to payments thereof), or to reduce the interest rate or any
fees in connection therewith, or to make any covenants contained therein less
restrictive or burdensome as to Borrower, (B) redeem, retire, defease, purchase
or otherwise deposit or invest any sums for such purpose, (iii) Borrower shall
furnish to Lender copies of all notices or demands either received from the 11
1/8% Senior Note Trustee or any of the holders of the 11 1/8% Senior Notes, or
on its or their behalf, promptly after receipt thereof, or sent by Borrower or
any of its Affiliates, or on its or their behalf, to the 11 1/8% Senior Note
Trustee or
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any other representative of the holders of the 11 1/8% Senior Notes,
concurrently with the sending thereof, as the case may be, and (iv) such
Indebtedness is and shall at all times be unsecured;
(f) Indebtedness of Borrower arising after the date hereof
owing to any Person (other than as otherwise permitted herein); provided, that,
as to any such Indebtedness, each of the following conditions is satisfied as
determined by Lender: (i) promptly upon Lender's request, Lender shall have
receive true, correct and complete copies of all agreements, documents and
instruments evidencing or otherwise related to such Indebtedness, as duly
authorized, executed and delivered by the parties thereof, (ii) upon Lender's
request, Borrower shall report the amount of such Indebtedness and such other
information with respect thereto as Lender may from time to time, (iii) such
Indebtedness shall be incurred by Borrower at commercially reasonable rates and
terms in a bona fide arm's length transaction, (iv) as of the date of incurring
such Indebtedness, and after giving effect thereto, no Event of Default or act,
condition or event which with notice or passage of time or both would constitute
an Event of default, shall exist or have occurred and be continuing, (v) the
aggregate principal amount of all such Indebtedness outstanding at any time
shall not exceed $5,000,000 and not more than $2,000,000 of such Indebtedness
may be secured by security interests or liens permitted under Section 9.9(i)
above, (vi) such Indebtedness shall not at any time include any terms that
include any limitation on the right of Borrower to request or receive Loans or
Letter of Credit Accommodations or the right of Borrower to amend, modify,
supplement, replace, renew or extend any of the terms or conditions of this
Agreement or any of the other Financing Agreements or otherwise in any way
relate to or adversely affect the arrangements of Borrower with Lender, (vii)
Borrower may only make regularly scheduled payments of principal and interest in
respect of such Indebtedness, (viii) Borrower shall not, directly or indirectly,
(A) amend, modify, alter or change the terms of the agreements with respect to
such Indebtedness, except, that, Borrower may, after prior written notice to
Lender, amend, modify, alter or change the terms thereof so as to extend the
maturity thereof or defer the timing of any payments in respect thereof, or to
forgive or cancel any portion of such Indebtedness (other than pursuant to
payments thereof), or to reduce the interest rate or any fees in connection
therewith, or to make any covenants contained therein less restrictive or
burdensome as to Borrower, or (B) redeem, retire, defease, purchase or otherwise
acquire such Indebtedness, or set aside or otherwise deposit or invest any sums
for such purpose, and (ix) Borrower shall furnish to Lender all material notices
or demands in connection with such Indebtedness received by Borrower or on its
behalf promptly after the receipt thereof, or sent by Borrower and or on its
behalf concurrently with the sending thereof, as the case may be;
(g) the Indebtedness set forth on Schedule 9.9 hereto;
provided, that, (i) Borrower may only make regularly scheduled payments of
principal and interest in respect of such Indebtedness in accordance with the
terms of the agreement or instrument evidencing or giving rise to such
Indebtedness as in effect on the date hereof, (ii) Borrower shall not, directly
or indirectly, (A) amend, modify, alter or change the terms of such Indebtedness
or any agreement, document or instrument related thereto as in effect on the
date hereof, except, that, Borrower may, after prior written notice to Lender,
amend, modify, alter or change the terms thereof so as
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to extend the maturity thereof or defer the timing of any payments in respect
thereof, or to forgive or cancel any portion of such Indebtedness (other than
pursuant to payments thereof), or to reduce the interest rate or any fees in
connection therewith, or to make any covenants contained therein less
restrictive or burdensome as to Borrower, or (B) redeem, retire, defease,
purchase or otherwise acquire such Indebtedness, or set aside or otherwise
deposit or invest any sums for such purpose, and (iii) Borrower shall furnish to
Lender all notices or demands in connection with such Indebtedness either
received by Borrower or on its behalf, promptly after the receipt thereof, or
sent by Borrower or on its behalf, concurrently with the sending thereof, as the
case may be.
9.10 Loans, Investments, Guarantees, Etc. Borrower shall not, and shall
not permit any Subsidiary to, directly or indirectly, make any loans or advance
money or property to any person, or invest in (by capital contribution, dividend
or otherwise) or purchase or repurchase the Capital Stock or Indebtedness or all
or a substantial part of the assets or property of any person, or guarantee,
assume, endorse, or otherwise become responsible for (directly or indirectly)
the Indebtedness, performance, obligations or dividends of any Person or agree
to do any of the foregoing, except:
(a) the endorsement of instruments for collection or deposit
in the ordinary course of business;
(b) investments in cash or Cash Equivalents, provided, that,
(i) no Loans are then outstanding and (ii) as to any of the foregoing, unless
waived in writing by Lender, Borrower shall take such actions as are deemed
necessary by Lender to perfect the security interest of Lender in such
investments;
(c) the contingent obligation of Borrower to purchase accounts
owing to Mannesmann in the event that the account debtor fails to pay such
account within ninety (90) days of the invoice date as set forth in Section 5.4
of the Mannesmann Agreement;
(d) the contingent reimbursement obligation of Borrower to
Citibank N.A. as issuer of the Existing Letters of Credit in the event of a draw
thereunder, provided, that, Borrower shall not amend, modify or extend any of
the Existing Letters of Credit or any agreement related thereto;
(e) stock or obligations issued to Borrower by any Person (or
the representative of such Person) in respect of Indebtedness of such Person
owing to Borrower in connection with the insolvency, bankruptcy, receivership or
reorganization of such Person or a composition or readjustment of the debts of
such Person; provided, that, the original of any such stock or instrument
evidencing such obligations shall be promptly delivered to Lender, upon Lender's
request, together with such stock power, assignment or endorsement by Borrower
as Lender may request;
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(f) obligations or account debtors to Borrower arising from
Accounts which are past due evidenced by a promissory note made by such account
debtor payable to Borrower; provided, that, promptly upon the receipt of the
original of any such promissory note by Borrower, such promissory note shall be
endorsed to the order of Lender by Borrower and promptly delivered to Lender as
so endorsed;
(g) loans or capital contributions or other equity investments
in each case in cash or other immediately available funds by Borrower after the
date hereof in or to any wholly-owned Subsidiary of Borrower, provided, that, as
to any such capital contribution or other investment or payment, each of the
following conditions is satisfied: (i) the aggregate amount of all such loans,
capital contributions or other payments shall not exceed $3,000,000, and (ii) as
of the date of the making of any such loan, capital contribution or other equity
investment and after giving effect thereto, no Event of Default, or act,
condition or event which with notice or passage of time or both would constitute
an Event of Default, shall exist or have occurred and be continuing;
(h) loans of money or property (other than Collateral) to any
person, or investment by capital contribution in any Person (other than as
otherwise permitted above); provided, that, as to any such loans or investments,
each of the following conditions is satisfied: (i) the total aggregate amount of
any such loans or investments shall not exceed $1,000,000 in the aggregate, (ii)
as of the date of any such loan or investment and after giving effect thereto,
no Event of Default, or act, condition or event which with notice or passage of
time or both would constitute an Event of Default, shall exist or have occurred
and be continuing, (iii) in the case of an investment by capital contribution,
at Lender's option, the original of any stock or other instrument evidencing
such capital contribution shall be promptly delivered to Lender, together with
such stock power, assignment or endorsement as Lender may request, (iv) in the
case of loans of money or property, the original of any promissory note or other
instrument evidencing the Indebtedness arising pursuant to such loans shall be
delivered, or caused to be delivered, to Lender, at Lender's option, together
with an appropriate endorsement and with full recourse to the payee thereof,
(i) loans or advances by Borrower to any of its employees,
after the date hereof, not to exceed the principal amount of $500,000 in the
aggregate at any time outstanding in the ordinary course of Borrower's business
for reasonable and necessary work-related travel and other ordinary business
expenses to be incurred by such employees in connection with their employment
with Borrower;
(j) the loans, advances and guarantees set forth on Schedule
9.10 hereto; provided, that, as to such loans, advances and guarantees, (i)
Borrower shall not, directly or indirectly, (A) amend, modify, alter or change
the terms of such loans, advances or guarantees or any agreement, document or
instrument related thereto, or (B) as to such guarantees, redeem, retire,
defease, purchase or otherwise acquire the obligations arising pursuant to such
guarantees, or set aside or otherwise deposit or invest any sums for such
purpose, and (ii) Borrower shall furnish to Lender all notices or demands in
connection with such loans, advances or guarantees or other
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Indebtedness subject to such guarantees either received by Borrower or on its
behalf, promptly after the receipt thereof, or sent by Borrower or on its
behalf, concurrently with the sending thereof, as the case may be.
9.11 Dividends and Redemptions. Borrower shall not, directly or
indirectly, declare or pay any dividends on account of any shares of class of
Capital Stock of Borrower now or hereafter outstanding, or set aside or
otherwise deposit or invest any sums for such purpose, or redeem, retire,
defease, purchase or otherwise acquire any shares of any class of Capital Stock
(or set aside or otherwise deposit or invest any sums for such purpose) for any
consideration other than common stock or apply or set apart any sum, or make any
other distribution (by reduction of capital or otherwise) in respect of any such
shares or agree to do any of the foregoing.
9.12 Transactions with Affiliates. Borrower shall not, directly or
indirectly, (a) purchase, acquire or lease any property from, or sell, transfer
or lease any property to, any officer, director, agent or other person
affiliated with Borrower, except in the ordinary course of and pursuant to the
reasonable requirements of Borrower's business and upon fair and reasonable
terms no less favorable to the Borrower than Borrower would obtain in a
comparable arm's length transaction with an unaffiliated person or (b) make any
payments of management, consulting or other fees for management or similar
services, or of any Indebtedness owing to any officer, employee, shareholder,
director or other Affiliate of Borrower except reasonable compensation to
officers, employees and directors for services rendered to Borrower in the
ordinary course of business.
9.13 Additional Bank Accounts. Borrower shall not, directly or
indirectly, open, establish or maintain any deposit account, investment account
or any other account with any bank or other financial institution, other than
the Blocked Accounts and the accounts set forth in Schedule 8.10 hereto, except:
(a) as to any new or additional Blocked Accounts and other such new or
additional accounts which contain any Collateral or proceeds thereof, with the
prior written consent of Lender and subject to such conditions thereto as Lender
may establish and (b) as to any accounts used by Borrower to make payments of
payroll, taxes or other obligations to third parties, after prior written notice
to Lender.
9.14 Compliance with ERISA.
(a) For each Qualified Plan hereafter adopted or maintained by
Borrower or any ERISA Affiliate, Borrower shall (i) seek, and cause, as
applicable, Borrower and its ERISA Affiliates to seek, and receive determination
letters from the IRS to the effect that such Qualified Plan is qualified within
the meaning of Section 401(a) of the Code, and (ii) from and after the adoption
of any such Qualified Plan, cause such plan to be administered in all material
respects in accordance with the requirements of ERISA and Section 401(a) of the
code.
(b) With respect to each Welfare Benefit Plan hereafter
adopted or maintained by Borrower or any ERISA Affiliate that is subject to the
requirements of Section 4980B of the Code, Borrower shall, and shall cause such
of its ERISA Affiliates to, comply in all material
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respects with the notice and continuation coverage requirements of Section 4980B
of the code and any final regulations thereunder.
(c) Borrower shall not, and shall not permit any of its ERISA
Affiliates to, (i) adopt or become obligated to contribute to any Title IV Plan
or any Multiemployer Plan or any other Plan subject to Section 412 of the Code
(except for any such Plan listed on Schedule 8.9 on the date hereof), (ii)
establish or become obligated with respect to any new Welfare Benefit Plan, or
modify any existing Welfare Benefit Plan, which is reasonably likely to result
in an increase of the present value of future liabilities for post-retirement
life insurance and medical benefits under all such plans to increase by more
than $1,000,000, or (iii) establish or become obligated to contribute to any new
unfunded Pension Plan, or modify any existing unfunded Pension Plan, which is
reasonably likely to result in an increase in the present value of future
liabilities under all such plans of more than $1,000,000.
9.15 Costs and Expenses. Borrower shall pay to Lender on demand all
costs, expenses, filing fees and taxes paid or payable in connection with the
preparation, negotiation, execution, delivery, recording, administration,
collection, liquidation, enforcement and defense of the Obligations, Lender's
rights in the Collateral, this Agreement, the other Financing Agreements and all
other documents related hereto or thereto, including any amendments, supplements
or consents which may hereafter be contemplated (whether or not executed) or
entered into in respect hereof and thereof, including: (a) all costs and
expenses of filing or recording (including Uniform Commercial Code financing
statement filing taxes and fees, documentary taxes, intangibles taxes and
mortgage recording taxes and fees, if applicable); (b) costs and expenses and
fees for insurance premiums, environmental audits, surveys, assessments,
engineering reports and inspections, appraisal fees and search fee,; costs and
expenses of remitting loan proceeds, collecting checks and other items of
payment, and establishing and maintaining the Blocked Accounts, together with
Lender's customary charges and fees with respect thereto; (c) charges, fees or
expenses charged by any bank or issuer in connection with the Letter of Credit
Accommodations; (d) costs and expenses of preserving and protecting the
Collateral; (e) costs and expenses paid or incurred in connection with obtaining
payment of the Obligations, enforcing the security interests and liens of
Lender, selling or otherwise realizing upon the Collateral, and otherwise
enforcing the provisions of this Agreement and the other Financing Agreements or
defending any claims made or threatened against Lender arising out of the
transactions contemplated hereby and thereby (including preparations for and
consultations concerning any such matters); (f) all out-of-pocket expenses and
costs heretofore and from time to time hereafter incurred by Lender during the
course of periodic field examinations of the Collateral and Borrower's
operations, plus a per diem charge at the rate of $650 per person per day for
Lender's examiners in the field and office; and (g) the reasonable fees and
disbursements of counsel (including legal assistants) to Lender in connection
with any of the foregoing.
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9.16 Further Assurances.
(a) At the request of Lender at any time and from time to
time, Borrower shall, at its expense, duly execute and deliver, or cause to be
duly executed and delivered, such further agreements, documents and instruments,
and do or cause to be done such further acts as may be necessary or proper to
evidence, perfect, maintain and enforce the security interests and the priority
thereof in the Collateral and to otherwise effectuate the provisions or purposes
of this Agreement or any of the other Financing Agreements. Lender may at any
time and from time to time request a certificate from an officer of Borrower
representing that all conditions precedent to the making of Loans and providing
Letter of Credit Accommodations contained herein are satisfied. In the event of
such request by Lender, Lender may, at its option, cease to make any further
Loans or provide any further Letter of Credit Accommodations if after five (5)
days Lender has not received such certificate and, in addition, Lender has
determined that such conditions are satisfied. Where permitted by law, Borrower
hereby authorizes Lender to execute and file one or more UCC financing
statements signed only by Lender.
(b) Without limiting the generality of the foregoing, Borrower
shall use its best efforts to deliver, or cause to be delivered, to Lender by no
later than February 20, 1999, UCC termination statements for all UCC financing
statements previously filed by or on behalf of the Existing Lenders or their
predecessors, as secured party (or any agent for the Existing Lenders) and
Borrower or any Obligor, as debtor and satisfactions and discharges or any
mortgages, deeds of trust or deeds to secure debt by Borrower or any Obligor in
favor of any of the Existing Lenders or a trustee for the Existing Lenders, in
form acceptable for recording in the appropriate government office (including
taking all necessary action to enforce its rights to require the delivery
thereof under applicable law and obtaining relief from the Bankruptcy Court to
require the Existing Lenders to deliver such documents).
SECTION 10. EVENTS OF DEFAULT AND REMEDIES
10.1 Events of Default. The occurrence or existence of any one or more
of the following events are referred to herein individually as an "Event of
Default", and collectively as "Events of Default":
(a) (i) Borrower fails to pay any of the Obligations within
three (3) days after the same becomes due and payable or (ii) Borrower fails to
perform any of the covenants contained in Sections 9.1, 9.2, 9.3, 9.4, 9.5, 9.6,
9.12, 9.13, 9.14, 9.15, or 9.16 of this Agreement and such failure shall
continue for ten (10) days; provided, that, such ten (10) day period shall not
apply in the case of: (A) any failure to observe any such covenant which is not
capable of being cured at all or within such ten (10) day period or which has
been the subject of a prior failure within a six (6) month period or (B) an
intentional breach of Borrower of any such covenant or (iii) Borrower fails to
perform any of the terms, covenants, conditions or provisions contained in this
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Agreement or any of the other Financing Agreements other than those described in
Sections 10.1(a)(i) and 10.1(a)(ii) above;
(b) any representation, warranty or statement of fact made by
Borrower to Lender in this Agreement, the other Financing Agreements or any
other agreement, schedule, confirmatory assignment or otherwise shall when made
or deemed made be false or misleading in any material respect;
(c) any Obligor revokes, terminates or fails to perform any of
the terms, covenants, conditions or provisions of any guarantee, endorsement or
other agreement of such party in favor of Lender;
(d) any judgment for the payment of money is rendered against
Borrower or any Obligor in excess of $1,000,000 in any one case or in excess of
$2,000,000 in the aggregate and shall remain undischarged or unvacated for a
period in excess of thirty (30) days or execution shall at any time not be
effectively stayed, or any judgment other than for the payment of money, or
injunction, attachment, garnishment or execution is rendered against Borrower or
any Obligor or any of their assets;
(e) Borrower or any Obligor, which is a partnership, limited
liability company, limited liability partnership or a corporation, dissolves or
suspends or discontinues doing business;
(f) (i) with respect to any Plan, a prohibited transaction
within the meaning of Section 4975 of the Code or Section 406 of ERISA occurs
which, in the reasonable determination of Lender, has a substantial probability
of resulting in direct or indirect liability to Borrower, (ii) with respect to
any Title IV Plan, the filing of a notice to voluntarily terminate any such plan
in a distress termination, (iii) with respect to any Multiemployer Plan Borrower
or any ERISA Affiliate shall incur withdrawal liability, (iv) with respect to
any Qualified Plan, Borrower or any ERISA Affiliate shall incur an accumulated
funding deficiency or request a funding waiver from the Internal Revenue
Service, or (v) with respect to any Title IV Plan or Multiemployer Plan which
has an ERISA Event which is not described in clauses (ii) - (iv) hereof, in the
reasonable determination of Lender there is a substantial probability of the
termination of any such plan by the PBGC under Section 4042 of ERISA; provided,
however, that the events listed in clauses (i) - (v) hereof shall constitute
Events of Default only if the amount of the liability, deficiency or waiver
request of Borrower or any ERISA Affiliate, assessed or reasonably expected to
be assessed, exceeds $200,000 in any case set forth in (i) through (v) above, or
exceeds $750,000 in the aggregate for all such cases; or
(g) Borrower shall have entered into any consent or settlement
decree or agreement or similar arrangement with any Governmental Authority or
any judgment, order, decree or similar action shall have been entered against
Borrower, in either case based on or arising from the violation of or pursuant
to any Environmental Law, or the generation, storage, transportation,
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treatment, disposal or Release of any Contaminant and, in connection with all
the foregoing, Borrower is likely to incur Environmental Liabilities and Costs,
other than those contemplated by the projections for such period provided by
Borrower to Lender prior to the date hereof in any twelve (12) month period, in
excess of $5,000,000;
(h) the Financing Order shall be revoked, remanded, vacated,
reversed, stayed, rescinded, modified or amended on appeal or by any Bankruptcy
Judge or District Court Judge or the failure for a permanent Financing Order to
be entered within forty-five (45) days after the entry of the initial interim
Financing Order;
(i) the occurrence of any condition or event which permits or
Lender to exercise any of the remedies set forth in the Financing Order,
including, without limitation, any "Event of Default" as defined in the
Financing Order; or
(j) conversion of the Chapter 11 Case to a Chapter 7 case
under the Bankruptcy Code; or
(k) dismissal of the Chapter 11 Case or any subsequent Chapter
7 case of Borrower, either voluntarily or involuntarily; or
(l) any failure by Borrower to observe or perform any of the
material terms or conditions of any order, stipulation or other arrangements
entered by or with the Bankruptcy Court in the Chapter 11 Case; or
(m) the granting of a lien on or other interest in any
property of Borrower, or administrative expense claim, by any Bankruptcy or
District Court Judge which is superior to or ranks in parity with the lien on
the Collateral of Lender granted in this Agreement, the other Financing
Agreements or the Financing Order (except as contemplated pursuant to the
Financing Order for professional persons retained pursuant to Sections 327 and
1103 of the Bankruptcy Code and otherwise permitted under the Financing Order or
other Financing Agreements); or
(n) any default by Borrower or any Obligor under any
agreement, document or instrument relating to any Indebtedness for borrowed
money owing to any person other than Lender, or any Capital Lease, contingent
Indebtedness in connection with any guarantee, letter of credit, indemnity or
similar type of instrument in favor of any person other than Lender, in any case
in an amount in excess of $1,000,000 (other than as to any obligation arising
prior to the commencement of the Chapter 11 case) which default continues for
more than the applicable cure period, if any, with respect thereto, or any
default by Borrower or any Obligor under any material contract, lease, license
or other obligation to any person other than Lender, which default continues for
more than the applicable cure period, if any, with respect thereto;
(o) any Change of Control;
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(p) the indictment by any Governmental Authority, or as Lender
may in good faith determine, the threatened indictment by any Governmental
Authority of Borrower under any criminal statute, or commencement or threatened
commencement of criminal or civil proceedings against Borrower, pursuant to
which statute or proceedings the penalties or remedies sought or available
include forfeiture of more than $500,000 of any of the property of Borrower;
(q) there shall be a material adverse change in the business,
assets or prospects of Borrower or any Obligor after the date hereof; or
(r) there shall be an event of default under any of the other
Financing Agreements.
10.2 Remedies.
(a) At any time an Event of Default exists or has occurred and
is continuing, Lender shall have all rights and remedies provided in this
Agreement, the other Financing Agreements, the Uniform Commercial Code and other
applicable law, all of which rights and remedies may be exercised without notice
to or consent by Borrower or any Obligor, except as such notice or consent is
expressly provided for hereunder or required by applicable law. All rights,
remedies and powers granted to Lender hereunder, under any of the other
Financing Agreements, the Uniform Commercial Code or other applicable law, are
cumulative, not exclusive and enforceable, in Lender's discretion,
alternatively, successively, or concurrently on any one or more occasions, and
shall include, without limitation, the right to apply to a court of equity for
an injunction to restrain a breach or threatened breach by Borrower of this
Agreement or any of the other Financing Agreements. Lender may, at any time or
times, proceed directly against Borrower or any Obligor to collect the
Obligations without prior recourse to the Collateral.
(b) Without limiting the foregoing, at any time an Event of
Default exists or has occurred and is continuing, Lender may, in its discretion
and without limitation, (i) accelerate the payment of all Obligations and demand
immediate payment thereof to Lender (provided, that, upon the occurrence of any
Event of Default described in Sections 10.1(g) and 10.1(h), all Obligations
shall automatically become immediately due and payable), (ii) with or without
judicial process or the aid or assistance of others, enter upon any premises on
or in which any of the Collateral may be located and take possession of the
Collateral or complete processing, manufacturing and repair of all or any
portion of the Collateral, (iii) require Borrower, at Borrower's expense, to
assemble and make available to Lender any part or all of the Collateral at any
place and time designated by Lender, (iv) collect, foreclose, receive,
appropriate, setoff and realize upon any and all Collateral, (v) remove any or
all of the Collateral from any premises on or in which the same may be located
for the purpose of effecting the sale, foreclosure or other disposition thereof
or for any other purpose, (vi) sell, lease, transfer, assign, deliver or
otherwise dispose of any and all Collateral (including entering into contracts
with respect thereto, public or private sales at any exchange, broker's board,
at any office of Lender or elsewhere) at such prices or terms as Lender may deem
reasonable, for cash, upon credit or for future delivery, with the
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Lender having the right to purchase the whole or any part of the Collateral at
any such public sale, all of the foregoing being free from any right or equity
of redemption of Borrower, which right or equity of redemption is hereby
expressly waived and released by Borrower and/or (vii) terminate this Agreement.
If any of the Collateral is sold or leased by Lender upon credit terms or for
future delivery, the Obligations shall not be reduced as a result thereof until
payment therefor is finally collected by Lender. If notice of disposition of
Collateral is required by law, five (5) days prior notice by Lender to Borrower
designating the time and place of any public sale or the time after which any
private sale or other intended disposition of Collateral is to be made, shall be
deemed to be reasonable notice thereof and Borrower waives any other notice. In
the event Lender institutes an action to recover any Collateral or seeks
recovery of any Collateral by way of prejudgment remedy, Borrower waives the
posting of any bond which might otherwise be required.
(c) Lender may apply the cash proceeds of Collateral actually
received by Lender from any sale, lease, foreclosure or other disposition of the
Collateral to payment of the Obligations, in whole or in part and in such order
as Lender may elect, whether or not then due. Borrower shall remain liable to
Lender for the payment of any deficiency with interest at the highest rate
provided for herein and all costs and expenses of collection or enforcement,
including attorneys' fees and legal expenses.
(d) Without limiting the foregoing, upon the occurrence of an
Event of Default or an event which with notice or passage of time or both would
constitute an Event of Default, Lender may, at its option, without notice, (i)
cease making Loans or arranging for Letter of Credit Accommodations or reduce
the lending formulas or amounts of Revolving Loans, Supplemental Revolving Loans
and Letter of Credit Accommodations available to Borrower and/or (ii) terminate
any provision of this Agreement providing for any future Loans or Letter of
Credit Accommodations to be made by Lender to Borrower.
SECTION 11. JURY TRIAL WAIVER; OTHER WAIVERS
AND CONSENTS; GOVERNING LAW
11.1 Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this
Agreement and the other Financing Agreements and any dispute arising out of the
relationship between the parties hereto, whether in contract, tort, equity or
otherwise, shall be governed by the internal laws of the State of New York
(without giving effect to principles of conflicts of law).
(b) Borrower and Lender irrevocably consent and submit to the
non-exclusive jurisdiction of the United States Bankruptcy Court of Utah and the
Supreme Court of the State of New York in New York County and the United States
District Court for the Southern District of New York and waive any objection
based on venue or forum non conveniens with respect to any
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action instituted therein arising under this Agreement or any of the other
Financing Agreements or in any way connected with or related or incidental to
the dealings of the parties hereto in respect of this Agreement or any of the
other Financing Agreements or the transactions related hereto or thereto, in
each case whether now existing or hereafter arising, and whether in contract,
tort, equity or otherwise, and agree that any dispute with respect to any such
matters shall be heard only in the courts described above (except that Lender
shall have the right to bring any action or proceeding against Borrower or its
property in the courts of any other jurisdiction which Lender deems necessary or
appropriate in order to realize on the Collateral or to otherwise enforce its
rights against Borrower or its property).
(c) Borrower hereby waives personal service of any and all
process upon it and consents that all such service of process may be made by
certified mail (return receipt requested) directed to its address set forth on
the signature pages hereof and service so made shall be deemed to be completed
five (5) days after the same shall have been so deposited in the U.S. mails, or,
at Lender's option, by service upon Borrower in any other manner provided under
the rules of any such courts. Within thirty (30) days after such service,
Borrower shall appear in answer to such process, failing which Borrower shall be
deemed in default and judgment may be entered by Lender against Borrower for the
amount of the claim and other relief requested.
(d) BORROWER AND LENDER EACH HEREBY WAIVES ANY RIGHT TO TRIAL
BY JURY OF ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION (i) ARISING UNDER THIS
AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR (ii) IN ANY WAY CONNECTED
WITH OR RELATED OR INCIDENTAL TO THE DEALINGS OF THE PARTIES HERETO IN RESPECT
OF THIS AGREEMENT OR ANY OF THE OTHER FINANCING AGREEMENTS OR THE TRANSACTIONS
RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW EXISTING OR HEREAFTER
ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR OTHERWISE. BORROWER AND LENDER
EACH HEREBY AGREES AND CONSENTS THAT ANY SUCH CLAIM, DEMAND, ACTION OR CAUSE OF
ACTION SHALL BE DECIDED BY COURT TRIAL WITHOUT A JURY AND THAT BORROWER OR
LENDER MAY FILE AN ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY
COURT AS WRITTEN EVIDENCE OF THE CONSENT OF THE PARTIES HERETO TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Lender shall not have any liability to Borrower (whether
in tort, contract, equity or otherwise) for losses suffered by Borrower in
connection with, arising out of, or in any way related to the transactions or
relationships contemplated by this Agreement, or any act, omission or event
occurring in connection herewith, unless it is determined by a final and
non-appealable judgment or court order binding on Lender, that the losses were
the result of acts or omissions constituting gross negligence or willful
misconduct. In any such litigation, Lender shall be entitled to the benefit of
the rebuttable presumption that it acted in good faith and with the exercise of
ordinary care in the performance by it of the terms of this Agreement.
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11.2 Waiver of Notices. Borrower hereby expressly waives demand,
presentment, protest and notice of protest and notice of dishonor with respect
to any and all instruments and commercial paper, included in or evidencing any
of the Obligations or the Collateral, and any and all other demands and notices
of any kind or nature whatsoever with respect to the Obligations, the Collateral
and this Agreement, except such as are expressly provided for herein. No notice
to or demand on Borrower which Lender may elect to give shall entitle Borrower
to any other or further notice or demand in the same, similar or other
circumstances.
11.3 Amendments and Waivers. Neither this Agreement nor any provision
hereof shall be amended, modified, waived or discharged orally or by course of
conduct, but only by a written agreement signed by an authorized officer of
Lender, and as to amendments, as also signed by an authorized officer of
Borrower. Lender shall not, by any act, delay, omission or otherwise be deemed
to have expressly or impliedly waived any of its rights, powers and/or remedies
unless such waiver shall be in writing and signed by an authorized officer of
Lender. Any such waiver shall be enforceable only to the extent specifically set
forth therein. A waiver by Lender of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right, power
and/or remedy which Lender would otherwise have on any future occasion, whether
similar in kind or otherwise.
11.4 Waiver of Counterclaims. Borrower waives all rights to interpose
any claims, deductions, setoffs or counterclaims of any nature (other then
compulsory counterclaims) in any action or proceeding with respect to this
Agreement, the Obligations, the Collateral or any matter arising therefrom or
relating hereto or thereto.
11.5 Indemnification. Borrower shall indemnify and hold Lender, and its
directors, agents, employees and counsel, harmless from and against any and all
losses, claims, damages, liabilities, costs or expenses imposed on, incurred by
or asserted against any of them in connection with any litigation,
investigation, claim or proceeding commenced or threatened related to the
negotiation, preparation, execution, delivery, enforcement, performance or
administration of this Agreement, any other Financing Agreements, or any
undertaking or proceeding related to any of the transactions contemplated hereby
or any act, omission, event or transaction related or attendant thereto,
including amounts paid in settlement, court costs, and the fees and expenses of
counsel, except for losses, claims, damages, liabilities, costs or expenses as a
result of the gross negligence or wilful misconduct of Lender as determined
pursuant to a final non-appealable order of a court of competent jurisdiction.
To the extent that the undertaking to indemnify, pay and hold harmless set forth
in this Section may be unenforceable because it violates any law or public
policy, Borrower shall pay the maximum portion which it is permitted to pay
under applicable law to Lender in satisfaction of indemnified matters under this
Section. The foregoing indemnity shall survive the payment of the Obligations
and the termination or non-renewal of this Agreement.
-63-
<PAGE> 69
SECTION 12. TERM OF AGREEMENT; MISCELLANEOUS
12.1 Term.
(a) This Agreement and the other Financing Agreements shall
become effective as of the date set forth on the first page hereof and shall
continue in full force and effect for a term ending on the earlier to occur of
(i) the second anniversary of the date hereof, (ii) the effective date of any
order entered by the United States Bankruptcy Court for the District of Utah
confirming a plan of reorganization for Borrower in the Chapter 11 Case, or
(iii) the termination date set forth in the Financing Order (unless sooner
terminated by Lender pursuant to the terms hereof or pursuant to any Financing
Order). Upon the effective date of termination or non-renewal of the Financing
Agreements, Borrower shall pay to Lender, in full, all outstanding and unpaid
Obligations and shall furnish cash collateral to Lender in such amounts as
Lender determines are reasonably necessary to secure Lender from loss, cost,
damage or expense, including attorneys' fees and legal expenses, in connection
with any contingent Obligations, including issued and outstanding Letter of
Credit Accommodations and checks or other payments provisionally credited to the
Obligations and/or as to which Lender has not yet received final and
indefeasible payment. Such payments in respect of the Obligations and cash
collateral shall be remitted by wire transfer in Federal funds to such bank
account of Lender, as Lender may, in its discretion, designate in writing to
Borrower for such purpose. Interest shall be due until and including the next
Business Day, if the amounts so paid by Borrower to the bank account designated
by Lender are received in such bank account later than 12:00 noon, New York City
time.
(b) No termination of this Agreement or the other Financing
Agreements shall relieve or discharge Borrower of its respective duties,
obligations and covenants under this Agreement or the other Financing Agreements
until all Obligations have been fully and finally discharged and paid, and
Lender's continuing security interest in the Collateral and the rights and
remedies of Lender hereunder, under the other Financing Agreements and
applicable law, shall remain in effect until all such Obligations have been
fully and finally discharged and paid.
(c) If this Agreement is terminated prior to the consummation
of a plan of reorganization of Borrower in the Chapter 11 Case pursuant to
Borrower entering into successor debtor-in-possession financing in the Chapter
11 Case, in view of the impracticality and extreme difficulty of ascertaining
actual damages and by mutual agreement of the parties as to a reasonable
calculation of Lender's lost profits as a result thereof, Borrower agrees to pay
to Lender, upon the effective date of such termination, an early termination fee
in an amount equal to one (1%) percent of the Maximum Credit. Such early
termination fee shall be presumed to be the amount of damages sustained by
Lender as a result of such early termination and Borrower agrees that it is
reasonable under the circumstances currently existing. The early termination fee
provided for in this Section 12.1 shall be deemed included in the Obligations.
-64-
<PAGE> 70
12.2 Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Lender at its address set forth below and to Borrower at
its chief executive office set forth below, or to such other address as either
party may designate by written notice to the other in accordance with this
provision, and (b) deemed to have been given or made: if delivered in person,
immediately upon delivery; if by telex, telegram or facsimile transmission,
immediately upon sending and upon confirmation of receipt; if by nationally
recognized overnight courier service with instructions to deliver the next
Business Day, one (1) Business Day after sending; and if by certified mail,
return receipt requested, five (5) days after mailing.
12.3 Partial Invalidity. If any provision of this Agreement is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Agreement as a whole, but this Agreement shall be construed as
though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be construed
and enforced only to such extent as shall be permitted by applicable law.
12.4 Successors. This Agreement, the other Financing Agreements and any
other document referred to herein or therein shall be binding upon and inure to
the benefit of and be enforceable by Lender, Borrower and their respective
successors and assigns, except that Borrower may not assign its rights under
this Agreement, the other Financing Agreements and any other document referred
to herein or therein without the prior written consent of Lender. Lender may,
after notice to Borrower, assign its rights and delegate its obligations under
this Agreement and the other Financing Agreements and further may assign, or
sell participations in, all or any part of the Loans, the Letter of Credit
Accommodations or any other interest herein to another financial institution or
other person, in which event, the assignee or participant shall have, to the
extent of such assignment or participation, the same rights and benefits as it
would have if it were the Lender hereunder, except as otherwise provided by the
terms of such assignment or participation.
12.5 Inconsistency with Financing Order. In the event of any specific
inconsistency between the terms of this Agreement or the other Financing
Agreements and the Financing Order, the terms of the Financing Order shall
govern with respect to such specific inconsistency.
12.6 Entire Agreement. This Agreement, the other Financing Agreements,
any supplements hereto or thereto, and any instruments or documents delivered or
to be delivered in connection herewith or therewith represents the entire
agreement and understanding concerning the subject matter hereof and thereof
between the parties hereto, and supersede all other prior agreements,
understandings, negotiations and discussions, representations, warranties,
commitments, proposals, offers and contracts concerning the subject matter
hereof, whether oral or written. In the event of any inconsistency between the
terms of this Agreement and any schedule or exhibit hereto, the terms of this
Agreement shall govern.
-65-
<PAGE> 71
IN WITNESS WHEREOF, Lender and Borrower have caused these presents to
be duly executed as of the day and year first above written.
LENDER BORROWER
CONGRESS FINANCIAL CORPORATION GENEVA STEEL COMPANY,
as debtor and debtor-in-possession
By: /s/ David M. Weinstein By: /s/ Dennis L. Wanlass
-------------------------- ------------------------------
Title: First Vice President Title: Vice President
Address: Chief Executive Office:
1133 Avenue of the Americas 10 South Geneva Road
New York, New York 10036 Vineyard, Utah 84058
-66-
<PAGE> 72
RESERVE ACKNOWLEDGEMENT CERTIFICATE
Congress Financial Corporation ("Lender") and Geneva Steel Company,
Debtor and Debtor-in-Possession ("Borrower") have entered into financing
arrangements pursuant to which Lender may make loans and advances to Borrower as
set forth in the Loan and Security Agreement, dated of even date herewith, by
and between Lender and Borrower (as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced, the
"Loan Agreement") and other agreements, documents and instruments referred to
therein or at any time executed and/or delivered in connection therewith or
related thereto, together with this Certificate (all of the foregoing, including
the Loan Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
All capitalized terms used herein shall have the meaning assigned
thereto in the Loan Agreement, unless otherwise defined herein.
Pursuant to the terms of the Loan Agreement, Lender has the right from
time to time to establish Availability Reserves. Borrower hereby acknowledges
and confirms that, without limiting any other rights of Lender under the Loan
Agreement with respect to the establishment of Availability Reserves or
otherwise and in addition to any other Availability Reserves:
1. Lender may, at its option, establish:
(a) an Availability Reserve in the aggregate amount of up to
$6,000,000, which Availability Reserve shall be established on
the effective date of any increase in the Supplemental
Revolving Loan Limit which results in such limit being
$6,000,000 more than the amount of such limit as of the date
hereof (and which Availability Reserve shall be deemed
allocated to the amounts of the Supplemental Revolving Loans
otherwise available to Borrower), provided, that, if the
Supplemental Revolving Loan Limit is not so increased by April
1, 1999, then on or about such date Lender may establish such
Availability Reserve in such increments and at such times as
Lender may determine until such Availability Reserve is equal
to $6,000,000 (but in no event will more than $1,500,000 of
such $6,000,000 Availability Reserve be established in any one
week); and
(b) an Availability Reserve in the amount of $5,000,000 as of the
date hereof (which Availability Reserve shall be deemed
allocated to the amounts of Supplemental Revolving Loans
otherwise available to Borrower), provided, that, such
Availability Reserve shall be terminated and released as of
such date as Lender shall have received evidence, in form and
substance satisfactory to Lender, that the inventory reports
to be delivered by Borrower to Lender hereunder are and will
be accurate and capable of being delivered to Lender in a
timely manner on a consistent basis and in a form and with
such detail as Lender may require, so long as no Event of
Default or act, condition or event which with notice of
passage of time or both would constitute an Event of Default
shall exist or have occurred and be continuing.
2. Without limiting the generality of the foregoing or any
provisions in the Loan Agreement, Lender may in good faith
establish Availability Reserves to reflect events, conditions,
contingencies or risks which as determined by Lender in good
faith do or have a reasonable likelihood of adversely
affecting the Collateral and its value or the business or
operation of Borrower (which could include such matters as
adverse developments in the steel industry, declines in sales,
adverse changes in terms provided to Borrower by suppliers,
the failure of Borrower to meet its projections and other
matters which adversely affect the value of the
<PAGE> 73
Collateral or the amounts which Lender might realize thereon
or adversely affects the prospects of Borrower). In
consideration of the foregoing, (a) in the event that the
Supplemental Revolving Loan Limit is increased after the date
hereof based on an Appraised Equipment Value in the excess of
$51,000,000, Lender may, in its discretion, on and after such
increase establish additional Availability Reserves on the
first day of each month in the amount of $1,000,000 for each
month (which Availability Reserve shall be deemed allocated to
the amounts of the Supplemental Revolving Loans otherwise
available to Borrower) and (b) Lender may establish an
Availability Reserve in an amount equal to Accounts which are
unpaid more than ninety (90) days but less than one hundred
twenty (120) days after the original invoice date for them,
regardless of whether or not subject to a bona fide dispute,
and for Accounts owed by an account debtor who has Accounts
unpaid more than ninety (90) days but less than one hundred
twenty (120) days after the original invoice date (whether or
not subject to a bona fide dispute), which constitute more
than fifty (50%) percent of the total Accounts of such account
debtor.
3. In addition to the conditions to the increase in the
Supplemental Revolving Loan Limit set forth in Section 1.85 of
the Loan Agreement, such increase will only be effective if
Lender shall have received evidence in form and substance
satisfactory to Lender that the inventory reports of Borrower
to be delivered to Lender are and will be accurate and capable
of being delivered to Lender in a timely manner on a
consistent basis and in a form and with such detail as Lender
may require.
Borrower understands and agrees that Lender is relying on this
Certificate in providing financing to Borrower pursuant to the Loan Agreement
and waives and releases any claims against Lender in connection with the
establishment of such Availability Reserves.
Dated: February 19, 1999
ACKNOWLEDGED AND CONFIRMED:
GENEVA STEEL COMPANY, Debtor and
Debtor-in-Possession
By: /s/ Dennis L. Wanlass
---------------------------
Title: Vice President
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
REGISTRANT'S CONSOLIDATED BALANCE SHEET AND CONSOLIDATED STATEMENT OF OPERATIONS
AS OF AND FOR THE THREE MONTHS ENDED DECEMBER 31, 1998 AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS, INCLUDING THE
NOTES THERETO.
</LEGEND>
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-30-1999
<PERIOD-START> OCT-01-1998
<PERIOD-END> DEC-31-1998
<EXCHANGE-RATE> 1
<CASH> 0
<SECURITIES> 0
<RECEIVABLES> 27,094
<ALLOWANCES> 10,597
<INVENTORY> 95,087
<CURRENT-ASSETS> 141,271
<PP&E> 662,660
<DEPRECIATION> (259,198)
<TOTAL-ASSETS> 549,741
<CURRENT-LIABILITIES> 476,057
<BONDS> 325,000
57,106
0
<COMMON> 98,027
<OTHER-SE> (97,650)
<TOTAL-LIABILITY-AND-EQUITY> 549,741
<SALES> 78,699
<TOTAL-REVENUES> 78,699
<CGS> 108,237
<TOTAL-COSTS> 108,237
<OTHER-EXPENSES> 9,703
<LOSS-PROVISION> (2,374)
<INTEREST-EXPENSE> (10,577)
<INCOME-PRETAX> (49,818)
<INCOME-TAX> 0
<INCOME-CONTINUING> (49,818)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (49,818)
<EPS-PRIMARY> (3.30)
<EPS-DILUTED> (3.30)
</TABLE>
