<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 28, 1996 Commission file number 1-6770
MUELLER INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 25-0790410
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6799 GREAT OAKS ROAD, SUITE 200
MEMPHIS, TENNESSEE 38138
(Address of principal executive offices)
Registrant's telephone number, including area code: (901) 753-3200
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
Common Stock, $0.01 Par Value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by a 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 by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K (Section 229.405 of this chapter) is not contained herein,
and will not be contained, to the best of Registrant's knowledge, in
definitive proxy or information statements incorporated by reference in Part
III of this Form 10-K or any amendment to this Form 10-K.[_X_].
The number of shares of the Registrant's common stock outstanding as of March
12, 1997 was 17,485,988, excluding 2,514,012 treasury shares. The aggregate
market value of the 15,931,835 shares of common stock held by non affiliates
of the Registrant was $702,992,000 at March 12, 1997 (based on the closing
price on the consolidated transaction reporting system on that date).
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the following documents are incorporated by reference into this
Report: (1) Registrant's Annual Report to Stockholders for the year ended
December 28, 1996 (Part I and II); Registrant's Definitive Proxy Statement for
the 1997 Annual Meeting of Stockholders, scheduled to be mailed on or about
March 18, 1997 (Part III).
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MUELLER INDUSTRIES, INC.
As used in this report, the terms "Company," "Mueller" and "Registrant" mean
Mueller Industries, Inc. and its consolidated subsidiaries taken as a whole,
unless the context indicates otherwise.
TABLE OF CONTENTS
Page
PART I
Item 1. Business..................................................3
Item 2. Properties................................................9
Item 3. Legal Proceedings........................................11
Item 4. Submission of Matters to a Vote of Security Holders......11
PART II
Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters...................................12
Item 6. Selected Financial Data..................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................12
Item 8. Financial Statements and Supplementary Data..............12
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure...................12
PART III
Item 10. Directors and Executive Officers of the Registrant.......12
Item 11. Executive Compensation...................................13
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................13
Item 13. Certain Relationships and Related Transactions...........13
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports
on Form 8-K...........................................13
Signatures..............................................................16
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PART I
ITEM 1. BUSINESS
Introduction
The Company is a leading fabricator of copper, brass, plastic and
aluminum products. The range of these products is broad: copper tube and
fittings; brass and copper alloy rods, bars and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves, driers and flare fittings; and copper alloy
tubing, aluminum tubing and fabricated tubular products. These operations
("Manufacturing Segment") accounted for approximately 97% of the Company's
total net sales and 84% of total identifiable assets on a consolidated
basis in 1996. The Company markets its products to the heating and air
conditioning, refrigeration, plumbing, hardware and other industries.
Mueller operates sixteen factories in the United States, Canada, and the
United Kingdom and has distribution facilities in each of these countries
and sales representation worldwide.
The Company's natural resource operations are conducted through its
wholly-owned subsidiaries Arava Natural Resources Company, Inc. ("Arava")
and Alaska Gold Company ("Alaska Gold"). Natural resource operations
consist principally of the operation of a short line railroad in Utah and a
placer gold mining operation in Alaska.
Information concerning net sales, operating income, and identifiable
assets of each segment appears under "Note 13 - Industry Segments" in the
Notes to Consolidated Financial Statements in Mueller's Annual Report to
Stockholders for the year ended December 28, 1996. Such information is
incorporated herein by reference.
Manufacturing Segment
Products and Manufacturing Operations
Mueller's standard products include a broad line of copper tube, which
ranges in size from 1/8 inch to 8 inch diameter, and is sold in various
straight lengths and coils. Mueller is a market leader in the air
conditioning and refrigeration tube markets. Additionally, Mueller
supplies a variety of water tube in straight lengths and coils used for
plumbing applications in virtually every type of construction project.
Other standard products include copper and plastic fittings and
related components for the plumbing and heating industry that are used in
water distribution systems, heating systems, air conditioning and
refrigeration applications, and drainage, waste, and vent ("DWV") systems.
Additionally, valves, wrot copper and brass fittings, filter driers and
other related assemblies are manufactured for commercial air conditioning
and refrigeration applications such as vending machines, ice machines,
walk-in coolers, and numerous refrigeration applications. The
refrigeration product line also includes products for the refrigeration and
air conditioning installation and service markets. A major portion of
Mueller's products are ultimately used in the domestic residential and
commercial construction markets and, to a lesser extent, in the automotive
and heavy on and off-the-road vehicle markets.
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Mueller's industrial products include brass rod, nonferrous forgings
and impact extrusions that are sold primarily to Original Equipment
Manufacturers ("OEM") in the plumbing, refrigeration, fluid power, and
automotive industries, as well as to other manufacturers and distributors.
The Port Huron, Michigan mill extrudes brass, bronze and copper alloy rod
in sizes ranging from 3/8 inches to 4 inches in diameter. These alloys are
used in applications that require a high degree of machinability, wear and
corrosion resistance, and electrical conductivity. Mueller brass and
aluminum forgings are used in a wide variety of end products, including
automotive components, brass fittings, industrial machinery, valve bodies,
gear blanks, computer hardware, and fire fighting equipment. The Company
also serves the automotive, military ordnance, aerospace and general
manufacturing industries with cold-formed aluminum and copper impact
extrusions. Typical applications for impacts are high-strength ordnance,
high-conductivity electrical components, builders' hardware, hydraulic
systems, automotive parts and other uses where toughness must be combined
with varying complexities of design and finish.
The Company's manufacturing facilities have operated at high levels
during 1996, 1995, and 1994.
Marketing and Distribution
Mueller's standard products are marketed primarily through its own
sales and distribution organization, which maintains sales offices and
distribution centers throughout the United States and in Canada.
Additionally, these products are sold and marketed through a network of
agents, which, when combined with the Company's sales organization, provide
the Company broad geographic market representation.
Industrial products are sold, primarily, direct to OEM customers.
Outside of North America, the Company sells its products through various
channels including exclusive distributors, agents and direct sales channels
in over 65 countries, primarily in Europe, the Far East and the Middle
East.
Competition
The businesses in which Mueller is engaged are highly competitive.
The principal methods of competition for Mueller's products are customer
service and availability. No material portion of Mueller's business is
dependent upon a single customer or a small group of related customers.
The total amount of order backlog for Mueller's products on December 28,
1996 and December 30, 1995 was not significant.
The Company competes with various companies depending on the product
line. In copper tubing, the domestic competition includes Cerro Copper
Products Co., Inc., Halstead Industries, Inc., Reading Tube Corporation,
and Wolverine Tube, Inc. as well as many actual and potential foreign
competitors. Additionally, it competes with a large number of
manufacturers of substitute products made from plastic, iron and steel. In
the copper fittings market, competitors include Elkhart Products, a
division of Amcast Industrial Corporation, and NIBCO, Inc. The plastic
fittings competitors include more than a dozen companies. The brass rod
competitors include Cerro Metal Products Company, Inc., Chase Brass
Industries, Inc., Extruded Metals Inc., and others both domestic and
foreign. As illustrated above, no other single competitor offers such a
wide ranging product line; management believes that this is a competitive
advantage in some markets.
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Raw Materials and Supplies
The major portion of Mueller's base metal requirements (primarily
copper) are normally obtained through short-term supply contracts with
competitive pricing provisions. Other raw materials used in the production
of brass, including brass scrap, zinc, tin and lead are obtained from zinc
and lead producers, open-market dealers and customers with brass process
scrap. Raw materials used in the fabrication of aluminum and plastic
products are purchased in the open market from major producers.
Natural Resources Segment
Mueller, through its subsidiaries Arava and Alaska Gold, is engaged in
the operation of a short line railroad in Utah and placer gold mining in
Alaska. It also owns interests in other natural resource properties.
Short Line Railroad
Utah Railway Company ("Utah Railway"), a wholly-owned subsidiary of
Arava, operates over approximately 100 miles of railroad track in Utah.
Utah Railway serves four major customers pursuant to long-term contracts
which account for more than 75% of tonnage hauled. The Utah Railway
transports more than six million tons of coal per year to an interchange
point at Provo, Utah, although annual tonnage may vary significantly due to
fluctuations in the production from the coal mines on the Utah Railway's
lines and the demand for export coal. The coal is then transported by
connecting railroads to various customers including electric utilities,
cement plants, west coast export facilities and others at destinations
throughout the West.
In February, 1996, Utah Railway entered into an agreement with Union
Pacific Railroad (UP) whereby UP was granted rights to operate over a
portion of Utah Railway track. In exchange, UP granted limited rights to
Utah Railway for operations over Southern Pacific (SP) tracks to Grand
Junction, Colorado and access to additional coal customers.
Gold Mining
Alaska Gold mines placer gold in Nome, Alaska. Alaska Gold produced
22,918 net ounces of gold in 1996, 18,731 net ounces of gold in 1995,
14,173 net ounces of gold in 1994, 22,440 net ounces of gold in 1993, and
17,965 net ounces of gold in 1992, at a net production cost of $352 per
ounce in 1996, $307 per ounce in 1995, $376 per ounce in 1994, $280 per
ounce in 1993, and $306 per ounce in 1992. Based on the results of past
exploratory drilling, Alaska Gold believes there may be various areas
available on its properties to sustain open pit mining for ten years.
Properties consist of approximately 14,500 acres in and adjacent to
Nome. In addition, Alaska Gold owns or has patented claims on
approximately 10,400 acres in the Fairbanks, Alaska area, and approximately
3,000 acres in the Hogatza, Alaska area.
On March 14, 1996, the Company acquired the minority shareholders'
fifteen percent interest in Alaska Gold, thereby making Alaska Gold a
wholly-owned subsidiary.
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Other Natural Resources Properties
The Company also has interests in various mineral properties located
in the United States. None of these mineral properties are significant to
the Company's business, and they may be sold, developed, or leased.
United States Fuel Company ("U.S. Fuel"), a wholly-owned subsidiary of
Arava, owns approximately 8,900 acres of coal properties and leases an
additional 2,700 acres. U.S. Fuel mined steam coal by the deep-mine
process at its coal properties located in Carbon and Emery Counties, Utah,
until coal production ceased in March 1993. Currently, these properties
are undergoing environmental remediation. The Company continues to pursue
divestiture of these properties.
In 1992, Ruby Hill Mining Company ("Ruby Hill") entered into a four-
year Exploration Agreement with a Purchase Option (the "Exploration
Agreement") with Homestake Mining Company of California ("Homestake") for
its property near Eureka, Nevada. Homestake has a substantial exploration
and drilling program underway on the property. In 1994, Homestake
exercised its option to purchase the property; the total purchase price is
$4 million payable over up to a six-year period depending on timing of
production decisions and commencement of production. As of December 28,
1996, the Company has received and recognized as gains $2.0 million of the
total purchase price. If Homestake produces a total of 500,000 ounces of
gold or "gold equivalents" of other metals from this property, Ruby Hill is
thereafter entitled to a three percent net smelter return royalty, after
deduction for certain taxes and transportation. Arava owns 81% of the
stock of Richmond-Eureka Mining Company, which owns 75% of the stock of
Ruby Hill.
Labor Relations
At December 28, 1996, the Company employed approximately 2,350
employees of which approximately 1,100 were represented by various unions.
A majority of the unionized employees are under contracts which expire in
1999.
Raw Material and Energy Availability
Adequate supplies of raw material are available to the Company.
Sufficient energy in the form of natural gas, fuel oils and electricity is
available to operate the Company's production facilities. While temporary
shortages of raw material and fuels may occur occasionally, they have not
materially hampered the Company's operations.
Environmental Matters
The Company is subject to various laws and regulations relating to
environmental quality. Compliance with these laws and regulations is a
matter of high priority.
Mueller's provision for environmental compliance includes charges of
$2.0 million in 1996, $1.4 million in 1995, $2.9 million in 1994, and $1.1
million in 1993. Except as discussed below, the Company does not
anticipate that it will need to make material expenditures for such
compliance activities during the remainder of the 1997 fiscal year, or for
the next two fiscal years.
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Mining Remedial Recovery Company ("MRRC"), a wholly-owned subsidiary
of Arava, was formed for the purpose of managing the remediation of certain
properties and the appropriate disposition thereof.
1. Cleveland Mill Site
In 1993, the EPA issued special notice letters to all known
potentially responsible parties ("PRPs") regarding the Cleveland Mill
Superfund Site in Grant County, New Mexico. In response, MRRC, Bayard
Mining Corp. ("Bayard"), a wholly-owned subsidiary of Arava, and a third
party filed a good faith offer to implement the remedy set forth in the
EPA's Record of Decision ("ROD"). Total future costs for remediating the
site were estimated by the EPA in the ROD at approximately $6.2 million.
MRRC and Bayard, along with said third party, have entered into a consent
decree relating to the site and have agreed to an allocation formula
requiring Bayard and MRRC to pay 29.20% of future costs. The third party
has agreed to pay the balance. No satisfactory bids to process the
Cleveland Mill tailings were received and MRRC, Bayard and said third party
are negotiating with the New Mexico Environmental Department about the
terms of a consent order which would permit placement of the Cleveland Mill
site mill tailings at the nearby Hanover site.
2. Hanover Site
MRRC owns 80 acres in Grant County, New Mexico called the Hanover
site, which contains in excess of 3.0 million cubic yards of mill tailings.
A voluntary plan to regrade and cap the soil at this site has been
substantially completed. Regrading and capping of approximately twenty
acres at Hanover has been deferred pending a decision on storage of
tailings from the nearby Cleveland Mill site.
3. Mammoth Mine Site
MRRC owns title to some inactive mines in Shasta County, California.
MRRC has continued a program begun in the late 1980s of sealing mine
portals with concrete plugs in mine adits which were discharging water.
The sealing program has achieved a reduction in the metal load in
discharges from these adits; however, additional reductions are being
required. In addition, during 1996, the California Regional Water Quality
Control Board issued an Order whereby MRRC is required to perform certain
studies to establish planning for future remedial actions. MRRC has
commenced these activities as described by the Order and has performed
other remediation activities to improve the quality of water discharges.
In April, 1996, MRRC settled a Lawsuit from an adjoining landowner.
As part of the settlement, MRRC acquired approximately 4,000 acres of
patented mining claims and other property located in Shasta County. MRRC
intends to remediate the mine sites on this acquired property as part of
its overall efforts at Mammoth.
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4. U.S.S. Lead
In 1991, U.S.S. Lead Refinery, Inc. ("Lead Refinery"), responded to an
information request from EPA under Superfund for information on whether
Lead Refinery arranged for the disposal of hazardous substances in the
vicinity of the Grand Calumet River/Indiana Harbor Ship Canal. By letter
dated February 4, 1997, the Indiana Department of Environmental Management
(IDEM) notified Lead Refinery that a preassessment screening of the Grand
Calumet River and the Indiana Harbor Canal conducted pursuant to Superfund,
had identified releases of hazardous substances from Lead Refinery and
other PRPs that had adversely impacted natural resources. Based on the
prescreening assessment, IDEM has requested that Lead Refinery agree to
fund the preparation of an assessment plan which will, in part, quantify
the loss of natural resources. By letter dated March 11, 1997, lead
Refinery responded to the February 4 letter and without waiving its
affirmative defenses, stated its willingness to participate in the
preparation of an assessment plan. In 1991, Lead Refinery also responded
to an information request under Superfund regarding the Lead Refinery site
in East Chicago, Indiana. In 1992, EPA advised Lead Refinery of its intent
to list the property as a Superfund site. Lead Refinery opposed such
listing and, as of March 20, 1997, EPA has deferred such listing.
In 1993, Lead Refinery entered into a Consent Order with the EPA
pursuant to Section 3008(h) of the Resource Conservation and Recovery Act
("RCRA"). The Consent Order covers remediation activities at the East
Chicago, Indiana site and provides for Lead Refinery to complete certain
on-site interim remedial activities and studies that extend off site. In
November 1996 the EPA approved, with modifications, the Interim
Stabilization Measures Workplan and designated a Corrective Action
Management Unit at the Lead Refinery site. Site activities, based on the
approval, began during December 1996. The costs for the studies and
interim clean up efforts are expected to be approximately $2.5 million, the
majority of which would be required to be expended in 1997 and 1998. Once
these activities are completed, additional work would likely be needed to
investigate and remediate any contamination not addressed by the Consent
Order. Lead Refinery, without additional assistance from MRRC, lacks the
financial resources needed to complete the additional remediation and
intends to seek financial assistance from other PRPs to permit Lead
Refinery to conduct a private-party cleanup under RCRA.
Lead Refinery has been informed by the former owner and operator of a
Superfund site located in Pedricktown, New Jersey that it intends to seek
CERCLA response costs for alleged shipments of hazardous substances to the
site. Lead Refinery has executed an agreement regarding that site, which
indefinitely extends the statute of limitations. By letter dated January
26, 1996, Lead Refinery and other PRPs received from EPA, a proposed
Administrative Order on Consent to perform the remedial design for operable
Unit 1 of the Pedricktown Superfund Site. Lead Refinery determined not to
execute the Administrative Order on Consent. Several other PRPs, however,
executed the agreement and are conducting the remedial design.
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Miscellaneous
In 1994, the Company received notice from the EPA that Mueller Brass
Co. was a PRP at the Jack's Creek/Sitkin Smelting Superfund Site in Eastern
Pennsylvania. Mueller Brass Co. is alleged to have contributed less than 1
percent of the hazardous wastes at this site. Based upon its estimated
allocation ranking, its share of the EPA's estimated cleanup costs would be
less than $500,000. In November, 1996, Mueller Brass Co. submitted a
ballot in support of an alternative cleanup plan proposed by the PRP
working group. If the alternative plan is approved by the EPA, Mueller
Brass Co.'s portion of the cleanup would be approximately $300,000. A
decision by the EPA is expected in 1997.
Other Business Factors
The Registrant's business is not materially dependent on patents,
trademarks, licenses, franchises or concessions held. In addition,
expenditures for company-sponsored research and development activities were
not material during 1996, 1995, or 1994. No material portion of the
Registrant's business involves governmental contracts.
ITEM 2. PROPERTIES
Information pertaining to the Registrant's major operating facilities
is included below. Except as noted, the Registrant owns all of its
principal properties. The Registrant's plants are in satisfactory
condition and are suitable for the purpose for which they were designed and
are now being used.
Location Property Size Description
Port Huron, MI 260,000 sq. ft. Brass rod mill. Facility includes
23.19 acres casting, extruding, and finishing
equipment to produce brass rods
and bars, in various shapes and
sizes.
Port Huron, MI 46,500 sq. ft. Forgings plant. Produces brass
and aluminum forgings.
Marysville, MI 62,500 sq. ft. Aluminum and copper impacts plant.
6.72 acres Produces made to order parts using
cold impact processes.
Port Huron, MI 13,500 sq. ft. Formed tube plant. Produces
5.11 acres copper fittings using cold heading
equipment.
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Fulton, MS 405,500 sq. ft. Copper tube mill. Facility
60.70 acres includes casting, extruding and
finishing equipment to produce
copper tubing, including tube feed
stock for the Company's copper
fittings plants, Line sets plant,
and Precision Tube factory.
Fulton, MS 70,500 sq. ft.(1) Copper fittings plant. High-
volume facility that produces
copper fittings using tube feed
stock from the Company's copper
tube mill.
Fulton, MS 20,000 sq. ft.(2) Line sets plant. Produces copper
tube line sets using tube feed
stock from the Company's copper
tube mill.
Covington, TN 159,500 sq. ft. Copper fittings plant. Facility
40.88 acres produces copper fittings using
tube feed stock from the Company's
copper tube mill.
Strathroy, 54,000 sq. ft. Copper fittings plant. Facility
Ontario Canada 4.67 acres produces copper fittings for the
Canadian domestic markets and for
export to European markets.
Upper Sandusky, 82,000 sq. ft. Plastic fittings plant. Produces
OH 7.52 acres DWV fittings using injection
molding equipment.
Kalamazoo, MI 130,000 sq. ft. Plastic fittings plant. Produces
DWV fittings using injection
molding equipment.
Cerritos, CA 115,000 sq. ft.(3) Plastic fittings plant. Produces
DWV fittings using injection
molding equipment.
Hartsville, TN 78,000 sq. ft. Refrigeration products plant.
4.51 acres Produces products used in
refrigeration applications such as
ball valves, line valves,
compressor valves, and filter
driers.
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North Wales, PA(4) 173,900 sq. ft. Precision Tube factory. Facility
18.9 acres fabricates copper tubing, copper
alloy tubing, aluminum tubing, and
fabricated tubular products.
Salisbury, MD(4) 12,000 sq. ft.(2) Coaxial cable plant. Facility
manufactures semi-rigid coaxial
cable and high-performance cable
assemblies.
Bilston, England(4) 402,500 sq. ft. Copper tube mill. Facility
United Kingdom 14.95 acres includes casting, extruding and
finishing equipment to produce
copper tubing.
In addition, the Company owns and/or leases other properties used as
distribution centers and corporate offices.
(1) Facility is leased under long-term lease agreement, with option to
purchase at nominal cost.
(2) Facility is leased under operating lease.
(3) Facility is leased under long-term lease agreement, with option to
purchase for a stipulated purchase price prior to December 31, 1997.
(4) Operations acquired subsequent to the fiscal year-ended December
28, 1996.
ITEM 3. LEGAL PROCEEDINGS
Environmental Proceedings
Reference is made to "Environmental Matters" in Item 1 of this Report,
which is incorporated herein by reference, for a description of
environmental proceedings.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
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PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
The information required by Item 5 of this Report is included under
the caption "Capital Stock Information" in the Registrant's Annual Report
to Stockholders for the year ended December 28, 1996, which information is
incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA
Selected financial data are included under the caption "Selected
Financial Data" in the Registrant's Annual Report to Stockholders for the
year ended December 28, 1996, which selected financial data is incorporated
herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
Management's discussion and analysis of financial condition and
results of operations is contained under the caption "Financial Review" in
the Registrant's Annual Report to Stockholders for the year ended December
28, 1996 and is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
See Index to Financial Statements and Supplemental Financial
Information of this Annual Report on Form 10-K which is incorporated herein
by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required by Item 10 is contained under the caption
"Ownership of Common Stock by Directors and Officers and Information about
Director Nominees" in the Company's Proxy Statement for its 1997 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1997 and is incorporated herein by
reference.
<PAGE> 13
ITEM 11. EXECUTIVE COMPENSATION
The information required by Item 11 is contained under the caption
"Executive Compensation" in the Company's Proxy Statement for its 1997
Annual Meeting of Stockholders to be filed with the Securities and Exchange
Commission on or about March 18, 1997 and is incorporated herein by
reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by Item 12 is contained under the captions
"Principal Stockholders" and "Ownership of Common Stock by Directors and
Officers and Information about Director Nominees" in the Company's Proxy
Statement for its 1997 Annual Meeting of Stockholders to be filed with the
Securities and Exchange Commission on or about March 18, 1997 and is
incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by Item 13 is contained under the caption
"Certain Relationships and Transactions with Management" in the Company's
Proxy Statement for its 1997 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission on or about March 18, 1997 and
is incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM
8-K
(a) The following documents are filed as part of this report:
1. Financial Statements: the financial statements, notes, and report of
independent auditors described in Item 8 of this report, which are
incorporated by reference.
2. Financial Statement Schedule: the financial statement schedule
described in Item 8 of this report which is incorporated herein by
reference.
3. Exhibits:
3.1 Certificate of Incorporation of Mueller Industries, Inc. and
all amendments thereto (Incorporated herein by reference to
Exhibit 3.1 of the Registrant's Current Report on Form 8-K
dated December 28, 1990).
3.2 By-laws of Mueller Industries, Inc., as amended and
restated, effective November 10, 1994. (Incorporated herein
by reference to Exhibit 3 (ii) of the Registrant's Current
Report on Form 8-K, dated November 14, 1994.)
<PAGE> 14
4.1 Common Stock Specimen (Incorporated herein by reference to
Exhibit 4.1 of the Registrant's Current Report on Form 8-K
dated December 28, 1990).
4.2 Rights Agreement, dated as of November 10, 1994, between the
Registrant and Continental Stock Transfer and Trust Company,
as Rights Agent, which includes the Form of Certificate of
Designation, Preferences and Rights of Series A Junior
Participating Preferred Stock of the Registrant, as Exhibit
A, the Form of Rights Certificate, as Exhibit B, and the
Summary of Rights to Purchase Preferred Stock, as Exhibit C.
(Incorporated by reference to Exhibit 99.1 of the
Registrant's Current Report on Form 8-K, dated November 14,
1994.)
4.3 Credit Agreement among Mueller Industries, Inc. (as
Borrower) and Michigan National Bank (as a Bank) and
Michigan National Bank (as Agent) dated as of June 1, 1994.
4.4 First Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of December 14, 1994.
4.5 Second Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of June 1, 1995.
4.6 Third Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank
(as a Bank) and Michigan National Bank (as Agent) dated as
of December 18, 1996.
4.7 Certain instruments with respect to long-term debt of the
Company have not been filed as Exhibits to the Report since
the total amount of securities authorized under any such
instrument does not exceed 10 percent of the total assets of
the Company and its subsidiaries on a consolidated basis.
The Company agrees to furnish a copy of each such instrument
upon request of the Securities and Exchange Commission.
10.1 Employment Agreement, effective October 1, 1991 by and
between Mueller Industries, Inc. and Harvey L. Karp
(Incorporated herein by reference to Exhibit 10.3 of the
Registrant's Current Report on Form 8-K dated November
22, 1991).
10.2 Stock Option Agreement, dated December 4, 1991 by and
between Mueller Industries, Inc. and Harvey L. Karp
(Incorporated herein by reference to Exhibit 10.4 of the
Registrant's Current Report on Form 8-K dated November 22,
1991).
10.3 Mueller Industries, Inc. 1991 Employee Stock Purchase Plan
(Incorporated herein by reference to Exhibit 4(a) of the
Registrant's Registration Statement on Form S-8 dated June
28, 1991).
<PAGE> 15
10.4 Mueller Industries, Inc. 1991 Incentive Stock Option Plan
(Incorporated herein by reference to Exhibit 4(a) of the
Registrant's Registration Statement on Form S-8 dated April
17, 1992).
10.5 Employment Agreement, effective June 3, 1992 by and between
Mueller Industries, Inc. and William D. O'Hagan
(Incorporated herein by reference to Exhibit 10.1 of the
Registrant's Current Report on Form 8-K dated June
3, 1992).
10.6 Summary description of the Registrant's 1997 bonus plan for
certain key employees.
10.7 Amendment to Employment Agreement, effective January 1,
1994, to Employment Agreement by and between Mueller
Industries, Inc. and Harvey L. Karp. (Incorporated herein
by reference to Exhibit 10.28 of the Registrant's Report on
Form 10-K, dated March 23, 1994, for the fiscal year
ended December 25, 1993.)
10.8 Employment Agreement, effective as of January 1, 1994, by
and between Mueller Industries, Inc. and William D. O'Hagan.
(Incorporated herein by reference to Exhibit 10.29 of the
Registrant's Report on Form 10-K, dated March 23, 1994, for
the fiscal year ended December 25, 1993.)
10.9 Amendment to Employment Agreement, effective as of August
10, 1995, by and between Mueller Industries, Inc. and
William D. O'Hagan. (Incorporated herein by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-
Q, dated October 20, 1995, for the quarter ended September
30, 1995.)
10.10 Mueller Industries, Inc. 1994 Stock Option Plan.
(Incorporated herein by reference to Exhibit 10.13 of the
Registrant's Report on Form 10-K, dated March 17, 1995, for
the fiscal year ended December 31, 1994.)
10.11 Mueller Industries, Inc. 1994 Non-Employee Director Stock
Option Plan. (Incorporated herein by reference to Exhibit
10.14 of the Registrant's Report on Form 10-K, dated March
17, 1995, for the fiscal year ended December 31, 1994.)
10.12 Mueller Industries, Inc. Deferred Compensation Plan,
effective January 1, 1997.
13.0 Mueller Industries, Inc.'s Annual Report to Stockholders for
the year ended December 28, 1996. Such report, except to
the extent incorporated herein by reference, is being
furnished for the information of the Securities and Exchange
Commission only and is not to be deemed filed as a part of
this Annual Report on Form 10-K.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditor. (Includes report on
Supplemental Financial Information.)
<PAGE> 16
(b) During the three months ended December 28, 1996, no Current
Reports on Form 8-K were filed.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
March 20, 1997.
MUELLER INDUSTRIES, INC.
/s/ HARVEY L. KARP
Harvey L. Karp, Chairman of the Board
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the date indicated.
Signature Title Date
/S/HARVEY L. KARP Chairman of the Board, and Director March 20, 1997
Harvey L. Karp
/S/ROBERT B. HODES Director March 20, 1997
Robert B. Hodes
/S/ALLAN MACTIER Director March 20, 1997
Allan Mactier
/S/WILLIAM D. O'HAGAN President, Chief Executive Officer, March 20, 1997
William D. O'Hagan Director
/S/ROBERT J. PASQUARELLI Director March 20, 1997
Robert J. Pasquarelli
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following person on behalf of the
Registrant and in the capacities and on the date indicated.
Signature and Title Date
/S/ EARL W. BUNKERS March 20, 1997
Earl W. Bunkers
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
/S/ KENT A. MCKEE March 20, 1997
Kent A. McKee
Vice President Business Development/
Investor Relations
/S/ RICHARD W. CORMAN March 20, 1997
Richard W. Corman
Director of Corporate Accounting
<PAGE> 17
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report
thereon of Ernst & Young LLP dated February 7, 1997 (except for the second
paragraph of Note 12, as to which the date is February 28, 1997), appearing
on page 16 through and including 41, of the Company's 1996 Annual Report to
Stockholders are incorporated by reference in this Annual Report on Form
10-K. With the exception of the aforementioned information, no other
information appearing in the 1996 Annual Report to Stockholders is deemed
to be filed as part of this Annual Report on Form 10-K under Item 8. The
following Consolidated Financial Statement Schedule should be read in
conjunction with the consolidated financial statements in such 1996 Annual
Report to Stockholders. Consolidated Financial Statement Schedules not
included with this Annual Report on Form 10-K have been omitted because
they are not applicable or the required information is shown in the
consolidated financial statements or notes thereto.
SUPPLEMENTAL FINANCIAL INFORMATION
Page
Schedule for the fiscal years ended December 28, 1996,
December 30, 1995, and December 31, 1994.
Valuation and Qualifying Accounts (Schedule II) 18
<PAGE> 18
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 28, 1996, December 30, 1995, and December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
Additions
-------------------------------
Balance at Charged to Balance
beginning costs and Other at end
of year expenses Additions Deductions of year
------------ ------------ ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
1996
Allowance for Doubtful Accounts $ 2,986 $ 435 $ - $ 233 $ 3,188
Environmental Reserves $ 9,585 $ 2,045 $ - $ 2,525 $ 9,105
Other Reserves (2) $ 10,051 $ 828 $ - $ 511 $ 10,368
Valuation Allowance for Deferred
Tax Assets $ 60,921 $ - $ - $ 4,622 $ 56,299
1995
Allowance for Doubtful Accounts $ 3,336 $ 75 $ - $ 425 $ 2,986
Environmental Reserves $ 11,178 $ 1,421 $ - $ 3,014 $ 9,585
Other Reserves (2) $ 16,150 $ (1,157) $ - $ 4,942 $ 10,051
Valuation Allowance for Deferred
Tax Assets $ 65,927 $ - $ - $ 5,006 $ 60,921
1994
Allowance for Doubtful Accounts $ 3,495 $ 186 $ - $ 345 $ 3,336
Environmental Reserves $ 10,448 $ 2,914 $ 125 (1) $ 2,309 $ 11,178
Other Reserves (2) $ 15,508 $ 4,062 $ (125) (1) $ 3,295 $ 16,150
Valuation Allowance for Deferred
Tax Assets $ 85,338 $ - $ - $ 19,411 $ 65,927
<FN>
(1) Reclass from Other Reserves to Environmental Reserves.
(2) Other reserves are included in the balance sheet captions "Other
current liabilities" and "Other noncurrent liabilities."
</TABLE>
<PAGE> 19
EXHIBIT INDEX
Exhibits Description Page
4.3 Credit Agreement among Mueller Industries, Inc.
(as Borrower) and Michigan National Bank (as a
Bank) and Michigan National Bank (as Agent) dated
as of June 1, 1994.
4.4 First Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan
National Bank (as a Bank) and Michigan National
Bank (as Agent) dated as of December 14, 1994.
4.5 Second Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan
National Bank (as a Bank) and Michigan National
Bank (as Agent) dated as of June 1, 1995.
4.6 Third Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan
National Bank (as a Bank) and Michigan National
Bank (as Agent) dated as of December 18, 1996.
4.7 Certain instruments with respect to long-term debt
of the Company have not been filed as Exhibits to
the Report since the total amount of securities
authorized under any such instrument does not
exceed 10 percent of the total assets of the
company and its subsidiaries on a consolidated
basis. The Company agrees to furnish a copy of
each such instrument upon request of the
Securities and Exchange Commission.
10.6 Summary description of the Registrant's 1997 bonus
plan for certain key employees.
10.12 Mueller Industries, Inc. Deferred Compensation
Plan, effective January 1, 1997.
13.0 Mueller Industries, Inc.'s Annual Report to
Stockholders for the year ended December 28, 1996.
Such report, except to the extent incorporated
herein by reference, is being furnished for the
information of the Securities and Exchange
Commission only and is not to be deemed filed as a
part of this Annual Report on Form 10-K.
21.0 Subsidiaries of the Registrant.
23.0 Consent of Independent Auditor. (Includes report
on Supplemental Financial Information.)
<PAGE> 1
CREDIT AGREEMENT
This Credit Agreement (the "Agreement"), dated as of June 1,
1994, is among Michigan National Bank, a national banking
association, and the other banking institutions who appear as
signatories to this Agreement (each a "Bank" and collectively the
"Banks"), Michigan National Bank, as agent ("Agent"), and Mueller
Industries, Inc., a Delaware corporation ("Borrower").
Recitals
A. Borrower has requested and, subject to the terms and
conditions of this Agreement, the Banks have agreed to provide to
Borrower a line of credit in the amount of $30,000,000.
B. Borrower's obligations under this Agreement are being
guaranteed by Mueller Brass Co., a Michigan corporation ("Mueller
Brass") and wholly-owned subsidiary of Borrower, and all of the
subsidiaries of Mueller Brass (including Mueller Brass, the
"Brass Subsidiaries"), each pursuant to separate Guaranty and
Covenant Agreements dated as of June 1, 1994, in favor of the
Banks.
C. Concurrently with the execution of this Agreement,
Borrower is also executing a Guaranty and Covenant Agreement
dated as of June 1, 1994, in favor of the Banks, pursuant to
which Borrower is guaranteeing the obligations of Mueller Copper
Fittings Company, Inc., a Delaware corporation (the "Company"),
which is a wholly-owned subsidiary of Mueller Brass, under a Loan
Agreement (the "Loan Agreement") dated as of June 1, 1994,
between the Company and the Mississippi Business Finance
Corporation ("MBFC"). Pursuant to the Loan Agreement, the MBFC
is loaning to the Company the principal sum of $18,000,000. The
MBFC is obtaining the $18,000,000 to lend to the Company from the
Banks, which are simultaneously purchasing the MBFC's $18,000,000
Taxable Industrial Development Revenue Bonds, Series 1994
(Mueller Copper Fittings Company, Inc. Project) (the "Bonds").
The Loan Agreement and the Promissory Note (the "Promissory
Note") of the Company issued under the Loan Agreement in favor of
the Trustee which is acting on behalf of the Banks as purchasers
of the Bonds, evidence the obligations of the Company to repay
the MBFC the $18,000,000 principal, plus interest and other
amounts due by the MBFC on the Bonds. The amounts repaid by the
Company to the MBFC under the Loan Agreement and the Promissory
Note will be used by the MBFC to make payments on the Bonds. The
Company's obligations under the Loan Agreement and the Promissory
Note are also being guaranteed by all of the Brass Subsidiaries
pursuant to separate Guaranty and Covenant Agreements dated as of
June 1, 1994, in favor of the Banks.
<PAGE> 2
NOW, THEREFORE, in consideration of the mutual covenants,
conditions and provisions as hereinafter set forth, the parties
hereto agree as follows:
1. DEFINITIONS.
1.1 Definitions. For purposes of this Agreement, the
following capitalized terms will have the following meanings
(such definitions to be equally applicable to the singular and
plural forms thereof):
"Advances" means funds disbursed pursuant to the Line of
Credit Loan.
"Advance Date" means a Business Day on which Borrower has
requested in accordance with this Agreement that an Advance be
made hereunder.
"Agent" means Michigan National Bank, a national banking
association, when acting as administrative agent for the Banks
and not as a Bank, and any permitted successor(s) thereto, when
so acting.
"Agent's Address" means 800 Military Street, Port Huron,
Michigan 48060, Attention: Joseph A. Vito, or at such other
address as Agent may hereafter specify to Borrower in writing.
"Agent's Counsel" means Dykema Gossett, 505 North Woodward
Avenue, Bloomfield Hills, Michigan 48304.
"Bank" means each and, when used in the plural, includes
all of the banking institutions which have signed this Agreement
(including Michigan National Bank, when acting as a Bank and not
as Agent) and their respective successor(s) and permitted
assign(s).
"Borrower's Address" means 2959 North Rock Road, Wichita,
Kansas 67226, Attention: Earl W. Bunkers, or at such other
address as Borrower may hereafter specify to Agent in writing.
"Borrower" means Mueller Industries, Inc., a Delaware
corporation, and its permitted successor(s) and assign(s).
"Borrower's Counsel" means William H. Hensley, General
Counsel to Borrower.
"Brass Guaranties" means, collectively, the guaranties of
each and every Brass Subsidiary unconditionally guaranteeing the
Loan hereunder, in the form of Exhibit 3.5.1(b) to this Agreement.
"Brass Subsidiary" means Mueller Brass Co. and all of its
direct and indirect subsidiaries.
"Business Day" means any day except Saturday, Sunday or
any other day on which the Agent is not open to the public for
carrying on substantially all of its banking functions.
"CD Advance" means an Advance which bears interest at the
CD Rate.
<PAGE> 3
"CD Rate" means the rate of interest payable on a CD
Advance, determined in accordance with Section 2.2.1(iii) hereof.
"Certificate of Deposit Rate" means the secondary market
certificate of deposit rate as published in the money rate
section of the Wall Street Journal on the date of the advance
request, with a maturity closest to the due date of the
particular advance.
"Closing Date" means the date this Agreement is executed
and delivered.
"Code" means the Internal Revenue Code of 1986, as amended.
"Consistent Basis" means, in reference to the application
of GAAP, that the accounting principles observed in the current
period are comparable in all material respects to those applied
in the preceding period.
"Current Assets" and "Current Liabilities" are to be determined, both
as to classification of items and amounts, in accordance with GAAP applied on
a Consistent Basis, provided, that there will be excluded from Current Assets:
(1) all amounts due to Borrower from any of its officers or employees; and (2)
any appraised surplus in excess of book value.
(1) depreciation, depletion and amortization, (2) interest, (3) net tax loss
carryforwards utilized during the applicable year, and (4) extraordinary cash
and non-cash losses, less dividends paid and extraordinary cash and non-cash
income; divided by the sum of interest requirements for the applicable period
plus the current portion of long term debt and capitalized lease obligations
for the applicable period, computed on a rolling four-quarter basis.
"Documents" means, in upper or lower case form, all "documents" and
"instruments" as such terms are defined in the Michigan Uniform Commercial
Code, in which Borrower now or hereafter has any right, title or interest.
"Effective Rate" means the interest rate in effect for a Loan from time
to time when such Loan is not in default, as set forth in Section 2 hereof.
"Environmental Protection Statute" means any federal, state or local
law, statute, or regulation enacted in connection with or relating to the
protection or regulation of the environment, including, but not limited to,
those laws, statutes and regulations regulating, relating to or imposing
liability or standards of conduct concerning the disposal, removal,
production, storing, refining, handling, transferring, processing or
transporting of hazardous materials and any regulations issued or promulgated
in connection with such statutes by any governmental agency or
instrumentality, including, without limitation, the Comprehensive
Environmental Response, Compensation and Liabilities Act, as amended (42
U.S.C. 9601 et seq.) and the Resource Conservation and Recovery Act of 1976,
as amended (42 U.S.C. 6901 et seq.).
"ERISA" means the Employee Retirement Income Security Act of 1974, as
the same may from time to time be amended or supplemented, including any rules
or regulations issued in connection therewith.
"Event of Default" has the meaning set forth in Section 7.1 of this
Agreement.
<PAGE> 4
"FASB" means the Financial Accounting Standards Board.
"Federal Funds Advance" means an Advance which bears interest at the
Federal Funds Rate.
"Federal Funds Rate" means, for any day, the weighted average of the
rates on overnight federal funds transactions with member banks of the Federal
Reserve System arranged by federal funds brokers as published by the Federal
Reserve Bank of New York for such day (or, if such rate is not so published
for any day, the average rate charged by Agent on such day on such
transactions as determined by Agent).
"FLSA" means the federal Fair Labor Standards Act, as the same may from
time to time be amended or supplemented, including any rules or regulations
issued in connection therewith.
"GAAP" means generally accepted accounting principles as set forth in
the opinions and pronouncements of the Accounting Principles Board and the
American Institute of Certified Public Accountants and statements and
pronouncements of the FASB or in such other statements by such other Person as
may be approved by a significant segment of the accounting profession, which
are applicable to the circumstances as of the date of determination and which
are applied on a Consistent Basis.
"Governmental Authority" means any nation or government, any state or
other political subdivision thereof, and any entity exercising executive,
legislative, judicial, regulatory or administrative functions of or pertaining
to government.
"Indebtedness" means all items of indebtedness of any Person, direct or
indirect, joint or several, including (without implied limitation):
(a) All indebtedness guaranteed, directly or indirectly, in any
manner, or endorsed (other than for collection or deposit in the ordinary
course of business), or discounted with recourse by the Person;
(b) All indebtedness in effect guaranteed by the Person, directly or
indirectly, through agreements, contingent or otherwise: (1) to purchase such
indebtedness; or (2) to purchase, sell, or lease (as lessee or lessor)
property, products, materials, or supplies or to purchase or sell services,
primarily for the purpose of enabling the Person to make payment of such
indebtedness or to insure the owner of the indebtedness against loss; or (3)
to supply funds to, or in any other manner invest in, the Person;
(c) All indebtedness secured by (or for which the holder of such
indebtedness has a right, contingent or otherwise, to be secured by), any
mortgage, deed of trust, pledge, lien, security interest, or other charge or
encumbrance upon property owned or acquired by the Person subject thereto,
whether or not the liabilities secured thereby have been assumed by the
Person; and
(d) All indebtedness incurred by the Person as the lessee
of goods or services under leases that, in accordance with GAAP, should be
reflected on the lessee's balance sheet.
"Interest Period", with respect to a CD Advance or a LIBOR Advance, has
the meaning set forth in Section 2.2.2 hereof.
<PAGE> 5
"Letter of Credit Advance" means the issuance of a letter of credit by
Agent for the account of Borrower under the provisions of this Agreement.
"Lien" means any lien, mortgage, pledge, assignment, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement or any lease in the nature thereof) and any
agreement to give any lien, mortgage, pledge, assignment, security interest,
charge or other encumbrance of any kind.
"LIBOR" means (A) the London Interbank Offered Rate ("Unadjusted
LIBOR"), determined as the arithmetic mean, truncated to the nearest one-
hundredth of a percent, of interbank interest rates offered by major banks in
the London, United Kingdom market at 11:00 a.m. London time two (2) Business
Days immediately preceding the commencement of an Interest Period using LIBOR,
for U.S. dollar denominated deposits delivered on the first day of that
Interest Period and maturing on the last day of that Interest Period, as
referenced and reported by one of the following sources, selected by the Agent
on an availability basis in descending order of priority: (1) the Dow Jones
Telerate System "LIBO Page" report of such interest rates as determined by
Reuter's News Service; (2) the Dow Jones Telerate System "Page 3750" report of
such interest rates as determined by the British Bankers Association; or (3)
the Wall Street Journal, Midwest Edition, report of such interest rate; or (4)
any other generally accepted authoritative source as the Agent may reference,
(B) AS ADJUSTED for the LIBOR Reserve Percentage, if any, in accordance with
the formula:
LIBOR = Unadjusted LIBOR / (1 - LIBOR Reserve).
LIBOR, as so determined, will be fixed when calculating the Effective
Rate until the last day of the specified Interest Period, if such last day is
a Business Day, and if not, then until the next succeeding Business Day unless
the next succeeding Business Day is the first Business Day of a calendar
month, in which case such Interest Period shall end on the Business Day next
preceding such numerically corresponding day, whereupon LIBOR will be
redetermined in the same manner for each successive Interest Period of the
same duration commencing with the next calendar day and, as so determined,
fixed for each day of that Interest Period.
"LIBOR Advance" means an Advance which bears interest at the LIBOR
Rate.
"LIBOR Rate" means the rate of interest payable on a LIBOR
Advance, determined in accordance with Section 2.2.1(ii) hereof.
"LIBOR Reserve" means relative to an Interest Period for which the
Effective Rate is the LIBOR Rate, a percentage (expressed as a decimal) equal
to the maximum aggregate reserve requirements (including all basic, emergency,
supplemental, marginal and other reserves and taking into account any
transitional adjustments or other scheduled changes in reserve requirements)
specified under regulations issued from time to time by the Board of Governors
of the Federal Reserve System, or any successor agency, and then applicable to
assets or liabilities consisting of and including "Eurocurrency Liabilities",
as currently defined in Regulation D of the Board of Governors of the Federal
Reserve System, having a term approximately equal or comparable to such
Interest Period.
"Line of Credit Loan" or "Loan" has the meaning set forth in
Section 2.1 of this Agreement.
<PAGE> 6
"Line of Credit Maturity" means June 30, 1996; provided that if
Borrower delivers to Agent, on or before March 31, 1995, and each anniversary
thereof, Borrower's written request to extend the next June 30 maturity date
for the Line of Credit, then the Line of Credit Maturity Date may be extended
by written consent of the Requisite Banks, in their sole discretion, for the
twelve month period succeeding the existing Line of Credit Maturity, subject
to all of the terms and conditions of this Agreement, as the same may be
supplemented or amended.
"Line of Credit Notes" has the meaning set forth in Section 2.3 of this
Agreement.
"Loan Documents" means this Agreement, the Notes, the Brass Guaranties
and all other documents, instruments or certificates executed and delivered to
the Banks in connection with this Agreement and the Loan.
"Maximum Rate" means the maximum non-usurious rate of interest that the
Banks are allowed to contract for, charge, take, reserve or receive under the
applicable laws of any applicable state or of the United States of America
(whichever from time to time permits the highest rate for the use, forbearance
or detention of money) after taking into account, to the extent required by
applicable law, any and all relevant payments or charges under this Agreement,
the Notes or under any other document or instrument executed and delivered in
connection herewith and the indebtedness evidenced by the Notes.
"Notes" means the Line of Credit Notes and any other promissory notes
issued by Borrower to the order of the Banks evidencing the Obligations of
Borrower to repay the Loan.
"Obligations" means any and all liabilities, obligations, or
indebtedness owing by Borrower to the Banks, of any kind or description,
irrespective of whether for the payment of money, whether direct or indirect,
absolute or contingent, due or to become due, now existing or hereafter
arising.
"Permitted Liens" means (a) Liens for taxes, assessments or
governmental charges or levies which, for Borrower and all Subsidiaries other
than Mining Remedial Recovery Corporation and its subsidiaries, are not yet
due or delinquent, or which can thereafter be paid without penalty, or which
are being contested in good faith in accordance with this Agreement, (b)
unfiled inchoate construction Liens for construction work in progress, (c)
workmen's, repairmen's, warehousemen's and carrier's Liens and other similar
Liens, if any, arising in the ordinary course of business, (d) Liens granted
by Subsidiaries in favor of Borrower in connection with inter-company loans,
and (e) "Permitted Liens" as defined in Section 1.1 of the Prior Credit
Agreement.
"Person" or "Persons" means natural persons, corporations, limited
partnerships, general partnerships, joint stock companies, joint ventures,
associations, companies, trusts, lenders, trust companies, land trusts,
vehicle trusts, business trusts or other organizations, irrespective of
whether they are legal entities, and governments and agencies and political
subdivisions thereof.
<PAGE> 7
"Prime Rate" means the rate of interest announced publicly from time to
time by Citibank, N.A., New York, N.Y. ("Citibank"), to be its prime
commercial lending rate. Reference to the Prime Rate will not be affected by
the fact that the Banks may make loans at different rates from time to time
with respect to the class of loans for which the Prime Rate is established.
Any change in any of the interest rates chargeable hereunder resulting from a
change in the Prime Rate will become effective on the day on which each change
in the Prime Rate is effective. In the event Citibank will no longer announce
a prime commercial lending rate, the Prime Rate will be the prime rate
announced by Agent, from time to time.
"Prime Rate Advance" means an Advance which bears interest at the Prime
Rate.
"Prior Credit Agreement" means the Third Amendment and Restatement of
Credit Agreement dated as of June 1, 1994, between Borrower, as borrower, and
Michigan National Bank, as lender.
"Prohibited Transaction" has the meaning set forth in Section 406 or
Section 2003(a) of ERISA.
"Ratable Share" means for each Bank the percentage shown on the
signature pages of this Agreement, which as to aggregate Advances of the Loan
will be limited to the maximum U.S. dollar amount shown on the signature pages
of this Agreement.
"Reportable Event" has the meaning set forth in Section 4043 of ERISA.
"Requirement of Law" means, with respect to any Person, the
certificate (or articles) of incorporation and bylaws or other organizational
or governing documents of such Person, and any law, treaty, rule or regulation
or determination of an arbitrator or a court or other Governmental Authority,
in each case applicable to or binding upon such Person or any of its property
or to which such Person or any of its property is subject.
"Requisite Banks" means Banks whose Ratable Share of the Loan equals or
exceeds 66-2/3% in the aggregate of the Banks, excluding from both the
numerator and denominator, however, any Bank then in default for a continuous
period greater than ten (10) Business Days of any obligation for the payment
of money to the Agent in respect of its Ratable Share of an Advance or other
expense or liability for which the Agent has in writing requested
reimbursement or indemnification and which the Banks have agreed to pay by the
respective terms, and within the respective meanings, of this Agreement;
provided, Agent will not agree (and Borrower acknowledges that written consent
is required) to change a maturity date, Advance Date, payment date, interest
rate, this definition of Requisite Banks, modify in writing this Agreement or
any other Loan Documents with respect to the foregoing, or release any of the
Brass Guaranties, without the prior written consent of the "Requisite Banks"
which shall mean for those purposes Banks (determined without regard to the
foregoing exclusions) whose Ratable Share of the Loan is 100% in the
aggregate.
"SEC" means the Securities and Exchange Commission or any successor
agency.
"Subsidiaries" means those entities listed on Schedule 1.1 to this
Agreement.
"Tangible Net Worth" has the meaning given that term by the FASB.
<PAGE> 8
"Taxes" means to any taxes, charges, fees, levies or other assessments
based upon or measured by net or gross income, gross receipts, sales, use, ad
valorem, transfer, franchise, withholding, payroll, employment, excise,
premium or property taxes, together with any interest and penalties, additions
to tax and additional amounts imposed by any federal, state, local or foreign
taxing authority upon any Person.
"Total Outstanding Amount" means the aggregate principal amounts at any
time outstanding under the Line of Credit Loan.
"Unmatured Event of Default" means an event, act, or occurrence which
with the giving of notice or the lapse of time, or both, would become an Event
of Default.
"Yield Maintenance Payment" means, for all CD and LIBOR Advances, an
amount, if positive, which the Borrower is required to pay to maintain each
Bank's anticipated Loan yield with respect to such CD and LIBOR Advances,
which is the product of (i) the dollar amount of CD or LIBOR Advances, as
applicable, which for any voluntary or involuntary reason other than its
scheduled maturity is paid on a date which is not the last day of a CD or
LIBOR Interest Period, as applicable, (ii) the difference between the
Effective Rate immediately prior to such payment and the CD Rate or LIBOR
Rate, as applicable, as determined by Agent for the same Interest Period on
the payment date, and (iii) the ratio of the number of full calendar days
which on the date of payment remain until the conclusion of the applicable
Interest Period and 360 days.
1.2 Accounting Terms. All accounting terms not specifically defined
herein, to the extent not inconsistent with definitions set forth in Section
1.1 of this Agreement, will be construed in accordance with GAAP as in effect
from time to time, including, without limitation, applicable statements,
bulletins and interpretations issued by the FASB and bulletins, opinions,
interpretations and statements issued by the American Institute of Certified
Public Accountants or its committees. When used herein, the term "financial
statements" will include the notes and schedules thereto.
1.3 Other Definitional Provisions.
(a) Unless otherwise specified therein, all terms defined in
this Agreement will have the defined meanings when used in the Loan Documents
or any certificate or other document made or delivered pursuant hereto.
(b) The words "hereof", "herein" and "hereunder" and words of
similar import when used in this Agreement will refer to this Agreement as a
whole and not to any particular provision of this Agreement. Section,
subsection, Schedule and Exhibit references contained in this Agreement are
references of Sections, subsections, Schedules and Exhibits in or to this
Agreement unless otherwise specified.
2. AMOUNT AND TERMS OF LINE OF CREDIT LOAN.
2.1 Amount of Line of Credit. Subject to the terms and conditions
hereof, Banks agree to advance to Borrower from the Closing Date until the
Line of Credit Maturity, at such times and in such amounts as Borrower may
request in accordance with Section 2.2 hereof, up to the aggregate principal
amount of $30,000,000 (the "Line of Credit Loan" or "Loan"). The amounts
borrowed under the Line of Credit Loan may be borrowed, repaid and reborrowed.
<PAGE> 9
2.2 Notice and Manner of Borrowing.
2.2.1 Borrower may select from one of the following interest
rate options when requesting an Advance:
(i) The Prime Rate, less .50%; or
(ii) LIBOR, plus 0.80%; or
(iii) The Certificate of Deposit Rate, plus 1.35%; or
(iv) The Federal Funds Rate, plus 1.80%.
2.2.2 Each Advance using the interest rate options set forth in
subsections 2.2.1(ii) and 2.2.1(iii) will be for a specified time period (each
an "Interest Period") of (i) for LIBOR Advances, one (1) month, two (2)
months, three (3) months, or six (6) months, and (ii) for CD Advances, thirty
(30) days, sixty (60) days, ninety (90) days, or one hundred eighty (180)
days, in each instance with a specified due date not later than the Line of
Credit Maturity, on which date all outstanding principal and interest related
to the Advance will be repaid in full to Agent. Advances may be obtained
under the Line of Credit until the Line of Credit Maturity, at which time all
principal and interest outstanding on the Line of Credit will be immediately
due and payable by Borrower to Agent.
2.2.3 Borrower shall give Agent notice of its request for each
Advance in substantially the form of Exhibit 2.2.3 hereto (with sufficient
executed copies for each Bank) not later than 11:00 a.m. Detroit time (i)
three (3) Business Days prior to the date such Advance is requested to be made
if such Advance is to be a LIBOR Advance, (ii) three (3) Business Days prior
to the date a letter of credit is requested to be issued (a "Letter of Credit
Advance"), (iii) on the date such Advance is requested to be made in all other
cases, which notice shall specify whether a Prime Rate Advance, a LIBOR
Advance, a CD Advance, a Federal Funds Advance or a Letter of Credit Advance
is requested and, in the case of each requested CD Advance and LIBOR Advance,
the Interest Period to be initially applicable to such Advance and, in the
case of each Letter of Credit Advance, the interest rate option to be
applicable in the event Borrower fails to reimburse Agent immediately upon
Agent's honoring of the letter of credit and such other information as may be
necessary for the issuance thereof by Agent. Agent shall provide notice of
such requested Advance to each Bank. Subject to the terms and conditions of
this Agreement, the proceeds of each such requested Advance (other than a
Letter of Credit Advance) shall be made available to Borrower by depositing
the proceeds thereof, in immediately available funds, in an account maintained
and designated by Borrower at the principal office of Agent. Subject to the
terms and conditions of this Agreement, Agent shall, on the date any Letter of
Credit Advance is requested to be made, issue the related letter of credit on
behalf of the Banks for the account of Borrower. Notwithstanding anything
herein to the contrary, Agent may decline to issue any requested letter of
credit on the basis that the beneficiary, the purpose of issue or the terms or
the conditions of drawing are unacceptable to it in its reasonable discretion,
including without limitation, if Agent determines that the purpose of such
issuance is outside the ordinary course of business of Agent.
<PAGE> 10
2.2.4 Each Bank, on the date any Advance is requested to be
made, shall make its pro rata share of such Advance available in immediately
available funds at the principal office of Agent for disbursement to Borrower.
Unless Agent shall have received notice from any Bank prior to the date such
Advance is requested to be made under this Section 2.2 that such Bank will not
make available to Agent such Bank's pro rata portion of such Advance, Agent
may assume that such Bank has made such portion available to Agent on the date
such Advance is requested to be made in accordance with this Section 2.2. If
and to the extent such Bank shall not have so made such pro rata portion
available to Agent, Agent may (but shall not be obligated to) make such amount
available to Borrower, and such Bank and Borrower severally agree to pay to
Agent forthwith on demand such amount together with interest thereon, for each
day from the date such amount is made available to Borrower by Agent until the
date such amount is repaid to Agent, at a rate per annum equal to the interest
rate applicable to such Advance during such period. If such Bank shall pay
such amount to Agent together with interest, such amount so paid shall
constitute a Loan by such Bank as a part of such Advance for purposes of this
Agreement. The failure of any Bank to make its pro rata portion of any such
Advance available to Agent shall not relieve any other Bank of its obligations
to make available its pro rata portion of such Advance on the date such
Advance is requested to be made, but no Bank shall be responsible for failure
of any other Bank to make such pro rata portion available to Agent on the date
of any such Advance.
2.2.5 Upon fulfillment of the conditions set forth in this
Section 2.2, Section 3.5 (and subject to Agent's then current deadlines for
wire transfers and crediting of Agent and Bank accounts), and Sections 8.2.1
and 8.2.2, Agent will disburse such Advance (other than a Letter of Credit
Advance) to Borrower in immediately available funds at Borrower's expense.
2.3 Authorization and Issuance of Line of Credit Note. All
Advances made by the Banks pursuant to the Line of Credit Loan will be
evidenced by separate promissory notes of Borrower, in the form of Exhibit 2.3
to this Agreement (each a "Line of Credit Note" and collectively the "Line of
Credit Notes"), to be executed and delivered by Borrower to each of the Banks,
in the principal amount of each such Bank's commitment as set on the signature
pages to this Agreement, on the Closing Date.
2.4 Unused Commitment. Borrower will pay to Agent for the
Banks on a quarterly basis, in arrears, during the term of the Line of Credit,
beginning October 1, 1994, from funds other than those supplied by the Line of
Credit, an amount equal to one quarter of 1% (0.25%) per annum of the daily
average unused portion of the Line of Credit.
2.5 Use of Proceeds. The proceeds of the Line of Credit Loan
will be used by Borrower (i) to repay and replace certain line of credit
Indebtedness outstanding immediately prior to the execution of this Agreement
and (ii) for general corporate purposes.
<PAGE> 11
2.6 Payment. Interest will be paid monthly by Borrower to
Agent upon the outstanding principal balance of the Line of Credit Loan from
the date advanced at the applicable rates as determined according to Section
2.2.1 above. Repayment of principal on CD Advances or LIBOR Advances will be
made at maturity. Repayment of principal on Prime Rate Advances and Federal
Funds Advances will be made as Borrower, in its sole discretion, determines
that working capital permits. The outstanding principal balance of the Line
of Credit Loan, together with accrued interest, will be due and payable in
full at the Line of Credit Maturity. All payments of principal and interest
by Borrower to Agent shall be made in immediately available United States
funds.
2.7 Prepayments. Borrower may prepay, in whole or in part, at any
time, without premium or penalty, any Prime Rate or Federal Funds Advances
under the Line of Credit. CD Advances and LIBOR Advances may only be prepaid
upon five (5) days' prior written notice, from Borrower to Agent, and upon
payment by Borrower on the date of prepayment of the applicable Yield
Maintenance Payment. Any other provisions of this Agreement to the contrary
notwithstanding, if at any time during the term of this Agreement, the Total
Outstanding Amount will exceed $30,000,000, Borrower will immediately, and in
any event within two (2) Business Days, remit and pay to Agent such amounts as
may be necessary to reduce the Total Outstanding Amount to $30,000,000.
Borrower may terminate the Line of Credit at any time upon delivery of written
notice to Agent sixty (60) days prior to such termination.
2.8 Loan Account. Advances under the Line of Credit Loan will be
charged to an account in Borrower's name on Agent's books, and Agent will
debit to such account the amount of each Advance when made and credit to such
account the amount of each repayment thereunder. Agent will render Borrower,
from time to time, a statement setting forth the debit balance in the loan
account, which will be deemed to be correct and accepted by Borrower, unless
Agent receives a written statement of exceptions within ten (10) days after
such statement has been rendered to Borrower. Such statement will be prima
facie evidence of the correctness of the Advances owing to the Banks by
Borrower hereunder, unless there will be manifest error evident on its face
Similarly, each Bank is hereby authorized by Borrower to record in its books
and records, the date, and amount and type of each Advance and the duration of
the related Interest Period (if applicable), the amount of each payment or
prepayment of principal thereon, which books and records shall constitute
prima facie evidence of the information so recorded, provided, however, that
failure of any Bank to record, or any error in recording, any such information
shall not relieve Borrower of its obligation to repay the outstanding
principal amounts of the Loan, all accrued interest thereon and other amounts
payable with respect thereto in accordance with the terms of the Notes and
this Agreement.
3. GENERAL PROVISIONS.
3.1 Upfront Fee. Borrower will pay to Agent for the Banks on the
Closing Date an upfront fee in the amount of one-eighth of 1% for each Bank's
commitment.
3.2 Agent Administrative Fee. Borrower will pay to Agent on the
Closing Date and during the term of this Agreement such administrative fees as
may be agreed in writing from time to time by Agent and Borrower for Agent's
services as such hereunder.
<PAGE> 12
3.3 Overdue Rate.
3.3.1 Any payments of principal or interest not paid when due or
declared due, whether at maturity, by acceleration, by lapse of time or
otherwise, including any fees, costs or expenses advanced or paid by Agent,
will bear interest thereafter, at the option of Agent, and without affecting
any of the Bank's rights and remedies provided for herein and in the Note, at
two percent (2%) per annum in excess of the Effective Rate.
3.3.2 If any required payment under any Note is not paid within ten (10)
days from the date it is due, at the option of Agent, a late charge of five
cents ($.05) for each dollar of the payment so overdue may be charged.
3.4 Computation of Interest and Fees; Maximum Interest Rate.
3.4.1 All computations of interest on the Loan and interest due
thereunder for any period will be calculated on the basis of the actual number
of days elapsed over a year of three hundred sixty (360) days. Interest will
accrue from the date of any Advance up to but excluding the date of repayment
of the Loan, in accordance with the provisions hereof.
3.4.2 Notwithstanding anything to the contrary contained in this
Agreement, Borrower will not be obligated to pay, and the Banks will not be
entitled to charge, collect or receive, interest in excess of the Maximum Rate
and in the event the Banks ever receive, collect or apply, as interest, any
such excess, such amount which would be excessive interest will be deemed a
partial prepayment of principal and treated hereunder as such; and, if the
principal hereof is paid in full, any remaining excess will immediately be
returned to Borrower. If any construction of this Agreement, the Note or the
other Loan Documents indicates a different right given to the Banks to ask
for, demand or receive any larger sum as interest, such as a mistake in
calculation or wording, this clause will override and control, it being the
intention of Borrower and the Banks that this Agreement, the Notes and the
other Loan Documents will in all respects comply with applicable law, and
proper adjustment will automatically be made accordingly. In determining
whether or not the interest paid or payable, under any specific contingency,
exceeds the Maximum Rate, Borrower and the Banks will, to the maximum extent
permitted by law (i) characterize any nonprincipal payment as an expense, fee
or premium rather than as interest; (ii) exclude voluntary prepayments and the
effects thereof; and (iii) amortize, prorate, allocate and spread the total
amount of interest through the entire contemplated term of such indebtedness
until payment in full of the principal (including the period of any extension
or renewal thereof) so that the interest on account of such indebtedness will
not exceed the Maximum Rate.
3.5 Conditions Precedent to the Execution and Delivery of this
Agreement. The obligation of the Banks to execute and deliver this Agreement
is subject to the fulfillment, in form and substance satisfactory to Agent and
its counsel, of each of the following conditions, unless otherwise noted:
3.5.1 Agent will have received each of the following documents,
duly executed and delivered by Borrower, each of which will be in full force
and effect:
(a) The Line of Credit Notes, in the form of Exhibit 2.3.
(b) The Brass Guaranties, in the form of Exhibit 3.5.1(b)
to this Agreement (the "Brass Guaranties").
<PAGE> 13
(c) Such other documents and certificates as may be
necessary or desirable to evidence the Obligations, representations,
warranties and covenants of Borrower hereunder and the Brass Subsidiaries
under the Brass Guaranties.
3.5.2 Agent will have received a good standing certificate of
Borrower and each Brass Subsidiary from each state in which Borrower and each
Brass Subsidiary is incorporated and each other state, if different, in which
the principal part of its business activity is conducted, dated a recent date,
indicating that Borrower and each Subsidiary is in good standing in each such
state; provided that Borrower covenants to deliver to Agent, within thirty
(30) days of the Closing Date, those good standing certificates which have not
been so delivered to Agent on the Closing Date.
3.5.3 Agent will have received a copy of the resolutions of the
Board of Directors of Borrower (i) authorizing the execution, delivery and
performance of the Loan Documents, (ii) authorizing the borrowings
contemplated hereunder, and (iii) certified by the Secretary of Borrower as of
the Closing Date, which certificate will state that the resolutions thereby
certified have not been amended, modified, revoked or rescinded as of the date
of such certificate.
3.5.4 Agent will have received certified copies of the charter
of Borrower, certified by an officer of Borrower on the Closing Date, as true,
complete and correct copies thereof.
3.5.5 Agent will have received a certificate of the Secretary of
Borrower as to the incumbency and signatures of the person or persons
authorized to execute and deliver the Loan Documents.
3.5.6 Agent will have received a certificate of the Chief
Financial Officer, the Vice President-Legal or Chief Executive Officer of
Borrower stating, on behalf of Borrower, that each of the representations and
warranties made in or pursuant to Section 4 of this Agreement or which are
contained in any other Loan Document or any certificate, document or financial
or other statement furnished by Borrower at any time under or in connection
herewith, is true and correct in all respects on and as of the Closing Date
3.5.7 A gent will have received reimbursement for legal fees and
expenses incurred by Agent in the preparation of the transactions contemplated
by this Agreement.
3.5.8 Agent will have received on behalf of the Banks the
Upfront Fee required by Section 3.1 hereof.
3.5.9 No suit, action, investigation, inquiry or other
proceeding, including, without limitation, the enactment or promulgation of a
statute or rule by or before any arbitrator or any Governmental Authority will
be pending and no preliminary or permanent injunction or order by a state or
federal court will have been entered (i) in connection with any Loan Document
or any of the transactions contemplated hereby or thereby or (ii) which, in
any such case, in the reasonable judgment of each of the Banks, would have a
material adverse effect on (A) the transactions contemplated by this Agreement
or (B) the business, operations, properties, condition (financial or
otherwise) or prospects of Borrower.
<PAGE> 14
3.5.10 Agent will have received a schedule, entitled Schedule
3.5.10, setting forth the policies of insurance, including the effective dates
of such policies, carried by Borrower and its Subsidiaries on the Closing
Date.
3.5.11 No Event of Default and no Unmatured Event of Default will
have occurred and be continuing on the date of the Loan, nor will either
result from the making of such Loan.
3.5.12 Agent will have received the written opinion, dated the
Closing Date, of Borrower's Counsel suitable to Agent in form and substance
satisfactory to Agent.
3.5.13 Agent will have determined that Borrower has met all
Requirements of Law which may adversely impact, as determined solely by Agent,
the enforceability, validity or collectibility of the Loan.
3.5.14 All other documents and legal matters in connection with
the transactions contemplated by this Agreement will have been delivered
and/or executed and will be in form and substance satisfactory to Agent and
its counsel.
3.6 Conditions Precedent to all Advances under the Line of Credit Loan.
The obligation of the Banks and each of them to make Advances is subject to
the fulfillment, in form and substance satisfactory to Agent and its counsel,
of each of the following conditions on or before the date of each such
Advance:
3.6.1 As of the date of making the Advance, no Event of Default
and no Unmatured Event of Default will have occurred or be continuing, nor
will either result from or exist after the making of such Advance.
3.6.2 This Agreement and each of the other Loan Documents will be
in full force and effect.
3.6.3 Each of the representations and warranties made in or
pursuant to Section 4 of this Agreement or which are contained in any other
Loan Document or any certificate, document or financial or other statement
furnished by Borrower and/or any Subsidiary at any time under or in connection
with any of the transactions contemplated by the Loan Documents, will be true
and correct in all material respects on and as of the date of the Advance as
if made on and as of the date of the Advance (unless stated to relate to a
specific earlier date, in which case such representations and warranties will
be true and correct in all material respects as of such earlier date).
3.6.4 Agent will have received, reviewed and approved the
consolidated and consolidating monthly financial statements of Borrower as
delivered to Agent in accordance with Sections 5.3.1 and 5.3.2 below.
3.6.5 There has been no change that has a materially adverse
effect on the business, operations, properties or condition (financial or
otherwise) of Borrower and its Subsidiaries, taken as a whole, since the date
of the last financial statements of Borrower delivered to Agent.
<PAGE> 15
3.6.6 Compensation for Increased Costs.
(a) In the event after the date of execution of this
Agreement, any introduction of any law, or any change in any law, or the
interpretation or application thereof by any court or Governmental Authority
charged with the administration thereof, or the compliance with any guideline
or request from any Governmental Authority (whether or not having the force of
law), which has the effect of:
(i) subjecting any Bank to any tax, deduction or
withholding with respect to this Agreement or any other Loan Document (other
than any tax incurred by or based upon the overall net income of any such
Bank), or
(ii) imposing, modifying or deeming applicable any
reserve, special deposit, insurance premium or similar requirement against
assets held by, or deposits in or for the account of, or loans by, any Bank,
with respect to this Agreement or the other Loan Documents, or
(iii) imposing upon any Bank any other condition or
expense with respect to this Agreement or any other Loan Document and the
result of any of the foregoing is to increase the cost to any such Bank,
reduce the income receivable by any such Bank, impose any expense upon any
such Bank or reduce the amount of any payment receivable by any such Bank with
respect to any Note, or with respect to any Bank's commitment hereunder, or
any portion thereof, by an amount which any such Bank deems to be material,
such Bank shall from time to time notify the Agent and Borrower thereof by
delivery of a certificate of an officer of such Bank of the nature described
in the next sentence, and the Borrower shall pay to the Agent for delivery to
such Bank that amount which shall compensate such Bank (on an after tax basis)
for such increase in cost, reduction in income, additional expense, reduced
amount or reduced rate of return. A certificate setting forth in reasonable
detail such increase in cost, reduction in income or additional expense or
reduced amount or reduced rate of return, and the manner of calculating the
same as determined by such Bank, shall be submitted by such Bank to the Agent
and Borrower and, absent manifest error, shall be conclusive as to the amount
thereof (provided that such determination be made reasonably and in good
faith).
(b) If any Bank shall have determined that the
introduction of or any change in any applicable law regarding capital
adequacy, or any change in the interpretation or administration thereof by any
Governmental Authority, central bank or comparable agency charged with the
interpretation or administration thereof, or compliance by any Bank (or any of
its branches) with any request or directive regarding capital adequacy
(whether or not having the force of law) or any such authority, central bank
or comparable agency, has or would have the effect of reducing the rate of
return on such Bank's capital as a consequence of its obligations hereunder,
its commitment hereunder, or the transactions contemplated hereby
to a level below that which such Bank could have achieved but for such
adoption, change or compliance (taking into consideration such Bank's policies
with respect to liquidity and capital adequacy) by an amount deemed by such
Bank to be material, then the Borrower shall pay to the Agent for delivery to
such Bank promptly, such additional amount or amounts determined by such Bank
as will compensate such Bank for such reduced rate of return.
<PAGE> 16
(c) Borrower acknowledges that compensation to the Bank
for any increased costs incurred by the Bank and payable by Borrower pursuant
to this subsection may take the form of an increase in the interest rate
payable under the Loan.
3.6.7 Letters of Credit.
(a) Subject to the terms and conditions hereof, Borrower
and any wholly-owned Subsidiary may request the Agent to issue standby letters
of credit for Borrower's account, each of which, upon the issuance thereof,
will constitute a Letter of Credit Advance. Any letter of credit issued
pursuant to the Line of Credit shall have a term, not including renewals, not
exceeding the earlier of one year or the Line of Credit Maturity. The Line of
Credit shall be reduced by the face amount of each letter of credit issued by
Agent hereunder until the earlier of the expiration or termination thereof and
payment by Borrower to Agent of its reimbursement obligation hereunder with
respect thereto. At such time as a draw is made upon a letter of credit
issued hereunder, the amount of such draw will be deemed drawn under the Notes
and immediately will begin to bear interest thereunder. Borrower will pay to
Agent for the Banks a fee of one percent (1%) per annum of the face amount of
any newly issued or renewed letter of credit at the time of issuance or
renewal of such letter of credit. Such fee is nonrefundable and Borrower
shall not be entitled to any rebate of any portion thereof if such letter of
credit does not remain outstanding through its stated expiry date or for any
other reason. Nothing in this Agreement shall be construed to require or
authorize any Bank to issue any letter of credit, it being recognized that
Agent has the sole obligation under this Agreement (subject to the terms and
conditions of this Agreement) to issue letters of credit on behalf of the
Banks. Upon such issuance by Agent, each Bank shall automatically acquire a
pro rata risk participation interest in such Letter of Credit Advance based on
its respective commitment. If Agent shall honor a draft or other demand for
payment presented or made under any letter of credit, Agent shall provide
notice thereof to each Bank on the date such draft or demand is honored unless
Borrower shall have satisfied its reimbursement obligation by payment to Agent
on such date. Each Bank, on such date, shall make its pro rata share of the
amount paid by Agent available in immediately available funds at the principal
office of Agent for the account of Agent. If and to the extent such Bank
shall not have made such pro rata portion available to Agent, such Bank and
the Borrower severally agree to pay to Agent forthwith on demand such amount
together with interest thereon, for each day from the date such amount was
paid by Agent until such amount is so made available to Agent at a per annum
rate equal to the interest rate applicable during such period to the related
Advance disbursed hereunder in respect of the reimbursement obligation of
Borrower. If such Bank shall pay such amount to Agent together with such
interest, such amount so paid shall constitute a Loan by such Bank as part of
the Line of Credit Advance disbursed in respect of the reimbursement
obligation of Borrower. The failure of any Bank to make its pro rata portion
of any such amount paid by Agent available to Agent shall not relieve any
other Bank of its obligation to make available its pro rata portion of such
amount, but no Bank shall be responsible for failure of any other Bank to make
such pro rata portion available to Agent.
<PAGE> 17
(b) Borrower assumes all risks of the acts or omissions
of any beneficiary under any letter of credit issued pursuant to this
Agreement with respect to the use by such beneficiary of such letter of
credit. In addition to all undertakings and indemnities of Borrower contained
in the application for any letter of credit or this Agreement, Borrower
acknowledges that neither the Banks, the Agent nor any of their officers or
directors will be liable or responsible for (i) the use which may be made of
any letter of credit or for any acts or omissions of any beneficiary in
connection therewith, (ii) the validity or genuineness of any documents
delivered in connection with any letter of credit, or of any endorsements
thereon, even if such documents should in fact prove to be in any or all
respects invalid, fraudulent or forged, or (iii) any other circumstances
whatsoever in connection with honoring or dishonoring any letter of credit
except, in all cases, the foregoing persons shall not be relieved of liability
in the case of (a) payment under a letter of credit against presentation of a
draft or other document that does not comply with the terms of the letter of
credit or (b) acts constituting the gross negligence or willful misconduct of
any such person. In furtherance and not in limitation of the foregoing, the
Agent may, subject to applicable United States law, accept documents that
appear on their face to be in order, without responsibility for further
investigation regardless of any notice or information to the contrary.
(c) Borrower hereby indemnifies Agent and the Banks and
agrees to keep Agent and the Banks at all times indemnified against all
liabilities (including costs and reasonable attorneys' fees) which Agent and
the Banks may incur or which may be claimed against Agent and the Banks by
any Person by reason of or relating to any matters arising in connection with
any letter of credit or any of the transactions contemplated thereby.
4. REPRESENTATIONS AND WARRANTIES. In order to induce each Bank to enter
into this Agreement and to provide the Loan, Borrower represents and warrants
to each Bank that the following statements are true, correct and complete at
the date hereof and at the date of each Advance:
4.1 Organization, Powers, Good Standing.
4.1.1 (a) Borrower and each Subsidiary is a corporation duly
organized, validly existing and in good standing under the laws of the
respective states of its incorporation, (b) Borrower and each Subsidiary has
full power, authority and legal right to own and operate its property and to
conduct the business in which it is currently engaged, (c) Borrower and each
Subsidiary is duly qualified and is in good standing under the laws of each
jurisdiction in which the failure to so qualify may have a material adverse
affect on its business, and (d) Borrower and each Subsidiary is in compliance
in all material respects with all Requirements of Law, except where the lack
of compliance could not reasonably be expected to materially impact the future
of the Borrower and its Subsidiaries, taken as a whole, or the ability of the
Borrower to repay the Loan or to observe and perform its obligations under the
Loan Documents.
<PAGE> 18
4.1.2 Borrower has full power and authority to execute, deliver
and perform the Loan Documents, including, without limitation, to borrow under
this Agreement. Borrower has taken all necessary action to authorize the
execution, delivery and performance of the Loan Documents and Borrower has
taken all necessary action to borrow under this Agreement. No consent or
authorization of, or filing with, any Person (including, without limitation,
any Governmental Authority) is required in connection with the execution,
delivery and performance by Borrower or the validity or enforceability against
Borrower of the Loan Documents.
4.2 Authorization of Borrowing; Etc.
4.2.1 The execution, delivery and performance by Borrower of this
Agreement and the other Loan Documents do not and will not (a) violate any
Requirement of Law applicable to Borrower or any Subsidiary, (b) conflict
with, result in a breach of or constitute (with due notice or lapse of time or
both) a default under any contractual obligation of Borrower or any
Subsidiary, (c) result in or require the creation or imposition of any Lien of
any nature whatsoever upon any of Borrower's or any Subsidiary's properties or
assets, other than in favor of the Banks, or (d) require any approval of any
court or Governmental Authority or any approval or consent of any Person under
any contractual obligation of Borrower.
4.2.2 The Loan Documents and all other documents contemplated
hereby and thereby, when executed and delivered, will be the legally valid and
binding obligations of Borrower, enforceable against it in accordance with
their respective terms, except as enforcement may be limited by equitable
principles or by bankruptcy, insolvency, reorganization, moratorium or similar
laws, usury laws, or equitable principles relating to or limiting creditors'
rights generally.
4.3 Subsidiaries. Schedule 1.1 correctly sets forth as to each
Subsidiary, its name, the jurisdiction of its incorporation, the name of its
immediate parent and the percentage of its capital stock that is directly or
indirectly owned by Borrower. Other than (1) as set forth in its annual
reports as filed with the SEC, (2) Sharon Specialty Steel, Inc., and (3) the
Subsidiaries, Borrower does not own any material amount of capital stock in
any Person.
4.4 Title. Borrower and Subsidiaries, as applicable, have good and
valid legal title to the assets reflected in Borrower's audited consolidated
financial statements dated as of December 25, 1993 previously submitted to
each of the Banks and there are no Liens, charges or encumbrances (other than
Permitted Liens), on such property or assets except those reflected on such
financial statements.
4.5 Litigation; Adverse Facts. Except as set forth on Schedule 4.5 to
this Agreement, there is no action, suit, dispute, investigation, inquiry,
arbitration, tax claim or other proceeding (including, without limitation, the
enactment or promulgation of a statute or rule) at law or in equity or before
or by any arbitrator or Governmental Authority pending or, to the knowledge of
Borrower, threatened, against Borrower or any Subsidiary which might
reasonably be expected to result in any material adverse change in the
business, operations, properties or in the business prospects or condition
(financial or otherwise), of Borrower and its Subsidiaries, taken as a whole,
or would materially adversely affect Borrower's ability to perform its
Obligations hereunder and under any other Loan Document.
<PAGE> 19
4.6 Payment of Taxes. All material tax returns and reports required
to be filed by Borrower and each Subsidiary have been prepared in accordance
with acceptable standards and have been timely filed, and all Taxes,
assessments, fees and amounts required to be withheld and paid to a
Governmental Authority, and other governmental charges upon Borrower and each
Subsidiary and upon their properties, assets, income and franchises which are
shown on such returns to be due and payable have been paid when due and
payable. Borrower does not know of any proposed, asserted or assessed tax
deficiency against it or any Subsidiary that would be material to the
condition (financial or otherwise) of Borrower or any Subsidiary (other than
Mining Remedial Recovery Corporation and its subsidiaries). Except for the
tax sharing agreements described in Schedule 4.6 to this Agreement, neither
Borrower nor any Subsidiary is a party to, bound by or obligated under any tax
sharing or similar agreement.
4.7 Materially Adverse Agreements; Performance.
4.7.1 Neither Borrower nor any Subsidiary is a party to or
subject to any material agreement, instrument, charter or other internal
restriction materially adversely affecting the business, properties or assets
of Borrower or any Subsidiary or the operations, business prospects or
condition (financial or otherwise) of Borrower and Subsidiaries, taken as a
whole.
4.7.2 To the best of Borrower's knowledge, neither Borrower nor
any Subsidiary is in material default in the performance, observance or
fulfillment of any of the obligations, covenants or conditions contained in
any of its contractual obligations and no condition exists which, with the
giving of notice or the lapse of time or both, would constitute such a
default.
4.7.3 Borrower and each Subsidiary owns or possesses all patents,
trademarks, service marks, trade names, copyrights, licenses and rights
necessary for the present and planned future conduct of its business, without
any known conflict with the rights of others.
4.8 Disclosure. No representation or warranty of Borrower contained in
this Agreement or in any other Loan Document or other document, certificate or
written statement furnished to the Banks by or on behalf of Borrower with
respect to the business prospects or condition (financial or otherwise) of
Borrower and each Subsidiary for use in connection with the transactions
contemplated by this Agreement, knowingly contains any untrue statement of a
material fact or omits to state a material fact necessary in order to make the
statements contained herein or therein not misleading. There is no fact known
to Borrower which adversely affects the business, operations, property or
assets of Borrower or any Subsidiary or the business prospects, or condition
(financial or otherwise) of Borrower and its Subsidiaries, taken as a whole,
which has not been disclosed herein or in such other documents, certificates
and statements furnished to the Banks for use in connection with the
transactions contemplated hereby.
<PAGE> 20
4.9 ERISA Compliance. Borrower and Subsidiaries are in compliance in
all material respects with any applicable provisions of ERISA. Except as set
forth on Schedule 4.9 to this Agreement, to the best of Borrower's knowledge,
neither a Reportable Event nor a Prohibited Transaction has occurred or is
continuing in relation to any pension plan and Borrower and each Subsidiary
have not incurred any liability to the Pension Benefit Guaranty Corporation,
except where the occurrence of such event could not reasonably be expected to
materially impact the future of the Borrower and its Subsidiaries, taken as a
whole, or the ability of the Borrower to repay the Loan or to observe and
perform its obligations under the Loan Documents.
4.10 Environmental Matters. Except as set forth in Schedule 4.10 to
this Agreement, to the best of Borrower's knowledge, Borrower and each
Subsidiary has complied in all respects with all Environmental Protection
Statutes, except where the lack of compliance could not reasonably be expected
to materially impact the future of Borrower and its Subsidiaries, taken as a
whole, or the ability of Borrower to repay the Loan or to observe and perform
its obligations under the Loan Documents. Except as set forth on Schedule
4.10 to this Agreement, to the best of Borrower's knowledge, neither Borrower
nor any Subsidiary nor any other Person has used any real property owned or
leased by Borrower or any Subsidiary in the disposal of or to refine,
generate, produce, store, treat, transfer, release or transport any hazardous
waste or hazardous substance, or been designated by the United States
Environmental Protection Agency or under any Environmental Protection Statute
as a hazardous waste or hazardous substance disposal or removal site,
superfund or clean-up site or candidate for removal or closure pursuant to any
Environmental Protection Statute. No lien arising under or in connection with
any environmental protection statute has attached to any revenues or to any
real or personal property owned by Borrower or any Subsidiary (other than
Mining Remedial Recovery Corporation and its subsidiaries). Borrower agrees
to indemnify and hold each Bank harmless from any and all violations by
Borrower or any Subsidiary of any Environmental Protection Statute.
4.11 Investment Company. Borrower is not directly or indirectly
controlled by, or acting on behalf of, a Person which is an "Investment
Company" within the meaning of the Investment Company Act of 1940, as amended,
that is organized or otherwise created under the laws of the United States,
any State of the United States, the District of Columbia, Puerto Rico, the
Philippine Islands, the Virgin Islands or any other possession of the United
States.
4.12 Regulations U and X. No part of the proceeds of the Loan will be
used to purchase or carry any margin stock (within the meaning of Regulation U
of the Board) or to extend credit to others for the purpose of purchasing or
carrying any margin stock. Neither Borrower nor any Subsidiary is engaged
principally, or as one of its important activities, in the business of
extending credit for the purposes of purchasing or carrying any such margin
stock. If requested by Agent, Borrower will furnish Agent with a statement in
conformity with the requirements of Federal Reserve Form U-1 referred to in
said Regulation. Borrower also warrants that no part of the proceeds of the
borrowings hereunder will be used by it for any purpose which violates, or
which is inconsistent with, the provisions of Regulation X of said Board of
Governors.
4.13 Indebtedness. Neither Borrower nor any Subsidiary has any
outstanding Indebtedness except Indebtedness described in (1) Schedule 4.13 to
this Agreement or (2) Section 6.1 to this Agreement.
<PAGE> 21
4.14 Survival. All of the representations and warranties set forth in
this Section 4 will survive until all of the Obligations are satisfied in full
and there remain no outstanding commitments hereunder.
5. AFFIRMATIVE COVENANTS. Borrower covenants and agrees that, until all of
the Obligations are satisfied, Borrower will perform each and all of the
following:
5.1 Use of Proceeds. Borrower will use the proceeds of the Loan only
for the purposes set forth in Section 2.5.
5.2 Accounting Records. Borrower will maintain adequate records in
accordance with sound business practices and GAAP, applied on a Consistent
Basis, except for changes required by GAAP or consented to in writing by Agent
(which consent will not be unreasonably withheld). Upon five (5) days' prior
notice, Borrower will provide, and cause each Subsidiary to provide, access to
representatives of each Bank to visit any of the properties of Borrower or any
Subsidiary and examine the books of account and discuss Borrower's and each
Subsidiary's affairs, finances and accounts with, and be advised of the same
by, Borrower's and each Subsidiary's officers, all at such reasonable times
and as often as any Bank may reasonably request.
5.3 Reports. Borrower will deliver to Agent:
5.3.1 As soon as available and in any event within forty-five
(45) days after the end of each fiscal month of Borrower, management prepared
consolidated and consolidating financial statements of Borrower and
Subsidiaries as of the end of such month, and the consolidated and
consolidating statements of profit and loss and surplus of Borrower and
Subsidiaries from the beginning of Borrower's and Subsidiaries' fiscal year to
the end of such month, certified as correct (subject to year end adjustments)
by the chief financial officer of Borrower.
5.3.2 As soon as available, and in any event within one hundred
twenty (120) days after the end of each fiscal year of Borrower, the complete
audited, consolidated financial statements of Borrower and Subsidiaries,
including the consolidated balance sheet of Borrower and Subsidiaries as of
the end of such year and the consolidated statements of profit and loss and
surplus of Borrower and Subsidiaries for the fiscal year then ended, certified
by Ernst & Young, or such other independent certified public accountants of
recognized standing, to be prepared in accordance with GAAP and to present
fairly the financial position and results of operation of Borrower and
Subsidiaries.
5.3.3 Upon Agent's request, accounts receivable aging reports,
accounts payable aging reports and inventory certifications.
5.3.4 Within forty-five (45) days after the end of each calendar
quarter, a compliance certificate in the form of Exhibit 5.3.4 to this
Agreement, duly completed and executed by the chief financial officer of
Borrower.
5.3.5 Promptly, and in any event within fifteen (15) days of the
filing thereof, certification that Borrower has filed its federal income tax
return.
<PAGE> 22
5.3.6 Promptly upon Borrower becoming aware of the occurrence of
any: (a) Reportable Event; or (b) Prohibited Transaction in connection with
any pension plan or any trust created thereunder, a written notice specifying
the nature thereof, what action Borrower is taking or proposes to take with
respect thereto, and, when known, any action taken by the Internal Revenue
Service with respect thereto, will be delivered to Agent by Borrower.
5.3.7 Promptly upon becoming aware of any Person's seeking to
obtain or threatening in writing to seek to obtain a decree or order for
relief with respect to Borrower or any wholly-owned Subsidiary in an
involuntary case under any applicable bankruptcy, insolvency, or other similar
law now or hereafter in effect, a written notice thereof specifying what
action Borrower or such Subsidiary is taking or proposes to take with respect
thereto.
5.3.8 Promptly, copies of all amendments to the charter or bylaws
of Borrower or any Brass Subsidiary.
5.3.9 Promptly, and in any event within five (5) days after the
receipt thereof by Borrower or any Subsidiary, a copy of any notice, summons,
citation, directive, letter or other form of communication from any
governmental agency or instrumentality, in any way concerning any action or
omission on the part of Borrower or any Subsidiary in connection with any
Environmental Protection Statute, or concerning the filing of a lien upon,
against or in connection with Borrower or any Subsidiary, or any of their real
or personal property, in connection with any Environmental Protection Statute,
except where such action or omission by Borrower or any Subsidiary could not
reasonably be expected to materially impact the future of the Borrower and its
Subsidiaries, taken as a whole, or the ability of the Borrower to repay the
Loan or to observe and perform its obligations under the Loan Documents.
5.3.10 Promptly after the sending or filing thereof, copies of all
reports, proxy statements and financial statements which Borrower files with
its shareholders or any securities exchange or the SEC, including, without
limitation, all reports on Form 10-K, 10-Q, and 8-K. Such reports need not
include exhibits. Borrower agrees to promptly provide Agent with exhibits
specifically requested by Agent.
5.3.11 Promptly, and in any event within five (5) days of the
receipt thereof by Borrower, a copy of a notice, summons, citation, directive,
letter, complaint, or other form of communication from the U.S. Department of
Labor, or any other Governmental Authority or instrumentality, or any other
Person, in any way concerning any material action or omission on the part of
Borrower or any Subsidiary in connection with the payment of minimum and/or
overtime wages to its employees, or concerning the filing of a lien upon,
against or in connection with Borrower or any Subsidiary, or any of its real
or personal property, in connection with the FLSA.
5.3.12 Promptly, upon Borrower's learning of any litigation or
proceeding in which it or any Subsidiary is a party if an adverse decision in
any such matter is reasonably likely to require it to pay more than One
Million ($1,000,000) Dollars or deliver assets the value of which exceeds such
sum (whether or not the claim is considered to be covered by insurance) or of
the institution of any other suit or proceeding to which Borrower or any
Subsidiary is a party that, by itself or together with any other such matters,
might materially and adversely affect the operations, financial condition,
property, or business prospects of the Borrower and its Subsidiaries, taken as
a whole.
<PAGE> 23
5.3.13 Promptly, such other information and data with respect to
any Bank.
5.4 Financial Covenants. Borrower will at all times comply with the
following financial covenants:
5.4.1 Borrower will maintain a minimum Tangible Net Worth of One
Hundred Seventy-Five Million ($175,000,000) Dollars, to be adjusted upward at
the end of each fiscal quarter commencing September 24, 1994, by twenty-five
percent (25%) of net income after taxes and before dividends for such quarter.
Once adjusted upward, the Tangible Net Worth requirement set forth herein will
not decrease.
5.4.2 Borrower will maintain the ratio of Borrower's debt
(current liabilities plus long-term liabilities) to Tangible Net Worth equal
to or less than 1.50 to 1.00, on a consolidated basis.
5.4.3 Borrower will maintain a ratio of Current Assets to Current
Liabilities (including, for this purpose, any amounts drawn and outstanding
under the Line of Credit) of at least 1.5 to 1.00, on a consolidated basis.
5.4.4 Borrower will maintain a Debt Service Coverage ratio of at
least 1.25 to 1.00, as measured quarterly on a rolling four-quarter basis and
as reflected in Borrower's audited financial statements.
5.5 Corporate Existence. Except as provided in Section 6.3, Borrower
will at all times preserve and keep in full force and effect its and each
Subsidiary's corporate existence (except for (i) individual Subsidiaries whose
book value is less than $100,000 and (ii) more than one of such Subsidiaries
whose collective book value is not greater than $1,000,000, at the time of the
event affecting such Subsidiary's or Subsidiaries' corporate existence) and
any rights material to its business and will maintain its and each
Subsidiary's right to transact business in each jurisdiction where its assets
or the nature of its activities makes such qualification necessary, except
where the failure could not reasonably be expected to materially impact the
Borrower or such Subsidiary, as the case may be.
5.6 Payment of Taxes and Claims. Borrower will pay all Taxes,
assessments and other governmental charges imposed upon Borrower or any
Subsidiary (other than Mining Remedial Recovery Corporation and its
subsidiaries) before any penalty or interest accrues thereon; provided,
however, that Borrower will not be required to pay any such Taxes,
assessments, or charges if (a) the validity thereof will currently be
contested in good faith by appropriate proceedings, (b) Borrower will have set
aside on its books adequate reserves with respect to such Taxes, assessments,
or charges and (c) Borrower gives notice in writing of such action to Agent;
provided that any such Taxes, assessments, or charges will be paid immediately
upon the commencement of proceedings to foreclose any liens securing the same,
or upon institution of distraint proceedings.
5.7 Insurance. Borrower will maintain and cause each Subsidiary to
maintain, in full force and effect, adequate fire and extended risk coverage,
business interruption, workers' compensation, public liability and such other
insurance coverages as may be required by law and/or in such amounts as is
customary in the case of entities of well-established reputation engaged in
the same or similar business. Borrower will allow representatives of each
Bank to meet with senior management of Borrower and Subsidiary, from time to
time as the Banks reasonably request in order to assess the adequacy of such
insurance policies.
<PAGE> 24
5.8 Compliance with Laws, etc. Borrower will exercise all due
diligence in order to comply, in all material respects, with all Requirements
of Laws, except where the lack of compliance could not reasonably be expected
to materially impact the future of Borrower and the Subsidiaries, taken as a
whole, or the ability of Borrower to repay the Loan or observe and perform any
of its obligations under the Loan Documents, including, without limitation,
the following:
5.8.1 Borrower will comply with all applicable workers'
compensation laws, regulations and administrative rules, directives or
requirements. Borrower will furnish Agent upon demand evidence in form and
substance as Agent or its counsel may reasonably require in order to verify
such compliance. In the event that Borrower is qualified to self-insure under
such laws, regulations and administrative rules, directives or requirements,
and that Borrower is not otherwise precluded from so self-insuring by the
terms of this Agreement, Borrower will fully comply with all such laws,
regulations, rules, directives and requirements pertaining to its self-insured
status.
5.8.2 Neither Borrower nor any of its pension plans will engage
in any Prohibited Transaction; incur any "accumulated funding deficiency" (as
such term is defined in Section 302 of ERISA) whether or not waived; or
terminate any such pension plan in a manner which could result in the
imposition of a lien on the property of Borrower, pursuant to Section 4068 of
ERISA or any successor provision thereto.
5.8.3 Borrower will comply with FLSA and will furnish Agent upon
demand evidence in form and substance as Agent or its counsel will require to
verify such compliance.
5.8.4 Borrower will comply with all applicable Environmental
Protection Statutes.
5.9 Payment of Indebtedness. Borrower and each of its wholly-owned
Subsidiaries will pay all of its Indebtedness, promptly when due in accordance
with the terms of such Indebtedness, except to the extent that failure to pay
such Indebtedness would not constitute an Event of Default under Section 7.1.4
hereof, and except to the extent a good faith basis exists for delay or non-
payment thereof and Borrower or Subsidiary, as the case may be, is contesting
in good faith any claim for payment thereof.
5.10 Maintenance of Franchises, etc. Borrower and each Brass
Subsidiary will do or cause to be done all things necessary to preserve, renew
and keep in full force and effect the rights, licenses, permits, franchises,
agency agreements, and trade names material to the conduct of its business,
and maintain and operate such businesses properly and efficiently, and in
substantially the manner in which they are presently conducted and operated
(subject to changes in the ordinary course of business).
5.11 Further Assurances. At any time or from time to time, upon the
request of Agent, Borrower will execute and deliver such further documents and
do such other acts and things as Agent may reasonably request in order to
effect fully the purpose of this Agreement, the other Loan Documents and other
agreements contemplated hereby and to provide for payment of and security for
the Loan made hereunder in accordance with the terms of this Agreement.
<PAGE> 25
6. NEGATIVE COVENANTS. Borrower covenants and agrees that, until all of the
Obligations are satisfied, Borrower will not, without the prior written
consent of the Requisite Banks do any of the following:
6.1 Indebtedness. Except as set forth on Schedule 4.13 to this
Agreement, Borrower will not, and will cause each of its wholly-owned
Subsidiaries not to, create, incur, assume, permit or otherwise become or
remain, directly or indirectly, liable with respect to any Indebtedness except
for (i) the Obligations, (ii) Indebtedness with respect to Permitted Liens,
(iii) Indebtedness of Borrower and its wholly-owned Subsidiaries in an
aggregate amount not to exceed Ten Million ($10,000,000) Dollars and (iv)
consolidating inter-company indebtedness as shown on consolidating financial
statements delivered pursuant to Section 5.3.1 of this Agreement.
6.2 Liens. Borrower will not, and will cause each Subsidiary (other
than Mining Remedial Recovery Corporation and its subsidiaries) not to,
directly or indirectly, create, incur, assume or permit to exist any Lien on
or with respect to any property or asset of any kind of Borrower or any
wholly-owned Subsidiary, whether now owned or hereafter acquired except (i)
Permitted Liens, (ii) liens created by or resulting from any litigation or
legal proceeding which is currently being contested in good faith by
appropriate proceedings, (iii) the Liens incidental to the normal conduct of
the ordinary course of business of the Borrower and the Subsidiaries, (iv)
Liens existing on the Closing Date as set forth on Schedule 6.2 hereof, and
(v) Liens representing the extension, renewal or replacement of a Lien under
immediately preceding clause (iv) in respect of the same property.
6.3 Restriction on Fundamental Changes. Borrower will not, and will
cause each Brass Subsidiary not to fundamentally change the nature of its
business, enter into any merger, consolidation, reorganization or
recapitalization, or liquidate, wind up or dissolve itself (or suffer any
liquidation or dissolution), or convey, sell (other than in the ordinary
course of its business), assign, lease, transfer or otherwise dispose of, in
one transaction or a series of transactions, all or any part of its business,
property, assets or securities, whether now owned or hereafter acquired, or
acquire by purchase or otherwise, all or substantially all the business,
property, assets, securities or interest of any Person; provided that (a) a
Brass Subsidiary may merge or consolidate with Borrower, provided that the
Borrower will be the surviving corporation, (b) a Brass Subsidiary may merge
or consolidate with another Brass Subsidiary, (c) a Brass Subsidiary may sell,
lease, transfer or otherwise dispose of any of its assets to Borrower or
another Brass Subsidiary, (d) Borrower may acquire or form additional
subsidiaries; provided that each such newly formed or acquired subsidiary is
wholly-owned by Borrower (unless Borrower has obtained the prior written
consent of Agent to acquire or form a subsidiary which will not be wholly-
owned, which consent will not be unreasonably withheld), and (e) Borrower may
complete the divestiture of its iron assets.
6.4 Environmental Statutes. Borrower will not, and will not permit any
other Person to violate an Environmental Protection Statute, except where such
violation could not reasonably be expected to materially impact the future of
the Borrower and its Subsidiaries, taken as a whole, or the ability of the
Borrower to repay the Loan or to observe and perform its obligations under the
Loan Documents.
<PAGE> 26
6.5 Conflicting Agreements. Borrower will not, and will cause each
Subsidiary not to, enter into any agreement containing any material provisions
which would be violated or breached by the performance of its obligations
hereunder or under any instrument or document delivered or to be delivered by
it hereunder or in connection herewith.
6.6 Misrepresentations. Borrower will not, and will cause each
Subsidiary not to, knowingly furnish any Bank any certificate or other
document that will contain any untrue statement of material fact or that will
omit to state a material fact necessary to make it not misleading in light of
the circumstances under which it was furnished.
6.7 Violation of Regulations. Borrower will not make any investment of
any nature which would result in the violation of Regulations G, U, or X of
the Board of Governors of the Federal Reserve System as the same may from time
to time be amended or modified.
6.8 Subsidiary Distribution of Earnings. Borrower will not, and will
cause each Subsidiary not to, enter into any agreement which could prohibit,
or have the effect of prohibiting, the payment of dividends by or other
distribution of the earnings of any Brass Subsidiary to Borrower.
6.9 Scope of Business Activity. Borrower will not engage in any
business or activities other than those representing its present business,
provided that Borrower may acquire or commence new or additional related
businesses which do not materially adversely effect the nature or operation of
Borrower's existing business.
6.10 Dividends and Distributions; Capital Structure. Borrower will not,
and will cause each Subsidiary not to, pay or declare any dividends or other
distributions upon its capital stock (except, in the case of the Subsidiaries,
dividends or other distributions to such Subsidiary's parent corporation), or
purchase or retire, or commit Borrower or any Subsidiary to purchase or
retire, any of its capital stock at any time, during any period that Borrower
is in default under Section 5.4 hereof or if such distribution, purchase or
retirement would render Borrower in default under Section 5.4 hereof.
7. EVENTS OF DEFAULT; ACCELERATION; REMEDIES.
7.1 Events of Default. The occurrence of any one or more of the
following events, acts or occurrences will constitute an event of default (an
"Event of Default") hereunder:
7.1.1 Failure to Make Payments When Due. Borrower will fail to
pay any principal and/or interest owing under any Note when such amount is due
(whether at stated maturity, as a result of a mandatory prepayment
requirement, by acceleration, by notice of prepayment or otherwise), or
Borrower will fail to pay any other amounts (including, without limitation,
fees, costs and expenses) payable under this Agreement when such amounts are
due.
7.1.2 Breach of Representation, Warranty or Certification. Any
representation, warranty or certification made or furnished by Borrower or any
Subsidiary under this Agreement, any other Loan Document or in any statement,
document, letter or other writing or instrument furnished or delivered to any
Bank pursuant to or in connection with this Agreement or other Loan Document
or as an inducement to the Banks to enter into this Agreement, will, at any
time, prove to have been materially false, incorrect or incomplete when made,
effective or reaffirmed, as the case may be.
<PAGE> 27
7.1.3 Default Under Loan Documents, etc. Borrower or any
Subsidiary will fail to observe, or perform any term, covenant, condition,
agreement set forth in Sections 5.1, 5.2, 5.4, 5.5, 5.8, 5.9, 5.10, 5.11, 6.1,
6.2, 6.3, 6.5, 6.6, 6.7, 6.8, 6.9 and 6.10.
7.1.4 Default on Other Agreements. Any creditor or
representative of any creditor of Borrower or any wholly-owned Subsidiary
declares or is or becomes entitled to declare any Indebtedness owing on any
bond, debenture, note or other evidence of Indebtedness for borrowed money in
an aggregate amount in excess of One Million ($1,000,000) Dollars of Borrower
or such Subsidiary to be due and payable prior to its expressed maturity by
reason of any default by Borrower or such Subsidiary in the performance or
observance of any obligation or condition (whether or not such creditor or
representative has declared such Indebtedness to be due and payable) or any
such Indebtedness becomes due by its terms and is not promptly paid or
extended; provided, however, that an Event of Default will not occur under
this Agreement if such other default or breach is being contested in good
faith by appropriate proceedings, notice thereof is promptly given to Agent
and adequate reserves in accordance with GAAP have been made therefor and no
other Event of Default has occurred.
7.1.5 Other Defaults Under Loan Documents. Borrower or any
Subsidiary will default in the performance of or compliance with any term or
covenant contained in this Agreement or the other Loan Documents (other than
those referred to above in Sections 7.1.1, 7.1.2 or 7.1.3 of this Agreement),
and such default will continue unremedied for a period of ten (10) days;
provided, that (1) the ten (10) day time period will not start until Agent
provides notice to Borrower in the case of defaults under Sections 5.3.1,
5.3.2, 5.3.3, 5.3.4, 5.3.5, 5.9, 5.10 and 5.11, and (2) no Bank will be
obligated to make an Advance once such a default has occurred until such
default has been remedied to each Bank's satisfaction.
7.1.6 Involuntary Bankruptcy; Appointment of Trustee, etc.
(a) If an involuntary case seeking the liquidation or
reorganization of Borrower or any wholly-owned Subsidiary (other than Mining
Remedial Recovery Corporation and its subsidiaries) under Chapter 7 or Chapter
11, respectively, of the federal Bankruptcy Code or any similar proceeding
will be commenced against Borrower or any wholly-owned Subsidiary (other than
Mining Remedial Recovery Corporation and its subsidiaries) under any other
applicable law and any one or more of the following events occur: (i)
Borrower or such Subsidiary consents to the institution of the involuntary
case, (ii) the petition commencing the involuntary case is not timely
controverted; (iii) the petition commencing the involuntary case is not
dismissed within sixty (60) days of its filing; (iv) an interim trustee is
appointed to take possession of all or a substantial portion of the property
and/or to operate all or any substantial portion of the business of Borrower
or such Subsidiary or (v) an order for relief will have been issued or entered
therein.
<PAGE> 28
(b) A decree or order of a court having jurisdiction in
the premises for the appointment of a receiver, liquidator, sequestrator,
custodian, trustee or other officer having similar powers of Borrower or any
wholly-owned Subsidiary (other than Mining Remedial Recovery Corporation and
its subsidiaries) to take possession of all or a substantial portion of the
property and/or to operate all or a substantial portion of the business of
Borrower or such Subsidiary will have been entered and, within sixty (60) days
from the date of entry, is not vacated, discharged or bonded against, or any
similar relief will be granted against Borrower or such Subsidiary under any
applicable federal or state law, and, within sixty (60) days from the date of
entry, is not vacated, discharged or bonded against.
7.1.7 Voluntary Bankruptcy; Appointment of Trustee, etc.
(a) Borrower or any wholly-owned Subsidiary (other than
Mining Remedial Recovery Corporation and its subsidiaries) will (i) institute
a voluntary case seeking liquidation or reorganization under Chapter 7 or
Chapter 11, respectively, of the federal Bankruptcy Code; (ii) file a
petition, answer or complaint or will otherwise institute any similar
proceeding under any other applicable law, or will consent thereto; (iii)
consent to the conversion of a voluntary case to an involuntary case; (iv)
consent to the conversion of an involuntary case to a voluntary case, (v)
consent or acquiesce to the appointment of a trustee, receiver, liquidator,
sequestrator, custodian or other officer with similar powers to take
possession of all or a substantial portion of the property and/or to operate
all or a substantial portion of the business of Borrower or any Subsidiary; or
(vi) make a general assignment for the benefit of creditors.
(b) The Board of Directors of Borrower or any wholly-owned Subsidiary
(other than Mining Remedial Recovery Corporation and its subsidiaries) adopt
any resolution or otherwise authorizes action to approve any of the foregoing;
provided, that nothing herein shall be construed to prevent Arava Natural
Resources Company, Inc., in its capacity as a shareholder of Mining Remedial
Recovery Corporation, from adopting resolutions or authorizing action with
respect to Mining Remedial Recovery Corporation and or its subsidiaries.
7.1.8 Judgments and Attachments.
(a) Borrower or any wholly-owned Subsidiary (other than Mining Remedial
Recovery Corporation and its subsidiaries) will suffer any money judgment(s),
fines or penalties not covered by insurance, writ(s) or warrant(s) of
attachment or similar process(es) involving an amount, in the aggregate, in
excess of One Million ($1,000,000) Dollars and will not satisfy, discharge,
vacate, bond or stay the same within a period of thirty (30) days or, in any
event, within ten (10) days of the date of any proposed sale thereunder.
(b) A judgment creditor will obtain possession of any material portion
of the properties or assets of Borrower or any wholly-owned Subsidiary (other
than Mining Remedial Recovery Corporation and its subsidiaries) by any means,
including, without limitation, levy, distraint, replevin or self-help.
7.1.9 Dissolution. Any order, judgment or decree will be entered
against Borrower or any wholly-owned Subsidiary having assets in excess of
$100,000 (other than Mining Remedial Recovery Corporation and its
subsidiaries) decreeing the dissolution or division of it and such order will
remain undischarged or unstayed for a period in excess of thirty (30) days.
<PAGE> 29
7.1.10 Termination of Loan Documents, etc. Any of the Loan
Documents will cease to be in full force and effect for any reason other than
a release or termination thereof upon the full payment and satisfaction of the
Obligations.
7.1.11 Environmental Violations. A breach of Sections 4.10, 5.8.4
or 6.4 will have occurred.
7.2 Remedies; Termination of Commitments. Upon the occurrence of an
Event of Default, all Obligations will, at the option of the Requisite Banks,
immediately be due and payable without presentment, demand, protest, notice or
other requirements of any kind, all of which are hereby expressly waived by
Borrower, and all commitments of the Banks hereunder will terminate, at each
Bank's option, without further action of any kind. Upon acceleration, Agent
may proceed to protect, exercise and enforce the Banks' rights and remedies
hereunder and under the other Loan Documents and any other rights and remedies
as are provided by law or equity. If the Loan is then one which may be repaid
only upon payment of a Yield Maintenance Payment, the Agent may also assess a
Yield Maintenance Payment. Agent may determine, in its sole discretion, the
order and manner in which the Banks' rights and remedies are to be exercised,
and all payments received by Agent will be applied as follows: first, to all
costs and expenses incurred by Agent in collecting any Obligations by reason
of such Event of Default; second, to accrued interest; third, to other
Obligations in such order as Agent may determine in its sole discretion; and
fourth, to Borrower or as otherwise provided by any Requirement of Law.
7.3 Right of Set-Off. In addition to all other remedies available to
the Banks, after any Event of Default which has not been cured within any
applicable period provided in this Section 7, each Bank is hereby authorized
at any time and from time to time, without further notice to Borrower, to set
off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time
owing by such Bank to or for the credit or the account of Borrower, against
any and all the obligations of Borrower, now or hereafter existing under any
Loan Document.
8. THE AGENT AND RELATIONS AMONG BANKS, ETC.
8.1 Appointment. Each Bank hereby designates and appoints the Agent
the limited administrative agent for all Banks under this Agreement and the
other Loan Documents. Each Bank hereby irrevocably authorizes Agent on its
behalf to take or refrain from taking any action, and to exercise or refrain
from the exercise of any power, as is required or permitted by the Banks to be
taken under the provisions of this Agreement and the other Loan Documents,
together with such other powers as are reasonably incidental thereto, subject
only to the express limitations of this Agreement. The duties of Agent under
this Agreement and the other Loan Documents are mechanical and administrative
in nature, are limited to those expressly provided herein, and do not
establish a fiduciary relationship as between the Agent and any Bank. In
performing its function and duties under this Agreement and the other Loan
Documents, Agent will act solely as an agent of Banks and assumes no
obligation towards or relationship of agency or trust with Borrower. Agent
may perform any of its duties under this Agreement or another Loan Document by
or through its agents or employees.
<PAGE> 30
8.2 Advances and Payments.
8.2.1 Advances: In General. All Advances will be made by Agent
on behalf of the Banks on the requested Advance Date, except that the Ratable
Share of any Bank which the Agent receives after 1:00 p.m. Detroit time on the
Advance Date, or at any time after the Advance Date, will be disbursed on the
Business Day following its receipt. Nothing in this Agreement or any other
Loan Document is to be construed to require Agent to advance funds on behalf
of any Bank or to relieve any Bank from its obligation to make Advances or to
prejudice any rights that Borrower may have against any Bank as a result of
any default by that Bank hereunder.
8.2.2 Advances. In order to minimize transfers between the Agent
and each Bank of funds representing the Bank's Ratable Share of an Advance, a
Borrower payment, or (to the extent that Agent has not been promptly
reimbursed by Borrower) other amounts for which the Agent is entitled to Bank
reimbursement or indemnification, coincidental transfer and loan account
adjustments may be made on a "net" basis. Not later than the Business Day
immediately preceding an Advance Date or a date on which Bank reimbursement of
the Agent is requested, Agent will advise each Bank by telephone, telex or
telecopy as to the purpose and aggregate amount to be disbursed or paid by
Agent and the Advance Date or actual or anticipated payment date, as the case
may be; the amount which is such Bank's Ratable Share thereof; and, if in
order to cause all loan accounts maintained by Agent for such Bank to conform
to its Ratable Share of the Loan, the amount which such Bank is requested to
remit to Agent will be different, the identity of the loan account(s)
requiring adjustment and the nature and amounts due to or from the Bank with
respect thereto. All amounts which a Bank is required to remit to Agent will
be made available to Agent by transfer of same day funds to the designated
wire account of Agent not later than 1:00 p.m. Detroit time on the Advance
Date, as evidenced by a wire transfer number or actual receipt by Agent.
Agent will have no liability to Borrower for the failure of any Bank to make
an Advance on the Advance Date, and if any Advance Date is on a day when any
of the Banks are not open for business, then each Bank shall transfer to Agent
its Ratable Share on the next day such Bank is open for business.
8.2.3 Distribution of Payments. All Loan payments in respect of
Advances, interest, fees or expenses incurred by the Banks and required by
Borrower to be reimbursed will be deemed paid when immediately available U.S.
currency or its equivalent is paid in the amount required by Borrower to
Agent. On the Business Day Agent receives a Borrower payment, Agent will
advise each Bank by telephone, telex, or telecopy of the aggregate amount and
such Bank's Ratable Share of amounts actually received by Agent in respect of
Advances, interest, fees, or, to the extent that the Banks previously have
remitted to Agent therefor, reimbursements for other amounts for which Agent
has required Bank reimbursement or indemnification. Agent will pay to such
Bank on the same Business Day, by transfer to such Bank's wire account (as
specified by such Bank on Exhibit 8.2.3 to this Agreement or as amended by
such Bank from time to time after the date hereof) its Ratable Share, "netted"
as permitted herein, of any such payment received by Agent not later than 1:00
p.m. Detroit time, and otherwise on the next Business Day.
<PAGE> 31
8.2.4 Return of Payments. Any Agent payment to a Bank under this
Agreement in the belief or expectation that a related payment has been or will
be received by Agent from Borrower, which related payment in fact is not
received by Agent, will entitle Agent to recover such amount from the Bank
without set-off, counterclaim or deduction of any kind. If Agent determines
at any time that an amount received by Agent under this Agreement must be
returned to Borrower or paid to any other Person pursuant to any solvency law
or otherwise, then, notwithstanding any other term or condition of this
Agreement, Agent will not be required to distribute any portion thereof to any
Bank. However, if Agent has previously distributed such amount, each Bank
will repay to Agent on demand any portion of such amount that Agent has
distributed to such Bank, together with interest at such rate, if any, as
Agent is required to pay to Borrower or such other Person, without set-off,
counterclaim or deduction of any kind by the Bank.
8.3 Dissemination of Information. Agent will distribute promptly to
each Bank the executed promissory notes evidencing such Bank's Ratable Share
of the Loan. Agent will have no duty or responsibility, either initially or
on a continuing basis, to provide any Bank with any credit or other
information with respect to Borrower (other than financial information
received by it in accordance herewith and only if not received by the Bank
from Borrower), whether coming into its possession before the date of this
Agreement or at any time or times thereafter. Agent will use its best efforts
after written request therefor by any Bank, and only if not received by such
Bank from Borrower, to distribute promptly to each Bank copies of every
notice, request, communication, report or other information received by Agent
from Borrower pursuant to this Agreement or another Loan Document; provided,
that Agent will be liable to the Banks for any failure to do so only if such
failure is attributable to Agent's gross negligence or willful misconduct,
which will not include the Agent's failure to obtain any of the foregoing from
Borrower.
8.4 Amendments, Consents and Waivers for Certain Actions. Agent is
authorized and empowered on behalf of the Banks to amend or modify in writing
any provision of this Agreement or another Loan Document which relates or
pertains to the Borrower, or to consent to or waive Borrower's performance of
any obligation on any Event of Default, with the prior written consent of the
Requisite Banks. When Agent requests the consent of the Requisite Banks and
does not receive a written denial thereof from any Bank within five (5)
Business Days after such Bank's receipt of such request, then such Bank will
be deemed to have denied such consent. Borrower agrees that it will not
assert any claim of amendment, modification, consent or waiver which is not in
writing, which writing (i) references this Agreement or any of the other Loan
Documents and (ii) is signed by the Requisite Banks.
<PAGE> 32
8.5 Exculpation. Agent and its officers, directors, employees and
agents will be liable to any Bank only for the performance of their express
obligations under this Agreement and the other Loan Documents and for their
own gross negligence or willful misconduct in the performance of any action
taken or omitted in connection therewith. If any apportionment or
distribution of payments made by Agent in good faith is subsequently
determined to have been made in error, Agent will not be liable therefor, but
the sole recourse of any Bank to whom payment was due but not made will be to
recover from other Banks any payment in excess of the amount to which they are
determined to be entitled (and such other Banks hereby agree to return to such
Bank any such erroneous payments received by them). In performing its
functions and duties hereunder, Agent will exercise the same care which it
would in dealing with loans for its own account. Agent will not be
responsible to any Bank for the truth or completeness of any recitals,
statements, representations or warranties herein, the execution,
effectiveness, genuineness, validity, enforce- ability, collectability, or
sufficiency of this Agreement or any other Loan Document or the transactions
contemplated thereby, or the financial condition of Borrower. Agent will not
be required to make any inquiry concerning either the performance or
observance of any of the terms, provisions or conditions of this Agreement or
any other Loan Document, the financial condition of Borrower, or the existence
or possible existence of any Event of Default. Agent at any time may request
instructions from the Requisite Banks with respect to any action, inaction,
failure or approval which, by the terms of this Agreement or any other Loan
Document, Agent is permitted or required to take or to grant, and if such
instructions are promptly requested, Agent may refrain from taking any action
or withhold any approval and may refrain from any action or withhold any
approval until it has received such instructions from the Requisite Banks. No
Bank will have any right of action whatsoever against Agent as a result of
Agent acting or refraining from acting in accordance with instructions of the
Requisite Banks.
8.6 Reliance. Agent may rely upon any written notices, statements,
certificates, orders or other documents or any telephone message or other
communication (including any writing, telex, telecopy or telegram) believed by
it in good faith to be genuine and correct and to have been signed, sent or
made by the proper Person, and with respect to all matters pertaining to this
Agreement or any other Loan Document, upon advice of legal counsel as to legal
matters, independent accountants as to audit and accounting matters, and other
experts selected by it, and when doing so will not be liable to any Bank for
any action taken or omitted by Agent in good faith. If any written
confirmation of a telephonic notice or instructions differs from the action
taken by Agent in connection with such telephonic notice of instructions,
Agent's records will govern absent manifest error.
8.7 Credit Decisions. Each Bank acknowledges that, independently of
Agent and each other Bank and based on the financial information received by
it and such other documents, information, and independent investigation of the
financial condition and affairs of Borrower as it has deemed appropriate, it
has made and will continue to make its own appraisal of the creditworthiness
of Borrower and credit decision to participate in the Loan in accordance with
this Agreement. Each Bank also acknowledges that, independently of Agent and
each other Bank, and based on such other documents, information, and
investigations as it deems appropriate at any time, it will continue to make
its own credit decisions as to exercising or not exercising from time to time
any rights and privileges available to it under this Agreement or any other
Loan Document.
<PAGE> 33
8.8 Indemnification. Each Bank agrees (which agreement shall survive
any termination of this Agreement) to indemnify Agent according to such Bank's
Ratable Share of the Loan from and against any and all liabilities,
obligations, losses, damages, penalties, actions, judgments, suits, costs,
expenses, excess Advances or payments of any kind or nature whatsoever which
may at any time be imposed on, incurred by, or asserted against Agent in any
way relating to or arising out of this Agreement or any other Loan Document,
including (without limitation) the reimbursement of Agent for all expenses
(including reasonable attorneys' and paralegals' fees, the allocated expense
of in-house attorneys and paralegals, and all reasonable out-of-pocket
expenses) incurred by Agent under or in connection with this Agreement or any
other Loan Document or in enforcing the Obligations, in all cases as to which
Agent is not reimbursed by Borrower, provided that no Bank will be liable for
the payment of any portion of such liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, costs, expenses, Advances or payments as
are determined by a court of competent jurisdiction in a final, non-appealable
decision or order to have resulted solely from Agent's gross negligence,
willful misconduct, violation of any relevant statute, law, ordinance, rule or
regulation or violation of this Agreement or any other Loan Document. Agent
will not be required to take any action hereunder or under any other Loan
Document, or to prosecute or defend any action or proceeding in respect of
this Agreement or any other Loan Document, unless it is indemnified, in
accordance with each Bank's Ratable Share of the Loan, to its satisfaction by
the Banks against losses, costs, liabilities, and expenses. If any indemnity
in favor of Agent is impaired, Agent, in its reasonable judgment, may call for
additional indemnity and cease to do the acts indemnified against until such
additional indemnity is given.
8.9 Successor. Agent may resign as such at any time upon at least 30
days' prior notice to Borrower and all Banks, which resignation will be
effective when a successor Agent is in place. If Agent resigns, the Requisite
Banks may appoint another Person as a successor Agent which thereupon will
become the Agent. If no successor to the Agent is appointed by the Requisite
Banks and accepts such appointment within 30 days after the retiring Agent's
notice of resignation, then the retiring Agent may, on behalf of the Banks,
appoint a successor Agent, which will be one of the Banks or a commercial
banking institution organized under the laws of the United States or a United
States branch or agency of a commercial banking institution, and having a
combined capital and surplus of at least $250,000,000. Upon the acceptance by
any successor an appointment as Agent hereunder, such successor Agent will be
entitled to receive from the retiring Agent such documents of transfer and
assignment as such successor Agent may reasonably request, and will thereupon
succeed to, and become vested with all rights, powers, privileges, and duties
of the retiring Agent, and the retiring Agent will be discharged from all
duties and obligations arising under this Agreement and the other Loan
Documents from and after the date on which its resignation is effective.
After any retiring Agent's resignation or removal hereunder as Agent, the
provision of this Agreement and the other Loan Documents will continue to bind
and inure to its benefit as to any actions taken or omitted to be taken by it
while it was Agent. If the successor Agent is not one of the Banks, Borrower
shall have right to reasonably approve such successor Agent.
<PAGE> 34
8.10 Agent as a Bank. Agent, in its capacity as a Bank, will have the
same rights, powers, duties and liabilities with respect to the Loan as any
other Bank and may exercise the same as if it were not the Agent. Unless
otherwise required by the context, the terms "Bank", "Banks" and "Requisite
Banks" or any similar terms will include the Agent when acting in its
individual capacity. Agent may lend money to, and generally engage in any
kind of banking, trust or other business with Borrower to the same extent as
any other financial institution.
8.11 Borrower Not A Beneficiary. The provisions of this Section 8 are
solely for the benefit of Agent and the Banks and Borrower will have no rights
as a third party beneficiary of any of the provisions hereof; provided,
however, Borrower will be bound by the provisions hereof. Borrower will have
no right against Agent for any claims of Borrower arising from this Agreement,
all such claims being assertable only against the Banks.
9. MISCELLANEOUS.
9.1 Costs and Attorneys' Fees. All fees, costs and expenses incurred
by Agent in connection with the preparation, execution, delivery, performance
and administration of the Loan Documents, any and all amendments, supplements
and modifications thereof and the other instruments and documents to be
delivered hereunder in connection with any matters contemplated by or arising
out of this Agreement, whether (a) to commence, defend any action commenced by
any party other than Borrower, or intervene in any litigation or to file a
petition, complaint, answer, motion or other pleadings, (b) to take any other
action in or with respect to any suit or proceedings (bankruptcy or
otherwise), (c) to consult with officers of Agent or to advise Agent or (d) to
enforce any rights of the Banks to collect any of the Obligations, including,
without limitation, reasonable fees, costs and expenses of Agent's attorneys
and paralegals, the allocated costs of Agent's internal counsel, together with
interest thereon at the highest applicable Default Rate hereunder, will be
part of the Obligations, payable on demand. All of the foregoing amounts may,
at Agent's option, be charged as an Advance under the Loan.
9.2 Waivers, Modifications in Writing. No failure or delay on the part
of Agent or any Bank in exercising any right, power or remedy hereunder will
operate as a waiver thereof, nor will any single or partial exercise of any
such right, power or remedy preclude any other or further exercise thereof or
the exercise of any other right, power or remedy. The remedies provided for
under this Agreement, in the Notes and in the other Loan Documents are
cumulative and are not exclusive of any remedies that may be available to the
Banks at law, in equity or otherwise. No amendment, modification, supplement,
termination, consent or waiver of or to any provision of this Agreement, the
Notes or the other Loan Documents, nor any consent to any departure therefrom,
will in any event be effective unless the same will be in writing and signed
by or on behalf of the Banks and Borrower.
<PAGE> 35
9.3 Notices, etc. All notices, demands, instructions and other
communications required or permitted to be given to or made upon any party
hereto will be in writing and (except for financial statements and other
related informational documents to be furnished pursuant hereto which may be
sent by first-class mail, postage prepaid), will be personally delivered or
sent by registered or certified mail, postage prepaid or sent by nationally
recognized overnight delivery service and, if mailed, will be deemed to be
received for purposes of this Agreement three (3) Business Days after mailing
by the sender or one (1) Business Day if sent by overnight delivery service.
Unless otherwise specified in a notice sent or delivered in accordance with
the foregoing provisions of this Section 9.3, notices, demands, instruments
and other communications in writing will be given to or made upon the
respective parties hereto as follows: if to Agent, at Agent's Address, with a
copy to Agent's Counsel; and if to Borrower, at Borrower's Address, with a
copy to Borrower's Counsel.
9.4 Notice of Wrongful Act or Omission by Agent or Banks. No action
will be commenced by Borrower against Agent or any Bank arising out of or
attributable to any act or omission of Agent or any Bank unless a notice
specifically describing the act or omission will have been given to Agent or
such Bank thirty (30) days prior to such judicial action.
9.5 Agent's Failure to Advance. If Agent will be in breach of the
Banks' obligation under this Agreement by reason of failure to make an
Advance, notwithstanding Borrower's conformance with the provisions of hereof,
Borrower's sole remedies on account thereof will be:
(a) to compel Agent to make the Advance which is determined to
have been wrongfully withheld; and
(b) to recover actual and provable damages on account of such
breach, and neither Agent nor any Bank will ever be liable to Borrower for
consequential damages, whatever the nature of the breach by Agent or such Bank
hereunder.
9.6 Headings. Section headings used in this Agreement are for
convenience of reference only and will not constitute a part of this Agreement
for any other purpose or affect the construction of this Agreement.
9.7 Execution in Counterparts. This Agreement may be executed in
counterparts and by different parties on separate counterparts, both of which
counterparts, when so executed and delivered, will be deemed to be an original
and both of which counterparts, taken together, will constitute but one and
the same agreement. This Agreement will become effective upon the execution
of a counterpart hereof by each of the parties hereto.
9.8 Binding Effect; Assignment. This Agreement will be binding upon,
and inure to the benefit of, Borrower and the Banks, and their respective
successors and assigns; provided, however, that Borrower may not assign its
rights hereunder or in connection herewith or any interest herein
(voluntarily, by operation of law or otherwise) without the prior written
consent of the Requisite Banks. This Agreement will not be construed so as to
confer any right or benefit upon any Person other than the parties to this
Agreement and each of their respective successors and assigns.
<PAGE> 36
9.9 Severability of Provisions. Any provision of this Agreement which
is illegal, invalid, prohibited or unenforceable in any jurisdiction will, as
to such jurisdiction, be ineffective to the extent of such illegality,
invalidity, prohibition or unenforceability without invalidating or impairing
the remaining provisions hereof or affecting the validity or enforceability of
such provision in any other jurisdiction.
9.10 Changes in Accounting Principles. If any changes in accounting
principles from those used in the preparation of the financial statements
referred to in this Agreement are hereafter occasioned by the promulgation of
rules, regulations, pronouncements or opinions of or required by the FASB or
the American Institute of Certified Public Accountants (or successors thereto
or agencies with similar functions), or there will occur any change in
Borrower's fiscal or tax years and, as a result of any such changes, there
will result in a change in the method of calculating any of the financial
covenants, negative covenants, standards, or other terms or conditions found
in this Agreement, then the parties hereto agree to enter into negotiations in
order to amend such provisions so as to equitably reflect such changes with
the desired result that the criteria for evaluating Borrower's financial
condition will be the same after such changes as if such changes had not been
made.
9.11 Survival of Agreements; Representations, Warranties Indemnities and
Covenants. All agreements, representations, warranties, indemnities and
covenants made herein will survive the execution and delivery of this
Agreement, the making of the Loan hereunder and the execution and delivery of
the Notes.
9.12 Independence of Covenants. All covenants under this Agreement will
each be given independent effect so that if a particular action or condition
is not permitted by any such covenant, the fact that it would be permitted by
another covenant, by an exception thereto, or be otherwise within the
limitations thereof, will not avoid the occurrence of an Event of Default or
Unmatured Event of Default if such action is taken or condition exists.
9.13 Construction of Agreement. Neither this Agreement nor any
uncertainty or ambiguity herein will be construed or resolved against any
Bank, whether under any rule of construction or otherwise. On the contrary,
this Agreement has been reviewed by each of the parties and their counsel and
will be construed and interpreted according to the ordinary meaning of the
words used so as to fairly accomplish the purposes and intentions of all
parties hereto.
9.14 Complete Agreement. This Agreement, together with the exhibits and
schedules to this Agreement, the Notes and the other Loan Documents, and the
other agreements referred to herein or by their terms referring hereto, is
intended by the parties as a final expression of their agreement and is
intended as a complete statement of the terms and conditions of their
agreement.
9.15 Equitable Relief. Borrower recognizes that, in the event Borrower
fails to perform, observe or discharge any of its Obligations under this
Agreement, any remedy at law may prove to be inadequate relief to the Banks;
therefore, Borrower agrees that the Banks will be entitled to temporary and
permanent injunctive relief in any such case without the necessity of proving
actual damages.
<PAGE> 37
9.16 No Fiduciary Relationship. No provision herein or in any of the
other Loan Documents and no course of dealing between the parties will be
deemed to create any fiduciary duty by Agent or the Banks to Borrower.
9.17 Choice of Law. The validity of this Agreement, its construction,
interpretation and enforcement and the rights of the parties hereto will be
determined under, governed by and construed in accordance with the internal
laws of the State of Michigan, without regard to principles of conflicts of
law.
9.18 Venue; Jurisdiction. The parties agree that all actions or
proceedings arising in connection with this Agreement, the Loan Documents and
the Loan will be tried and litigated only in the federal courts of the United
States of the Eastern District of Michigan. Borrower hereby irrevocably
accepts for itself and in respect of its property, generally and
unconditionally, the jurisdiction of such courts. Borrower irrevocably
consents to the service of process out of any such courts in any such action
or proceeding by the mailing of copies thereof by registered or certified
mail, postage prepaid, to Borrower, at its address set forth for notices in
this Agreement, such service to become effective ten (10) days after such
mailing. Nothing herein will affect the right of any Bank to serve process in
any other manner permitted by law or to commence legal proceedings or
otherwise proceed against Borrower in any other jurisdiction. Borrower
irrevocably waives any right it may have to assert the doctrine of forum non
conveniens or to object to venue to the extent any proceeding is brought in
accordance with this Section 9.18.
9.19 Other Waivers. Borrower hereby waives, to the extent permitted by
applicable law, in connection with a "claim and delivery" action by any Bank
or Agent on any Bank's behalf pursuant to Michigan Court Rule 3.105, the right
to request that a court require any Bank to post a bond pursuant to Michigan
Court Rule 3.105(E)(4)(c)(i).
9.20 Waivers Voluntary. The waivers contained in this Agreement are
freely, knowingly and voluntarily given by each party, without any duress or
coercion, after each party has had opportunity to consult with its counsel and
has carefully and completely read all of the terms and provisions of this
Agreement, specifically including the waivers contained in this Section 9.
Neither the Banks nor Borrower will be deemed to have relinquished the waivers
contained herein except by a writing signed by the party to be charged with
having relinquished any such waiver.
9.21 Waiver of Jury Trial. Banks and Borrower acknowledge and agree
that there may be a constitutional right to a jury trial in connection with
any claim, dispute or lawsuit arising between them, but that such right may
be waived. Accordingly, the parties agree that notwithstanding such
constitutional right, in this commercial matter the parties believe and agree
that it will be in their best interest to waive such right, and accordingly,
hereby waive such right to jury trial, and further agree that the best forum
for hearing any claim, dispute or lawsuit, if any, arising in connection with
this Agreement, any Loan Document or the relationship between the Banks and
Borrower, will be a court of competent jurisdiction sitting without a jury.
<PAGE> 38
BORROWER ACKNOWLEDGES THAT IT HAS BEEN ADVISED BY COUNSEL OF ITS
CHOICE WITH RESPECT TO THIS AGREEMENT AND THE TRANSACTIONS CONTEMPLATED
HEREBY, AND BORROWER ACKNOWLEDGES AND AGREES THAT (a) EACH OF THE WAIVERS SET
FORTH HEREIN, WERE KNOWINGLY AND VOLUNTARILY MADE; (b) THE OBLIGATIONS OF THE
BANKS HEREUNDER, INCLUDING THE OBLIGATION TO ADVANCE AND LEND FUNDS TO
BORROWER IN ACCORDANCE HEREWITH, WILL BE STRICTLY CONSTRUED AND WILL BE
EXPRESSLY SUBJECT TO SUCH BORROWER'S COMPLIANCE IN ALL RESPECTS WITH THE TERMS
AND CONDITIONS HEREIN SET FORTH; AND (c) NO REPRESENTATIVE OF ANY BANK HAS
WAIVED OR MODIFIED ANY OF THE PROVISIONS OF THIS AGREEMENT AS OF THE DATE
HEREOF AND NO SUCH WAIVER OR MODIFICATION FOLLOWING THE DATE HEREOF WILL BE
EFFECTIVE UNLESS MADE IN ACCORDANCE WITH SECTION 9.2 HEREOF.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement
to be executed and delivered as of the date first hereinabove set forth.
"BORROWER"
MUELLER INDUSTRIES, INC.
WITNESS:
________________________ By:_____________________
________________________ Its: Executive Vice
President
"BANKS"
MICHIGAN NATIONAL BANK
WITNESS:
________________________ By:_____________________
________________________ Its: Vice President
Ratable Share: 6.25%
Commitment: $1,875,000
BANK IV KANSAS, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
FIRST BANK NATIONAL
ASSOCIATION
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
LASALLE NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
NBD BANK, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
<PAGE> 39
SOCIETY NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
"AGENT"
MICHIGAN NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
<PAGE> 1
FIRST AMENDMENT
TO
CREDIT AGREEMENT
This First Amendment to Credit Agreement (this "First Amendment"),
dated as of December 14, 1994, is among Michigan National Bank, a national
banking association, and the other banking institutions who appear as
signatories to this First Amendment (each a "Bank" and collectively the
"Banks"), Michigan National Bank, as agent ("Agent"), and Mueller
Industries, Inc., a Delaware corporation ("Borrower").
Recitals
The parties hereto executed a certain Credit Agreement (the "Credit
Agreement") dated as of June 1, 1994, providing for, among other things,
the establishment by the Banks for the benefit of the Borrower of a line of
credit in the amount of $30,000,000.
The Borrower has now requested the Banks to consider certain
amendments to the Credit Agreement and the Banks have consented to such
amendments as set forth herein upon the terms and conditions set forth
herein.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Credit Agreement.
NOW, THEREFORE, the parties hereto agree that the Credit Agreement
shall be amended, effective on and as of December 14, 1994, as follows:
1. Section 5.3.5 shall be revised by deleting the contents thereof in
their entirety and replacing the same with the term "RESERVED".
2. Schedule 4.13 to the Credit Agreement shall be revised by adding
thereto the following additional Indebtedness, the effect of which is to
increase, but only while and to the extent such additional Indebtedness is
outstanding, the amount of Indebtedness permitted to be outstanding under
the Credit Agreement:
$2,161,500 obligation of Alaska Gold Company and guaranty by Borrower
thereof
$5,182,495 obligation of Mueller West, Inc. for the purchase of a
Beechcraft Aircraft and guaranty by Borrower thereof
$21,428,500 outstanding principal amount of 8.38% Senior Notes to John
Hancock Life Insurance Company (due 2000)(listed above), to be assumed by
Borrower from Utah Railway Company, the original issuer, and guaranties
thereof by Utah Railway Company and the Brass Subsidiaries
<PAGE> 2
3. Except as herein provided, the Credit Agreement shall remain in
full force and effect, including the provisions of Section 9 thereof which
are herein incorporated by this reference.
IN WITNESS WHEREOF, the parties hereto have caused this First
Amendment to be executed and delivered as of the date first hereinabove set
forth.
"BORROWER"
MUELLER INDUSTRIES, INC.
WITNESS:
________________________ By:_____________________
________________________ Its: Executive Vice President
"BANKS"
MICHIGAN NATIONAL BANK
WITNESS:
________________________ By:_____________________
________________________ Its: Vice President
Ratable Share: 6.25%
Commitment: $1,875,000
BANK IV KANSAS, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
FIRST BANK NATIONAL ASSOCIATION
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
LASALLE NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
NBD BANK, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
<PAGE> 3
SOCIETY NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 18.75%
Commitment: $5,625,000
"AGENT"
MICHIGAN NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
<PAGE> 1
SECOND AMENDMENT
TO
CREDIT AGREEMENT
This Second Amendment to Credit Agreement (this "Second Amendment"),
dated as of June 1, 1995, is among Michigan National Bank, a national
banking association, and the other banking institutions who appear as
signatories to this Second Amendment (each a "Bank" and collectively the
"Banks"), Michigan National Bank, as agent ("Agent"), and Mueller
Industries, Inc., a Delaware corporation ("Borrower").
Recitals
The parties hereto executed a certain Credit Agreement (the "Credit
Agreement") dated as of June 1, 1994, providing for, among other things,
the establishment by the Banks for the benefit of the Borrower of a line of
credit in the amount of $30,000,000. The Credit Agreement was first
amended by a First Amendment to Credit Agreement, dated as of December 14,
1994 (the Credit Agreement, as so amended, the "Amended Credit Agreement").
The Borrower has now requested the Banks to consider certain
amendments to the Amended Credit Agreement and the Banks have consented to
such amendments as set forth herein upon the terms and conditions set forth
herein.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Amended Credit Agreement.
NOW, THEREFORE, the parties hereto agree that the Amended Credit
Agreement shall be amended, effective (unless otherwise specified herein)
on and as of June 1, 1995, as follows:
1. The definition of the term "Brass Guaranties" in Section 1, on
page 3, shall be revised, effective as of June 1, 1994, by adding thereto,
immediately following the word "Subsidiary" in the second line thereof, the
parenthetical clause "(other than Streamline Copper & Brass Ltd.)".
2. The first line and first clause of the definition of the term
"Line of Credit Maturity" (which ends with the date "June 30, 1996") in
Section 1, on page 7, shall be revised in its entirety to read as follows:
"Line of Credit Maturity" means June 30, 1997;
3. Section 2.1, on page 11, shall be revised by substituting for the
amount "$30,000,000" at the beginning of the sixth line thereof the amount
"$50,000,000".
<PAGE> 2
4. Clause (ii) of Section 2.2.1, on page 11, shall be revised in its
entirety to read as follows:
(ii) LIBOR, plus 0.625%; or
5. Section 2.4, on page 13, shall be revised by substituting for the
term "one quarter of 1% (0.25%)" at the beginning of the fifth line thereof
the term "fifteen one-hundredths of 1% (0.15%)".
6. Section 3.6.7(a), on page 20, shall be revised by substituting for
the term "one percent (1%)" in the sixteenth line thereof the term "eight-
tenths of one percent (0.8%)".
7. Section 4.3, on page 23, shall be revised by adding to the end of
the first sentence thereof on the fifth line thereof, immediately preceding
the period and following the word "Borrower", the parenthetical clause
"(except, for purposes of this Section 4.3 only, with respect to those
Subsidiaries listed on Schedule 1.1 hereof in which Borrower is shown as
owning less than 100% of the capital stock, the direct or indirect
percentage ownership of Borrower may be more than as shown on Schedule
1.1)".
8. Section 5.3.1, on pages 26 and 27, shall be revised in its
entirety to read as follows:
5.3.1 As soon as available and in any event within forty-five (45)
days after the end of each fiscal quarter of Borrower, management prepared
consolidated and consolidating financial statements of Borrower and
Subsidiaries as of the end of such quarter, and the consolidated and
consolidating statements of profit and loss and surplus of Borrower and
Subsidiaries from the beginning of Borrower's and Subsidiaries' fiscal year
to the end of such quarter, certified as correct (subject to year end
adjustments) by the chief financial officer of Borrower.
9. The signature pages of the Amended Credit Agreement shall be
revised to reflect the addition of Boatmen's First National Bank of Kansas
City and Mercantile Bank of Kansas City as Bank parties to the Amended
Credit Agreement and the ratable shares and commitments of all Banks,
conforming in each instance to the signature pages of this Second Amendment
to Credit Agreement.
10. The terms and provisions of the Form of Request for Advance
attached to the Amended Credit Agreement as Exhibit 2.2.3, the Form of Line
of Credit Note attached to the Amended Credit Agreement as Exhibit 2.3 and
the Form of Brass Guaranties attached to the Amended Credit Agreement as
Exhibit 3.5.1 shall be revised as necessary to conform to the provisions of
this Second Amendment. The Borrower shall execute new Notes and shall
cause the Brass Subsidiaries to execute new or amended Brass Guaranties
which conform to the provisions of this Second Amendment, such execution
(and delivery of such Notes and Brass Guaranties to the Agent) being a
condition to the effectiveness of this Second Amendment.
11. Except as herein provided, the Amended Credit Agreement shall
remain in full force and effect, including the provisions of Section 9
thereof which are herein incorporated by this reference.
<PAGE> 3
12. The Borrower hereby affirms the representations and warranties
set forth in Section 4 of the Amended Credit Agreement and certifies that
no Event of Default has occurred or is existing under the Amended Credit
Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed and delivered as of the date first hereinabove set
forth.
"BORROWER"
MUELLER INDUSTRIES, INC.
WITNESS:
________________________ By:_____________________
________________________ Its: Executive Vice President
"BANKS"
MICHIGAN NATIONAL BANK
WITNESS:
________________________ By:_____________________
________________________ Its: Vice President
Ratable Share: 7.6%
Commitment: $3,800,000
BANK IV KANSAS, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
BOATMEN'S FIRST NATIONAL BANK
OF KANSAS CITY
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
FIRST BANK NATIONAL ASSOCIATION
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
LASALLE NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6.600,000
<PAGE> 4
MERCANTILE BANK OF KANSAS CITY
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
NBD BANK, N.A.
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
SOCIETY NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
Ratable Share: 13.2%
Commitment: $6,600,000
"AGENT"
MICHIGAN NATIONAL BANK
________________________ By:_____________________
________________________ Its:____________________
<PAGE> 1
THIRD AMENDMENT
TO
CREDIT AGREEMENT
This Third Amendment to Credit Agreement (this "Third Amendment"), dated as
of December 18, 1996, is among Michigan National Bank, a national banking
association, and the other banking institutions listed on Exhibit A
attached hereto and who appear as signatories to this Third Amendment (each
a "Bank" and collectively the "Banks"), Michigan National Bank, as agent
("Agent"), and Mueller Industries, Inc., a Delaware corporation
("Borrower").
Recitals
The Agent, the Borrower and some of the Banks executed a certain Credit
Agreement (the "Credit Agreement") dated as of June 1, 1994, providing for,
among other things, the establishment by the Banks for the benefit of the
Borrower of a line of credit in the amount of $30,000,000. The Credit
Agreement was amended by a First Amendment to Credit Agreement, dated as of
December 14, 1994, and by a Second Amendment to Credit Agreement, dated as
of June 1, 1995 (the Credit Agreement, as so amended, the "Amended Credit
Agreement").
The Borrower has now requested the Banks to consider certain amendments to
the Amended Credit Agreement, including an increase in the aggregate
principal amount of the loans that can be outstanding at any one time to
$100,000,000.00, as well as certain changes in the identity of the banks
that are to be parties to the Credit Agreement, and the Banks have
consented to such amendments as set forth herein upon the terms and
conditions set forth herein.
Capitalized terms used but not defined herein shall have the meanings
ascribed to them in the Amended Credit Agreement.
NOW, THEREFORE, the parties hereto agree that the Amended Credit Agreement
shall be amended, effective (unless otherwise specified herein) on and as
of December 18, 1996, as follows:
1. The definition of the term "Agent's Counsel" in Section 1, shall
be amended to read in its entirety, as follows: "Agent's Counsel" means
Dykema Gossett PLLC, 1577 North Woodward Avenue, Suite 300, Bloomfield
Hills, Michigan 48304.
2. The definition of the term "Borrower's Address" in Section 1,
shall be amended to read in its entirety, as follows: "Borrower's Address"
means 6799 Great Oaks Road, Suite 200, Memphis, Tennessee 38138."
3. CD Advances shall no longer be available and, accordingly, all
references to "CD Advance," " CD Rate" and "Certificate of Deposit Rate"
are hereby deleted from whereever they appear in the Amended Agreement.
<PAGE> 2
4. The definition of the term "Line of Credit Maturity" in Section 1
shall be amended in its entirety to read as follows:
"Line of Credit Maturity" means December 15, 1999; provided that if
Borrower delivers to Agent, on or before September 15, 1997, and each
anniversary thereof, Borrower's written request to extend the next
December 15 maturity date for the Line of Credit, then the Line of
Credit Maturity Date may be extended by written consent of the Requisite
Banks, in their sole discretion, for the twelve month period succeeding
the existing Line of Credit Maturity, subject to all of the terms and
conditions of this Agreement, as the same may be supplemented or
amended.
5. The definition of the term "Ratable Share" in Section 1, shall be
amended to read in its entirety, as follows:
"Ratable Share" means for each Bank the percentage shown on Exhibit A of
the Third Amendment, which as to aggregate Advances of the Loan will be
limited to the maximum U.S. dollar amount shown on said Exhibit A."
6. Section 2.1 shall be amended by substituting for the amount
"$50,000,000" at the beginning of the sixth line thereof the amount
"$100,000,000".
7. Sections 2.2.1 and 2.2.2 shall be amended in their entirety to
read as follows:
2.2.1 Borrower may select from one of the following interest rate
options when requesting an Advance:
(i) The Prime Rate, less .50%; or
(ii) LIBOR, plus 0.27%; or
(iii) The Federal Funds Rate, plus 0.65%.
2.2.2 Each Advance using the interest rate options set forth in
subsection 2.2.1(ii) will be for a specified time period (each an
"Interest Period") of one (1) month, two (2) months, three (3) months,
or six (6) months, in each instance with a specified due date not
later than the Line of Credit Maturity, on which date all outstanding
principal and interest related to the Advance will be repaid in full
to Agent. Advances may be obtained under the Line of Credit until the
Line of Credit Maturity, at which time all principal and interest
outstanding on the Line of Credit will be immediately due and payable
by Borrower to Agent.
8. Section 2.4 shall be amended by substituting for the term "fifteen
one-hundredths of 1% (0.15%)" at the beginning of the fifth line thereof
the term "eleven one-hundredths of 1% (0.11%)".
9. Section 2.5 shall be amended in its entirety to read as follows:
2.5 Use of Proceeds. The proceeds of the Line of Credit Loan will be
used by Borrower (i) to finance acquisitions (iii) for letters of
credit and (iii) for general corporate purposes.
10. Section 2.7 shall be amended by substituting for the term
"$50,000,000" in the two places in which it appears the term
"$100,000,000."
<PAGE> 3
11. Section 3.6.7(a) shall be amended by substituting for the term
"eight-tenths of one percent (0.8%)" in the sixteenth line thereof the term
"four hundred eighty-five one-thousandths of 1% (0.485%)" and by adding the
following clause to the end of the first sentence thereof: "provided,
however, that the aggregate face amount of the Letters of Credit
outstanding hereunder at any one time shall not exceed $15,000,000."
12. A new Section 5.3.14 shall be added at the end of Section 5.3,
reading in its entirety as follows:
5.3.14 Not less than 30 days prior to the consummation of any proposed
acquisition which, when aggregated with all other acquisitions
consummated directly or indirectly by the Borrower after December 18,
1996, will result in a cumulative increase in the Borrower's
Indebtedness as a result of all such acquisitions to be $25,000,000 or
more, a proforma management compliance certificate certifying that all
covenants set forth in Sections 5 and 6 hereof will be complied with
as of the date of such acquisition(s).
13. Section 5.4.1 shall be amended in its entirety to read as
follows:
Borrower will maintain a minimum Tangible Net Worth of Two Hundred
Twenty-Six Million ($226,000,000) Dollars, to be adjusted upward at
the end of each fiscal quarter commencing December 28, 1996, by
twenty-five percent (25%) of net income after taxes and before
dividends for such quarter. Once adjusted upward, the Tangible Net
Worth requirement set forth herein will not decrease.
14. Section 5.9 shall be amended in its entirety to read as follows:
5.9 Payment of Indebtedness. Borrower and each of its wholly- owned
Subsidiaries (except Mining Remedial Recovery Corporation and its
subsidiaries and inter-company indebtedness between Borrower and its
wholly owned subsidiary, Alaska Gold Company, Inc.) will pay all of
its Indebtedness, promptly when due in accordance with the terms of
such Indebtedness, except to the extent that failure to pay such
Indebtedness would not constitute an Event of Default under Section
7.1.4 hereof, and except to the extent a good faith basis exists for
delay or non-payment thereof and Borrower or Subsidiary, as the case
may be, is contesting in good faith any claim for payment thereof.
15. A new Section 5.12 shall be added at the end of Section 5,
reading in its entirety as follows:
5.12 Within 60 days after the formation of any new Brass Subsidiary,
Borrower shall cause such subsidiary to execute and deliver to the
Agent sufficient copies of a guaranty, substantially in the form
attached to the Third Amendment as Exhibit 3.5.1(b), together with
certified copies of such subsidiary's organizational documents,
including resolutions authorizing the execution and delivery of such
guaranty, and together with an opinion of counsel for such subsidiary
in form and substance satisfactory to the Agent and its counsel.
16. Schedules 1.1 and 8.2.3 shall be amended in their entirety to
read as Schedules 1.1 and 8.2.3, respectively, attached to this Third
Amendment.
<PAGE> 4
17. The parties acknowledge and agree that on and as of the date of
this Third Amendment NBD Bank ("NBD") is selling and assigning to The First
National Bank of Chicago ("FNBC"), and FNBC is purchasing and taking from
NBD, all Obligations held by and owed to NBD under the Amended Credit
Agreement. On and after the date of this Third Amendment: (a) FNBC shall
have all of the rights and obligations of a Bank under the Amended Credit
Agreement and the other Loan Documents, (b) FNBC shall assume the Ratable
Share previously held by NBD and agrees to the Ratable Share as set forth
on Exhibit A attached to this Third Amendment, and (c) NBD shall cease to
be a "Bank" under the Amended Credit Agreement and shall have no rights or
corresponding obligations under the Amended Credit Agreement and the other
Loan Documents.
18. The parties acknowledge and agree that Mercantile Bank of Kansas
City ("MBKC") has sold and assigned to Mercantile Bank National Association
("MBNA"), and MBNA has purchased and taken from MBKC, all Obligations held
by and owed to MBKC under the Amended Credit Agreement. On and after the
date of this Third Amendment: (a) MBNA shall have all of the rights and
obligations of a Bank under the Amended Credit Agreement and the other Loan
Documents, (b) MBNA shall assume the Ratable Share previously held by MBKC
and agrees to the Ratable Share as set forth on Exhibit A attached to this
Third Amendment, and (c) MBKC shall cease to be a "Bank" under the Amended
Credit Agreement and shall have no rights or corresponding obligations
under the Amended Credit Agreement and the other Loan Documents.
19. The parties acknowledge and agree that on and as of the date of
this Third Amendment LaSalle National Bank ("LNB") and First Bank National
Association ("FBNA") are withdrawing as lenders under the Amended Credit
Agreement. Accordingly, from and after the date of this Third Amendment
LNB and FBNA shall each cease to be a "Bank" under the Amended Credit
Agreement and shall have no rights or corresponding obligations under the
Amended Credit Agreement and the other Loan Documents.
20. The parties acknowledge and agree that Bank IV Kansas, N.A.
("Bank IV") has been merged into Boatmen's National Bank (formerly,
Boatmen's First National Bank of Kansas City; "Boatmen's") and,
accordingly, that Boatmen's has assumed all of the rights and corresponding
obligations of Bank IV under the Amended Credit Agreement and the other
Loan Documents and the Ratable Share previously held by Bank IV.
21. The terms and provisions of the Form of Request for Advance
attached to the Amended Credit Agreement as Exhibit 2.2.3, the Form of Line
of Credit Note attached to the Amended Credit Agreement as Exhibit 2.3 and
the Form of Brass Guaranties attached to the Amended Credit Agreement as
Exhibit 3.5.1 shall be revised as necessary to conform to the provisions of
this Third Amendment. The Borrower shall execute new Notes and shall cause
the Brass Subsidiaries to execute new or amended Brass Guaranties which
conform to the provisions of this Third Amendment, such execution (and
delivery of such Notes and Brass Guaranties to the Agent) being a condition
to the effectiveness of this Third Amendment.
22. Except as herein provided, the Amended Credit Agreement shall
remain in full force and effect, including the provisions of Section 9
thereof which are herein incorporated by this reference.
23. The Borrower hereby reaffirms the representations and warranties
set forth in Section 4 of the Amended Credit Agreement and certifies that
no Event of Default has occurred or is existing under the Amended Credit
Agreement.
<PAGE> 5
IN WITNESS WHEREOF, the parties hereto have caused this Second
Amendment to be executed and delivered as of the date first hereinabove set
forth.
"BORROWER"
MUELLER INDUSTRIES, INC.
WITNESS:
_____________________ By:_________________________
_____________________ Its: Executive Vice President
"BANKS"
MICHIGAN NATIONAL BANK
WITNESS:
_____________________ By:_________________________
_____________________ Its: Senior Relationship
Manager
BOATMEN'S NATIONAL BANK
_____________________ By:_________________________
_____________________ Its:
THE FIRST NATIONAL BANK
OF CHICAGO
_____________________ By:_________________________
_____________________ Its:
MERCANTILE BANK NATIONAL
ASSOCIATION
_____________________ By:_________________________
_____________________ Its:
KEY BANK NATIONAL ASSOCIATION
(formerly known as Society
National Bank)
_____________________ By:_________________________
_____________________ Its:
"AGENT"
MICHIGAN NATIONAL BANK
_____________________ By:_________________________
_____________________ Its:
<PAGE> 6
EXHIBIT A
THE BANKS AND THEIR COMMITMENTS AND RATABLE SHARES
Name of Bank Commitment Ratable Share
Michigan National Bank $25,000,000 25%
Boatmen's National Bank $18,750,000 18.75%
The First National Bank of Chicago $18,750,000 18.75%
Mercantile Bank National Association $18,750,000 18.75%
Key Bank National Association $18,750,000 18.75%
TOTAL $100,000,000 100%
<PAGE> 1
1997 BONUS PLAN FOR CERTAIN KEY EMPLOYEES
The Company has a discretionary bonus program under which exempt
salaried employees (other than the CEO and Chairman) may be paid bonuses up
to amounts ranging from 9.75% to 97.5% of base annual salary. The CEO and
Chairman participate in this plan, with bonuses specifically determined by
the board of directors. The bonus percent is based on a variety of
guidelines including performance levels of the respective business unit
measured by earnings before tax.
<PAGE> 1
Mueller Industries, Inc.
Deferred Compensation Plan
Amendment and Restatement
Effective January 1, 1997
Purpose
The purpose of this Plan is to provide specified benefits to a select
group of management or highly compensated employees who contribute
materially to the continued growth, development and future business
success of MUELLER INDUSTRIES, INC., a Delaware corporation, and its
subsidiaries
ARTICLE 1
Definitions
For purposes hereof, unless otherwise clearly apparent from the context,
the following phrases or terms shall have the following indicated
meanings:
1.1 "Account Balance" shall mean, with respect to a Participant, the sum
of (i) his or her Elective Deferral Account plus (ii) his or her
Employer Matching Contribution Account. This account shall be a
bookkeeping entry only and shall be utilized solely as a device for
the measurement and determination of the amounts to be paid to or in
respect of a Participant pursuant to the Plan.
1.2 "Annual Bonus" shall mean any compensation, in addition to Base
Annual Salary, paid annually in respect of a Plan Year to a
Participant as an employee under any Employer's annual bonus and
incentive plans. An annual Bonus for a Plan Year may, but need not,
be paid during such Plan Year
1.3 "Annual Deferral Amount" shall mean that portion of a Participant's Base
Annual Salary and/or Annual Bonus that a Participant elects to have
and is deferred, in accordance with Article 3, for any one Plan Year
1.4 "Base Annual Salary" shall mean the annual compensation (excluding
bonuses, commissions, overtime, incentive payments, non-monetary
awards, Directors Fees, and other fees) paid to a Participant for
services rendered to any Employer, before reduction for compensation
deferred pursuant to all qualified, non-qualified and Code Section 125
plans of any Employer
1.5 "Beneficiary" shall mean one or more persons, trusts, estates or other
entities, designated in accordance with Article 9, that are entitled to
receive benefits under the Plan upon the death of a Participant
1.6 "Beneficiary Designation Form" shall mean the form established from time
to time by the Committee that a Participant completes, signs and
returns to the Committee to designate one or more Beneficiaries
1.7 "Board" shall mean the board of directors of the Company
<PAGE> 2
1.8 "Change in Control" shall mean the first to occur of any of the
following events:
(a) Any "person" (as that term is used in Section 13 and 14(d)(2) of
the Securities Exchange Act of 1934 ("Exchange Act")), after the
date hereof becomes the beneficial owner (as that term is used in
Section 13(d) of the Exchange Act), directly or indirectly, of 50
percent or more of the Company's capital stock entitled to vote in
the election of directors;
(b) During any period of two consecutive years, individuals who at the
beginning of such period constitute the Board cease for any reason
to constitute at least a majority thereof, unless the election or
the nomination for election by the Company's shareholders of each
new director was approved by a vote of at least three-quarters of
the directors still in office who were directors at the beginning
of the period;
(c) Any consolidation or merger of the Company, other than a
consolidation or merger of the Company in which the holders of the
common stock of the Company immediately prior to the consolidation
or merger hold more than 50 percent of the common stock of the
surviving corporation immediately after the consolidation or
merger;
(d) The shareholders of the Company approve any plan or proposal for
the liquidation or dissolution of the Company; or
(e) Substantially all of the assets of the Company are sold or
otherwise transferred to parties that are not within a "controlled
group of corporations" (as defined in Section 1563 of the Code) in
which the Company is a member.
1.9 "Claimant" shall have the meaning set forth in Section 13.1.
1.10 "Code" shall mean the Internal Revenue Code of 1986, as amended.
1.11 "Committee" shall mean the administrative committee appointed to manage
and administer the Plan in accordance with its provisions pursuant to
Article 12.
1.12 "Company" shall mean MUELLER INDUSTRIES, INC., a Delaware corporation.
1.13 "Company Matching Contribution" shall mean any contribution made and
credited to Employer Matching Contribution Accounts by the Company in
accordance with Section 3.5 below.
1.14 "Crediting Rate" shall mean, for each Plan Year as selected by the
Participant on the Election Form for such year, a rate equal to (a) an
interest rate represented by the "Moody's Corporate Bond Rate" in
effect for October (as published in the immediately following November)
of the prior year or (b) the rate of return of any benchmark fund
selected by the Committee. For purposes of the foregoing, the "Moody's
Corporate Bond Rate" is an arithmetic average of yields of
representative bonds, including industrials, public utilities, Aaa, Aa,
A and Baa bonds, published by Moody's Investors Service, Inc. or any
successor to that service.
<PAGE> 3
1.15 "Deduction Limitation" shall mean the following described limitation on
the annual benefit that may be distributed pursuant to the provisions
of this Plan. The limitation shall be applied to distributions under
this Plan as set forth in this Plan. If the Company determines in good
faith prior to a Change in Control that there is a reasonable
likelihood that any compensation paid to a Participant for a taxable
year of the Company would not be deductible by the Company solely by
reason of the limitation under Code Section 162(m), then to the extent
deemed necessary by the Company to ensure that the entire amount of any
distribution to the Participant pursuant to this Plan prior to the
Change in Control is deductible, the Company may defer all or any
portion of the distribution. Any amounts deferred pursuant to this
limitation shall continue to be credited with interest in accordance
with Section 3.6 below. The amounts so deferred and interest thereon
shall be distributed to the Participant or his or her Beneficiary (in
the event of the Participant's death) at the earliest possible date, as
determined by the Company in good faith, on which the deductibility of
compensation paid or payable to the Participant for the taxable year of
the Company during which the distribution is made will not be limited
by Section 162(m), or if earlier, the effective date of a Change in
Control.
1.16 "Deferral Amount" shall mean the sum of all of a Participant's Annual
Deferral Amounts.
1.17 "Directors Fees" shall mean the annual cash fees paid by any Employer,
including retainer fees and meetings fees, as compensation for serving
on the board of directors of an Employer.
1.18 "Disability" shall mean a period of disability during which a
Participant qualifies for benefits under the Participant's Employer's
long-term disability plan, or, if a Participant does not participate in
such a plan, a period of disability during which the Participant would
have qualified for benefits under such a plan had the Participant been
a participant therein, as determined in the sole and absolute
discretion of the Committee.
1.19 "Election Form" shall mean the form established from time to time by
the Committee that a Participant completes, signs and returns to the
Committee to make an election under the Plan.
1.20 "Elective Deferral Account" shall mean the sum of (i) a Participant's
Deferral Amount, plus (ii) interest thereon credited in accordance with
all the applicable interest crediting provisions of the Plan, net of
all distributions from such Account. This account shall be a
bookkeeping entry only and shall be utilized solely as a device for the
measurement and determination of the amounts to be paid to the
Participant pursuant to the Plan.
1.21 "Employer" shall mean the Company and/or any of its subsidiaries that
have been selected by the Board to participate in the Plan.
<PAGE> 4
1.22 "Employer Matching Contribution Account" shall mean the sum of (i) a
Participant's share of Company Matching Contributions plus (ii)
interest thereon credited in accordance with the applicable interest
crediting provisions of the Plan, net of all distributions from such
Account. This Account shall be a bookkeeping entry only and shall be
utilized solely as a device for the measurement and determination of
the amounts to be paid to the Participant pursuant to the Plan.
1.23 "Participant" shall mean any employee (i) who is selected to
participate in the Plan, (ii) who elects to participate in the Plan,
(iii) who signs a Plan Agreement, an Election Form and a Beneficiary
Designation Form, (iv) whose signed Plan Agreement, Election Form and
Beneficiary Designation Form are accepted by the Committee, (v) who
commences participation in the Plan, and (vi) whose Plan Agreement has
not terminated.
1.24 "Plan" shall mean the Company's Deferred Compensation Plan, which shall
be evidenced by this instrument and, with respect to each Participant,
by his or her Plan Agreement, as each may be amended from time to time.
1.25 "Plan Agreement" shall mean a written agreement, as may be amended from
time to time, which is entered into by and between one or more
Employers and a Participant. Each Plan Agreement executed by a
Participant shall provide for the entire benefit to which such
Participant is entitled to under the Plan, and shall specify the
Employer or Employers liable for the Participant's benefits hereunder
and the magnitude or extent of such liability. The Plan Agreement
bearing the latest date of acceptance by the Committee shall govern
such entitlement and each Employer's liability. Upon the complete
payment of a Participant's Account Balance, each individual's Plan
Agreement and his or her status as a Participant shall terminate.
1.26 "Plan Year" shall be the calendar year, starting with 1996.
1.27 "Preferred Rate" for a Plan Year shall be 120% of the Crediting Rate
for such year.
1.28 "Pre-Retirement Survivor Benefit" shall mean the benefit set forth in
Article 6.
1.29 "Retirement," "Retire," "Retires," or "Retired" shall mean severance
from employment or service with all Employers for any reason other than
a leave of absence on or after the attainment of (a) age fifty (50) and
the completion of ten (10) Years of Service, (b) age fifty-five (55)
and the completion of five (5) Years of Service, (c) age sixty-five
(65), whichever is earliest.
1.30 "Retirement Benefit" shall mean the benefit set forth in Article 5.
1.31 "Short-Term Payout" shall mean the payout set forth in Section 4.1.
1.32 "Termination Benefit" shall mean the benefit set forth in Article 7.
1.33 "Termination of Employment" shall mean the ceasing of employment with
all Employers, voluntarily or involuntarily, for any reason other than
Retirement, death or an authorized leave of absence.
<PAGE> 5
1.34 "Trust" shall mean the trust established pursuant to that certain Trust
Agreement, dated as of January 1, 1996, between the Company and the
trustee named therein, as amended from time to time.
1.35 "Withdrawal Amount" shall mean all of a Participant's Account Balance
calculated as if such Participant were receiving a lump sum Termination
Benefit, less a penalty equal to 10 percent of the Account Balance
determined immediately prior to the date of the Participant's election.
1.36 "Years of Service" shall mean the total number of years in which a
Participant has been employed by or in the service of an Employer. For
purposes of this definition only, a year of employment or service shall
be a 365 day period (or 366 day period in the case of a leap year)
that, for the first year of employment, commences on the Participant's
date of hire (or engagement) and that, for any subsequent year,
commences on an anniversary of that hiring date.
<PAGE> 6
ARTICLE 2
Selection, Enrollment, Eligibility
2.1 Selection by Committee. Participation in the Plan shall be limited to
employees of an Employer who are part of a select group of management or
highly compensated employees. From the foregoing, the Committee shall
select, in its sole and absolute discretion, employees to participate in
the Plan.
2.2 Enrollment Requirements. As a condition to participation, each selected
employee shall complete, execute and return to the Committee within 30
days of selection a Plan Agreement, an Election Form and a Beneficiary
Designation Form. In addition, the Committee shall establish from time
to time such other enrollment requirements as it determines in its sole
and absolute discretion are necessary.
2.3 Eligibility; Commencement of Participation. An employee selected to
participate herein shall commence participation on the first day of the
Plan Year following the employee's completion of all enrollment
requirements set forth herein and required by the Committee, including
returning all required documents to the Committee and the Committee's
acceptance of all submitted documents. Under no circumstances may
participation commence in the middle of a Plan Year.
<PAGE> 7
ARTICLE 3
Deferral Commitments/Interest Crediting
3.1 Minimum Deferral. For each Plan Year, a Participant may elect to defer
Base Annual Salary and/or Annual Bonus paid in respect of such Plan Year
in the following minimum amounts for each deferral elected:
Deferral Minimum Amount
Base Annual Salary $2,000
Annual Bonus $2,000
If no election is made, the amount deferred shall be zero.
3.2 Maximum Deferral. For each Plan Year, a Participant may elect to defer
Base Annual Salary and/or Annual Bonus up to the following maximum
amounts for each deferral elected:
Deferral Maximum Amount
Base Annual Salary 100%
Annual Bonus 100%
3.3 Election to Defer; Effect of Election Form. In connection with a
Participant's commencement of participation in the Plan, the Participant
shall make a deferral election by delivering to the Committee a
completed and signed Election Form, which election and form must be
accepted by the Committee for a valid election to exist. For each
succeeding Plan Year, a new Election Form must be delivered to the
Committee, in accordance with its rules and procedures, before the end
of the Plan Year preceding the Plan Year for which the election is made.
If no Election Form is timely delivered for a Plan Year, no Annual
Deferral Amount shall be withheld for that Plan Year.
3.4 Withholding of Deferral Amounts. For each Plan Year, the Base Annual
Salary portion of the Annual Deferral Amount shall be withheld each
payroll period in equal amounts from the Participant's Base Annual
Salary. The Annual Bonus portion of the Annual Deferral Amount shall be
withheld at the time the Annual Bonus is or otherwise would be paid to
the Participant. Each amount so withheld shall be credited to the
Participant's Elective Deferral Account, as of the first day of the
month in which the amount is withheld. The Annual Deferral Amount shall
be credited to the Participant's Elective Deferral Account. A
Participant shall at all times have a fully vested and nonforfeitable
interest in his or her Elective Deferral Account.
3.5 Company Matching Contribution. Each Plan Year the Company shall make a
Company Matching Contribution on behalf of the Participant. Such
contribution shall be equal to the matching contribution the Company
would have made to its qualified Section 401(k) plan, assuming no
antidiscrimination limitations applied, had the Participant's Annual
Deferral Amount hereunder been contributed to the Section 401(k) plan,
less the actual matching contribution, if any, made to such qualified
plan. These contributions shall be deemed credited to the Participant's
Employer Matching Contribution Account on the first day of the Plan Year
in respect of which they are made. A Participant will at all times have
a fully vested and nonforfeitable interest in each year's contribution
(including interest to be credited thereto).
<PAGE> 8
3.6 Earnings Crediting Prior to Distribution. Prior to any distributions of
benefits under Articles 4, 5, 6 or 7, earnings shall be credited and
compounded monthly to a Participant's Account Balance, as such balance
is determined each month in accordance with Section 3.4 above. The rate
for crediting shall be the Preferred Rate, except as otherwise expressly
provided herein. If the Crediting or Preferred Rate is based on Section
1.14 (a) hereof, such rate shall be determined each month by dividing
the applicable Preferred Rate (or , if expressly provide otherwise, the
Crediting Rate) by 12. If the Crediting or Preferred Rate is based on
Section 1.14 (b) hereof, such rate will be determined each month based
on the actual performance of the applicable benchmark fund for such
month. In the event of Retirement, death, or a Termination of
Employment, earnings will be credited to the Participant's Account
Balance under this Section 3.6 to the end of the month in which such
event occurs. If a distribution is made under this Plan, for purposes
of crediting earnings, the Account Balance shall be reduced as of the
first day of the month in which the distribution is made.
3.7 Interest Crediting for Installment Distributions. In the event a
benefit is paid in installments under Articles 5, 6, or 7, interest
shall be credited and compounded monthly on the undistributed portion of
the Participant's Account Balance in the following manner. Beginning
with the first day of the month following the month during which the
Participant Retires, dies, or experiences a Termination of Employment,
the Participant's Account Balance shall be amortized over the months
elected, using the applicable Crediting or Preferred Rate specified
below, in either case based on Section 1.14 (a) hereof. As of the first
day of the subsequent Plan Year and each Plan Year thereafter until the
Participant's Account Balance is paid in full, the Participant's
remaining Account Balance, determined as of the first day of the Plan
Year, shall be reamortized over the remaining payment period using the
applicable monthly interest rate specified below. The applicable
monthly rate of interest for crediting shall be the current Preferred
Rate in the case of distributions under Article 5 and 6, and the
Crediting Rate in the case of distributions under Article 7, divided by
12 and compounded over the remaining period of distribution.
3.8 FICA Taxes. For each Plan Year in which an Annual Deferral Amount is
being withheld, the Participant's Employer(s) shall ratably withhold
from that portion of the Participant's Base Annual Salary and/or Annual
Bonus that is not being deferred, the Participant's share of FICA and
Medicare taxes on deferred amounts. If necessary, the Annual Deferral
Amount shall be reduced (a) in order to meet any group benefit or
similar commitment and/or applicable state withholding taxes to be paid
out of the Participant's Base Annual Salary and/or Annual Bonus, and (b)
in order to comply with this Section.
<PAGE> 9
ARTICLE 4
Short-Term Payout; Withdrawal Election
4.1 Short-Term Payout. Subject to the Deduction Limitation, in connection
with each election to defer an Annual Deferral Amount, a Participant may
elect to receive a future "Short-Term Payout" from the Plan with respect
to that Annual Deferral Amount. The Short-Term Payout shall be a lump
sum payment in an amount that is equal to the Annual Deferral Amount
plus interest credited at the Preferred Rate on that amount. Subject to
the other terms and conditions of this Plan, each Short-Term payout
elected shall be paid within 60 days of the first day of the elected
Plan Year that is 3 or more years after the first day of the Plan Year
in which the Annual Deferral Amount is actually deferred.
Notwithstanding the foregoing, should an event occur that triggers a
benefit under Article 5, 6, or 7, any Annual Deferral Amount, plus
interest thereon, that is subject to a Short-Term Payout election under
this Section 4.1 shall not be paid in accordance with Section 4.1, but
shall be paid in accordance with the other applicable Article.
4.2 Withdrawal Election. A Participant may elect, at any time, to withdraw
the Withdrawal Amount. No partial withdrawals shall be allowed. The
Participant shall make this election by giving the Committee advance
written notice of the election in a form determined from time to time by
the Committee. Once the Withdrawal Amount is paid, the Participant
shall be suspended from eligibility to participate in the Plan until the
beginning of the third Plan Year following the date such amount is paid,
and the Participant may only resume participation at such time or a
later Plan Year by completing again the enrollment requirements
specified on Article 2 hereof.
<PAGE> 10
ARTICLE 5
Retirement Benefit
5.1 Retirement Benefit. Subject to the Deduction Limitation, a Participant
who retires shall receive, as a Retirement Benefit, his or her Account
Balance with interest credited in accordance with Section 3.6 hereof
and, if applicable, Section 3.7 hereof.
5.2 Payment of Retirement Benefits. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Retirement Benefit in a lump sum or in
monthly payments over a period of 60, 120, or 180 months (as determined
in accordance with Section 3.7 above). If no election is made payments
shall be made over a 180 month period. The Participant may change this
election to an allowable alternative payout period by submitting a new
Election Form to the Committee, provided that any such Election Form is
submitted at least two (2) years prior to the Participant's Retirement.
The Election Form most recently accepted by the Committee which meets
the requirement of the preceding sentence shall govern the payout of the
Retirement Benefit. The lump sum payment shall be made, or installment
payments shall commence, no later than 60 days from the date the
Participant Retires.
5.3 Death Prior to Completion of Retirement Benefits. If a Participant dies
after Retirement but before the Retirement Benefit is paid in full, the
Participant's unpaid Retirement Benefit payments shall continue and
shall be paid to the Participant's Beneficiary (a) over the remaining
number of months and in the same amounts as that benefit would have been
paid to the Participant had the Participant survived, or (b) in a lump
sum, if requested by the beneficiary and allowed at the sole and
absolute discretion of the Committee. The lump sum payment will be the
Participant's Account Balance at the time of his or her death, or, if
later, the time the lump sum payment is actually made.
<PAGE> 11
ARTICLE 6
Pre-Retirement Survivor Benefit
6.1 Pre-Retirement Survivor Benefit. Subject to the Deduction Limitation,
if a Participant dies before he or she Retires or has a Termination of
Employment, the Participant's Beneficiary shall receive a Pre-Retirement
Survivor Benefit equal to the Participant's Account Balance with
interest credited in accordance with Section 3.6 hereof and, if
applicable 3.7 hereof.
6.2 Payment of Pre-Retirement Survivor Benefits. The Pre-Retirement
Survivor Benefit shall be paid in the payment period previously elected
by the Participant for the payment of the Retirement Benefit, or, if no
election was made, monthly for 15 years. However, the Pre-Retirement
Survivor Benefit payment may be made as a lump sum at the request of the
Beneficiary and at the sole and absolute discretion of the Committee.
The first (or only payment, if made in lump sum) shall be made within 60
days of the Committee's receiving proof of the Participant's death.
<PAGE> 12
ARTICLE 7
Termination Benefit
7.1 Termination Benefits. Subject to the Deduction Limitation, if a
Participant experiences a Termination of Employment prior to his or her
Retirement, the Participant shall receive a Termination Benefit, which
shall be equal to the Participant's Account Balance with interest
credited in accordance with Section 3.6 hereof and, if applicable,
Section 3.7 hereof.
7.2 Payment of Termination Benefit. A Participant, in connection with his
or her commencement of participation in the Plan, shall elect on an
Election Form to receive the Termination Benefit in a lump sum or in
monthly payments over a period of 60, 120, or 180 months (as determined
in accordance with Section 3.7 above). The Participant may change the
selection to an allowable alternative pay out period by submitting a new
election form to the Committee, provided that any such Election Form is
submitted at least two (2) years prior to the Participant's Termination
of Employment. The Election Form most recently accepted by the
Committee which meets the requirement of the preceding sentence shall
govern the payout of the Termination Benefit. The lump sum payment
shall be made, or installment payments shall commence, no later than 60
days from the date of the Participant's Termination of Employment.
7.3 Death Prior to Completion of Termination Benefits. If a Participant
dies after Termination of Employment but before the Termination Benefit
is paid in full, the Participant's unpaid termination benefit payments
shall continue and shall be paid to the Participant's beneficiary (a)
over the remaining number of months and in the same amounts as the
benefit would have been paid to the Participant had the Participant
survived, or (b) in a lump sum, if requested by the beneficiary and
allowed at the sole and absolute discretion of the Committee. The lump
sum payment will be the Participant's Account Balance at the time of his
or her death, or, if later, the time the lump sum payment is actually
made.
<PAGE> 13
ARTICLE 8
Disability Waiver and Benefit
8.1 Disability Waiver.
(a) Eligibility. By participating in the Plan, all Participants are
eligible for this waiver.
(b) Waiver of Deferral; Credit for Plan Year of Disability. A
Participant who is determined by the Committee to be suffering
from a Disability shall be excused from fulfilling that portion of
the Annual Deferral Amount commitment that would otherwise have
been withheld from a Participant's Base Annual Salary and/or
Annual Bonus for the Plan Year during which the Participant first
suffers a Disability. During the period of Disability, the
Participant shall not be allowed to make any additional deferral
elections.
(c) Return to Work. If a Participant returns to employment with an
Employer after a Disability ceases, the Participant may elect to
to employment or service and for every Plan Year thereafter while
a Participant in the Plan; provided such deferral elections are
otherwise allowed and an Election Form is delivered to and
accepted by the Committee for each such election in accordance
with Section 3.3 above.
8.2 Benefit Eligibility. A Participant suffering a Disability shall, for
benefit purposes under this Plan but subject to Section 8.1, above,
continue to be considered to be employed and shall be eligible for the
benefits provided for in Articles 4, 5, 6 and 7 in accordance with the
provisions of those Articles. Employee shall be considered an active
employee for purposes of Section 1.36 hereof during a Disability.
Notwithstanding the above, the Committee shall have the right, in its
sole and absolute discretion and for purposes of this Plan only, to
terminate a Participant's employment at any time after such Participant
is determined to be permanently and totally disabled under the
Participant's Employer's long-term disability plan or would have been
determined to be permanently and totally disabled had he or she
participated in such plan. In such case, the Participant's Termination
Benefit under Article 7 hereof shall, if payable in installments, be
computed, notwithstanding Section 3.7 hereof, using the Preferred Rate
for the Plan Year in which the particular installment is paid.
<PAGE> 14
ARTICLE 9
Beneficiary Designation
9.1 Beneficiary. Each Participant shall have the right, at any time, to
designate his or her Beneficiary (both primary as well as contingent) to
receive any benefits payable under the Plan to a Beneficiary upon the
death of a Participant. The Beneficiary designated under this Plan may
be the same as or different from the Beneficiary designation under any
other plan of an Employer in which the Participant participates.
9.2 Beneficiary Designation; Change; Spousal Consent. A Participant shall
designate his or her Beneficiary by completing and signing the
Beneficiary Designation Form, and returning it to the Committee or its
designated agent. A Participant shall have the right to change a
Beneficiary by completing, signing and otherwise complying with the
terms of the Beneficiary Designation Form and the Committee's rules and
procedures, as in effect from time to time. Where required by law or by
the Committee, in its sole and absolute discretion, if the Participant
names someone other than his or her spouse as a Beneficiary, a spousal
consent, in the form designated by the Committee, must be signed by that
Participant's spouse and returned to the Committee. Upon the acceptance
by the Committee of a new Beneficiary Designation Form, all Beneficiary
designations previously filed shall be canceled. The Committee shall be
entitled to rely on the last Beneficiary Designation Form filed by the
Participant and accepted by the Committee prior to his or her death.
9.3 Acknowledgment. No designation or change in designation of a
Beneficiary shall be effective until received, accepted and acknowledged
in writing by the Committee or its designated agent
9.4 No Beneficiary Designation. If a Participant fails to designate a
Beneficiary as provided in Sections 9.1, 9.2 and 9.3 above, or, if all
designated Beneficiaries predecease the Participant, then the
Participant's designated Beneficiary shall be his or her surviving
spouse. If the Participant has no surviving spouse, the benefits
remaining under the Plan shall be paid to the Participant's estate.
9.5 Doubt as to Beneficiary. If the Committee has any doubt as to the
proper Beneficiary to receive payments pursuant to this Plan, the
Committee shall have the right, exercisable in its sole and absolute
discretion, to cause the Participant's Employer to withhold such
payments until this matter is resolved to the Committee's satisfaction.
9.6 Discharge of Obligations. The payment of benefits under the Plan to a
Beneficiary shall fully and completely discharge all Employers and the
Committee from all further obligations under this Plan with respect to
the Participant, and that Participant's Plan Agreement shall terminate
upon such full payment of benefits.
<PAGE> 15
ARTICLE 10
Leave of Absence
10.1 Paid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take a paid leave of absence
from the employment of the Employer, the Participant shall continue to
be considered actively employed by the Employer for purposes of Section
1.36 hereof and the Annual Deferral Amount shall continue to be
withheld during such paid leave of absence in accordance with Section
3.3.
10.2 Unpaid Leave of Absence. If a Participant is authorized by the
Participant's Employer for any reason to take an unpaid leave of
absence from the employment of the Employer, the Participant shall
continue to be considered actively employed by the Employer for
purposes of Section 1.36 hereof, but the Participant shall be excused
from making deferrals until the earlier of the date the leave of
absence expires or the date the Participant returns to paid employment
status. Upon such expiration or return, deferrals shall resume for the
remaining portion of the Plan Year in which the expiration or return
occurs, based on the deferral election, if any, made for that Plan
Year. If no election was made for that Plan Year, no deferral shall be
withheld.
<PAGE> 16
ARTICLE 11
Termination, Amendment or Modification
11.1 Termination. Any Employer reserves the right to terminate the Plan at
any time with respect to Participants employed by the Employer. Upon
the termination of the Plan, the Participant's Account Balance shall be
paid out as though the Participant had experienced a Termination of
Employment on the date of Plan termination, or, if Plan termination
occurs after the date upon which the Participant was eligible to
Retire, the Participant had Retired on the date of Plan termination,
or, if Plan termination occurs after the Participant Retired or had a
Termination of Employment and commenced (but not completed)
distribution hereunder, benefits shall continue to the Participant
pursuant to the terms hereof without regard to the Plan termination.
11.2 Amendment. Any Employer may, at any time, amend or modify the Plan in
whole or in part with respect to that Employer; provided, however, that
no amendment or modification shall be effective to decrease a
Participant's Account Balance, calculated as though the Participant had
experienced a Termination of Employment as of the effective date of the
amendment or modification, or, if the amendment or modification occurs
after the date upon which the Participant was eligible to Retire, the
Participant had Retired as of the effective date of the amendment or
modification. In addition, no amendment or modification of the Plan
shall affect the right of any Participant or Beneficiary who was
eligible to or did Retire or who did have a Termination of Employment
on or before the effective date of such amendment or modification to
receive benefits in the manner he or she elected.
11.3 Interest Rate in the Event of a Change in Control and Interest. In
connection with a Termination of Employment or a Plan termination,
amendment or modification under Sections 11.1 and 11.2, above,
occurring within two years following a Change in Control, the interest
rate for an installment payment shall in all events, notwithstanding
Section 3.7 hereof, be the Preferred Rate for the Plan Year in which
the installment payments commence.
11.4 Effect of Payment. The full payment of the applicable benefit under
Articles 4, 5, 6, or 7 of the Plan shall completely discharge all
obligations to a Participant under this Plan and the Participant's Plan
Agreement shall terminate.
<PAGE> 17
ARTICLE 12
Administration
12.1 Committee Duties. This Plan shall be administered by a Committee, to
be known as the Mueller Deferred Compensation Plan Committee, which
shall consist of individuals approved by the Board. The initial
members shall include the Chairman of the Board, and the Chief
Executive Officer and Chief Financial Officer of the Company. Members
of the Committee may be Participants under this Plan. The Committee
shall also have the discretion and authority to make, amend, interpret,
and enforce all appropriate rules and regulations for the
administration of this Plan and decide or resolve any and all questions
including interpretations of this Plan, as may arise in connection with
the Plan. Any Committee member must recuse himself or herself on any
matter of personal interest to such member that comes before the
Committee.
12.2 Agents. In the administration of this Plan, the Committee may, from
time to time, employ agents and delegate to them such administrative
duties as it sees fit and may from time to time consult with counsel
who may be counsel to any Employer.
12.3 Binding Effect of Decisions. The decision or action of the Committee
with respect to any question arising out of or in connection with the
administration, interpretation and application of the Plan and the
rules and regulations promulgated hereunder shall be final and
conclusive and binding upon all persons having any interest in the
Plan.
12.4 Indemnity of Committee. All Employers shall indemnify and hold
harmless the members of the Committee against any and all claims,
losses, damages, expenses or liabilities arising from any action or
failure to act with respect to this Plan to the fullest extent
permitted by applicable law.
12.5 Employer Information. To enable the Committee to perform its
functions, each Employer shall supply full and timely information to
the Committee on all matters relating to the compensation of its
Participants, the date and circumstances of the Retirement, Disability,
death or Termination of Employment of its Participants, and such other
pertinent information as the Committee may reasonably require.
<PAGE> 18
ARTICLE 13
Claims Procedure
13.1 Presentation of Claim. Any Participant or Beneficiary of a deceased
Participant (such Participant or Beneficiary being referred to below as
a "Claimant") may deliver to the Committee a written claim for a
determination with respect to the amounts distributable to such
Claimant from the Plan. If such a claim relates to the contents of a
notice received by the Claimant, the claim must be made within 60 days
after such notice was received by the Claimant. All other claims must
be made within 180 days of the date on which the event that caused the
claim to arise occurred. The claim must state with particularity the
determination desired by the Claimant.
13.2 Notification of Decision. The Committee shall consider a Claimant's
claim within 60 days of the making of the claim, and shall notify the
Claimant in writing:
(a) that the Claimant's requested determination has been made, and
that the claim has been allowed in full; or
(b) that the Committee has reached a conclusion contrary, in whole or
in part, to the Claimant's requested determination, and such
notice must set forth in a manner calculated to be understood by
he Claimant:
(i) the specific reason(s) for the denial of the claim, or any
part of it;
(ii) specific reference(s) to pertinent provisions of the Plan
upon which such denial was based;
(iii) a description of any additional material or information
necessary for the Claimant to perfect the claim, and an
explanation of why such material or information is
necessary; and
(iv) an explanation of the claim review procedure set forth in
Section 13.3 below.
13.3 Review of a Denied Claim. Within 60 days after receiving a notice from
the Committee that a claim has been denied, in whole or in part, a
Claimant (or the Claimant's duly authorized representative) may file
with the Committee a written request for a review of the denial of the
claim. Thereafter, but not later than 30 days after the review
procedure begins, the Claimant (or the Claimant's duly authorized
representative):
(a) may review pertinent documents;
(b) may submit written comments or other documents; and/or
(c) may request a hearing, which the Committee, in its sole
discretion, may grant.
<PAGE> 19
13.4 Decision on Review. The Committee shall render its decision on review
promptly, and not later than 60 days after the filing of a written
request for review of the denial, unless a hearing is held or other
special circumstances require additional time, in which case the
Committee's decision must be rendered within 120 days after such date.
Such decision must be written in a manner calculated to be understood
by the Claimant, and it must contain:
(a) specific reasons for the decision;
(b) specific reference(s) to the pertinent Plan provisions upon which
the decision was based; and
(c) such other matters as the Committee deems relevant.
13.5 Legal Action. A Claimant's compliance with the foregoing provisions of
this Article 13 is a mandatory prerequisite to a Claimant's right to
commence any legal action with respect to any claim for benefits under
this Plan.
<PAGE> 20
ARTICLE 14
Trust
14.1 Establishment of Trust. The Company shall establish the Trust. While
no Employer guarantees the level of funding, it is the Employers'
intention that sufficient assets be transferred to the Trust so that
the value of the Trust at all times equals or exceeds the aggregate
value of Account Balances.
14.2 Interrelationship of the Plan and the Trust. The provisions of the
Plan shall govern the rights of a Participant to receive distributions
pursuant to the Plan. The provisions of the Trust shall govern the
rights of the Participant and the creditors of the Employers to the
assets transferred to the Trust. The Employers shall at all times
remain liable to carry out their obligations under the Plan. The
Employers' obligations under the Plan may be satisfied with Trust
assets distributed pursuant to the terms of the Trust.
<PAGE> 21
ARTICLE 15
Miscellaneous
15.1 Unsecured General Creditor. Participants and their Beneficiaries,
heirs, successors and assigns shall have no legal or equitable right,
interest or claim in any specific property or assets of an Employer.
Any and all of an Employer's assets shall be, and remain, the general,
unpledged and unrestricted assets of the Employer. An Employer's
obligation under the Plan shall be merely that of an unfunded and
unsecured promise to pay money in the future.
15.2 Employer's Liability. An Employer's liability for the payment of
benefits shall be defined only by the Plan. An Employer shall have no
obligation to a Participant under the Plan except as expressly provided
in the Plan.
15.3 Nonassignability. Neither a Participant nor any other person shall
have any right to commute, sell, assign, transfer, pledge, anticipate,
mortgage, or otherwise encumber, transfer, hypothecate or convey in
advance of actual receipt, the amounts, if any, payable hereunder, or
any part thereof, which are, and all rights to which are expressly
declared to be unassignable and non-transferable. No part of the
amounts payable shall, prior to actual payment, be subject to seizure
or sequestration for the payment of any debts, judgments, alimony or
separate maintenance owed by a Participant or any other person, nor be
transferable by operation of law in the event of a Participant's or any
other person's bankruptcy or insolvency.
15.4 Coordination with Other Benefits. The benefits provided for a
Participant and Participant's Beneficiary under the Plan are in
addition to any other benefits available to such Participant under any
other plan or program for employees of the Participant's Employer. The
Plan shall supplement and shall not supersede, modify or amend any
other such plan or program except as may otherwise be expressly
provided.
15.5 Not a Contract of Employment. The terms and conditions of this Plan
shall not be deemed to constitute a contract of employment between any
Employer and the Participant. Such employment is hereby acknowledged
to be an "at will" employment relationship that can be terminated at
any time for any reason, with or without cause, unless expressly
provided in a written employment agreement. Nothing in this Plan shall
be deemed to give a Participant the right to be retained in the service
of any Employer, either as an employee or a director, or to interfere
with the right of any Employer to discipline or discharge the
Participant at any time.
15.6 Furnishing Information. A Participant or his or her Beneficiary will
cooperate with the Committee by furnishing any and all information
requested by the Committee and take such other actions as may be
reasonably requested in order to facilitate the administration of the
Plan and the payments of benefits hereunder, including but not limited
to taking such physical examinations as the Committee may deem
necessary.
<PAGE> 22
15.7 Terms. Whenever any words are used herein in the singular or in the
plural, they shall be construed as though they were used in the plural
or the singular, as the case may be, in all cases where they would so
apply. The masculine pronoun shall be deemed to include the feminine
and vice versa, unless the context clearly indicates otherwise.
15.8 Captions. The captions of the articles, sections and paragraphs of
this Plan are for convenience only and shall not control or affect the
meaning or construction of any of its provisions.
15.9 Governing Law. Subject to ERISA, the provisions of this Plan shall be
construed and interpreted according to the laws of the State of
Tennessee.
15.10 Notice. Any notice or filing required or permitted to be given to the
Committee under this Plan shall be sufficient if in writing and hand
delivered, or sent by registered or certified mail, to:
Vice President, Human Resources
MUELLER INDUSTRIES, INC.
8001 Centerview Parking, Suite 103
Cordova, TN 38018
Such notice shall be deemed given as of the date of delivery or, if
delivery is made by mail, as of the date shown on the postmark on the
receipt for registration or certification. The Committee may from time
to time change its address for the purpose of notice or filing required
or permitted to be given to the Committee under this Plan by giving
written notice to the Participants specifying a new address.
Any notice or filing required or permitted to be given to a Participant
under this Plan shall be sufficient if in writing and hand-delivered,
or sent by mail, to the last known address of the Participant.
15.11 Successors. The provisions of this Plan shall bind and inure to the
benefit of the Participant's Employer and its successors and assigns
and the Participant, the Participant's Beneficiaries, and their
permitted successors and assigns.
15.12 Spouse's Interest. The interest in the benefits hereunder of a spouse
of a Participant who has predeceased the Participant shall
automatically pass to the Participant and shall not be transferable by
such spouse in any manner, including but not limited to such spouse's
will, nor shall such interest pass under the laws of intestate
succession.
15.13 Validity. In case any provision of this Plan shall be illegal or
invalid for any reason, said illegality or invalidity shall not affect
the remaining parts hereof, but this Plan shall be construed and
enforced as if such illegal or invalid provision had never been
inserted herein.
<PAGE> 23
15.14 Incompetent. If the Committee determines in its discretion that a
benefit under this Plan is to be paid to a minor, a person declared
incompetent or to a person incapable of handling the disposition of
that person's property, the Committee may direct payment of such
benefit to the guardian, legal representative or person having the care
and custody of such minor, incompetent or incapable person. The
Committee may require proof of minority, incompetency, incapacity or
guardianship, as it may deem appropriate prior to distribution of the
benefit. Any payment of a benefit shall be a payment for the account
of the Participant and the Participant's Beneficiary, as the case may
be, and shall be a complete discharge of any liability under the Plan
for such payment amount.
15.15 Distribution in the Event of Taxation. If, for any reason, all or any
portion of a Participant's benefit under this Plan becomes taxable to
the Participant prior to receipt, a Participant may petition the
Committee for a distribution of assets sufficient to meet the
Participant's tax liability (including additions to tax, penalties and
interest). Upon the grant of such a petition, which grant shall not be
unreasonably withheld, a Participant's Employer shall distribute to the
Participant immediately available funds in an amount equal to that
Participant's federal, state and local tax liability associated with
such taxation (which amount shall not exceed the Participant's vested
Account Balance), which liability shall be measured by using that
Participant's then current highest federal, state and local marginal
tax rate, plus the rates or amounts for the applicable additions to
tax, penalties and interest. If the petition is granted, the tax
liability distribution shall be made within 90 days of the date when
the Participant's petition is granted. Such a distribution shall
reduce the benefits to be paid under this Plan.
15.16 Legal Fees to Enforce Rights After Change in Control. The Company is
aware that upon the occurrence of a Change in Control, the Board (which
might then be composed of new members) or a shareholder of the Company,
or of any successor corporation might then cause or attempt to cause
the Company or such successor to refuse to comply with its obligations
under the Plan and might cause or attempt to cause the Company to
institute, or may institute, litigation seeking to deny Participants
the benefits intended under the Plan. In these circumstances, the
purpose of the Plan could be frustrated. Accordingly, if, following a
Change in Control, it should appear to any Participant that the Company
or the Committee has failed to comply with any of its obligations under
the Plan or any agreement thereunder or, if the Company or any other
person takes any action to declare the Plan void or unenforceable or
institutes any litigation or other legal action designed to deny,
diminish or to recover from any Participant or Beneficiary the benefits
intended to be provided, then the Company irrevocably authorizes such
person to retain counsel of his or her choice at the expense of the
Company to represent such person in connection with the initiation or
defense of any litigation or other legal action, whether by or against
the Company, the Committee, or any director, officer, shareholder or
other person affiliated with the Company or any successor thereto in
any jurisdiction.
<PAGE> 24
IN WITNESS WHEREOF, the Company has signed this amended and restated Plan
document as of ______________________, 1997.
MUELLER INDUSTRIES, INC.
a Delaware corporation
By:_____________________________
Its:____________________________
<PAGE> 1
MUELLER INDUSTRIES, INC.
1996 ANNUAL REPORT
COMMITMENT TO EXCELLENCE
We are committed to being the supplier of choice in our industry.
Continual investment in state-of-the-art technology, equipment, and people
will set us apart...and allow us to anticipate and exceed the needs of our
customers. Serving our customers and employees well should prove to be a
worthwhile reward for our long-term shareholders.
In 1997, we will be able to better serve our customers' needs because of
our recent investments:
High efficiency extrusion and continuous tube drawing;
Indirect extrusion press increasing yield at our brass rod mill;
Plastic fittings capacity;
Key item/high-volume copper fittings factory;
Entry into the line set business; and
Acquisition of Precision Tube Company business.
Our goal is to continually improve existing operations, pursue additional
areas of growth, and provide our customers with superior service. Areas of
focus in 1997 include:
Improving the utilization of scrap metal with enhanced refining
processes;
Broadening our plastics product offering;
Building a prototype distribution center in Covington, Tennessee;
and
Streamlining our distribution network.
You will also see continuing focus in the future on external growth of
our Company through strategic acquisitions.
As you can imagine, our employees are never satisfied with simply
maintaining the status quo. Originality is the principal source of human
improvement. Original thinkers don't fear change, they embrace it! They look
forward to change because they know it is where they thrive. The happiness
and well-being of our employees is dependent on their ability to be flexible
and receptive to change. They can and will continue to meet every future
challenge.
<PAGE> 2
FINANCIAL HIGHLIGHTS
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $ 517,339 $ 501,885 $ 550,003 $ 678,838 $ 718,312
Sales of manufactured products
(in millions of pounds) 329.5 362.1 380.6 388.3 447.0
Net income $ 16,666 $ 21,136 $ 27,926 $ 44,823 $ 61,173
Average shares outstanding (in thousands) 20,110 20,886 19,780 19,149 19,497
Net income per share - primary $ .83 $ 1.01 $ 1.41 $ 2.34 $ 3.14
Significant Year-End Data
Cash and cash equivalents $ 44,459 $ 77,336 $ 34,492 $ 48,357 $ 96,956
Ratio of current assets to current liabilities 3.1 to 1 4.1 to 1 2.7 to 1 3.1 to 1 3.5 to 1
Working capital $ 124,355 $ 146,981 $ 116,330 $ 143,154 $ 195,756
Long-term debt (including current portion) $ 69,477 $ 62,711 $ 94,736 $ 75,902 $ 59,650
Debt as a percent of total capitalization 25.4% 22.0% 28.1% 21.0% 14.6%
Stockholders' equity $ 204,421 $ 222,114 $ 241,948 $ 285,875 $ 348,082
Book value per share $ 10.61 $ 11.59 $ 13.91 $ 16.48 $ 19.96
Capital expenditures $ 10,952 $ 11,083 $ 48,152 $ 40,980 $ 18,868
Number of employees 2,055 2,010 2,256 2,274 2,339
</TABLE>
[GRAPH]
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
Net Income (Dollars In Thousands) $ 16,666 $ 21,136 $ 27,926 $ 44,823 $ 61,173
Primary Earnings Per Share $ .83 $ 1.01 $ 1.41 $ 2.34 $ 3.14
</TABLE>
<PAGE> 3
A REPORT TO OUR STOCKHOLDERS, CUSTOMERS, AND EMPLOYEES
In 1996, Mueller Industries, Inc. again achieved record earnings. Sales,
net earnings, pounds of product shipped, and earnings per share all reached
record levels. Our major capital investments of the past few years have
resulted in increased production capacity, higher yields, and improved
efficiency at the Company's manufacturing operations. Our excellent balance
sheet, dedicated employees, and strong customer relationships provide Mueller
with many opportunities for growth in the years ahead.
Record Results
Net income increased to $61.2 million in 1996, compared to $44.8 million
in 1995, a gain of 37 percent. Earnings per share rose 34 percent, to $3.14
for 1996 from $2.34 per share in 1995. Despite a decline in copper prices,
which are largely incorporated into our selling prices, net sales climbed to
$718.3 million in 1996, from $678.8 million in the prior year. Mueller
shipped 447.0 million pounds of product in 1996, up 15 percent from 388.3
million pounds in 1995.
Manufacturing Operations
Mueller's copper tube mill, located in Fulton, Mississippi, had a busy
and productive year. Market demand for tube products was strong, but by
working around-the-clock, Mueller's employees beat all prior production
records and met our customers' needs. An enlarged billet package and state-
of-the-art drawing equipment enabled the mill to increase deliveries, while
maintaining quality standards and reducing conversion costs.
Demand for wrot copper fittings was also strong in 1996. Selling prices
dropped slightly, but overall, our margins remained solid. Manufacturing
productivity at Mueller's low-volume copper fittings plant in Covington,
Tennessee, improved. All production lines at our new high-volume copper
fittings plant in Fulton, Mississippi, are now operational. Although this
plant provides needed additional capacity, it is not yet operating at planned
levels of throughput and yield. Mueller's Canadian copper fittings plant,
located in Strathroy, Ontario, had another good year, despite the slow economy
in Canada and Europe.
Our plastic fittings business had a breakthrough year. Mueller's plants
in Ohio, Michigan, and California operated at unprecedented volume and
efficiency. Our decision in 1994 to expand our presence in the plastics
business has proved worthwhile giving us the size and leverage to become one
of the lowest cost producers in the industry.
Our refrigeration business, based in Hartsville, Tennessee, continued to
grow both in sales and profitability. We are working to achieve further
growth, while delivering products more effectively through our OEM and
wholesale channels of distribution.
Mueller's Port Huron, Michigan, brass rod mill ran near capacity for the
entire year. The new indirect extrusion press, installed in late 1995,
permitted an increase in throughput to meet brisk market demand. Sales at our
forgings plant, also in Port Huron, remained solid. Production improved
significantly at our aluminum impact extrusion facility in Marysville,
Michigan. This business has successfully transitioned from dependence on
munitions to a more diverse product portfolio with greater potential for
growth.
<PAGE> 4
Natural Resource Operations
The Utah Railway Company had its best year ever in 1996. Tonnage shipped
increased by 14 percent, resulting in increased operating profits. As a
result of the Union Pacific/Southern Pacific merger, the railroad gained
trackage rights and access to additional coal mining customers. We are
exploring these new opportunities.
In March 1996, Mueller acquired the minority interest in Alaska Gold
Company, thereby making it a wholly-owned subsidiary. Alaska Gold, which
operates open-pit placer gold mines in Nome, Alaska, had a difficult year due
to lower grade pay gravel and increased exploration costs. In 1997, Alaska
Gold will focus on profitable extraction of gold from ongoing open-pit
operations.
Internal Growth
The Company has begun a two-year program to upgrade its copper casting
and refining processes at the Fulton copper tube mill. This investment,
totaling approximately $25 million, will increase copper tube capacity and
allow greater flexibility in the use of copper scrap when market conditions
warrant.
In the plastic fittings business, Mueller has embarked on an $11 million
capital investment program to increase productivity and capacity at our
manufacturing plants. In addition, we will invest approximately $7 million
over the next two years in our Covington, Tennessee, low-volume copper
fittings plant to increase output and improve efficiency.
Finally, Mueller is implementing several initiatives to improve our
distribution systems. Warehouse capacity at the Fulton tube mill will expand
substantially, permitting more large orders to ship direct to customers.
Direct shipments will increase availability and reduce handling costs. We
also plan to install a new, highly automated part-picking and shipping system
in Covington, allowing for faster order processing.
Acquisitions
Mueller made two acquisitions in 1996. In June, we entered the line sets
business by acquiring the assets of Vanguard Industries, Inc. Line sets, made
from copper tube, are used to control the flow of refrigerant gases. The
acquisition was immediately accretive to earnings. Our sales force has had
considerable success distributing line sets to both OEMs and wholesalers. To
keep up with anticipated demand, we will construct a new line sets factory in
Fulton, Mississippi, during 1997.
On December 30, 1996, Mueller acquired the assets of Precision Tube
Company, Inc., with operations in North Wales, Pennsylvania, and Salisbury,
Maryland. Precision Tube manufactures copper tubing, copper alloy tubing,
aluminum tubing, and fabricated tubular products. Precision Tube's largest
market is the baseboard heating industry. The acquisition should be accretive
to earnings in 1997.
Mueller will continue to seek acquisitions, on a global basis, that will
add to the basic value of our Company. We look for logical extensions to our
existing product lines that can benefit from our manufacturing or marketing
expertise. In anticipation of continued growth, Mueller increased its
unsecured line-of-credit facility to $100 million in December 1996.
<PAGE> 5
Philosophy
Mueller is committed to long-term business relationships. We work every
day to understand and anticipate our customers' needs. We will continue to
invest the care and capital to ensure quality, availability, and service.
Empowering employees is the key to successful change. The progress of
the past few years would not have been possible without the dedication and
enthusiasm of our many talented and hard-working employees. Mueller will
continue to respect and to support our employees, to reward thoughtful
initiative, and to provide opportunities for career advancement.
Outlook
Economic indicators going into 1997 are favorable for our business.
Housing starts are near the highest levels of the 1990s. Larger homes are
being built, with more bathrooms, generating increasing demand for our
products. Consumer confidence is high. Fixed rate 30-year mortgages are
available at interest rates below 8 percent. These favorable economic
conditions hold the promise for another good year for Mueller.
Enthusiasm and excitement pervade Mueller. Our Company has achieved much
in the past five years with each accomplishment creating new opportunities.
We will pursue these opportunities with energy and purpose.
Sincerely,
/s/Harvey L. Karp /s/William D. O'Hagan
Harvey L. Karp William D. O'Hagan
Chairman of the Board President and Chief
Executive Officer
March 18, 1997
<PAGE> 6
BUSINESS INTERESTS
STANDARD PRODUCTS DIVISION
Copper Fittings
Copper fittings are found in virtually all water distribution systems,
heating systems, and air-conditioning and refrigeration applications in
residential, office and commercial construction. Mueller manufactures
Streamline wrot copper fittings at four plants located in Fulton,
Mississippi; Covington, Tennessee; Port Huron, Michigan; and Strathroy,
Ontario, Canada. The plants convert tube produced at Mueller's copper tube
mill and copper rod into over 1,500 different sizes and shapes. Our newest
facility, a high-volume copper fittings plant, is adjacent to our tube mill in
Fulton. This plant opened in late 1995 and increased Mueller's capacity to
produce its most popular copper fittings. This specialized high-volume
factory enables the Company's facility in Covington to focus on a much broader
range of low-volume items, where careful scheduling and quick changeovers are
critical to profitable and efficient operation. Mueller is also undertaking a
modernization program at this plant in Covington to reduce conversion costs
and expand capacity. Our Strathroy facility produces inch and metric sized
fittings and is ISO certified. The Strathroy operation serves many of our
European customers where metric sized products are required.
Plastic Fittings
Mueller manufactures a full DWV plastic fittings product line. These
operations are located in Kalamazoo, Michigan; Cerritos, California; and Upper
Sandusky, Ohio. Injection molding equipment at these three plants produces
over 1,000 different parts in PVC and ABS in various diameters. Recent
investments in new production equipment and processing technology have greatly
enhanced the Company's efficiency making Mueller a low cost producer of
plastic fittings and valves. The Company plans to broaden its plastics
offering in the future to better supply our customers' needs.
Copper Tube
The Company's copper tube mill, located in Fulton, Mississippi, produces
one of the broadest lines of copper tube offered by any single manufacturer.
Products include dehydrated coils and nitrogen-charged straight lengths used
primarily for refrigeration and air-conditioning, copper water tube in
straight lengths and coils used for plumbing and construction, and redraw
tubing for OEMs. We sell to plumbing and refrigeration wholesalers and to OEM
customers in North America and numerous foreign countries.
A mill modernization program, completed in 1995, included an upgrade of
extrusion technology and installation of state-of-the-art tube drawing and
material handling equipment, significantly increasing productivity and
efficiency. Because of this investment, the Company was better able to serve
its customers' growing demand for tube in 1996.
<PAGE> 7
Line Sets
The Company entered the line sets business during the second quarter by
acquiring the assets of Vanguard Industries, Inc. We sell this product, which
is used for controlling the flow of refrigerant gases, to both OEMs and
wholesalers. Line sets are a logical extension of our product line as they
are made from copper tube and are distributed by our present sales
organization. The Company manufactures line sets at a separate factory in
Fulton, Mississippi.
PRECISION TUBE COMPANY
Precision Tube manufactures copper tubing, copper alloy tubing, aluminum
tubing and fabricated tubular products. Precision Tube's principal product
line, manufactured at its plant in North Wales, Pennsylvania, is copper tubing
for the baseboard heating industry. Other applications include appliances,
aircraft, connectors, medical instruments, musical instruments, and sports and
leisure products.
Precision Tube also manufactures semi-rigid and flexible coaxial cables
and assemblies at its facility in Salisbury, Maryland (Coaxitube Division).
Applications of these products include defense and microwave technologies.
The Coaxitube Division also has exclusive North American rights to market and
distribute Spinner GmbH connectors, which are used in applications where
precise tolerances are critical.
The Precision Tube acquisition, completed on December 30, 1996, is a
logical extension of the Company's copper fabricating business. With access
to additional capital, Precision Tube should be able to expand its customer
base and improve its operating efficiency and profitability.
INDUSTRIAL PRODUCTS DIVISION
Mueller rod products, hot forgings and impact extrusions are found in a
variety of end products including plumbing brass, automotive components,
valves and fittings, and industrial machinery and equipment. Industrial
products are sold through service centers and to OEM customers.
Brass Rod
The Port Huron, Michigan, mill is a leading extruder of free-machining
brass rod. Mueller produces a broad range of rounds, squares, and hexagons
for machining, thread rolling, and forging applications. The rod mill also
produces special purpose alloys and continues to expand its line of special
shapes and profiles.
During 1996, Mueller completed a two-year, $16 million investment program
at its brass rod mill. This investment included the installation of a state-
of-the-art indirect extrusion press, new billet heating furnaces, rod coilers
and run out conveyors, and product cleaning and material handling systems.
This modernization program significantly upgrades the manufacturing process.
Mueller is enhancing these operations to achieve greater throughput enabling
us to satisfy the growing, changing needs of our customers.
<PAGE> 8
Forgings
The forging operation, also located in Port Huron, Michigan, produces a
wide variety of brass and aluminum parts. The Company continues to invest in
automated forging technology. This has opened new market opportunities for
the production of high-volume, close tolerance custom parts close to final
shape and dimensions.
Impact Extrusions
Impact extrusions produced at Marysville, Michigan, are QS 9000
certified. These cold formed aluminum and copper wrot products combine
toughness with versatility of design and finish. Mueller impacts enable
customers to replace multi-part assemblies with simple one piece designs,
resulting in increased strength, reduced weight, and improved appearance.
REFRIGERATION PRODUCTS DIVISION
Mueller manufactures a broad line of valves, fittings, filters, driers
and custom OEM products for refrigeration and air-conditioning applications at
its Hartsville, Tennessee, plant. Many Hartsville products are machined and
assembled from rod stock and forged products manufactured in the Company's
Port Huron plants. These fittings and assemblies are used in refrigeration
applications such as residential and commercial air-conditioning systems,
walk-in coolers, and ice and vending machines. Customers for Mueller's
refrigeration products include OEMs and refrigeration wholesalers in the
United States and throughout the world.
NATURAL RESOURCE OPERATIONS
The Utah Railway Company, established in 1912, hauls coal to connections
with national carriers, power plants and to other destinations. In 1996,
Utah Railway hauled 6.2 million tons of coal mined primarily in Carbon and
Emery Counties, Utah. In February 1996, Utah Railway reached an agreement
with the Union Pacific Railroad granting us overhead trackage rights to Grand
Junction, Colorado, and access to additional coal mining customers.
In 1996, Alaska Gold Company mined approximately 24,100 ounces of gold
through open-pit and other operations. Alaska Gold will continue open-pit
mining in Nome during 1997.
<PAGE> 9
[GRAPH]
EARNINGS PER SHARE BY QUARTER
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fourth quarter $ .91 $ .65 $ .50
Third quarter .83 .60 .45
Second quarter .71 .56 .28
First quarter .69 .53 .20
</TABLE>
[GRAPH]
DEBT AS A PERCENT OF TOTAL CAPITALIZATION BY QUARTER
<TABLE>
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Fourth quarter 14.6% 21.0% 28.1%
Third quarter 16.8% 22.7% 30.3%
Second quarter 18.1% 25.1% 27.3%
First quarter 19.5% 26.7% 26.3%
</TABLE>
<PAGE> 10
FINANCIAL REVIEW
OVERVIEW
The Company's principal business is the manufacture and sale of copper
tube, brass rod, copper and plastic fittings, forgings, valves, and other
products made of copper, brass, bronze, plastic and aluminum. New housing
starts and commercial construction are important determinants of the
Company's sales to the air-conditioning, refrigeration, and plumbing
markets because the principal end use of a significant portion of the
Company's products is in the construction of single and multi-family
housing, commercial buildings, and other construction. A majority of the
Company's product is sold through wholesalers in the plumbing, air-
conditioning and refrigeration markets and to OEMs in these and other
markets.
Profitability of certain of the Company's product lines depends upon
the "spreads" between the cost of metal and the gross selling prices of its
completed products. The open market price for copper cathode, for example,
directly influences the selling price of copper tubing, a principal product
manufactured by the Company. The Company minimizes the effects of changes
in copper prices by passing base metal costs through to its customers as
metal prices fluctuate.
In 1994, Mueller adopted the LIFO method of accounting for the copper
component of certain of its copper tube and fittings inventories.
Management believes the LIFO method results in a better matching of current
costs with current revenues. The market price of copper does, however,
indirectly affect the carrying value (FIFO basis) of the Company's brass
and other inventories. The Company's copper and brass inventories
customarily total between 30 and 40 million pounds. "Spreads" between
material costs and selling prices of finished products fluctuate based upon
competitive market conditions.
The Company also owns various natural resource properties in the
Western United States and Canada. It operates a short line railroad in
Utah and a placer gold mining company in Alaska. Also, certain other
natural resource properties are leased while others are offered for sale.
Certain properties produce rental or royalty income.
RESULTS OF OPERATIONS
1996 Performance Compared to 1995
Consolidated net sales were $718.3 million in 1996, up $39.5 million
or 5.8 percent from net sales of $678.8 million in 1995. In the
manufacturing businesses, sales reached 447.0 million pounds, for a 15.1
percent volume increase over the prior year. Lower copper raw material
costs, which are largely reflected in the selling price of the Company's
products, account for the difference in the rates of increase in sales
dollars and pounds. Natural resource sales declined to $20.3 million in
1996 from $31.9 million in 1995 due to the timing of gold sales.
<PAGE> 11
Cost of goods sold increased $4.7 million to $554.6 million in 1996.
This increase is primarily attributable to higher sales volume. The
Company's gross profit increased $34.8 million, or 27 percent, to $163.7
million as the Company leveraged its operating costs. This increase
reflects cost reductions and yield improvements in our manufacturing
operations as well as price improvements in certain product lines.
Depreciation and amortization totaled $18.5 million in 1996 compared
with $15.5 million in 1995. This increase results from heavy capital
expenditure programs in recent years.
Selling, general, and administrative expense increased $5.3 million in
1996 from $49.5 million in 1995. This increase was due mainly to the
relocation of the Company's corporate office to Memphis, Tennessee, higher
sales volume in 1996, increased employee incentive compensation, and growth
related expenses.
Interest expense in 1996 totaled $5.3 million, or $1.2 million more
than in 1995. The Company capitalized $2.6 million less interest in 1996
on major, long-term, capital improvement programs than it capitalized in
1995 because most of these capital programs became operational in late 1995
and early 1996. Total interest payments in 1996 decreased due to
reductions in long-term debt.
The 1996 provision for environmental reserves totaled $2.0 million
compared to $1.4 million in 1995. This additional provision is mainly for
Mueller's Mining Remedial Recovery Company and is based on updated
information and results of ongoing environmental remeditation and
monitoring programs for previously identified environmental sites.
Other income decreased to $5.3 million in 1996 from $6.1 million in
1995. This decrease was due mainly to lower rent and royalty income and a
reduced gain from disposal of properties, both in our natural resource
businesses. This decrease was partially offset by higher interest income
as the Company's cash balance increased during 1996.
The Company provided $27.2 million for income taxes in 1996, of which
$4.1 million was deferred. The current tax expense of $23.1 million for
1996 increased due to higher taxable income. During 1996, the effective
tax rate of 30.8 percent reflects the recognition of certain tax attributes
discussed in Note 6 and certain favorable state tax credits including IRB
financings.
Manufacturing Group
In 1996, net sales increased $51.1 million to $698.0 million, a 7.9
percent increase over 1995. Sales volume, measured in pounds of product
sold, increased 15.1 percent in 1996. Copper raw material costs were lower
in 1996 than they were in 1995. Pricing changes incorporate fluctuations
in raw material cost. Increased volume and spread, combined with improved
operating efficiency and yield, resulted in a 35 percent improvement in
gross profit.
Operating income increased primarily due to: (i) productivity and
yield improvements in manufacturing operations; (ii) selective price
increases in fittings; and (iii) higher margins on copper tube.
<PAGE> 12
Natural Resources Group
Net sales of the Company's natural resources segment were $20.3
million in 1996 compared to $31.9 million in 1995. This decline was
primarily due to lower gold sales, offset by increased revenues at Utah
Railway. Transportation revenues of Utah Railway were $20.0 million in
1996, a 9.8 percent increase over 1995. Utah Railway hauled 6.2 million
tons of coal in 1996, which was a 13.6 percent increase over 1995. Alaska
Gold did not sell gold during 1996; in 1995, gold sales totaled $13.0
million (33,820 ounces). At December 28, 1996, approximately 24,100 ounces
of gold remained in inventory.
1995 Performance Compared to 1994
Consolidated net sales of $678.8 million in 1995 compares with $550.0
million in 1994. The increase is primarily attributable to higher copper
prices, which are generally passed through to customers, and to higher
volumes. In 1995, the Company's core manufacturing businesses shipped
388.3 million pounds of product compared to 380.6 million pounds in 1994.
This improvement in shipments was due to modest market share gains in
certain core product lines and the acquisition of two plastic fittings
manufacturing facilities in September, 1994.
Depreciation and amortization totaled $15.5 million in 1995, an
increase from the 1994 level of $12.7 million. The increase is due
primarily to added depreciation from higher capital investments.
Selling, general, and administrative expenses were $49.5 million in
1995 compared with $44.9 million in 1994. This increase is primarily
attributable to increased sales activity.
Interest expense totaled $4.2 million in 1995, down from $6.7 million
in 1994. The decrease is due to scheduled debt repayments and capitalized
interest of approximately $2.9 million related to three major capital
improvement programs. Environmental charges of $1.4 million in 1995 were
expensed. These charges pertain to certain added costs incurred or to be
incurred at various, previously identified environmental sites. Other
income declined to $6.1 million in 1995 from $7.6 million due primarily to
fewer gains on asset disposals.
The Company's 1995 effective tax rate of 30.6 percent is primarily due
to the recognition of NOLs available to offset future federal taxable
income. Recognition of NOLs, along with all other tax attributes, requires
judgmental estimates of, among other things, the Company's ability to
generate future federal taxable income.
Manufacturing Group
During 1995, net sales of the Company's manufacturing segment were
$646.9 million. This compares to net sales of $533.4 million in 1994.
This change was primarily attributable to: (i) sales volume increases and
(ii) pricing increases due to higher average raw material costs (primarily
copper) in 1995. The Company's core manufacturing businesses shipped 388.3
million pounds of product in 1995 which compares to 380.6 million pounds in
1994.
<PAGE> 13
Operating income increased primarily due to: (i) productivity
improvements at the manufacturing plants; (ii) selective price increases
for copper fittings and brass rod products; and (iii) leveraging and
containment of certain other costs and expenses throughout the Company.
Natural Resources Group
Net sales of the natural resources segment were $31.9 million in 1995
compared to $16.6 million in 1994. Transportation revenues of Utah Railway
increased 14.5 percent in 1995 over 1994. Utah Railway hauled 5.5 million
tons of coal in 1995, compared with 4.9 million tons of coal in 1994. Gold
sales were $13.0 million (33,820 ounces) in 1995 compared to $.3 million
(594 ounces) in 1994. Approximately 14,500 ounces of gold, held in
inventory at December, 1994, were included in the total ounces sold during
1995.
LIQUIDITY AND CAPITAL RESOURCES
The Company's cash and cash equivalent balance increased $48.6 million
during 1996 to $97.0 million at year-end. Major components of the 1996
change include $78.7 million of cash provided by operating activities,
$19.3 million of cash used for capital expenditures and acquisitions, and
$16.3 million of cash used for repayment of long-term debt.
Net income of $61.2 million in 1996 was the primary component of cash
provided by operating activities. Depreciation and amortization of $18.5
million and deferred income taxes of $4.1 million were the primary non-cash
adjustments. Major changes in working capital included a $10.1 million
increase in inventories, a $5.6 million increase in receivables, and a
$12.5 million increase in current liabilities. Much of this increase in
inventories is attributable to gold, whereas receivables increased $5.6
million primarily from higher 1996 sales volume. Current liabilities
increased due to higher federal and state tax liabilities, increased
discounts and allowances from higher 1996 sales volume, certain railroad
track maintenance costs and interline charges, higher accounts payable and
accrued employee costs and increased reserves for certain medical, workers'
compensation and insurance costs.
Net cash used in investing activities in 1996 was $15.1 million, $19.3
million for capital expenditures and a business acquisition, offset by $4.1
million received from the sale of properties. Capital expenditures were
primarily related to improvements in manufacturing technology, cost
reductions, increased productivity and yield, quality improvements, and
capacity expansion. A majority of these expenditures is associated with
the Company's major capital improvement programs in its manufacturing
businesses.
Net cash used in financing activities totaled $15.0 million which
includes $16.3 million for repayment of debt, offset by $1.3 million from
sales of treasury stock under terms of outstanding stock option grants and
the employee stock purchase plan.
<PAGE> 14
The Company has a $100.0 million unsecured line-of-credit agreement
which expires in December 1999, but which may be extended for successive
one year periods by agreement of the parties. This credit facility was
increased from $50.0 million in December 1996. There are no outstanding
borrowings against the credit facility. However, the Company did have $4.7
million in letters of credit backed by the credit facility at the end of
1996. At December 28, 1996, the Company's total debt was $59.7 million or
14.6 percent of its total capitalization, down from 21.0 percent at the end
of 1995.
The Company's financing obligations contain various covenants which
require, among other things, the maintenance of minimum levels of working
capital, tangible net worth, and debt service coverage ratios. The Company
is in compliance with all of its debt covenants.
Management believes that cash provided by operations, and currently
available cash of $97.0 million at the end of 1996, will be adequate to
meet the Company's normal future capital expenditure and operational needs.
The Company's current ratio is 3.5 to 1 at December 1996, compared to 3.1
to 1 at December 1995.
The Company has approved a $25.0 million capital improvement project
at its Fulton copper tube mill to improve the utilization of scrap metal
and enhance the mill's refining processes. This project is also expected
to improve yield and productivity and increase capacity. Moreover, the
project, when completed in approximately two years, will allow the tube
mill to use more scrap copper when market conditions warrant.
The Company is also committed to an $11.0 million capital investment
program to increase productivity and capacity at its plastic fittings
manufacturing operations. Another important ongoing program is the
modernization of the Company's low-volume, copper fittings plant in
Covington, Tennessee. Modernization of this facility, which produces a
broad range of low-volume copper fittings, is estimated to require
approximately $7.1 million in capital improvements and will be completed in
1998. This project, when completed, will also increase output and improve
efficiency. Further, the Company has approved capital expenditures
totaling approximately $4.5 million to develop a prototype copper fittings
distribution center in Covington, Tennessee, and expand its Fulton,
Mississippi, copper tube distribution capabilities.
These capital improvement projects will be funded with existing cash
balances and cash generated by operations. Additionally, the Company is
evaluating other financing alternatives for certain of these projects.
The Company has also completed two acquisitions in fiscal 1997 as
discussed in Note 12. The purchase price and working capital requirements
for these acquisitions are funded from existing cash.
<PAGE> 15
OTHER MATTERS
At December 28, 1996, the Company has total environmental reserves of
approximately $9.1 million. Based upon information currently available,
management believes that the outcome of pending environmental matters will
not materially affect the overall financial position and results of
operations of the Company.
The Company anticipates that the 1997 adoption of a recently issued
accounting standard, as discussed in Note 1, will not have a material
impact on the Company's financial statements.
The impact of inflation on the Company's operations in 1996, 1995 and
1994 was not material.
OUTLOOK
New housing starts and commercial construction are important
determinants of Mueller's sales to the plumbing, air-conditioning and
refrigeration markets and to OEMs. We remain optimistic about 1997 due to
prevailing low mortgage interest rates which have historically stimulated
the housing market.
<PAGE> 16
CONSOLIDATED STATEMENTS OF INCOME
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
<TABLE>
(In thousands, except per share data)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales $ 718,312 $ 678,838 $ 550,003
Cost of goods sold 554,570 549,884 448,467
-------- -------- --------
Gross profit 163,742 128,954 101,536
Depreciation and amortization 18,472 15,452 12,689
Selling, general, and administrative
expense 54,808 49,491 44,895
-------- -------- --------
Operating income 90,462 64,011 43,952
Interest expense (5,346) (4,168) (6,718)
Environmental reserves (2,045) (1,421) (2,914)
Other income, net 5,341 6,127 6,504
-------- -------- --------
Income before income taxes 88,412 64,549 40,824
Income tax expense (27,239) (19,726) (12,898)
-------- -------- --------
Net income $ 61,173 $ 44,823 $ 27,926
======== ======== ========
Net income per share:
Primary
Average shares outstanding 19,497 19,149 19,780
Net income $ 3.14 $ 2.34 $ 1.41
Fully diluted
Average shares outstanding 19,499 19,328 19,780
Net income $ 3.14 $ 2.32 $ 1.41
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 17
CONSOLIDATED BALANCE SHEETS
As of December 28, 1996 and December 30, 1995
<TABLE>
(In thousands, except share data)
<CAPTION>
1996 1995
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents $ 96,956 $ 48,357
Accounts receivable, less allowance for doubtful
accounts of $3,188 in 1996 and $2,986 in 1995 88,905 83,712
Inventories 76,647 66,360
Current deferred income taxes 6,508 7,354
Other current assets 5,696 5,255
-------- --------
Total current assets 274,712 211,038
Property, plant and equipment, net 219,855 221,012
Deferred income taxes 10,064 13,174
Other assets 4,726 5,611
-------- --------
TOTAL ASSETS $ 509,357 $ 450,835
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 18
CONSOLIDATED BALANCE SHEETS (Continued)
As of December 28, 1996 and December 30, 1995
<TABLE>
(In thousands, except share data)
<CAPTION>
1996 1995
<S> <C> <C>
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current portion of long-term debt $ 14,844 $ 16,249
Accounts payable 18,305 16,931
Accrued wages and other employee costs 16,872 14,499
Other current liabilities 28,935 20,205
-------- --------
Total current liabilities 78,956 67,884
Long-term debt 44,806 59,653
Pension liabilities 7,735 7,093
Postretirement benefits other than pensions 8,140 8,883
Environmental reserves 9,105 9,585
Deferred income taxes 2,922 2,734
Other noncurrent liabilities 9,214 9,128
-------- --------
Total liabilities 160,878 164,960
-------- --------
Minority interest in subsidiaries 397 -
Stockholders' equity
Preferred stock - shares authorized 4,985,000;
none outstanding - -
Series A junior participating preferred stock-
$1.00 par value; shares authorized 15,000;
none outstanding - -
Common stock - $.01 par value; shares authorized
50,000,000; issued 20,000,000; outstanding
17,434,888 in 1996 and 17,349,498 in 1995 200 200
Additional paid-in capital, common 254,214 253,969
Retained earnings since January 1, 1991 127,983 66,810
Cumulative translation adjustments (2,805) (2,545)
Treasury common stock, at cost (31,510) (32,559)
-------- --------
Total stockholders' equity 348,082 285,875
Commitments and contingencies - -
-------- --------
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 509,357 $ 450,835
======== ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 19
CONSOLIDATED STATEMENTS OF CASH FLOWS
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
OPERATING ACTIVITIES:
Net income $ 61,173 $ 44,823 $ 27,926
Reconciliation of net income to
net cash provided by operating
activities:
Depreciation and amortization 18,472 15,452 12,689
Provision for doubtful accounts
receivable 435 75 186
Minority interest in subsidiaries 397 - -
Deferred income taxes 4,144 7,112 4,748
Gain on disposal of properties (973) (1,835) (3,159)
Changes in assets and liabilities:
Receivables (5,628) (16,862) (7,914)
Inventories (10,070) 8,008 (20,835)
Other assets (793) (1,885) (382)
Current liabilities 12,477 3,491 8,801
Other liabilities (495) (3,856) 376
Other, net (439) 445 (473)
-------- -------- --------
Net cash provided by operating activities 78,700 54,968 21,963
-------- -------- --------
INVESTING ACTIVITIES:
Acquisition of business (417) - (12,815)
Capital expenditures (18,868) (40,980) (48,152)
Proceeds from sales of properties 4,142 3,827 5,333
Escrowed IRB proceeds - 16,067 (16,078)
-------- -------- --------
Net cash used in investing activities (15,143) (21,086) (71,712)
-------- -------- --------
FINANCING ACTIVITIES:
Proceeds from issuance of long-term debt - - 45,343
Repayments of long-term debt (16,252) (18,834) (13,318)
Acquisition of treasury stock - (2,055) (25,897)
Proceeds from the sale of treasury stock 1,294 872 777
-------- -------- --------
Net cash (used in) provided by
financing activities (14,958) (20,017) 6,905
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 48,599 13,865 (42,844)
Cash and cash equivalents at the
beginning of the year 48,357 34,492 77,336
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 96,956 $ 48,357 $ 34,492
======== ======== ========
<FN>
For supplemental disclosures of cash flow information, see Notes 1, 4, and 6.
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 20
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
Years Ended December 28, 1996, December 30, 1995 and December 31, 1994
(In thousands)
<TABLE>
<CAPTION>
Retained
Common Stock Additional Earnings Cumulative Treasury Stock
Number Paid-In (Accumulated Translation Number
of Shares Amount Capital Deficit) Adjustments of Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 25, 1993 20,000 $ 100 $ 236,406 $ (5,939) $ (1,944) 834 $ (6,509) $222,114
Repurchase of common stock - - - - - 1,850 (25,897) (25,897)
Net income - - - 27,926 - - - 27,926
Issuance of shares under
employee stock purchase plan - - 103 - - (43) 515 618
Recognition of income tax
benefits of preconfirmation
net of operating loss
carryforwards - - 17,916 - - - - 17,916
Issuance of shares under
incentive stock option plan - - (174) - - (39) 333 159
Cumulative translation
adjustments - - - - (888) - - (888)
---------- --- ------- ------ ----- --------- ------- -------
Balance, December 31, 1994 20,000 100 254,251 21,987 (2,832) 2,602 (31,558) 241,948
Repurchase of common stock - - - - - 135 (2,055) (2,055)
Net income - - - 44,823 - - - 44,823
Issuance of shares under
employee stock purchase plan - - 110 - - (46) 559 669
Issuance of shares under
incentive stock option plan - - (292) - - (40) 495 203
Cumulative translation
adjustments - - - - 287 - - 287
Par value of shares issued in
connection with a
two-for-one stock split - 100 (100) - - - - -
---------- --- ------- ------ ----- --------- ------- --------
Balance, December 30, 1995 20,000 200 253,969 66,810 (2,545) 2,651 (32,559) 285,875
Net income - - - 61,173 - - - 61,173
Issuance of shares under
employee stock purchase plan - - 484 - - (40) 484 968
Issuance of shares under
incentive stock option plans - - (239) - - (46) 565 326
Cumulative translation
adjustments - - - - (260) - - (260)
---------- --- ------- ------ ----- --------- ------- --------
Balance, December 28, 1996 20,000 $ 200 $ 254,214 $ 127,983 $ (2,805) 2,565 $(31,510) $348,082
========== === ======= ====== ===== ========= ======= ========
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
<PAGE> 21
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS
The principal business of Mueller Industries, Inc. is the manufacture
and sale of copper tube and fittings; brass and copper alloy rods, bars and
shapes; aluminum and brass forgings; aluminum and copper impact extrusions;
plastic fittings and valves; and refrigeration valves, driers and flare
fittings. The Company markets its products to the heating and air-
conditioning, refrigeration, plumbing, hardware and other industries.
During 1996, the Company operated thirteen factories in five states and
Canada and had distribution facilities nationwide and sales representation
worldwide.
The Company also operates a short line railroad through its subsidiary
Utah Railway Company and conducts placer gold mining through its subsidiary
Alaska Gold Company. In addition, the Company owns interests in or leases
other natural resource properties.
PRINCIPLES OF CONSOLIDATION
The consolidated financial statements include the accounts of Mueller
Industries, Inc. and its subsidiaries. All significant intercompany
accounts and transactions have been eliminated in consolidation. The
minority interest represents separate private ownership of 25 percent of
Ruby Hill Mining Company and 19 percent of Richmond-Eureka Mining Company.
INVENTORIES
The Company's inventories are valued at the lower of cost or market.
The material component of certain of its copper tube and copper fittings
inventories is valued on a last-in, first-out (LIFO) basis. Other
inventories, including the non-material components of copper tube and
copper fittings inventories, are valued on a first-in, first-out (FIFO)
basis. Generally, inventory costs include material, labor costs and
manufacturing overhead. Prior to 1994, all inventories were accounted for
on a FIFO basis. See Note 2 for discussion of the accounting change.
DEPRECIATION AND AMORTIZATION
In general, depreciation of buildings, machinery and equipment, and
amortization of intangibles are provided on the straight-line method over
the estimated useful lives ranging from 20 to 40 years for buildings, 5 to
20 years for machinery and equipment, and 3 to 10 years for intangibles.
REVENUE RECOGNITION
Revenue from the sale of products is recognized upon passage of title
to the customer, which, in most cases, coincides with shipment.
EMPLOYEE BENEFITS
The Company sponsors certain defined benefit pension plans that are
noncontributory and cover certain union employees. The plans provide
pension benefits based on years of service and stated benefit amounts for
each year of service.
<PAGE> 22
In addition to providing pension benefits, the Company sponsors
certain postretirement health and life insurance programs for certain union
and salaried employees, which are accounted for on the accrual method in
accordance with SFAS No. 106, Employers' Accounting for Postretirement
Benefits Other Than Pensions. These benefits are funded on a pay-as-you-go
basis and the cost is recognized as earned during the active service life
of employees. Certain retirees pay a premium for health insurance which is
based on benefits paid less an agreed upon amount that is paid by the
Company.
STOCK-BASED COMPENSATION
The Company accounts for stock-based compensation using the intrinsic
value method prescribed in Accounting Principles Board Opinion No. 25,
Accounting for Stock Issued to Employees (APB No. 25) and related
Interpretations.
EARNINGS PER COMMON SHARE
Primary earnings per common share are based upon the weighted average
number of common and common equivalent shares outstanding during each
period. Fully diluted earnings per share are based upon the weighted
average number of common shares outstanding plus the dilutive effects of
all outstanding stock options.
INCOME TAXES
The Company accounts for income taxes using the liability method
required by SFAS No. 109, Accounting for Income Taxes.
CASH EQUIVALENTS
Temporary investments with maturities of three months or less are
considered to be cash equivalents. These investments are stated at cost.
At December 28, 1996, and December 30, 1995, temporary investments
consisted of certificates of deposit, commercial paper, bank repurchase
agreements, and U.S. and foreign government securities totaling $98.1
million and $51.7 million, respectively. These carrying amounts
approximate fair value.
CONCENTRATIONS OF CREDIT AND MARKET RISK
Concentrations of credit risk with respect to accounts receivable are
limited due to the large number of customers comprising the Company's
customer base, and their dispersion across different industries, including
air-conditioning, refrigeration, plumbing, hardware, automotive, OEMs, and
others.
The Company minimizes its market risk of base metal price fluctuations
through various strategies. Generally, it prices an equivalent amount of
copper raw material, under flexible pricing arrangements it maintains with
its suppliers, at the time it determines the selling price to its
customers.
Occasionally, the Company hedges portions of its inventories against
price fluctuations through the purchase of option contracts. Gains and
losses on hedging transactions are recognized in income at the time the
underlying inventory is sold. At year-end, there were no open hedge
transactions nor any deferred gains or losses.
<PAGE> 23
The Company's sales are principally denominated and collected in U.S.
currency. Certain sales of the Company's foreign operations are collected
in foreign currencies. Occasionally, the market risk regarding foreign
currency exchange rate fluctuations is hedged using forward contracts. At
year-end, there were no open forward contracts nor any deferred gains or
losses.
FOREIGN CURRENCY TRANSLATION
For foreign subsidiaries, the functional currency is the local foreign
currency. Balance sheet accounts are translated at exchange rates in
effect at the end of the year and income statement accounts are translated
at average exchange rates for the year. Translation gains and losses are
included as a separate component of stockholders' equity. Transaction
gains and losses included in the statement of income were not significant.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the amounts reported in the financial statements
and accompanying notes. Actual results could differ from those estimates.
RECENTLY ISSUED ACCOUNTING STANDARDS
During 1996, the American Institute of Certified Public Accountants
issued Statement of Position 96-1, Environmental Remediation Liabilities
(SOP 96-1), effective for fiscal years beginning after December 15, 1996.
SOP 96-1 provides authoritative guidance on the recognition, measurement
and disclosure of environmental remediation liabilities. The Company will
adopt SOP 96-1 in the first quarter of 1997 and, based on current
circumstances, does not believe the effect of the adoption will be
material.
RECLASSIFICATIONS
Certain amounts in the 1995 and 1994 consolidated financial statements
have been reclassified to conform with the 1996 presentation.
<PAGE> 24
NOTE 2 - INVENTORIES
Inventories consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Raw material and supplies $ 15,416 $ 14,538
Work-in-process 12,540 17,133
Finished goods 42,041 34,681
Gold 6,650 8
-------- --------
Inventories $ 76,647 $ 66,360
======== ========
</TABLE>
During 1994, the Company elected to change its method of valuing the
material component of certain of its copper tube and copper fittings
inventory from the FIFO method to the LIFO method. This change in
accounting principle was applied to the beginning of fiscal 1994.
Management believes the LIFO method results in a better matching of current
costs with current revenues. Additionally, the LIFO method is widely used
within the copper tube and copper fittings industry. The effect of this
change reduced net income for the year ended December 31, 1994, by $9.0
million (or 46 cents per share).
Inventories valued using the LIFO method were $20.9 million in 1996
and $21.2 million in 1995. The approximate FIFO current cost of such
inventories was $26.7 million at December 28, 1996, and $35.4 million at
December 30, 1995.
NOTE 3 - PROPERTIES
Properties stated at fair value as of December 28, 1990, with
subsequent additions recorded at cost, are as follows:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Land and land improvements $ 6,646 $ 7,464
Buildings, machinery and equipment 279,116 247,655
Construction in progress 5,001 20,182
-------- --------
290,763 275,301
Less accumulated depreciation (70,908) (54,289)
-------- --------
Property, plant and equipment, net $ 219,855 $ 221,012
======== ========
</TABLE>
<PAGE> 25
NOTE 4 - LONG-TERM DEBT
Long-term debt consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
8.38% Unsecured Notes, due through 2000 $ 14,286 $ 17,857
7.54% Unsecured Note Payable, due through 1999 13,000 16,000
1993 Series IRBs with interest at 6.95%, due
through 2000 11,429 14,286
1994 Series IRBs with interest at 8.825%, due
through 2001 11,571 14,143
Other, including capitalized lease obligations 9,364 13,616
-------- --------
59,650 75,902
Less current portion of long-term debt (14,844) (16,249)
-------- --------
Long-term debt $ 44,806 $ 59,653
======== ========
</TABLE>
Aggregate annual maturities of such debt are $14.8 million, $15.0
million, $15.3 million, $10.0 million and $2.4 million for the years 1997
through 2001, respectively. Interest paid in 1996, 1995 and 1994 was $5.2
million, $7.1 million and $8.1 million, respectively. During 1996 and
1995, the Company capitalized interest of $.3 million and $2.9 million,
respectively, related to its major capital improvement programs. Using a
discounted cash flow analysis, the book value of the Company's long-term
debt approximates fair value, based on the estimated current incremental
borrowing rates for similar types of borrowing arrangements.
During the fourth quarter of 1996, the Company increased to $100.0
million its unsecured line-of-credit agreement (the Credit Facility) which
expires on December 15, 1999, but may be extended for successive one year
periods by agreement of the parties. Borrowings under the Credit Facility
bear interest, at the Company's option, at (i) prime rate less .50 percent,
(ii) LIBOR plus .27 percent, or (iii) Federal Funds Rate plus .65 percent.
An annual commitment fee of 11 basis points per annum on the unused portion
of the Credit Facility is payable quarterly. Currently, the Company has no
outstanding borrowings under the Credit Facility. Availability of funds
under the Credit Facility is reduced by the amount of certain outstanding
letters of credit which totaled approximately $4.7 million at December 28,
1996.
Borrowings under the above agreements require the Company, among other
things, to maintain certain minimum levels of net worth and meet certain
minimum financial ratios. The Company is in compliance with all covenants.
The Company leases certain facilities and equipment under operating
leases expiring on various dates through 2001. The lease payments under
these agreements aggregate to approximately $4.7 million in 1997, $4.4
million in 1998, $3.9 million in 1999, $2.5 million in 2000, and $.6
million in 2001. Total lease and rent expense amounted to $7.7 million in
1996, $7.4 million in 1995 and $6.9 million in 1994.
<PAGE> 26
NOTE 5 - STOCKHOLDERS' EQUITY
In 1995, the Company declared a two-for-one stock split to be effected
in the form of a 100 percent stock dividend. All presentations of share
data herein, including earnings per share, have been restated to reflect
the split for all periods presented.
On November 10, 1994, the Company declared a dividend distribution of
one Right for each outstanding share of the Company's common stock. Each
Right entitles the holder to purchase one unit consisting of one-thousandth
of a share of Series A Junior Participating Preferred Stock at a purchase
price of $160 per unit, subject to adjustment. The Rights will not be
exercisable, or transferable apart from the Company's common stock, until
10 days following an announcement that a person or affiliated group has
acquired, or obtained the right to acquire, beneficial ownership of 15
percent or more of its common stock other than pursuant to certain offers
for all shares of the Company's common stock that have been determined to
be fair to, and in the best interest of, the Company's stockholders. The
Rights, which do not have voting rights, will be exercisable by all holders
(except for a holder or affiliated group beneficially owning 15 percent or
more of the Company's common stock, whose Rights will be void) so that each
holder of a Right shall have the right to receive, upon the exercise
thereof, at the then current exercise price, the number of shares of the
Company's common stock having a market value of two times the exercise
price of the Rights. All Rights expire on November 10, 2004, and may be
redeemed by the Company at a price of $.01 at any time prior to either
their expiration or such time that the Rights become exercisable.
In the event that the Company is acquired in a merger or other
business combination or certain other events occur, provision shall be made
so that each holder of a Right (except Rights previously voided) shall have
the right to receive, upon exercise thereof at the then current exercise
price, the number of shares of common stock of the surviving company which
at the time of such transaction would have a market value of two times the
exercise price of the Right.
On June 3, 1994, the Company purchased 1,849,750 shares of its common
stock, for an aggregate purchase price of approximately $25.9 million.
These shares were placed in treasury and may be used for general corporate
purposes, such as requirements for future exercises of options under
various option plans.
As of December 28, 1996, the Company had reserved 2,562,656 shares of
its common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15,000 shares of preferred stock for
issuance pursuant to the Shareholder Rights Plan.
<PAGE> 27
NOTE 6 - INCOME TAXES
The components of income before income taxes were taxed under the
following jurisdictions:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Domestic $ 80,557 $ 56,632 $ 35,641
Foreign 7,855 7,917 5,183
-------- -------- --------
Income before income taxes $ 88,412 $ 64,549 $ 40,824
======== ======== ========
</TABLE>
Income tax expense consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Current tax expense:
Federal $ 18,296 $ 7,838 $ 4,172
Foreign 3,249 2,769 2,476
State and local 1,550 2,007 1,502
-------- -------- --------
Current tax expense 23,095 12,614 8,150
-------- -------- --------
Deferred tax expense (benefit):
Federal 3,995 7,031 5,621
State and local 149 81 (873)
-------- -------- --------
Deferred tax expense 4,144 7,112 4,748
-------- -------- --------
Income tax expense $ 27,239 $ 19,726 $ 12,898
======== ======== ========
</TABLE>
The difference between the reported income tax expense and a tax
determined by applying the applicable U.S. federal statutory income tax
rate to income before income taxes, is reconciled as follows:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Expected income tax expense $ 30,944 $ 22,592 $ 14,288
State and local income tax,
net of federal benefit 1,027 1,357 976
Foreign income taxes 1,035 230 641
Reduction in valuation allowance (4,622) (5,006) (1,495)
Other, net (1,145) 553 (1,512)
-------- -------- --------
Income tax expense $ 27,239 $ 19,726 $ 12,898
======== ======== ========
</TABLE>
<PAGE> 28
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are
presented below:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 1,140 $ 1,013
Inventories 3,617 4,864
Pension, OPEB and accrued items 11,109 10,661
Other reserves 11,134 10,519
Net operating loss carryforwards 43,924 47,143
Loss carryforward-prior abandonment
of preferred stock 41,301 45,228
Alternative minimum tax credit
carryforwards 4,053 4,217
-------- --------
Total deferred tax assets 116,278 123,645
Less valuation allowance (56,299) (60,921)
-------- --------
Deferred tax assets, net of
valuation allowance 59,979 62,724
-------- --------
Deferred tax liabilities:
Property, plant and equipment 44,398 42,940
Undistributed income of
foreign subsidiaries 1,931 1,931
Other - 59
-------- --------
Total deferred tax liabilities 46,329 44,930
-------- --------
Net deferred tax asset $ 13,650 $ 17,794
======== ========
</TABLE>
The Company's net operating loss carryforwards (NOLs) for federal
income tax purposes that expire prior to 2007 are subject to an annual
limitation of approximately $17.3 million through 2001 and approximately
$14.4 million through 2006. This annual limitation is, among other things,
based upon the Company's value and certain statutory interest rates in
effect at the time a "change in ownership" occurs. A future "change in
ownership", should it occur, could result in further limitations.
<PAGE> 29
The Internal Revenue Service (IRS) audit for 1992 and prior years was
concluded in 1994 and resulted in no material changes. Following
conclusion of that audit, the Company entered into a Closing Agreement with
the IRS. This Agreement is a definitive determination on certain tax
attributes, including NOLs. Following execution of this Agreement, the
Company revised its estimates with respect to realization of the related
deferred tax assets in future years. During 1994, the Company recognized
$17.9 million of these tax attributes, which reduced the valuation
allowance and allocated the benefit to paid-in capital. During 1996 and
1995, the Company recognized $.7 million and $4.5 million, respectively, of
these tax attributes, reducing the deferred income tax provision in each
year. As additional NOLs are utilized, the Company expects to recognize
additional tax attributes over the next several years by reducing the
valuation allowance. The tax effect of future recognition of any of the
remaining NOLs of approximately $31.7 million will reduce the deferred
income tax provisions in the periods recognized.
As of December 28, 1996, the Company had net operating loss
carryforwards available to offset future federal taxable income of $125.5
million of which $93.8 million have been recognized. These NOLs expire as
follows: $31.7 million in 2000, $20.7 million in 2001, $6.5 million in
2002, $59.8 million in 2005, and $6.8 million in 2006. Realization is
dependent on generating sufficient taxable income prior to expiration of
the loss carryforwards. Although realization is not assured, management
believes it is more likely than not that much of the deferred tax asset
will be realized. The amount of the deferred tax asset considered
realizable, however, could be reduced in the near term if estimates of
future taxable income during the carryforward period are reduced. In
addition, the Company has alternative minimum tax credit carryforwards of
approximately $4.1 million which are available to reduce future federal
regular income taxes, if any, over an indefinite period.
In 1995, the Company "abandoned" all its rights and interests in the
Preferred Stock of Sharon Specialty Steel Inc. (a Delaware corporation)
which filed for bankruptcy protection. The fair value of the preferred
stock was negligible and, for book purposes, had been previously written
down. However, the Preferred Stock had a tax basis of approximately $120
million. The "abandonment" of the Preferred Stock resulted in the Company
recognizing a tax loss. The character of the tax loss, capital or
ordinary, has not yet been definitively determined. Pending this
determination, the Company reduced its valuation allowance by $3.9 million
in 1996 and $1.2 million in 1995. If the character of this loss is
determined to be capital, the Company's ability to realize additional
benefit, if any, will be limited and recognition will occur as certain
gains are realized for federal tax purposes. If this loss is determined to
be ordinary, the Company may realize a substantial benefit by reducing its
federal taxable income. The tax benefits relating to this loss will be
recognized primarily as additions to paid-in capital and, to a lesser
extent, reductions to current income tax expense. Based on current facts
and circumstances, management cannot predict the likelihood that a
favorable outcome will be achieved. The tax loss carryforwards from this
loss will expire in 2000 if the loss is determined to be capital and will
expire in 2010 if the loss is determined to be ordinary.
Income taxes paid were approximately $19.3 million in 1996, $12.0
million in 1995 and $7.8 million in 1994.
<PAGE> 30
NOTE 7 - OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Accrued discounts and allowances $ 6,923 $ 4,102
Freight settlements due to other railroads 6,166 4,991
Income taxes payable 3,389 75
Other 12,457 11,037
-------- --------
Other current liabilities $ 28,935 $ 20,205
======== ========
</TABLE>
NOTE 8 - EMPLOYEE BENEFITS
PENSION PLANS
Pension cost for the defined benefit plans sponsored by the Company
includes the following components:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Service cost of benefits earned
during the year $ 490 $ 473 $ 377
Interest cost on the projected
benefit obligation 3,232 3,214 3,144
Actual return on plan assets (6,530) (9,846) 127
Net amortization and deferral 3,120 7,792 (2,681)
-------- -------- --------
Net periodic pension cost $ 312 $ 1,633 $ 967
======== ======== ========
</TABLE>
The expected long-term rate of return on plan assets was 8.5 percent
in 1996, 1995, and 1994. Differences between the actual returns and the
related expected returns on plan assets are deferred and considered in the
determination of net pension cost in future periods. The decrease in 1996
pension cost resulted primarily from the amortization of actual over
expected investment returns on plan assets.
Generally, the Company contributes such amounts as are necessary to
pay benefits to plan participants and to meet ERISA minimum funding
requirements. The plans' investments are held by bank-administered trust
funds. Prior service costs and unrecognized net gains or losses are
amortized on a straight-line basis over the average future service lives of
the covered group.
<PAGE> 31
A reconciliation of the funded status of the plans at December 28,
1996, and December 30, 1995, respectively, to the amounts recognized in the
consolidated balance sheet is as follows:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ (39,920) $ (39,811)
-------- --------
Accumulated benefit obligation (43,766) (43,482)
-------- --------
Projected benefit obligation (43,766) (43,482)
Plan assets at fair value held in the pension
plan trusts, primarily listed stocks and
U.S. Government obligations 45,512 40,205
-------- --------
Projected benefit obligation less than
(in excess of) plan assets 1,746 (3,277)
Unrecognized net gain from past experience
different from that assumed and effects of
changes in assumptions (13,708) (11,061)
Prior service cost not yet recognized in net
periodic pension cost 3,434 3,993
-------- --------
Accrued pension cost $ (8,528) $ (10,345)
======== ========
</TABLE>
The range of assumed discount rates used in determining the actuarial
present value of the projected benefit obligations presented above was 7.0
percent to 7.75 percent for 1996 and 1995.
The Company makes contributions to certain multiemployer defined
benefit pension plan trusts that cover union employees based on collective
bargaining agreements. Contributions by employees are not required nor are
they permitted. Pension expense under the multiemployer defined benefit
pension plans was $.3 million for 1996, 1995 and 1994.
The Company has employee savings plans that qualify under Section
401(k). Most employees of the Company (other than those covered by certain
collective bargaining agreements) may participate by deferring from 1
percent to 15 percent of their eligible compensation. Beginning July 1,
1995, for employees not covered by collective bargaining agreements, the
Company began matching 10 percent of each employee's contribution. The
Company increased the matching percentage to 50 percent of the first 4
percent of each employee's contribution effective January 1, 1996, and 50
percent of the first 6 percent of each employee's contribution effective
January 1, 1997. The Company's match vests 25 percent for each year of
service. Compensation expense for the 401(k) match was $.5 million in 1996
and $.1 million in 1995.
<PAGE> 32
In 1996, the Company established a nonqualified, deferred compensation
plan which permits certain management employees to annually elect to defer
a portion of their compensation, on a pre-tax basis, until their
retirement. The retirement benefit to be provided is based on the amount
of compensation deferred, Company match, and earnings on the deferrals.
The expense associated with the deferred compensation plan was $.1 million
in 1996. The Company has invested in corporate-owned life insurance
policies to assist in funding this plan. The cash surrender value of these
policies, included in "other assets", was $.8 million at December 28, 1996.
POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
In addition to providing pension benefits, the Company provides a
fixed portion of the costs of medical and life insurance benefits to
certain retired hourly and salary employees. Contribution rates are
dictated by the employees' retirement plan which is subject to periodic
contract renegotiation. The Company also provides the full cost of medical
and life benefits to certain United Mine Workers of America (UMWA) retirees
and certain qualified dependents.
In October 1992, the Coal Industry Retiree Health Benefit Act of 1992
(the Act) was enacted. The Act mandates a method of providing for
postretirement benefits to UMWA current and retired employees, including
some retirees who were never employed by the Company. In October 1993,
beneficiaries were assigned to the Company and the Company began its
mandated contributions to the UMWA Combined Benefit Fund, a multiemployer
trust. Beginning in 1994, the Company was required to make contributions
for assigned beneficiaries under an additional multiemployer trust created
by the Act, the UMWA 1992 Benefit Plan. The ultimate amount of this
liability will vary due to factors which include, among other things, the
validity, interpretation and regulation of the Act, its joint and several
obligation, the number of valid beneficiaries assigned, and the extent to
which funding for this obligation will be satisfied by transfers of excess
assets from the 1950 UMWA pension plan and transfers from the Abandoned
Mine Reclamation Fund. Nonetheless, the Company believes it has an
adequate reserve for this liability, which is classified as other
noncurrent liabilities.
<PAGE> 33
The following table shows funded status reconciled with the amounts
recognized in the Company's financial statements:
<TABLE>
(In thousands)
<CAPTION>
1996 1995
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (8,364) $ (8,671)
Fully eligible active plan participants (506) (496)
Other active plan participants (450) (464)
-------- --------
(9,320) (9,631)
Plan assets at fair value - -
-------- --------
Accumulated postretirement benefit obligation
in excess of plan assets (9,320) (9,631)
Unrecognized net loss 139 554
-------- --------
Accrued postretirement benefit cost $ (9,181) $ (9,077)
======== ========
</TABLE>
Net periodic postretirement benefit cost was $2.0 million in 1996,
$.8 million in 1995, and $.8 million in 1994. The 1996 cost includes
charges of $1.3 million to establish a provision for certain of the health
care and life insurance benefits described above.
The cost of medical and life insurance benefits for retired employees
reflected above does not include $.9 million at December 28, 1996, and $.9
million at December 30, 1995, related to the provision of medical and other
welfare benefits under certain defined benefit multiemployer plans. The
actuarially determined present value of the accumulated postretirement
benefit obligation was calculated using discount rates ranging from 7.0
percent to 8.5 percent for 1996 and 1995.
The assumed weighted average annual rate of increase in the per capita
cost of covered benefits ranges from 9.05 percent to 9.95 percent for 1997
and is assumed to ultimately decrease to a rate of 6.25 percent by 2003 and
remain at that level thereafter. A one percentage point increase in the
assumed trend rates for each year would not have a significant effect on
the expected postretirement benefit obligation.
Included in the caption "Accrued wages and other employee costs" is
the current portion of postretirement benefit obligation of $.8 million in
1996 and $.7 million in 1995.
<PAGE> 34
NOTE 9 - COMMITMENTS AND CONTINGENCIES
ENVIRONMENTAL
The Company is subject to environmental standards imposed by federal,
state and local environmental laws and regulations. It has provided and
charged to income $2.0 million in 1996, $1.4 million in 1995, and $2.9
million in 1994 for pending environmental matters related to natural
resources operations. The basis for the increase is updated information
and results of ongoing remediation and monitoring programs. Management
believes that the outcome of pending environmental matters will not
materially affect the financial condition or results of operations of the
Company.
LITIGATION
The Company is involved in certain litigation as a result of claims
that arise in the ordinary course of business, which management believes
will not have a material adverse effect on the Company's financial
condition or results of operations.
NOTE 10 - OTHER INCOME
Other income, net included in the consolidated statements of income
consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Rent and royalties $ 1,413 $ 2,009 $ 1,068
Interest income 3,352 2,283 2,865
Gain on disposal of properties, net 973 1,835 3,159
Minority interest in income of
subsidiaries (397) - -
Unusual items - - (1,140)
Other - - 552
-------- -------- --------
Other income, net $ 5,341 $ 6,127 $ 6,504
======== ======== ========
</TABLE>
During 1994, the Company recognized as unusual items a $1.1 million
charge for outstanding insurance matters primarily related to estimated
workers' compensation claims for years prior to 1993.
<PAGE> 35
NOTE 11 - STOCK OPTIONS AND EMPLOYEE STOCK PURCHASE PLANS
The Company follows APB No. 25, in accounting for its employee stock
options. Under APB No. 25, no compensation expense is recognized because
the exercise price of the Company's incentive employee stock options equals
the market price of the underlying stock on the date of grant.
During 1994, the stockholders approved the adoption of the 1994 Stock
Option Plan (SOP Plan). Under this plan, the Company may grant options to
purchase up to 400,000 shares of common stock at prices not less than the
fair market value of the stock on the day of the grant. Generally, the
options vest annually in 20 percent increments over a five year period
beginning one year from the date of the grant. Any unexercised options
expire after not more than ten years. No options may be granted under this
plan after ten years from the date the SOP Plan was adopted. The
stockholders also approved the adoption of the 1994 Non-Employee Director
Stock Option Plan. Options to purchase up to 50,000 shares of common stock
may be granted under this plan at a price not less than the fair market
value of the stock on the day of the grant. Generally, any unexercised
options granted under this plan shall expire on a date which is five years
from the date of option grant.
Under the 1991 Incentive Stock Option Plan (ISO Plan), the Company may
grant options to purchase up to 500,000 shares of common stock at prices
not less than the fair market value of the stock on the date of grant.
Generally, the options vest annually in 20 percent increments over a five
year period beginning one year from the date of the grant. Any unexercised
options expire after not more than ten years. No options may be granted
under this plan after ten years from the date the ISO Plan was adopted.
On December 4, 1991, the Company authorized a special stock option
grant of 1,000,000 shares to induce Mr. Harvey L. Karp to enter into an
employment agreement with the Company. The exercise price, $4.125 per
share, was the fair market value on the date of grant. Generally, the
options expire one year after Mr. Karp's separation from employment with
the Company unless Mr. Karp is terminated for cause. On January 30, 1992,
the Board approved and authorized a transaction whereby Mr. Karp was
granted options to purchase an additional 1,000,000 shares, which was
subsequently reduced by 200,000 option shares which the Company issued to
secure the employment of Mr. William D. O'Hagan. Mr. Karp's additional
grant of options is on the same terms and conditions, and at the same
price, as the original grant. Although neither Mr. Karp's nor Mr.
O'Hagan's options were granted under the ISO Plan, the terms and conditions
of Mr. O'Hagan's options are generally similar to those granted under the
ISO Plan.
<PAGE> 36
A summary of the Company's stock option activity and related
information follows:
<TABLE>
<CAPTION>
1996
Weighted Average
Options Exercise Price
<S> <C> <C>
Outstanding at beginning of year 2,650,606 $ 7.37
Granted 74,500 37.41
Exercised (45,950) 7.14
Expired, cancelled, or surrendered (5,000) 4.06
--------- ---------
Outstanding at year-end 2,674,156 $ 8.22
--------- ---------
Options exercisable at year-end 2,191,456 $ 5.49
--------- ---------
Weighted average fair value per option
granted during the year $ 16.89
========================
</TABLE>
<TABLE>
<CAPTION>
1995
Weighted Average
Options Exercise Price
<S> <C> <C>
Outstanding at beginning of year 2,532,106 $ 5.94
Granted 179,000 26.31
Exercised (40,500) 5.00
Expired, cancelled, or surrendered (20,000) 7.06
--------- ---------
Outstanding at year-end 2,650,606 $ 7.37
--------- ---------
Options exercisable at year-end 2,086,606 $ 4.87
--------- ---------
Weighted average fair value per option
granted during the year $ 11.99
========================
</TABLE>
Exercise prices for stock options outstanding at December 28, 1996,
ranged from $4.06 to $40.25. Of the 2,674,156 stock options that are
outstanding at year-end, 1,800,000 are owned by Mr. Harvey Karp, and, as
explained above, these options expire one year after Mr. Karp's separation
from employment with the Company. The weighted average remaining life of
the remaining 874,156 shares is 1.6 years, and the weighted average
exercise price of these shares is $16.64.
<PAGE> 37
Pro forma information regarding net income and earnings per share is
required by Statement of Financial Accounting Standards No. 123, Accounting
for Stock-Based Compensation (SFAS No. 123), and has been determined as if
the Company had accounted for its employee stock options under the fair
value method. The fair value for these options at the date of grant was
estimated using a Black-Scholes option pricing model with the following
weighted average assumptions for the years 1996 and 1995: volatility factor
of the expected market value of the Company's common stock of 0.344;
weighted average expected life of the options of 6 years; risk free
interest rate of 6.5%; and no dividend payments.
The Black-Scholes option valuation model was developed for use in
estimating the fair value of traded options which have no vesting
restrictions and are fully transferable. In addition, option valuation
models require highly subjective assumptions including the expected stock
price volatility. Because the Company's employee stock options have
characteristics significantly different from those of traded options, and
because changes in the subjective input assumptions can materially affect
the fair value estimate, in management's opinion, the existing models do
not necessarily provide a reliable single measure of the fair value of its
employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the
options is amortized to expense over the options' vesting period. The
Company's pro forma information follows:
<TABLE>
(In thousands, except per share data)
<CAPTION>
1996 1995
<S> <C> <C>
Net income $ 61,173 $ 44,823
SFAS No. 123 compensation expense (560) (164)
-------- --------
SFAS No. 123 pro forma net income 60,613 44,659
======== ========
Pro forma earnings per share:
Primary $ 3.12 $ 2.34
Fully diluted $ 3.12 $ 2.31
======== ========
</TABLE>
Because SFAS No. 123 applies only to stock-based compensation award for
1995 and future years, the pro forma disclosures under SFAS No. 123 are not
likely to be indicative of future disclosures until the disclosures reflect
all outstanding, nonvested awards.
<PAGE> 38
The Amended and Restated Mueller Industries, Inc. 1991 Employee Stock
Purchase Plan (the EMSP Plan) expired on June 30, 1996. Under this plan,
the Company could offer to eligible employees (generally all full-time
employees) options to purchase up to six shares of the Company's common
stock for each $1,000 of compensation. The option price was the lower of
(i) 85 percent of the fair value of the stock on the offering date, or (ii)
85 percent of the fair value of the stock on the last day of the one-year
offering period. The maximum number of shares available for sale under the
EMSP Plan during all offerings was 900,000 shares. Under the EMSP Plan,
215,714 shares were issued. During the final offering period beginning
July 1, 1995, and ending June 30, 1996, 39,440 shares were issued at an
exercise price of $20.88 per share.
NOTE 12 - SUBSEQUENT EVENTS
On December 30, 1996, the Company acquired the assets and certain
liabilities of Precision Tube Company, Inc. (Precision) for approximately
$6.8 million. Precision, which fabricates tubing and coaxial cables and
assemblies, had net sales of approximately $20.0 million in 1996.
Precision's tubing and coaxial divisions are located in North Wales,
Pennsylvania, and Salisbury, Maryland, respectively.
On February 28, 1997, the Company acquired certain assets of
Wednesbury Tube Company (Wednesbury) for approximately $20.3 million.
Wednesbury, which manufactures copper tube and is located in Bilston, West
Midlands, England, had net sales of approximately $94.0 million in 1996.
Both acquisitions will be accounted for using the purchase method.
<PAGE> 39
NOTE 13 - INDUSTRY SEGMENTS
The Company is engaged in the manufacture and sale of copper, brass,
bronze, aluminum, and plastic products, and in natural resource operations
consisting principally of a short line railroad, as well as the operation
of a placer gold mine. Income and expenses not allocated to industry
segments in computing operating income include general corporate income and
expense, interest expense and interest income. General corporate assets
are principally cash and temporary investments. There are no intersegment
sales. During 1996, 1995 and 1994 the Company did not have significant
foreign operations and, accordingly, geographical segment information is
not presented. Industry segment information is as follows:
<TABLE>
(In thousands)
<CAPTION>
1996 1995 1994
<S> <C> <C> <C>
Net sales:
Manufacturing $ 698,026 $ 646,894 $ 533,389
Natural resources 20,286 31,944 16,614
-------- -------- --------
$ 718,312 $ 678,838 $ 550,003
======== ======== ========
Operating income:
Manufacturing $ 98,669 $ 61,384 $ 47,932
Natural resources 2,037 7,874 1,651
General corporate (10,244) (5,247) (5,631)
-------- -------- --------
90,462 64,011 43,952
Non operating income, net 3,296 4,706 3,590
Interest expense (5,346) (4,168) (6,718)
-------- -------- --------
Consolidated income before income taxes $ 88,412 $ 64,549 $ 40,824
======== ======== ========
Provision for depreciation and amortization:
Manufacturing $ 14,594 $ 11,967 $ 9,845
Natural resources 1,388 1,157 1,159
General corporate 2,490 2,328 1,685
-------- -------- --------
$ 18,472 $ 15,452 $ 12,689
======== ======== ========
Capital expenditures:
Manufacturing $ 14,277 $ 38,478 $ 37,095
Natural resources 3,131 2,198 4,028
General corporate 1,460 304 7,029
-------- -------- --------
$ 18,868 $ 40,980 $ 48,152
======== ======== ========
Identifiable assets:
Manufacturing $ 355,429 $ 339,764 $ 318,351
Natural resources 65,785 47,453 38,042
-------- -------- --------
421,214 387,217 356,393
General corporate 88,143 63,618 74,362
-------- -------- --------
$ 509,357 $ 450,835 $ 430,755
======== ======== ========
</TABLE>
<PAGE> 40
NOTE 14 - QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
Financial results by quarter are as follows:
<TABLE>
(In thousands, except per share data)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1996
Net sales $ 180,515 $ 189,557 $ 175,991 $ 172,249
Gross profit (1) 36,983 40,021 42,787 43,951
Net income 13,292 13,897 16,182 17,802
Net income per share .69 .71 .83 .91
1995
Net sales 171,770 181,380 171,549 154,139
Gross profit (1) 31,210 31,793 34,139 31,812(2)
Net income 10,050 10,663 11,605 12,505(2)
Net income per share .53 .56 .60 .65 (2)
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
(2) A change in inventory estimate was recognized.
</TABLE>
<PAGE> 41
REPORT OF INDEPENDENT AUDITORS
The Stockholders of Mueller Industries, Inc.
We have audited the accompanying consolidated balance sheets of Mueller
Industries, Inc. as of December 28, 1996 and December 30, 1995 and the
related consolidated statements of income, stockholders' equity and cash
flows for each of the three years in the period ended December 28, 1996.
These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial statements.
An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Mueller Industries, Inc. at December 28, 1996 and December 30, 1995, and the
consolidated results of its operations and its cash flows for each of the
three years in the period ended December 28, 1996, in conformity with
generally accepted accounting principles.
ERNST & YOUNG LLP
Memphis, Tennessee
February 7, 1997,
except for the second paragraph of Note 12,
as to which the date is February 28, 1997
<PAGE> 42
<TABLE>
CAPITAL STOCK INFORMATION
The high, low and closing prices of Mueller's common stock on the New York
Stock Exchange for each fiscal quarter of 1996 and 1995 were as follows:
<CAPTION>
1996 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 42 5/8 $ 36 1/8 $ 36 1/8
Third quarter 42 3/8 31 3/8 39 3/4
Second quarter 44 1/4 35 1/4 41 1/2
First quarter 35 5/8 26 35 3/8
<CAPTION>
1995 High Low Close
<S> <C> <C> <C>
Fourth quarter $ 29 1/2 $ 22 1/4 $ 29 1/4
Third quarter 28 1/4 24 1/8 25 15/16
Second quarter 24 15/16 16 3/8 24 5/8
First quarter 17 1/8 14 1/4 16 11/16
</TABLE>
As of March 7, 1997, the number of holders of record of Mueller's common
stock was 3,656. The New York Stock Exchange's closing price for Mueller's
common stock on March 7, 1997 was $44 3/4.
The Company has paid no cash dividends on its common stock and presently
does not anticipate paying cash dividends in the near future.
<PAGE> 43
SELECTED FINANCIAL DATA
(In thousands, except per share data)
<TABLE>
<CAPTION>
1992 1993 1994 1995 1996
<S> <C> <C> <C> <C> <C>
For the fiscal year:
Net sales $ 517,339 $ 501,885 $ 550,003 $ 678,838 $ 718,312
Operating income (1) 29,318 38,027 43,952 64,011 90,462
Net income (2) 16,666 21,136 27,926 44,823 61,173
Net income
per common share(2) (3) .83 1.01 1.41 2.34 3.14
- --------------------------------------------------------------------------------------------
At year-end:
Total assets 372,547 369,743 430,755 450,835 509,357
Long-term debt 62,376 54,320 76,125 59,653 44,806
- ---------------------------------------------------------------------------------------------
<FN>
(1) In 1994, the Company changed its method of accounting for the copper component of certain of its
copper tube and copper fittings inventories to the LIFO method.
(2) Includes charges for unusual items of $1.1 million, or $.06 per common share, in 1994, $2.0
million, or $.10 per common share, in 1993, $5.6 million, or $.28 per common share, in 1992.
(3) Per share amounts have been restated for a two-for-one stock split effected in September, 1995.
</TABLE>
<PAGE> 44
BOARD OF DIRECTORS
Harvey L. Karp Chairman of the Board,
Mueller Industries, Inc.
Robert B. Hodes (1) (3) Counsel,
Willkie Farr & Gallagher
Allan Mactier (1) (2) (3) Private Investor
William D. O'Hagan President and Chief Executive Officer,
Mueller Industries, Inc.
Robert J. Pasquarelli (1) (2) Metals Industry Consultant
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
CORPORATE OFFICERS
Harvey L. Karp Chairman of the Board
William D. O'Hagan President and
Chief Executive Officer
Earl W. Bunkers Executive Vice President and
Chief Financial Officer
William H. Hensley Vice President, General Counsel and
Secretary
Lowell J. Hill Vice President Human Resources
Kent A. McKee Vice President
Business Development/Investor Relations
Richard G. Miller Vice President and
Chief Information Officer
Lee R. Nyman Vice President
Manufacturing/Management Engineering
James H. Rourke Group Vice President
Industrial Products Division
DIVISIONAL MANAGEMENT
STANDARD PRODUCTS DIVISION
Harvey W. Clements Vice President - Copper Tube
Manufacturing
Roy C. Harris Controller
Larry D. Birch Vice President - Domestic Sales and
Marketing
Robert L. Fleeman Vice President - International Sales
<PAGE> 45
Gregory L. Christopher Vice President - Supply Chain
Management
Louis F. Pereira General Manager - Canadian Operations
Daniel R. Corbin General Manager - Plastic Fittings
Manufacturing
Tommy L. Jamison General Manager - Copper Fittings
Manufacturing
INDUSTRIAL PRODUCTS DIVISION
Felista S. Amburgey Vice President Sales - Rod
Timothy J. Keck Vice President Sales - Forgings/Impacts
William F. Navarre Vice President Manufacturing -
Rod/Forgings
David F. O'Brien Plant Manager - Impacts
Richard D. Holmes Controller
REFRIGERATION PRODUCTS DIVISION
Roland P. Robichaud General Manager
Dennis K. Anthony Vice President - Sales
Kent K. Miller Director of Engineering
Anthony D. Donato Plant Manager
PRECISION TUBE DIVISION
H. Eugene Passmore President
Charles W. Blackledge Vice President - Operations
John R. Gentile Director of Sales & Marketing
Thomas M. Sarisky Director or Engineering
ARAVA NATURAL RESOURCES DIVISION
Gary L. Barker President - Arava Natural Resources
Company, Inc., Utah Railway Company and
Alaska Gold Company
Michael P. Watson Vice President -
Arava Natural Resources Company, Inc.
Michael W. Baum President -
Mining Remedial Recovery Company
John E. West III Executive Vice President -
Utah Railway Company
<PAGE> 46
Corporate Headquarters Mueller Industries, Inc.
6799 Great Oaks Road, Suite 200,
Memphis, TN 38138-2572
Annual Meeting The Annual Meeting of Stockholders will
be held at the Fogelman Executive
Center at The University of Memphis,
330 Deloach Street, Memphis, Tennessee,
10:00 A.M. local time, May 7, 1997.
Form 10-K Copies of the Company's Annual Report
on Form 10-K are available upon written
request c/o Mueller Industries, Inc.,
P.O. Box 382100, Memphis, TN 38183-2100
Attention: Investor Relations
Common Stock Mueller common stock is traded on the
NYSE - Symbol MLI.
Independent Auditors Ernst & Young LLP, Memphis, Tennessee
Transfer Agent and Registrar Continental Stock Transfer & Trust Co.,
2 Broadway, New York, NY 10004
Stockholder Inquiries To notify the Company of address
changes or lost certificates,
stockholders can call Continental Stock
Transfer & Trust Co. at (212) 509-4000.
<PAGE> 1
MUELLER INDUSTRIES, INC.
List of Subsidiaries
State or Country
Subsidiary* of Incorporation
Mueller Brass Co.
Assumed name: Mueller Brass Products Michigan
Mueller Industrial Realty Co. Michigan
Itawamba Industrial Gas Company, Inc. Mississippi
Streamline Copper & Brass Ltd. Canada
Mueller Plastics Holding Company, Inc. Ohio
Mueller Plastics Corporation, Inc. Delaware
MPC Foundry, Inc. Delaware
MPC Machine Shop, Inc. Delaware
Mueller Brass Forging Company, Inc. Delaware
Mueller Copper Fittings Company, Inc. Delaware
Mueller Fittings Company, Inc. Michigan
Mueller Copper Tube Company, Inc. Delaware
Mueller East, Inc. Delaware
Mueller Fittings, L.P. (1)
Mueller Formed Tube Company, Inc. Delaware
Mueller Impacts Company, Inc. Delaware
Mueller Line Set Inc. Delaware
Mueller Refrigeration Products Company, Inc. Delaware
Mueller Streamline Co. Delaware
Precision Tube Company, Inc. (2) Pennsylvania
Mueller Tool and Machine, Inc. Delaware
WTC Holding Company, Inc. (2) Michigan
Wednesbury Tube & Fittings
Company Limited (2) United Kingdom
Mueller Streamline FSC Ltd. Virgin Islands
Arava Natural Resources Company, Inc. Delaware
United States Fuel Company Nevada
King Coal Company Utah
Utah Railway Company Utah
Canco Oil & Gas Ltd. Alberta, Canada
Aegis Oil & Gas Leasing Ltd. Alberta, Canada
Bayard Mining Corporation Delaware
Washington Mining Company Maine
Amwest Exploration Company Delaware
USSRAM Exploration Company Maine
Richmond-Eureka Mining Company (81%) Maine
Ruby Hill Mining Company (75%) Maine
White Knob Mining Company Idaho
Arava Exploration Company Colorado
Summit Systems, Inc. Delaware
Kennet Company Limited Bermuda
Mining Remedial Recovery Company Delaware
Carpentertown Coal & Coke Company Pennsylvania
USS Lead Refinery, Inc. Maine
Leon Water Enterprises, Inc. (50%) Texas
<PAGE> 2
Alaska Gold Company Delaware
Macomber Construction Company Ohio
Macomber Incorporated Ohio
Macomber Building and Land Corporation Delaware
* All subsidiaries are 100% owned, except as shown.
(1) Limited Partnership between Mueller East, Inc. and
Mueller Fittings Company, Inc.
(2) Formed subsequent to fiscal year-end 1996.
<PAGE> 1
Consent of Independent Auditors
We consent to the incorporation by reference in this Annual Report
(Form 10-K) of Mueller Industries, Inc. of our report dated February 7, 1997
(except for the second paragraph of Note 12, as to which the date is February
28, 1997), included in the 1996 Annual Report to Stockholders of Mueller
Industries, Inc.
Our audits also included the consolidated financial statement schedule of
Mueller Industries, Inc. listed in Item 14(a). This schedule is the
responsibility of the Company's management. Our responsibility is to express
an opinion based on our audits. In our opinion, the financial statement
schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly in all material
respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Forms S-8 No. 33-54705, No. 33-41478 and No. 33-47307) pertaining
to the 1994 Stock Option Plan and 1994 Non-Employee Director Stock Option
Plan, 1991 Employee Stock Purchase Plan and the 1991 Incentive Stock Option
Plan of Mueller Industries, Inc., respectively, of our report dated February
7, 1997 (except for the second paragraph of Note 12, as to which the date is
February 28, 1997), with respect to the consolidated financial statements of
Mueller Industries, Inc. incorporated by reference in its Annual Report (Form
10-K) for the year-ended December 28, 1996, and the related financial
statement schedule included therein filed with the Securities and Exchange
Commission.
ERNST & YOUNG LLP
Memphis, Tennessee
March 17, 1997
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THE SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
COMPANY'S FORM 10-K FOR THE FISCAL YEAR ENDED DECEMBER 28, 1996 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS
</LEGEND>
<CIK> 0000089439
<NAME> MUELLER INDUSTRIES, INC.
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-28-1996
<PERIOD-END> DEC-28-1996
<CASH> 96,956
<SECURITIES> 0
<RECEIVABLES> 92,093
<ALLOWANCES> 3,188
<INVENTORY> 76,647
<CURRENT-ASSETS> 274,712
<PP&E> 290,763
<DEPRECIATION> (70,908)
<TOTAL-ASSETS> 509,357
<CURRENT-LIABILITIES> 78,956
<BONDS> 44,806
<COMMON> 200
0
0
<OTHER-SE> 347,882
<TOTAL-LIABILITY-AND-EQUITY> 509,357
<SALES> 718,312
<TOTAL-REVENUES> 718,312
<CGS> 554,570
<TOTAL-COSTS> 554,570
<OTHER-EXPENSES> 73,280
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,346
<INCOME-PRETAX> 88,412
<INCOME-TAX> 27,239
<INCOME-CONTINUING> 61,173
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 61,173
<EPS-PRIMARY> 3.14
<EPS-DILUTED> 3.14
</TABLE>
