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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 26, 1998 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.)
8285 TOURNAMENT DRIVE, SUITE 150
MEMPHIS, TENNESSEE 38125
(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.[___].
The number of shares of the Registrant's common stock outstanding as of March
10, 1999 was 35,851,396, excluding 4,240,106 treasury shares. The aggregate
market value of the 34,945,190 shares of common stock held by non-affiliates
of the Registrant was $705,456,023 at March 10, 1999 (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 26, 1998 (Part I and II); Registrant's Definitive Proxy Statement for
the 1999 Annual Meeting of Stockholders, scheduled to be mailed on or about
March 17, 1999 (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...................................11
Item 6. Selected Financial Data..................................12
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations...................12
Item 7A. Quantitative and Qualitative Disclosures About
Market Risk...........................................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...................................12
Item 12. Security Ownership of Certain Beneficial Owners
and Management........................................12
Item 13. Certain Relationships and Related Transactions...........13
Part IV
Item 14. Exhibits, Financial Statement Schedules and Reports
on Form 8-K...........................................13
Signatures..............................................................17
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PART I
ITEM 1. BUSINESS
Introduction
The Company is a leading manufacturer of copper, brass, plastic and
aluminum products. The range of these products is broad: copper tube and
fittings; brass and copper alloy rod, bar and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular
products. Mueller's plants are located throughout the United States, and
in Canada, France and Great Britain. The Company also owns a short line
railroad in Utah and natural resource properties in the Western U.S.
The Company's businesses are managed and organized into three
segments: (i) Standard Products Division ("SPD"); (ii) Industrial Products
Division ("IPD"); and (iii) Other Businesses. SPD manufactures and sells
copper tube, and copper and plastic fittings and valves. Outside of the
United States, SPD manufactures copper tube in Europe and copper fittings
in Canada. SPD sells these products to wholesalers in the HVAC (heating,
ventilation and air-conditioning), plumbing and refrigeration markets, and
to distributors to the manufactured housing and recreational vehicle
industries. IPD manufactures and sells brass and copper alloy rod, bar
and shapes; aluminum and brass forgings; aluminum and copper impact
extrusions; refrigeration valves and fittings; fabricated tubular
products; and gas valves and assemblies. IPD sells its products primarily
to original equipment manufacturers ("OEMs"), many of which are in the
HVAC, plumbing and refrigeration markets. Other Businesses include Utah
Railway Company, Alaska Gold Company and other natural resource properties
and interests. SPD and IPD account for more than 96 percent of
consolidated net sales and more than 86 percent of consolidated net
assets. The majority of the Company's manufacturing facilities operated
at high levels during 1998, 1997 and 1996.
Information concerning segments 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 26, 1998. Such
information is incorporated herein by reference.
Standard Products Division
Mueller's Standard Products Division includes 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.
SPD also includes 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 systems. 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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During the fourth quarter of 1998, the Company acquired Halstead
Industries, Inc. ("Halstead"), with 1998 sales of approximately $200
million. Halstead operates a tube mill in Wynne, Arkansas, and a line
sets factory in Clinton, Tennessee. This acquisition expands the
Company's copper tube and line sets businesses and should create
opportunities for rationalization of production and distribution. In
addition, in August 1998, the Company acquired B&K Industries, Inc.
("B&K"), an import distributor of residential and commercial plumbing
products with 1998 sales of approximately $60 million. The acquisition of
B&K will facilitate the sale of Mueller's manufactured products in the
large, and growing, retail marketplace. In 1997, the Company acquired
copper tube manufacturing operations in England and France. These
acquisitions established a significant manufacturing and sales presence in
Europe for the Company's operations.
SPD markets primarily through its own sales and distribution
organization, which maintains sales offices and distribution centers
throughout the United States and in Canada, Great Britain and France.
Additionally, 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.
The businesses in which SPD 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 SPD as of December 26, 1998 was not
significant.
The Company competes with various companies depending on the product
line. In the U.S. copper tubing business, the domestic competition
includes Cerro Copper Products Co., Inc., Reading Tube Corporation and
Wolverine Tube, Inc. as well as many actual and potential foreign
competitors. In the European copper tubing business, Mueller competes with
more than ten European-based manufacturers of copper tubing as well as
foreign-based manufacturers. Additionally, the Company's copper tube
businesses compete 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 NIBCO, Inc., Charlotte Pipe & Foundry and other companies. No
single competitor offers such a wide-ranging product line; management
believes that this is a competitive advantage in some markets.
Industrial Products Division
Mueller's Industrial Products Division includes brass rod, nonferrous
forgings and impact extrusions that are sold primarily to OEMs 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. IPD also manufactures brass and
aluminum forgings which are used in a wide variety of end products,
including automotive components, brass fittings, industrial machinery,
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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. Other products
include valves and custom OEM products for refrigeration and air-
conditioning applications and shaped and formed tube, produced to tight
tolerances, for baseboard heating, appliances, medical instruments, etc.
The total amount of order backlog for IPD as of December 26, 1998 was not
significant.
In September 1998, the Company acquired Lincoln Brass Works, Inc.
("Lincoln"), which operates manufacturing facilities in Jacksboro,
Tennessee and Waynesboro, Tennessee. Lincoln produces custom control
valve assemblies, custom metal assemblies, gas delivery systems and
tubular products primarily for the gas appliance market. Lincoln, with
1998 sales of approximately $35 million, is a large consumer of the
Company's brass rod and forgings.
IPD primarily sells direct to OEM customers. Competitors, primarily
in the brass rod market, include Cerro Metal Products Company, Inc., Chase
Industries, Inc., Extruded Metals Inc. and others both domestic and
foreign. Outside of North America, IPD sells products through various
channels.
Other Businesses
Mueller, through its subsidiaries Arava Natural Resources Company,
Inc. ("Arava") and Alaska Gold Company ("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 on 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 percent of coal tonnage hauled. The Utah
Railway transports coal 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, in recent years, annual tonnage ranged between four and
six million tons. From Provo, Utah, the coal is transported by connecting
railroads to various customers including electric utilities, cement
plants, west coast export facilities and others at destinations throughout
the West.
In addition to railway operations discussed above, Union Pacific
Railroad granted limited rights to Utah Railway for operations over Union
Pacific tracks to Grand Junction, Colorado and access to additional coal
customers. Also, Utah Railway conducts switching operations primarily in
the Salt Lake City, Ogden and Provo, Utah, metropolitan areas. Switching
operations consist of accepting freight from other railroad carriers for
delivery to customers and/or accepting loads of freight from such
customers for delivery to long haul railroad carriers to be transported to
final destinations.
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In late 1998, there was a fire at one of the coal mines served by
Utah Railway. We expect the mine to re-open in 1999, though this is not
certain. Extensive delays would have a negative impact on the future
profitability of the railroad.
Gold Mining
Alaska Gold mines placer gold in Nome, Alaska. Its properties
consist of approximately 14,500 acres in and adjacent to Nome, plus
patented claims on approximately 10,400 acres in the Fairbanks, Alaska
area, and approximately 3,000 acres in the Hogatza, Alaska area.
Continuing low gold prices have caused suspension of Alaska Gold's winter
open pit mining operations, although summer mining activity will continue.
Separately, the Company has entered into an agreement to sell Alaska Gold,
subject to various contingencies.
Other Properties
In early 1998, Ruby Hill Mining Company ("Ruby Hill") received a
final $1.0 million installment payment from Homestake Mining Company of
California ("Homestake") for Ruby Hill's mining property near Eureka,
Nevada. As of December 26, 1998, the Company has received and recognized
as gains $4.0 million from this transaction. 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.
Labor Relations
At December 26, 1998, the Company employed approximately 4,800
employees of which approximately 2,700 were represented by various unions.
The union contracts that cover employees at the Company's Port Huron
facilities expire April 1, 1999. The union contract that covers employees
at the newly acquired Wynne copper tube mill expires November 30, 1999.
The Company expects to renew these contracts without material disruption
of its operations. Union contracts at the Company's European operations
are renewed annually. Other contracts expire on various dates from July
2000 to August 2002.
On December 30, 1998, the Company began implementing the social plan
related to the closure of its Laigneville, France, facility. Management
anticipates a net reduction of 125 positions as operations are
rationalized in Europe.
Raw Material and Energy Availability
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.
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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
Compliance with environmental laws and regulations is a matter
of high priority. Mueller's provision for environmental compliance
includes charges of $2.1 million in 1998, $3.1 million in 1997 and $2.0
million in 1996. 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 1999 fiscal year, or for
the next two fiscal years.
In 1998 and 1997, in connection with acquisitions, the Company
established environmental reserves to fund the cost of remediation at
sites currently or formerly owned by various acquired entities. The
Company, through its acquired subsidiaries, is engaged in ongoing
remediation and site characterization studies.
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. Mammoth Mine Site
MRRC owns title to certain 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 response to a 1996 Order issued by the California
Regional Water Quality Control Board ("QCB"), MRRC completed a feasibility
study in 1997 describing measures designed to mitigate the effects of acid
rock drainage. In December 1998, the QCB issued a new order extending
MRRC's time to comply with water quality standards until December 1, 2003.
MRRC agreed to continue remedial activities to reduce or prevent discharge
of acid mine drainage and submit a use attainability analysis for review
by July 1, 2000. MRRC estimates it will spend between $1.0 and $2.0
million on planned remedial activities and the use attainability analysis.
Further remediation may be required depending on how effective MRRC's
remedial options are in reducing acid rock drainage.
2. 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 potentially responsible parties ("PRPs") that had
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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; however, as of March 17, 1999, 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 ("CAMU") at the Lead Refinery site. Site activities,
based on the approval, began during December 1996. Costs for studies and
interim clean up efforts were estimated at approximately $4.5 million in
the first quarter of 1997. In the process of remediating the site, Lead
Refinery subsequently identified suspected petroleum contamination on
site. As a result, Lead Refinery installed a slurry wall at a cost of
approximately $1.0 million around the CAMU and initiated characterization
of areas suspected to have petroleum contamination. Lead Refinery is
evaluating whether and how to address remediation of this contamination as
part of the CAMU. 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.
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 $400,000. Clean-up commenced in 1998.
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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 1998, 1997 or 1996. 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.
Approximate
Location Property Size Description
____________ _____________ _________________________________
Fulton, MS 418,000 sq. ft. Copper tube mill. Facility
52.37 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 103,000 sq. ft. Casting facility. Facility
11.9 acres includes casting equipment to
produce copper billets used in the
adjoining copper tube mill.
Wynne, AR 682,000 sq. ft. Copper tube mill. Facility
39.2 acres includes extrusion and finishing
equipment to produce copper
tubing, including feed stock for
the Clinton, TN line sets plant.
Clinton, TN 166,000 sq. ft.(1) Line sets plant. Produces copper
8.5 acres tube line sets using tube feed
stock from the Company's copper
tube mills and other mills.
Fulton, MS 58,500 sq. ft. Line sets plant. Production of
15.53 acres line sets has been moved from this
facility and merged into the newly
acquired Clinton, TN facility.
This facility is now used to package
and bar code copper tube and
fittings.
Fulton, MS 70,000 sq. ft.(2) Copper fittings plant. High-
7.68 acres volume facility that produces
copper fittings using tube feed
stock from the Company's copper
tube mill.
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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.
Port Huron, MI 40,000 sq. ft. Formed tube plant. Produces
5.11 acres copper fittings using cold heading
equipment.
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.
Kalamazoo, MI 205,000 sq. ft. Plastic fittings plant. Produces
18 acres DWV fittings using injection
molding equipment.
Cerritos, CA 115,000 sq. ft. Plastic fittings plant. Produces
5.1 acres DWV fittings using injection
molding equipment.
Upper Sandusky, 82,000 sq. ft. Plastic fittings plant. Produces
OH 7.52 acres DWV fittings using injection
molding equipment.
Bilston, England 402,500 sq. ft. Copper tube mill. Facility
United Kingdom 14.95 acres includes casting, extruding and
finishing equipment to produce
copper tubing.
Longueville, 332,500 sq. ft. Copper tube mill. Facility
France 16.3 acres includes extrusion and finishing
equipment to produce copper
tubing.
Laigneville, 387,500 sq. ft. Copper tube mill. Facility
France 18.8 acres includes drawing and finishing
equipment to produce copper
tubing. Operations at this
facility were discontinued in
December 1998.
Port Huron, MI 322,500 sq. ft. Brass rod mill. Facility includes
71.5 acres casting, extruding and finishing
equipment to produce brass rods
and bars, in various shapes and
sizes.
Port Huron, MI 127,500 sq. ft. Forgings plant. Produces brass
and aluminum forgings.
Marysville, MI 81,500 sq. ft. Aluminum and copper impacts plant.
6.72 acres Produces made-to-order parts using
cold impact processes.
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Hartsville, TN 78,000 sq. ft. Refrigeration products plant.
4.51 acres Produces products used in
refrigeration applications such as
ball valves, line valves and
compressor valves.
Jacksboro, TN 65,066 sq. ft. Bending and fabricating facility.
11.78 acres Produces gas burners, supply tubes
and manifolds for the gas appliance
industry.
Waynesboro, TN 57,000 sq. ft. (3) Gas valve plant. Facility produces
5.0 acres brass valves and assemblies for the
gas appliance industry.
North Wales, PA 174,000 sq. ft. Precision Tube factory. Facility
18.9 acres fabricates copper tubing, copper
alloy tubing, aluminum tubing and
fabricated tubular products.
Salisbury, MD 12,000 sq. ft. (4) Coaxial cable plant. Facility
manufactures semi-rigid coaxial
cable and high-performance cable
assemblies.
In addition, the Company owns and/or leases other properties used as
distribution centers and corporate offices.
(1) Facility is leased under an operating lease, with an option to
purchase.
(2) Facility is leased under long-term lease agreement, with option to
purchase at nominal cost.
(3) Facility is leased from a local municipality for a nominal amount.
(4) Facility is leased under operating lease.
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.
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 26, 1998, which information is
incorporated herein by reference.
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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 26, 1998, 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
26, 1998 and is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Quantitative and qualitative disclosures about market risk are
contained in the caption "Financial Review" in the Registrant's Annual
Report to Stockholders for the year ended December 26, 1998 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 Executive Officers and
Information about Director Nominees" in the Company's Proxy Statement for
its 1999 Annual Meeting of Stockholders to be filed with the Securities
and Exchange Commission on or about March 17, 1999 and is incorporated
herein by reference.
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 1999
Annual Meeting of Stockholders to be filed with the Securities and
Exchange Commission on or about March 17, 1999 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
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"Principal Stockholders" and "Ownership of Common Stock by Directors and
Executive Officers and Information about Director Nominees" in the
Company's Proxy Statement for its 1999 Annual Meeting of Stockholders to
be filed with the Securities and Exchange Commission on or about March 17,
1999 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 1999 Annual Meeting of Stockholders to be filed
with the Securities and Exchange Commission on or about March 17, 1999 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:
2.1 Amended and Restated Agreement and Plan of Merger among
Mueller Industries, Inc., Mueller Acquisition Corp. and
Halstead Industries, Inc., dated as of October 30, 1998
(Incorporated herein by reference to Exhibit 2.1 of the
Registrant's Report on Form 10-Q, dated November 6, 1998 for
the quarter ended September 26, 1998).
2.2 Form of Stock Purchase Agreement with William B. Halstead
(Incorporated herein by reference to Exhibit 2.2 of the
Registrant's Report on Form 10-Q, dated November 6, 1998 for
the quarter ended September 26, 1998).
2.3 Form of Stock Purchase Agreement with remaining Halstead
stockholders (Incorporated herein by reference to Exhibit 2.3
of the Registrant's Report on Form 10-Q, dated November 6,
1998 for the quarter ended September 26, 1998).
3.1 Certificate of Incorporation of Mueller Industries, Inc. and
all amendments thereto.
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).
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<PAGE>
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).
10.1 Credit Agreement among Mueller Industries, Inc. (as
Borrower) and Michigan National Bank and other banking
institutions and Michigan National Bank (as Agent) dated as of
June 1, 1994 (Incorporated herein by reference to Exhibit 4.3
of the Registrant's Report on Form 10-K, dated March 20, 1997,
for the fiscal year ended December 28, 1996).
10.2 First Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated as of December 14, 1994 (Incorporated herein by
reference to Exhibit 4.4 of the Registrant's Report on Form
10-K, dated March 20, 1997, for the fiscal year ended December
28, 1996).
10.3 Second Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated as of June 1, 1995 (Incorporated herein by
reference to Exhibit 4.5 of the Registrant's Report on Form
10-K, dated March 20, 1997, for the fiscal year ended December
28, 1996).
10.4 Third Amendment to Credit Agreement among Mueller Industries,
Inc. (as Borrower) and Michigan National Bank and other
banking institutions and Michigan National Bank (as Agent)
dated as of December 18, 1996 (Incorporated herein by
reference to Exhibit 4.6 of the Registrant's Report on Form
10-K, dated March 20, 1997, for the fiscal year ended December
28, 1996).
10.5 Fourth Amendment to Credit Agreement among Mueller Industries,
Inc. (as Borrower) and Michigan National Bank and other
banking institutions and Michigan National Bank (as Agent)
dated December 31, 1997 (Incorporated herein by reference to
Exhibit 4.7 of the Registrant's Report on Form 10-K, dated
March 19, 1998, for the fiscal year ended December 27, 1997).
10.6 Fifth Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated November 20, 1998.
-14-
<PAGE>
10.7 Amended and Restated Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated December 30, 1998.
10.8 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.
10.9 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).
10.10 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).
10.11 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).
10.12 Summary description of the Registrant's 1999 bonus plan
for certain key employees.
10.13 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and Harvey L. Karp (Incorporated herein by reference to
Exhibit 10.1 of the Registrant's Report on Form 10-Q, dated
October 21, 1997, for the quarter ended September 27, 1997).
10.14 Amended and Restated Employment Agreement, effective as of
September 17, 1997, by and between Mueller Industries, Inc.
and William D. O'Hagan (Incorporated herein by reference to
Exhibit 10.2 of the Registrant's Report on Form 10-Q, dated
October 21, 1997, for the quarter ended September 27, 1997).
10.15 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).
10.16 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).
-15-
<PAGE>
10.17 Mueller Industries, Inc. Deferred Compensation Plan,
effective January 1, 1997 (Incorporated herein by reference to
Exhibit 10.12 of the Registrant's Report on Form 10-K, dated
March 20, 1997, for the fiscal year ended December 28, 1996).
10.18 Mueller Industries, Inc. 1998 Stock Option Plan.
(Incorporated herein by reference to Exhibit A of the
Registrant's Definitive Proxy Statement, dated March 18,
1998).
10.19 Stock Option Agreement, dated May 7, 1997 by and between
Mueller Industries, Inc. and William D. O'Hagan.
10.20 Stock Option Agreement, dated October 9, 1998 by and between
Mueller Industries, Inc. and William D. O'Hagan.
13.0 Mueller Industries, Inc.'s Annual Report to Stockholders
for the year ended December 26, 1998. 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).
(b) During the three months ended December 26, 1998, no Current
Reports on Form 8-K were filed.
-16-
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized, on
March 23, 1999.
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 23, 1999
Harvey L. Karp
/S/ROBERT B. HODES Director March 23, 1999
Robert B. Hodes
/S/G.E. MANOLOVICI Director March 23, 1999
G.E. Manolovici
/S/WILLIAM D. O'HAGAN President, Chief Executive Officer, March 23, 1999
William D. O'Hagan Director
/S/ROBERT J. PASQUARELLI Director March 23, 1999
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 23, 1999
Earl W. Bunkers
Executive Vice President
Chief Financial Officer
(Principal Accounting Officer)
/S/ KENT A. MCKEE March 23, 1999
Kent A. McKee
Vice President
/S/ RICHARD W. CORMAN March 23, 1999
Richard W. Corman
Corporate Controller
-17-
<PAGE>
INDEX TO FINANCIAL STATEMENTS
The consolidated financial statements, together with the report
thereon of Ernst & Young LLP dated February 5, 1999, appearing
on page 23 through and including 49, of the Company's 1998 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 1998 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 1998 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 26, 1998,
December 27, 1997 and December 28, 1996.
Valuation and Qualifying Accounts (Schedule II) 19
-18-
<PAGE>
MUELLER INDUSTRIES, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
(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>
1998
Allowance for doubtful accounts $ 3,680 $ 556 $ 1,197 (1) $ 504 $ 4,929
Environmental reserves $ 10,368 $ 2,133 $ 7,472 (1) $ 3,652 $ 16,321
Severance and related $ - $ - $ 9,464 (1) $ 198 $ 9,266
Other reserves (2) $ 10,448 $ 200 $ 6,838 (1) $ 1,738 $ 15,748
Valuation allowance for deferred
tax assets $ 52,073 $ - $ - $ 5,481 $ 46,592
1997
Allowance for doubtful accounts $ 3,188 $ 107 $ 677 (1) $ 292 $ 3,680
Environmental reserves $ 9,105 $ 3,100 $ 3,949 (1) $ 5,786 $ 10,368
Other reserves (2) $ 10,368 $ 250 $ 2,089 (1) $ 2,259 $ 10,448
Valuation allowance for deferred
tax assets $ 56,299 $ - $ - $ 4,226 $ 52,073
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
<FN>
(1) Resulted from acquisitions during 1998 and 1997.
(2) Other reserves are included in the balance sheet captions "Other
current liabilities" and "Other noncurrent liabilities".
</TABLE>
-19-
<PAGE>
EXHIBIT INDEX
Exhibits Description Page
3.1 Certificate of Incorporation of Mueller Industries, Inc. and
all amendments thereto.
10.6 Fifth Amendment to Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated November 20, 1998.
10.7 Amended and Restated Credit Agreement among Mueller
Industries, Inc. (as Borrower) and Michigan National Bank and
other banking institutions and Michigan National Bank (as
Agent) dated December 30, 1998.
10.12 Summary description of the Registrant's 1999 bonus plan
for certain key employees.
10.19 Stock Option Agreement, dated May 7, 1997 by and between
Mueller Industries, Inc. and William D. O'Hagan.
10.20 Stock Option Agreement, dated October 9, 1998 by and between
Mueller Industries, Inc. and William D. O'Hagan.
13.0 Mueller Industries, Inc.'s Annual Report to
Stockholders for the year ended December 26, 1998.
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).
27.0 Financial Data Schedule (EDGAR filing only)
-20-
CERTIFICATE OF INCORPORATION
OF
MBNR CORPORATION
I.
The name of the Corporation is MBNR Corporation (the "Corporation").
II.
The Corporation is organized pursuant to the General Corporation Law of
the State of Delaware (the "GCL").
III.
The address of the Corporation's registered office in the State of
Delaware is 32 Loockerman Square, Suite L-100, City of Dover, County of
Kent, Delaware, 19901. The name of its registered agent at such address is
The Prentice-Hall Corporation System, Inc.
IV.
The purposes for which the Corporation is organized are to act as a
holding company of other firms, companies and corporations and to engage
in any lawful act or activity for which corporations may be organized
under the GCL, and the Corporation shall have all powers necessary to
conduct such businesses and engage in such activities, including, but not
limited to, the powers enumerated in the GCL or any amendment thereto.
V.
The total number of shares of stock which the Corporation shall have
authority to issue is 25,000,000; of such shares the number of common
shares which the Corporation shall have authority to issue is 20,000,000,
par value $.01 per share ("Common Stock"), and the number of preferred
shares which the Corporation shall have authority to issue is 5,000,000,
par value $1.00 per share ("Preferred Stock").
A. Common Stock. Subject to the provisions of any series of
Preferred Stock which may at the time be outstanding, the
holders of shares of Common Stock shall be entitled to receive,
when and as declared by the Board of Directors out of any funds
legally available for the purpose, such dividends as may be
declared from time to time by the Board of Directors. In the
event of the liquidation of the Corporation, or upon
distribution of its assets, after the payment in full or the
setting apart for payment of such preferential amounts, if any,
as the holders of shares of Preferred Stock at the time
outstanding shall be entitled, the remaining assets of the
Corporation available for payment and distribution to
shareholders shall, subject to any participating or similar
rights of shares of Preferred Stock at the time outstanding, be
distributed ratably among the holders of shares of Common Stock
at the time outstanding. All shares of Common Stock shall have
-1-
<PAGE>
equal non-cumulative voting rights, and shall have no
preference, conversion, exchange, preemptive or redemption
rights.
B. Preferred Stock. The Board of Directors of the Corporation is
hereby expressly authorized at any time, and from time to time,
to provide for the issuance of shares of Preferred Stock in one
or more series, with such voting powers (subject to Article IX
hereof), full or limited, and with such designations,
preferences and relative, participating, optional or other
rights, and qualifications, limitations or restrictions thereof,
as shall be stated and expressed in the resolution or
resolutions providing for the issue thereof adopted by the Board
of Directors and the certificate of designations filed under the
GCL setting forth such resolution or resolutions, including
(without limiting the generality thereof) the following as to
each such series:
(i) the designation of such series;
(ii) the dividends, if any, payable with respect to such
series, the rates or basis for determining such
dividends, any conditions and dates upon which such
dividends shall be payable, the preferences, if any, of
such dividends over, or the relation of such dividends
to, the dividends payable on Common Stock or other
series of Preferred Stock, whether such dividends shall
be non-cumulative or cumulative, and, if cumulative, the
date or dates from which such dividend shall be
cumulative;
(iii) whether shares of Preferred Stock shall be redeemable at
the option of the Board of Directors or the holder, or
both, upon the happening of a specified event and, if
redeemable whether for cash, property or rights,
including securities of the Corporation, the time,
prices or rates and any adjustment and other terms and
conditions of such redemption;
(iv) the terms and amount of any sinking, retirement or
purchase fund provided for the purchase or redemption of
shares of Preferred Stock of such series;
(v) whether or not shares of Preferred Stock of such series
shall be convertible into or exchangeable for shares of
Common Stock or other series of Preferred Stock, at the
option of the Corporation or of the holder, or both, or
upon the happening of a specified event and, if
provision be made for such conversion or exchange, the
terms, prices, rates, adjustments and any other terms
and conditions thereof;
(vi) the extent to which the holders of shares of Preferred
Stock of such series shall be entitled to vote with
respect to the election of Directors or otherwise,
including, without limitation, the extent, if any, to
which such holders shall be entitled, voting as a series
or as a part of a class, to elect one or more Directors
-2-
<PAGE>
upon the happening of a specified event or otherwise;
(vii) the restrictions, if any, on the issue or reissue of
shares of Preferred Stock of such series or any other
series;
(viii) the extent, if any, to which the holders of shares of
Preferred Stock of such series shall be entitled to
preemptive rights; and
(ix) the rights of the holders of shares of Preferred Stock
of such series upon the liquidation of the corporation
or any distribution of its assets.
C. Certificates of Designations. Before the Corporation shall issue
any shares of Preferred Stock of any series, a certificate
setting forth the resolution or resolutions of the Board of
Directors, fixing the voting powers, designations, preferences
and rights of such series, the qualifications, limitations or
restrictions thereof, and the number of shares of Preferred
Stock of such series authorized by the Board of Directors, shall
be signed, attested to, filed, and recorded pursuant to Section
103 of the GCL. Unless otherwise provided in any such resolution
or resolutions, the holders of the series so authorized shall
have non-cumulative voting rights and shall have no conversion,
exchange, preemptive or redemption rights. Unless otherwise
provided in any such resolution or resolutions, the number of
shares of Preferred Stock of the series authorized by such
resolutions may be increased (but not above the total number of
shares of Preferred Stock of such series) or decreased (but not
below the number of shares of Preferred Stock of such series
then outstanding) by a certificate setting forth a resolution or
resolutions adopted by the Board of Directors, authorizing such
increase or decrease, signed, attested to, filed, and recorded
pursuant to Section 103 of the GCL. Unless otherwise provided in
the resolution or resolutions creating such series, the number
of shares of Preferred Stock specified in any such decrease
shall be restored to the status of authorized but unissued
shares of Preferred Stock (without designation as to series).
VI.
The Corporation shall, to the fullest extent permitted by law and by the
by-laws of the Corporation, indemnify any person made or threatened to be
made a party to an action or proceeding, whether criminal, civil,
administrative or investigative, by reason of the fact that such person,
or such person's testator or intestate is or was an officer, employee or
agent of the Corporation or serves or served any other corporation,
partnership, joint venture, trust or other enterprise as a director,
officer, employee, agent or trustee at the express or implied request of
the Corporation.
VII.
To the fullest extent permitted by the GCL as the same exists or hereafter
may be amended, a Director of this Corporation shall not be liable to the
Corporation or its stockholders for monetary damages for breach of
fiduciary duty as a Director, except for liability (i) for any breach of
-3-
<PAGE>
the Director's duty of loyalty to the Corporation or its stockholders,
(ii) for acts or omissions not in good faith or which involve intentional
misconduct or a knowing violation of the law, (iii) under Section 174 of
the GCL, or (iv) for any transaction from which the Director derived any
improper personal benefit.
VIII.
In furtherance of and not in limitation of the powers conferred by the GCL
or any other statute, the Board of Directors is expressly authorized to
make, alter or repeal the by-laws of the Corporation, subject to the right
of the stockholders of the Corporation to alter or repeal any By-law made
by the Board of Directors.
IX.
This Corporation shall not issue non-voting equity securities. This
Article IX is included in this Certificate of Incorporation in compliance
with Section 1123 of the United States Bankruptcy Code, 11 U.S.C Section
1123, and shall have no further force and effect beyond that required by
such Section and for so long as such Section is in effect and applicable
to the Corporation.
X.
The election of Directors of the Corporation need not be by written
ballot, unless the By-laws of the Corporation otherwise provide.
XI.
The Corporation hereby elects not to be governed by Section 203 of the
GCL.
XII.
Mark C. Catana is the sole incorporator and his mailing address is c/o
Schulte Roth & Zabel, 900 Third Avenue, New York, New York 10022.
Dated: October 1, 1990
/S/Mark C. Catana
Mark C. Catana
Schulte Roth & Zabel
900 Third Avenue
New York, New York 10022
-4-
<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MBNR CORPORATION
(Under Section 241 of the General Corporation Law)
The undersigned, for the purpose of amending the Certificate of
Incorporation of MBNR Corporation pursuant to Section 805 of the General
Corporation Law of the State of Delaware (the "General Corporation Law"),
does hereby certify:
1. The name of the corporation is MBNR Corporation (the
"Corporation").
2. The Certificate of Incorporation of the Corporation was filed
with the Secretary of State of the State of Delaware on October 3, 1990.
3. The Certificate of Incorporation of the Corporation is hereby
amended by striking out Article I relating to the name of the Corporation,
and substituting in lieu of said Article the following:
"I
The name of the corporation is Mueller Industries, Inc.
(the "Corporation")."
4. The foregoing amendment to the Certificate of Incorporation is
being authorized by the sole incorporator of the Corporation pursuant to
Section 241 of the General Corporation Law. The sole incorporator hereby
certifies that the corporation has no shareholders of record and no
directors and that the Corporation has not received any payments for its
stock.
IN WITNESS WHEREOF, the sole incorporator has executed this
Certificate of Amendment of the Certificate of Incorporation on the date
set forth below, and does hereby affirm, under penalty of perjury, that
the statements contained herein are true and correct.
Dated: October 18, 1990
/S/Mark C. Catana
Mark C. Catana
Sole Incorporator
-5-
<PAGE>
CERTIFICATE OF CHANGE OF REGISTERED AGENT
AND
REGISTERED OFFICE
MUELLER INDUSTRIES, INC., a corporation organized and existing
under and by virtue of the General Corporation Law of the State of
Delaware, DOES HEREBY CERTIFY:
The present registered agent of the corporation is The Prentice-Hall
Corporation System, Inc. and the present registered office of the
corporation is in the county of Kent.
The Board of Directors of MUELLER INDUSTRIES, INC. adopted the
following resolution on the 13th day of December, l990.
Resolved, that the registered office of
in the state of Delaware be and it hereby is changed to Corporation
Trust Center, 1209 Orange Street, in the City of Wilmington, County
of New Castle, and the authorization of the present registered agent
of this corporation be and the same is hereby withdrawn, and THE
CORPORATION TRUST COMPANY, shall be and is hereby constituted and
appointed the registered agent of the corporation at the address of
its registered office.
IN WITNESS WHEREOF, Mueller Industries, Inc. has caused this
statement to be signed by Robert J. Brown, its President and attested by
Kent A. McKee, its Secretary this 13th day of December, 1990
By /S/Robert J. Brown
Robert J. Brown
President
ATTEST:
By /S/Kent A. McKee
Kent A. McKee
Secretary
-6-
<PAGE>
CERTIFICATE OF OWNERSHIP AND MERGER
OF
SHARON STEEL CORPORATION
INTO
MUELLER INDUSTRIES, INC.
Pursuant to Sections 103 and 253
of the
General Corporation Law
of the
State of Delaware
Sharon Steel Corporation, a Pennsylvania corporation ("Sharon"),
hereby certifies as follows:
FIRST: Sharon owns 100% of the outstanding shares of common stock,
$0.01 par value per share of Mueller Industries, Inc, a Delaware
corporation ("Mueller").
SECOND: The Trustee of Sharon appointed pursuant to Title 11,
Chapter 11 of the United States Code (the "Chapter 11 Trustee"), by
written consent dated December 28 1990, pursuant to Section 1903(b) and
Subchapter C. of Chapter 19 of the Pennsylvania Business Corporation Law
of 1988 of the Commonwealth of Pennsylvania (the "PBCL"), duly adopted
resolutions authorizing the merger of Sharon with and into Mueller (the
"Merger"), pursuant to which Mueller will be the surviving corporation. A
true copy of such resolutions is annexed hereto as Exhibit A. Such
resolutions have not been modified or rescinded and are in full force and
effect as of the date hereof.
THIRD: In accordance with Section 1903(b) of the PBCL, the Chapter
11 Trustee has approved the Merger, which merger is a part of and pursuant
to the Third Amended and Restated Plan of Reorganization for Sharon, dated
September 27, 1990, as modified by a motion dated November 19, 1990, for
an Order approving modification of such plan, under Title 11, Chapter 11
of the United States Code (the "Plan of Reorganization"), which such Plan
of Reorganization, as so modified, was confirmed by the Bankruptcy Court
for the Western District of Pennsylvania, Erie Division on November 20,
1990.
FOUR: The Merger shall become effective (i) upon the filing of this
Certificate of Ownership and Merger with the Secretary of State of the
State of Delaware; (ii) upon the filing of the Articles of Merger with the
Secretary of the Commonwealth of Pennsylvania in accordance with Section
1927 of the PBCL; and (iii) pursuant to the Plan of Reorganization, upon
consummation of the Reorganized Sharon Private Placement (as defined in
the Plan of Reorganization).
FIFTH: The Certificate of Incorporation, as amended, of Mueller
shall continue to be the Certificate of Incorporation of Mueller
Industries, Inc., the surviving corporation in the Merger.
NOTICE OF APPOINTMENT OF TRUSTEE is attached as Exhibit B.
-7-
<PAGE>
IN WITNESS WHEREOF, the Chapter 11 Trustee has signed this
Certificate of Ownership and Merger on behalf of Sharon Steel Corporation
this 28 day of December, 1990.
SHARON STEEL CORPORATION
By: /S/Franklin E. Agnew, III
Name: Franklin E. Agnew, III
Title: Chapter 11 Operating
Trustee
Attest:
/S/Melvin G. Sander
Name: Melvin G. Sander
Title: Secretary
-8-
<PAGE>
EXHIBIT A
RESOLVED, that the Trustee of the bankruptcy estate of the
Corporation hereby declares it advisable and authorizes the corporation to
merge itself with and into MUELLER INDUSTRIES, INC., ("Mueller") a
Delaware corporation and wholly-owned subsidiary of the Corporation,
whereupon (i) the separate existence of the Corporation shall cease and
Mueller shall be the surviving corporation; (ii) each share of common
stock of the Corporation outstanding immediately prior to the effective
time of the merger shall be cancelled and (iii) 7,000,000 shares of common
stock, par value $0.01 per share, of Mueller shall be issued on a pro rata
basis to the holders of the Allowed General Unsecured Claims (as defined
in the Reorganization Plan referenced below) or otherwise held in a
Disputed Claims Reserve (as defined in the Reorganization Plan referenced
below) under the Third Amended and Restated Plan of Reorganization for the
Corporation, dated September 27, 1990, as modified by a motion dated
November 19, 1990, for an Order approving modification of such plan, under
Title 11, Chapter 11 of the United States Code (the "Reorganization Plan")
confirmed by the Bankruptcy Court for the Western District of
Pennsylvania, Erie Division on November 20, 1990); and in furtherance
thereof, that the Articles of Merger be filled with the Secretary of the
Commonwealth of Pennsylvania and the Certificate of Ownership and Merger
be filled with the Secretary of State of the State of Delaware
substantially in the forms previously supplied to the Trustee;
RESOLVED, that the form, terms and provisions of the Agreement and
Plan of Merger substantially in the form previously supplied to the
Trustee, be, and hereby are, in all respects approved, and the Trustee and
each of the officers of the Corporation be, and they hereby are,
authorized to take such further actions as they, in their sole discretion,
deem necessary or appropriate in order to effectuate the Agreement and
Plan of Merger;
RESOLVED, that the Trustee and each of the officers of the
Corporation be, and they hereby are, authorized to execute and acknowledge
in the name and on behalf of the Corporation the Articles of Merger; and
that the Trustee and each of the officers be, and they hereby are,
authorized to cause such executed Articles of Merger to be filed with the
Secretary of the Commonwealth of Pennsylvania in accordance with Section
1927 of the Pennsylvania Business Corporation Law of 1988 ("PBCL");
RESOLVED, That the Trustee and each of the officers of the
Corporation be, and they hereby are, authorized to execute and acknowledge
in the name and on behalf of the Corporation a Certificate of Ownership
and Merger; and that the Trustee and each of the officers be, and they
hereby are, authorized to cause such executed Certificate to be filed in
the office of the Secretary of State of the State of Delaware in
accordance with Sections 103 and 253 of the Delaware General Corporation
Law ("DGCL");
RESOLVED, that the merger shall become effective and the corporate
existence of the Corporation shall cease (i) upon the filing of such
Articles of Merger with the Secretary of the Commonwealth of Pennsylvania
in accordance with Section 1927 of the PBCL, (ii) upon the filing of such
Certificate of Ownership and Merger with the Secretary of State of the
State of Delaware in accordance with Sections 103 and 253 of the DGCL and
(iii) pursuant to the Reorganization Plan of the Corporation, the
consummation of the Reorganized Sharon Private Placement (as defined in
-9-
<PAGE>
the Reorganization Plan); and
RESOLVED, that the Trustee and each of the officers of the
Corporation be, and they hereby are authorized to take such actions and to
execute and deliver such certificates, instruments and other documents and
to do such other things as they or any of them shall deem necessary or
advisable to effectuate the purposes and intent of thc foregoing
resolutions.
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<PAGE>
EXHIBIT B
United States Bankruptcy Court
District of Pennsylvania
Chapter 11
Case No. 87-00207/E
IN THE MATTER OF:
SHARON STEEL CORPORATION
Debtor
NOTICE OF APPOINTMENT OF TRUSTEE
TO: Franklin E. Agnew, Suite 1474, USX Tower, Pittsburgh, PA 15219
You are hereby notified of your appointment as Trustee of the estate
of the above named debtor. The amount of your Bond has been fixed at
$1,500,000.00. Your Bond must be filed with the United States Trustee
within five (5) days of the date of your appointment (Sec. 322).
/S/Hugh M. Leonard
HUGH M. LEONARD
UNITED STATES TRUSTEE
DATED: January 24, 1989
I HEREBY ACCEPT APPOINTMENT AS TRUSTEE HEREIN THIS 25th DAY OF
January, 1987
/S/Franklin E. Agnew
FRANKLIN E. AGNEW
TRUSTEE
APPOINTMENT OF Franklin E. Agnew AS TRUSTEE IS APPROVED THIS 25th DAY
OF January, 1989
/S/Warren W. Bentz
HONORABLE WARREN W. BENTZ
BANKRUPTCY JUDGE
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<PAGE>
CERTIFICATE OF AMENDMENT
OF THE
CERTIFICATE OF INCORPORATION
OF
MUELLER INDUSTRIES, INC.
Mueller Industries, Inc., a corporation organized and existing under
and by virtue of the General Corporation Law of the State of Delaware (the
"Corporation"), does hereby certify:
FIRST: The first sentence of Article V of the Certificate of
Incorporation of the Corporation is hereby amended so as to read in its
entirety as follows:
"The total number of shares of stock which the Corporation shall have
authority to issue is 105,000,000; of such shares the number of common
shares which the Corporation shall have authority to issue is 100,000,000,
par value $.01 per share ("Common Stock"), and the number of preferred
shares which the Corporation shall have authority to issue is 5,000,000,
par value $1.00 per share ("Preferred Stock")."
SECOND: The Amendment of the Certificate of Incorporation herein
certified has been duly adopted by the holders of a majority of the
issued and outstanding shares of Common Stock in accordance with the
provisions of Section 242 of the General Corporate Law of the State of
Delaware.
IN WITNESS WHEREOF, Mueller Industries, Inc., has caused this
certificate to be signed by its President and attested by its Secretary
this 7th day of May, l998, pursuant to Section 103(a) of the General
Corporation Law of the State of Delaware.
Mueller Industries, Inc.
By:/S/William D. O'Hagan
William D. O'Hagan
President and Chief Executive
Officer
ATTEST:
By:/S/William H. Hensley
William H. Hensley
Secretary
-12-
FIFTH AMENDMENT
TO
CREDIT AGREEMENT
This Fifth Amendment to Credit Agreement (this "Fifth Amendment"),
dated as of November 20, 1998, 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 Fifth 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, as
amended, 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
$100,000,000. The Credit Agreement was amended by a First Amendment to
Credit Agreement, dated as of December 14, 1994, by a Second Amendment to
Credit Agreement, dated as of June 1, 1995, by a Third Amendment to Credit
Agreement, dated as of December 18, 1996, and by a Fourth Amendment to
Credit Agreement, dated as of December 31, 1997 (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 a temporary increase
in the aggregate principal amount of the loans that can be outstanding
under the Amended Credit Agreement at any one time to $125,000,000.00, 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 November 20, 1998, as follows:
1. The definition of the term "Brass Guaranties" in Section 1, shall
be amended, effective as of December 27, 1997, by adding thereto,
immediately following the word "Ltd." in the parenthetical clause thereof,
the words "and any direct or indirect foreign subsidiaries of Mueller
Brass Co. formed subsequent to December 27, 1997."
2. 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 Fifth Amendment, which as to aggregate
Advances of the Loan will be limited to the maximum U.S. dollar
amount shown on said Exhibit A."
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<PAGE>
3. Section 2.1 shall be amended by inserting the following phrase
after the amount "$100,000,000" at the beginning of the sixth line
thereof: "provided, however that from November 20, 1998 to February 18,
1999, or such earlier date that the parties agree to one or more term
loans to replace the Line of Credit Loan (the "Increased Credit Period"),
such maximum aggregate principal amount shall be "$125,000,000."
4. Section 2.7 shall be amended by inserting the following phrase
after the term "$100,000,000" in the two places in which it appears: "or
$125,000,000 during the Increased Credit Period."
5. A new Section 3.7 is added to the Amended Credit Agreement,
reading as follows:
3.7.1 Halstead Industries Inc. Guaranty
At such time as the outstanding principal balance
outstanding on the Loan first exceeds $100,000,000.00, the
Borrower shall forthwith cause Halstead Industries, Inc. to
execute and deliver to the Agent for the prorate benefit of the
Banks an unlimited guaranty of all of the Obligations in form
and substance satisfactory to the Agent.
6. Contemporaneously with the execution of this Fifth Amendment, the
Borrower shall pay the Agent, for the prorate benefit of the Banks, an
additional fully-earned, non-refundable commitment fee of $25,000.
7. 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 Fifth 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 Fifth Amendment, such
execution (and delivery of such Notes and Brass Guaranties to the Agent)
being a condition to the effectiveness of this Fifth Amendment.
8. The parties acknowledge and agree that Boatmen's National Bank
("Boatmen's") has been merged into NationsBank, N.A. ("NationsBank") and,
accordingly, that NationsBank has assumed all of the rights and
corresponding obligations of Boatmen's under the Amended Credit Agreement
and the other Loan Documents and the Ratable Share previously held by
Boatmen's.
9. 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.
l0. 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.
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<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Fifth
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
NATIONSBANK, N.A.
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:
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<PAGE>
EXHIBIT A
Ratable Maximum Amount During Maximum Amount
Name of Bank Share Increased Credit Period Other Times
- ------------ ------- ----------------------- --------------
Michigan National Bank 25% $31,250,000 $25,000,000
The First National 18.75% $23,437,500 $18,750,000
Bank of Chicago
NationsBank, N.A. 18.75% $23,437,500 $18,750,000
Key Bank National
Association 18.75% $23,437,500 $18,750,000
Mercantile Bank 18.75% $23,437,500 $18,750,000
National Association
-4-
AMENDED AND RESTATED CREDIT AGREEMENT
This Amended and Restated Credit Agreement (the "Agreement"), dated
as of December 30, 1998, 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. The Agent, the Borrower and some of the Banks, together with
several other financial institutions, executed a certain Credit Agreement,
dated as of June 1, 1994, which has previously been amended five times (as
so amended, the "Credit Agreement").
B. The Borrower has now requested the Banks to consider certain
amendments to the Credit Agreement, including an increase in the aggregate
principal amount of the loans that can be outstanding under the Credit
Agreement at any one time, 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.
C. The parties desire to amend and restate the Credit Agreement
in its entirety as hereinafter set forth.
NOW, THEREFORE, the parties hereto agree that the Credit Agreement
shall be amended and restated in its entirety, effective on and as of
December 30, 1998, 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 the Line of Credit Advances and the Letter of
Credit Advances, but shall exclude Interim Advances unless the context
otherwise requires, and "Advance" means any of the Advances.
"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.
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<PAGE>
"Agent's Counsel" means Dykema Gossett PLLC, 1577 North
Woodward Avenue, Suite 300, Bloomfield Hills, Michigan 48304.
"Bank" means each and, when used in the plural, includes all
of the banking institutions which have signed (or which may hereafter
become parties to) 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 8285 Tournament Drive, Suite 150,
Memphis, Tennessee 38125, Attention: Chief Financial Officer, 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.
"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.
"Closing Date" means the date that the first Loan is funded
pursuant to this Agreement.
"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.
"Debt Service Coverage" means the sum of net income after
taxes plus (1) depreciation, depletion and amortization, (2) interest, (3)
net tax loss carry forwards 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.
"Domestic Subsidiaries" means all Subsidiaries organized under
the laws of any of the states of the United States of America which are
engaged in the manufacturing business in the broadest sense of that term,
but excluding Alaska Gold Company and Arava Natural Resources Company,
Inc. and its wholly-owned subsidiaries.
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<PAGE>
"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.
"EBITDA" means consolidated net earnings of the Borrower and
the Subsidiaries excluding extraordinary gains before income taxes,
interest expense, depreciation and amortization, all determined in
accordance with GAAP.
"Effective Rate" means the interest rate in effect for each
respective Loan from time to time when such Loan is not in default, as set
forth in Section 2 hereof and/or in the Term Notes, as the case may be.
"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.
"FASB" means the Financial Accounting Standards Board.
"Federal Funds Rate" means, for any day, the Fed Funds
Effective Rate as most recently shown on page 73 of the Knight Ridder
Money Center. If page 73 of the Knight Ridder Money Center is not
available for any reason, the Agent may in its reasonable discretion
select a comparable reference.
"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.
"Funded Debt" means all interest bearing obligations payable,
which under GAAP are shown on the balance sheet as a liability, plus the
face amount of all outstanding Letter of Credit Advances, plus the amount
of all guaranties of indebtedness for borrowed money to the extent not
otherwise shown on the balance sheet as a liability, plus the unpaid
balance of all capitalized leases as determined in accordance with GAAP.
"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
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<PAGE>
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.
"Guaranties" means, collectively, the guaranties of the
Borrower's obligations under the Loan Documents by each of the Domestic
Subsidiaries listed in Exhibit 3.5.1(c) to this Agreement and all Domestic
Subsidiaries that are hereafter required to sign Guaranties as provided in
Section 5.12 hereof (individually, a "Guarantor" and, collectively, the
"Guarantors").
"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 by 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 Line of Credit Loan
bearing interest based upon a reference to LIBOR, means a specified time
period of one (1) month, two (2) months, three (3) months, or six (6)
months, with a specified due date not later than the Line of Credit
Maturity, and, with respect to the Term Loans, means a specified time
period of, three (3) months, with a specified due date not later than the
stated maturity date of the Term Notes.
"Interim Advance" has the meaning set forth in Section 2.9 of
this Agreement.
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<PAGE>
"Letter of Credit Advance" has the meaning set forth in
Section 2.2.3 of this Agreement.
"LIBOR Advances" means Advances which bear interest calculated
by reference to LIBOR.
"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.
"LIBOR Reserve" means relative to an Interest Period for which
the Effective Rate is LIBOR, 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.
"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.
"Line of Credit" means the line of credit established under
Section 2.1 of this Agreement.
"Line of Credit Loans" has the meaning set forth in Section
2.1 of this Agreement.
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<PAGE>
"Line of Credit Maturity" means May 30, 2001.
"Line of Credit Notes" has the meaning set forth in Section
2.3 of this Agreement.
"Loans" means the Line of Credit Loans and the Term Loans, and
"Loan" means any of the Loans.
"Loan Documents" means this Agreement, the Notes, the
Guaranties, applications for letters of credit and all other documents,
instruments or certificates executed and delivered to the Banks in
connection with this Agreement and the Loans.
"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, the Term Notes and any
other promissory notes issued by Borrower to the order of the Banks
evidencing the Obligations of Borrower to repay the Loans.
"Obligations" means any and all liabilities, obligations, or
indebtedness owing by Borrower to the Agent and/or 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) each of the liens described
in Schedule 1.1(a) attached to this 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.
"Prime Rate" means the rate of interest reported as the "Prime
Rate" in The Wall Street Journal as of each respective business day or, in
the case of each non-business day, as reported as of the immediately
preceding business day. In the event that The Wall Street Journal ceases
reporting the Prime Rate, then "Prime Rate shall mean the rate announced
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<PAGE>
publicly from time to time by Agent, 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.
"Prime Rate Advances" means Advances which bear interest
calculated by reference to the Prime Rate.
"Prohibited Transaction" has the meaning set forth in Section
406 or Section 2003(a) of ERISA.
"Ratable Share" means for each Bank the respective percentage
shown on the signature pages of this Agreement, which as to aggregate
Advances of the Line of Credit Loan and the Term Loan will be limited to
the respective maximum U.S. dollar amounts 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 Shares equals or
exceeds 66-2/3% in the aggregate of the Loans from time to time
outstanding, excluding from both the numerator and denominator, however,
the amount of the outstanding Loans by 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 or waive a
maturity date, Advance Date, payment date for any obligation, interest
rate, fees, commitment amount of any Bank, Section 8 hereof, this
definition of Requisite Banks, release any of the Guaranties or modify in
writing this Agreement or any other Loan Documents with respect to the
foregoing, 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 Loans is 100% in the
aggregate. Interim Advances shall not be included in any determination of
Requisite Banks.
"Restricted Subsidiaries" means those individual Subsidiaries
which from time to time (a) are Guarantors, and/or (b) the net earnings
of which, together with their respective subsidiaries, for any one or more
of the most recent three fiscal years of the Borrower, constitute five
percent (5%) or more of the consolidated net earnings of the Borrower and
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<PAGE>
the Subsidiaries, as determined in accordance with GAAP, and/or (c) the
Tangible Net Worth of which, together with their respective subsidiaries,
for any one or more of the most recent three fiscal years of the Borrower,
constitute five percent (5%) or more of the consolidated Tangible Net
Worth of the Borrower and the Subsidiaries.
"SEC" means the Securities and Exchange Commission or any
successor agency.
"Subsidiaries" means those entities listed on Schedule 1.1(b)
to this Agreement and all entities in which the Borrower hereafter
acquires, directly or indirectly, any equity or ownership interest, except
minority interests in entities the aggregate value of which interests (on
a cost basis) does not exceed $10,000,000.
"Tangible Net Worth" means the sum of the par or stated value
of all outstanding capital stock, amounts in excess of par or stated
value, surplus and retained earnings less intangibles, all as determined
in accordance with GAAP.
"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.
"Term Loans" has the meaning set forth in Section 2.10 of this
Agreement.
"Term Notes" has the meaning set forth in Section 2.10 of this
Agreement.
"Total Outstanding Amount" means the aggregate principal
amounts at any time outstanding of the Line of Credit Advances, the
outstanding face amount of Letters of Credit and all outstanding Interim
Advances, which shall not exceed $100,000,000 in aggregate amount at any
time.
"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 the sum of (a) an amount, if
positive, which the Borrower is required to pay to maintain each Bank's
anticipated Loan yield, which for any LIBOR Advance and for the Term
Loans, is the product of (i) the dollar amount of Advances and/or the Term
Loans which for any voluntary or involuntary reason other than its
scheduled maturity is paid on a date which is not the last day of the
respective Interest Period, (ii) the difference between (a) the Effective
Rate immediately prior to such payment and (b) the LIBOR rate as
determined by Agent in accordance with Section 2.2.1(ii) hereof for the
same interest calculation 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 Interest Period and 360 days and (b) all costs
incurred by the Agent and/or the Banks in connection with the breakage of
any related LIBOR contracts. In the event that Borrower requests a LIBOR
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Advance, but such Advance is not funded for any reason, then a Yield
Maintenance Payment shall be payable by Borrower as though the requested
Advance had been made on the date requested and prepaid on the same day.
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
Financial Accounting Standards Board 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 LOANS.
2.1 Amount of Line of Credit. Subject to the terms and
conditions hereof, Banks, severally in accordance with their respective
Ratable Share, 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 $100,000,000 (the "Line of Credit Loans"). Subject to
the terms and conditions hereof, the amounts borrowed under the Line of
Credit Loans may be borrowed, repaid and reborrowed.
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% (a "Prime Rate
Advance"); or
(ii) LIBOR, plus 0.27% whenever the outstanding
principal amount of the Line of Credit Loans is
less than $33,000,000, plus 0.37% whenever the
outstanding principal amount of the Line of Credit
Loans is $33,000,000 or more but less than
$66,000,000, or plus 0.47% whenever the
outstanding principal amount of the Line of Credit
Loans is equal to or more than $66,000,000, as the
case may be (a "LIBOR Advance") in each case
calculated as of the respective Advance Date or
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date of each paydown, as the case may be, and
including the amount of any requested Advance in
such calculation, with any change in the margin
above LIBOR being effective with respect to all
outstanding LIBOR Advances as of the date of such
Advance Date or paydown date; or
(iii) The Federal Funds Rate, plus 0.65% (a "Federal
Funds Advance").
2.2.2 Each LIBOR Advance will have an Interest Period of
one (1) month, two (2) months, three (3) months, or six (6) months, 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 for the prorata benefit of the Banks. 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 Notes will be immediately due and payable by Borrower to Agent
for the prorata benefit of the Banks. No more than six (6) LIBOR Advances
shall be outstanding at any one time and no LIBOR Advance shall be for
less than $5,000,000 in the aggregate.
2.2.3 Borrower shall give Agent notice of its request for
each Advance and each Letter of Credit 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. Eastern 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)
in all other cases, one (1) Business Day prior to the date such Advance is
requested to be made. Each notice shall specify whether a Prime Rate
Advance, a LIBOR Advance, a Federal Funds Advance or a Letter of Credit
Advance is requested and, in the case of each requested LIBOR Advance, the
Interest Period to be initially applicable to such Advance and, in the
case of each Letter of Credit Advance, such information as may be
necessary for the issuance thereof by Agent and accompanied by a completed
and signed copy of the Agent's standard letter of credit application.
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 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. Agent shall give
each Bank notice of each requested Advance no later than 2:00 p.m. Eastern
Time on the Business Day immediately preceding the Advance Date, or in the
case of a LIBOR Advance or a Letter of Credit Advance, on the third
Business Day immediately preceding the Advance Date. Agent shall give
each Bank notice of each draw under a letter of credit issued under this
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Agreement no later than 2:00 p.m. Eastern Time on the second Business Day
immediately preceding the date on which such draw will be honored.
2.2.4 Each Bank, on the date any Advance is requested to
be made, shall make its Ratable 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
Ratable Share 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 Ratable Share available to Agent, Agent
may (but shall not be obligated to) make such amount available to
Borrower, and such Bank agrees 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 the Federal Funds Rate. 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 Ratable Share of any
such Advance available to Agent shall not relieve any other Bank of its
obligations to make available its Ratable Share 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 Ratable Share
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 to Borrower in
immediately available funds at Borrower's expense.
2.2.6 Except for Interim Advances, no Prime Rate Advance
or Federal Funds Advance shall be for an aggregate amount of less than
$5,000,000.
2.3 Authorization and Issuance of Line of Credit Notes. 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 Line of Credit
commitment as set forth on the signature page(s) to this Agreement, on the
Closing Date.
2.4 Unused Commitment Fee. Borrower will pay to Agent for the
Banks on the last day of each March, June, September and December, in
arrears, during the term of the Line of Credit, beginning December 31,
1998, from funds other than those supplied by the Line of Credit, an
amount equal to one hundred and seventy-five one thousandths of 1%
(0.175%) per annum of the daily average unused portion of the Line of
Credit. Michigan National Bank's share of any such unused commitment fee
shall be reduced by, and the share of the other Banks therein shall be
ratably increased by, an amount equal to 0.175% per annum of the daily
average outstanding amount of Interim Advances during each respective
calculation period. Such fee shall be prorated with respect to any
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quarter in which the Line of Credit is not in effect for the entire
quarter.
2.5 Use of Proceeds. The proceeds of the Line of Credit Loans
will be used by Borrower (i) to finance acquisitions, (ii) to reimburse
any Bank for any payment under letters of credit and (iii) for general
corporate purposes.
2.6 Payments, Conversions and Rollovers.
2.6.1 Interest will be paid monthly by Borrower to Agent upon
the outstanding principal balance of all Prime Rate Advances and all Fed
Fund Advances from the date advanced at the applicable rates as determined
according to Section 2.2.1 above. Interest will be paid at the end of the
respective Interest Periods or, in the case of LIBOR Advances having six
month Interest Periods, at the end of every three (3) months, by Borrower
to Agent upon the outstanding principal balance of all LIBOR Advances from
the date advanced at the applicable rates as determined according to
Section 2.2.1 above.
2.6.2 Unless converted or rolled over as hereafter provided, the
principal on LIBOR Advances will be paid at the end of the respective
Interest Periods. 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 Loans, 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.
2.6.3 All or any portion of an outstanding Prime Rate Advance or
Federal Funds Advance may be converted to a LIBOR Advance upon Borrower
giving Agent written notice of its request for each such conversion not
later than 11:00 a.m. Eastern Time three (3) Business Days prior to the
date such conversion is requested to be made. Such notice shall specify
the length of the Interest Period.
2.6.4 All or any portion of an outstanding Prime Rate Advance or
Federal Funds Advance may be converted to a Federal Funds Advance or a
Prime Rate Advance, respectively, upon Borrower giving Agent written
notice of its request for each such conversion not later than 11:00 a.m.
Eastern Time one(1) Business Day prior to the date such conversion is
requested to be made.
2.6.5 All or any portion of an outstanding LIBOR Advance may be
converted to a Federal Funds Advance or a Prime Rate Advance upon
Borrower giving Agent written notice of its request for each such
conversion not later than 11:00 a.m. Eastern Time one (1) Business Day
prior to the end of the applicable Interest Period.
2.6.6 All or any portion of an outstanding LIBOR Advance may be
rolled over into a new Interest Period upon Borrower giving Agent written
notice of its request for each such roll over not later than 11:00 a.m.
Eastern Time three (3) Business Days prior to the end of the then current
Interest Period. Such notice shall specify the length of the new Interest
Period.
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2.6.7 Agent shall give each Bank notice of each conversion and
rollover requested under this Section 2.6 not later than 2:00 p.m. Eastern
Time three (3) Business Days prior to the end of the effective date of
such conversion or roll over.
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. LIBOR Advances may only be prepaid upon
five (5) days' prior written notice, from Borrower to Agent, and upon
payment by Borrower 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 $100,000,000, 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 $100,000,000.
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 Loans 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 is
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 Loans, all accrued interest thereon and other
amounts payable with respect thereto in accordance with the terms of the
Notes and this Agreement.
2.9 Interim Advances. The Agent may, in its sole discretion
and without having any obligation to do so, make interim advances
(hereinafter sometimes referred to as "Interim Advances") of its own funds
to the Borrower in an aggregate amount not to exceed $5,000,000 at any one
time outstanding; provided, however, that no Interim Advances shall be
made after the Agent has received written requests not to make Interim
Advances from the Requisite Banks or unless all conditions precedent for
an Advance have been met. The aggregate amount of all Interim Advances
outstanding on the date any regular Advance is made shall be included as a
previously disbursed portion of such regular Advance in which each Bank
shall participate based upon its Ratable Share and the Agent shall
thereupon be immediately reimbursed for the full amount of such Interim
Advances from the proceeds of such regular Advance. If no regular Advance
is made for any period of 60 days, whether by reason of the failure to
comply with any condition for a regular Advance or otherwise, each Bank
shall, upon request of the Agent, on the Business Day after receiving such
request, remit to the Agent such Bank's Ratable Share of all outstanding
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Interim Advances, whereupon, such Interim Advances shall be automatically
converted to a regular Prime Rate Advance effective on such next Business
Day. In no event will any Interim Advance be made if, after giving effect
to such Interim Advance, the aggregate principal amount of all Advances
would exceed $100,000,000.00.
2.10 Term Loans. On the Closing Date, each Bank shall make a
term loan to the Borrower in the amount of its Ratable Share of
$125,000,000 (collectively, the "Term Loans"). Simultaneously with the
making of the Term Loans, the Borrower shall repay the principal of all of
the outstanding Line of Credit Notes under the Credit Agreement and all
accrued and unpaid interest thereon. The Term Loans will be evidenced by
separate promissory notes of Borrower, in the form of Exhibit 2.10 to this
Agreement (each a "Term Note" and collectively the "Term Notes"), to be
executed and delivered by Borrower to each of the Banks, in the principal
amount of each such Bank's Term Loan commitment as set forth on the
signature page(s) to this Agreement. The Term Loans shall have a term of
five (5) years, with interest only payable quarterly for the first six (6)
months. Thereafter, regular payments of principal, based upon a ten-year
amortization of principal (i.e. $3,289,473.68 per quarter), and interest
shall be payable on the last day of each Interest Period. The Term Loans
shall bear interest as follows: (a) whenever the ratio of Funded Debt to
EBITDA is 1.10 or less, the interest rate shall be the 3 month LIBOR, plus
110 basis points; (b) whenever the ratio of Funded Debt to EBITDA is
greater than 1.10 but less than 2.25, the interest rate shall be the 3
month LIBOR, plus 120 basis points; and (c) whenever the ratio of Funded
Debt to EBITDA is 2.25 or more, the interest rate shall be the 3 month
LIBOR, plus 130 basis points. From the Closing Date until the ratio is
recalculated, the interest rate shall be the 3 month LIBOR, plus 120 basis
points. Such ratio shall be recalculated as of the end of each fiscal
quarter of the Borrower hereafter based upon the information set forth in
the Borrower's quarterly compliance certificates and the Term Notes shall
bear interest at the respective Effective Rate thus determined effective
as of the first day of the current fiscal quarter, provided, however, that
if Borrower fails to timely deliver any compliance certificate to Agent,
the interest rate shall be the 3 month LIBOR, plus 130 basis points
effective as of the first day of the current fiscal quarter until two (2)
Business Days after the Agent has received such compliance certificate.
For any date that the Agent is unable to determine LIBOR and for any
period after the last day of the last Interest Period for the Term Loans,
the Term Loans shall bear interest at the Prime Rate. The Term Loans
may be prepaid in whole or in part at any time and from time to time,
without premium or penalty, provided, however, that any partial
prepayments shall be in aggregate principal amounts of not less than
$5,000,000 and integral multiples thereof, and shall be applied to the
installments due under the Term Notes in the reverse order of their
maturities, and provided, further, that simultaneously with making such
prepayment the Borrower will pay the Banks any applicable Yield
Maintenance Payment.
3. GENERAL PROVISIONS.
3.1 Commitment Fees. On the Closing Date, the Borrower shall
pay to the Agent for the pro rata benefit of the Banks fully earned and
nonrefundable commitment fees in the amount of $175,000.00 with respect to
the Line of Credit and $218,750.00 with respect to the Term Loans.
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3.2 Agent Administrative Fee. Borrower will pay to Agent on the
Closing Date and during the term of this Agreement such administrative
fees as may be agreed in writing from time to time by Agent and Borrower
for Agent's services as such hereunder.
3.3 Overdue Rate.
3.3.1 Any payments of principal or interest not paid when
due or declared due, whether at maturity, by acceleration, by lapse of
time or otherwise, including any fees, costs or expenses advanced or paid
by Agent, will bear interest thereafter, at the option of Agent and/or at
the request of the Requisite Banks, and without affecting any of the
Bank's rights and remedies provided for herein and in the Notes, at two
percent (2%) per annum in excess of the Effective Rate.
3.3.2 If any required payment under any Note is not paid
within ten (10) days from the date it is due, at the option of Agent
and/or at the request of the Requisite Banks, a late charge of five cents
($.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 Loans 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 Notes 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
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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 Term Notes, in the form of Exhibit 2.10.
(c) The Guaranties, in the form of Exhibit 3.5.1(c)
to this Agreement.
(d) Such other documents and certificates as may be
necessary or desirable to evidence the Obligations, representations,
warranties and covenants of Borrower hereunder and the Guarantors under
the Guaranties.
3.5.2 Agent will have received a good standing certificate
of Borrower and each of the Guarantors listed on Exhibit 3.5.2 hereto from
each state in which Borrower and each such Guarantor is organized 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 such Guarantor is in good standing in each such state; provided that
Borrower covenants to deliver to Agent, as soon as practicable but not
later than ninety (90) 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.
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3.5.7 Agent 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
Commitment Fees 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 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.
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 Loans, nor
will either result from the making of such Loans.
3.5.12 Agent and each of the Banks will have received the
written opinion, dated the Closing Date, of Borrower's Counsel in form and
substance satisfactory to Agent and the Requisite Banks.
3.5.13 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 Loans. The obligation of the Banks and each of them to make
Advances, including any Letter of Credit Advance, 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
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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 quarterly 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.
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 under any Letter of Credit Advance, 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).
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(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.
(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 Loans.
3.6.7 Letters of Credit. Any letter of credit issued
pursuant to the Line of Credit shall have a term not exceeding one year,
not including renewals and shall not in any event expire later than the
Line of Credit Maturity Date. In no event shall the aggregate face amount
of all outstanding Letter of Credit Advances exceed $15,000,000.00.
Borrower will pay to Agent for the pro rata benefit of the Banks a fee of
four hundred eighty-five thousandths of one percent (0.485%) 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
Ratable Share. 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 prior to 2:00 p.m. Eastern Time on the second
Business Day immediately preceding the date such draft or demand is to be
honored. Unless Borrower shall have satisfied its reimbursement
obligation by payment to Agent on the date that such draft or demand is to
be honored, each Bank, on the date the draw under the letter of credit is
to be honored, shall make its Ratable 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 Ratable Share portion available to Agent, such Bank agrees 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
Federal Funds Rate. If such Bank shall pay such amount to Agent together
with such interest, such amount so paid shall constitute a Loan by such
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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.
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 legal entity
duly organized, validly existing and in good standing under the laws of
the respective jurisdiction of its organization, (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 adversely impact the business,
operations, properties or condition (financial or otherwise) 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.
4.1.2 Borrower has full power and authority to execute,
deliver and perform the Loan Documents, including, without limitation, to
borrow under this Agreement. Each Guarantor has full power and authority
to execute, deliver and perform the Guaranties. Borrower and each
Guarantor 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 any Guarantor or the
validity or enforceability against Borrower or any Guarantor 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 and the execution, delivery
and performance by any Guarantor of the Guaranties 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.
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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 and of the Guarantors,
as the case may be, enforceable against it and them in accordance with
their respective terms, except as enforcement may be limited by equitable
principals or by bankruptcy, insolvency, reorganization, moratorium or
similar laws, or equitable principles relating to or limiting creditors'
rights generally.
4.3 Subsidiaries. Schedule 1.1(b) correctly sets forth as to
each Subsidiary, its name, the jurisdiction of its organization, the name
of its immediate parent and the percentage of its capital stock or other
ownership interest that is directly or indirectly owned by Borrower.
Other than (1) as set forth in its annual reports as filed with the SEC,
(2) stock acquisitions made since its most recent annual report filed with
the SEC, (3) the Subsidiaries, and (4) the existing minority stock
interests owned by Mueller Copper Tube Products, Inc. (formerly known as
Halstead Industries, Inc.), Borrower does not own more than $10,000,000
(on a cost basis) in the aggregate of capital stock or other ownership
interest in any Persons.
4.4 Title. Borrower and Subsidiaries, as applicable, have good
and valid legal title to the assets reflected in Borrower's consolidated
financial statements dated as of September 26, 1998 previously submitted
to each of the Banks. Borrower and Subsidiaries have good and valid legal
title to all of the assets acquired in the recent acquisition of Mueller
Copper Tube Products, Inc. (formerly known as Halstead Industries, Inc.)
There are no Liens, charges or encumbrances (other than Permitted Liens),
on such property or assets referenced in the prior two sentences 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.
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
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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 Guarantor or the operations, business prospects
or condition (financial or otherwise) of Borrower and Guarantors, 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 material 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, and which could reasonably be
expected to adversely affect the business, operations, property or assets,
the business prospects, or condition (financial or otherwise), of Borrower
and its Subsidiaries, taken as a whole.
4.7.3 Borrower and each Domestic 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, 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.
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 adversely impact the
business, operations, properties or condition (financial or otherwise) 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
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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 adversely impact the business,
operations, properties or condition (financial or otherwise) 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, 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.
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 of Governors of the Federal Reserve System) 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) permitted under Section 6.1 of this
Agreement.
4.14 Year 2000 Problem. Borrower has reviewed or is currently
reviewing all of Borrower's and its Subsidiaries' material computer
systems, including all material hardware, software, tools and equipment
with embedded computer chips, networks, interfaces and data storage (the
"Computer Systems") which could be affected by the Year 2000 Problem (as
defined below) and has developed and implemented or is developing and will
implement by not later than January 31, 1999, a comprehensive program
(including emergency, backup, and business continuation plans) to ensure
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that the Computer Systems will not have a Year 2000 Problem, and by
September 30, 1999, will be fully Year 2000 Compliant. Borrower further
warrants that it has reviewed, or is presently attempting to review the
Year 2000 Problem with all of its, and the Restricted Subsidiaries',
material customers, service providers, suppliers, vendors, trading
partners with whom the Computer Systems are linked or have any material
reliance, and Borrower will use its best efforts to obtain by January 31,
1999, assurances from all such customers, service providers, suppliers,
vendors and trading partners that their computer systems will not have a
Year 2000 Problem affecting Borrower or any of the Subsidiaries. Borrower
agrees to provide Banks from time to time with written updates and such
other information as any of the Banks may reasonably request concerning
the Year 2000 Problem and Borrower's progress in solving said problem.
Borrower agrees and acknowledges that it will be an Event of Default if
the Computer Systems are not Year 2000 Compliant in all material respects
by September 30, 1999 (for this purpose, "material respects" shall be
determined taking the Borrower and the Subsidiaries as a whole). As used
herein, "Year 2000 Problem" means the risk that the computer applications
(including internal and external programs, systems and networks) used by
Borrower, its Subsidiaries or by third parties with whom Borrower and/or
the Subsidiaries do business may not recognize or properly perform date
sensitive functions involving certain dates prior to and any date after
December 31, 1999. As used herein," Year 2000 Compliant" means that
neither the performance nor functionality of the Computer Systems will be
materially affected by the Year 2000 Problem. If requested by any Bank,
as soon as possible, but no later than September 30, 1999, the Borrower
shall send a certification to the Banks as to whether or not the Computer
Systems are Year 2000 Compliant in all material respects on or before
September 30, 1999.
4.15 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 the Requisite Banks (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 g32
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:
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5.3.1 As soon as available and in any event within
forty-five (45) days after the end of each of the first three quarters of
each fiscal year 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.
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. Additionally, the
Borrower will provide internally prepared consolidating financial
statements within 120 days after the end of each fiscal year.
5.3.3 Upon the request of Agent or Requisite Banks,
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 Unless otherwise specified, copies of all of the
reports furnished under this Section 5.3 shall be sent by Borrower
directly to the Banks.
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 Restricted 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 Domestic 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 and, if requested by the Agent, any Guarantor.
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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 adversely impact the business, operations,
properties or condition (financial or otherwise) 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 or any Bank.
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 Five Million ($5,000,000) Dollars in excess of the amount of
any insurance covering such claim, or deliver assets the value of which
exceeds such sum 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.
5.3.13 Promptly, such other information and data with
respect to Borrower or any Subsidiary as from time to time may be
reasonably requested by any Bank.
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 since the
date of the most recent Compliance Certificate furnished pursuant to
Section 5.3.4 hereof, will result in a cumulative increase in the
Borrower's Funded Debt as a result of all such acquisitions of $25,000,000
or more, a proforma management compliance certificate certifying that all
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covenants set forth in Sections 5 and 6 hereof will be complied with as of
the date of such acquisition(s).
5.3.15 Such other information as any Bank may reasonably
request.
5.4 Financial Covenants. Borrower will at all times comply with
the following financial covenants:
5.4.1 Borrower will maintain a minimum consolidated
Tangible Net Worth of Two Hundred Seventy-Five Million ($275,000,000)
Dollars to be adjusted upward at the end of each fiscal quarter commencing
December 26, 1998, by thirty-three percent (33%) 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 not permit the ratio of Borrower's
debt (current liabilities plus long-term liabilities) to Tangible Net
Worth to exceed 1.50 to 1.00, on a consolidated basis.
5.4.3 Borrower will not permit the ratio of Current Assets
to Current Liabilities (including, for this purpose, any amounts drawn and
outstanding under the Line of Credit) to be less than 1.5 to 1.00, on a
consolidated basis.
5.4.4 Borrower will not permit the Debt Service Coverage
ratio to be less than 1.25 to 1.00, on a consolidated basis.
5.4.5 Borrower will not permit the ratio of Funded Debt to
EBITDA to exceed 3.00 to 1.00, as calculated on a rolling four (4)
quarter basis, on a consolidated basis.
5.5 Corporate Existence. Except as permitted under 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) Mining Remedial
Recovery Corporation and its subsidiaries (ii) individual Subsidiaries
whose book value is less than $1,000,000 and (iii) more than one of such
Subsidiaries whose collective book value is not greater than $5,000,000,
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
Restricted 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
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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 any Subsidiary, from time to time as the Banks reasonably request in
order to assess the adequacy of such insurance policies.
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 adversely impact the business,
operations, properties or condition (financial or otherwise) 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 (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.
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5.10 Maintenance of Franchises, etc. Borrower and each
Restricted 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), except where the failure to do so could not
reasonably be expected to materially adversely impact the business,
operations, properties or condition (financial or otherwise) 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.
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.
5.12 New Guaranties. Within 30 days after the acquisition or
formation of any new Domestic Subsidiary, Borrower shall send written
notice to the Agent of such acquisition or formation and Agent shall
promptly provide a copy of notice to each Bank. At any time thereafter,
at the request of the Requisite Banks, or if such Domestic Subsidiary also
qualifies as a Restricted Subsidiary, Borrower shall forthwith cause such
Domestic Subsidiary to execute and deliver to the Agent sufficient copies
of a guaranty, substantially in the form executed by the Guarantors on or
about December 30, 1998, 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. Borrower shall comply with any such request within
60 days after its receipt of the request. Notwithstanding the foregoing,
no newly acquired Domestic Subsidiary shall be required to deliver such a
guaranty so long as the giving of such a guaranty would constitute a
default under the terms of any loan document between such acquired
Domestic Subsidiary and a bona fide lending institution which was entered
into prior to, but not in contemplation of, such acquisition,.
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 the Subsidiaries (but
excluding any Subsidiary organized in Europe and any Subsidiary in which
Borrower directly or indirectly owns less than a majority interest) 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 Twenty-Five Million ($25,000,000) Dollars and (iv)
consolidating inter-company indebtedness as shown on consolidating
financial statements delivered pursuant to Section 5.3.1 of this
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Agreement. Furthermore, Borrower and the Guarantors shall not make new
loans or advances in an aggregate amount in excess of $25,000,000 at any
one time outstanding to any Subsidiaries which are not Guarantors,
excluding, however, possible loans and advances to the European operations
in an aggregate amount not to exceed $10,000,000, which amounts are
reflected as restructuring reserves on Borrower's September 26, 1998
balance sheet.
6.2 Liens. Borrower will not, and will cause each Restricted
Subsidiary 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, and, if the amount of any such
Lien exceeds $1,000,000 and the Requisite Banks so request, such Lien
shall have been bonded over in a manner reasonably satisfactory to the
Requisite Banks, (iii) Liens for taxes not delinquent or being contested
in good faith, (iv) Liens created in connection with workers'
compensation, unemployment insurance, and social security, or to secure
the performance of bids, tenders or contracts (other than for the
repayment of borrowed money), leases, statutory obligations, surety and
appeal bonds, (v) other similar Liens incidental to the normal conduct of
the ordinary course of business of the Borrower and the Subsidiaries in an
aggregate amount not to exceed $250,000, (vi) Liens existing on the
Closing Date as set forth on Schedule 6.2 hereof, (vii) Liens representing
the extension, renewal or replacement of a Lien under immediately
preceding clause (vi) in respect of the same property of the same
Subsidiary, and (viii) Liens securing indebtedness permitted under Section
6.1(iii) up to an aggregate amount of $25,000,000.
6.3 Restriction on Fundamental Changes. Borrower will not, and
will cause each Restricted 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 Domestic Subsidiary may merge or
consolidate with Borrower, provided that the Borrower will be the
surviving corporation, (b) a Domestic Subsidiary may merge or consolidate
with another Domestic Subsidiary, (c) a Domestic Subsidiary may sell,
lease, transfer or otherwise dispose of any of its assets to Borrower or
another Domestic Subsidiary, (d) Borrower may acquire or form additional
Subsidiaries; provided that each such newly formed Subsidiary is
wholly-owned by Borrower (unless Borrower has obtained the prior written
consent of the Requisite Banks to acquire or form a Subsidiary which will
not be wholly-owned, which consent will not be unreasonably withheld), and
(e) Borrower may dispose of any assets owned by Lincoln Brass Works, Inc.
or its subsidiaries, any assets owned by the coaxial cable division of the
Precision Tube Division of Mueller Streamlining Co., and/or the assets of
Mueller Copper Tube Products, Inc. which are not core manufacturing
assets.
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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
adversely impact the business, operations, properties or condition
(financial or otherwise) 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.
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 (except the existing provisions of the loan
agreement among B&K Industries, Inc., Northern Trust Company and LaSalle
National Bank, which exception shall cease to apply when and to the extent
the restrictive covenants contained in such loan agreement are terminated
or changed) 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 Subsidiary to Borrower.
6.9 Scope of Business Activity. Borrower will not and will
cause each Subsidiary not to engage in any business or activities other
than those representing its respective, present business, provided that
Borrower or any Subsidiary may acquire or commence new or additional
related businesses which do not materially adversely affect the nature or
operation of Borrower's or such Subsidiary'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 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:
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7.1.1 Failure to Make Payments When Due. Borrower fails
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 fails to pay any other amounts (including, without limitation,
fees, costs and expenses) payable under this Agreement or any other Loan
Document or in connection with any letter of credit issued hereunder, 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.
7.1.3 Default Under Loan Documents, etc. Borrower or any
Subsidiary (to the extent such term, covenant, condition or agreement is
applicable to such 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, 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 Restricted Subsidiary
declares any Indebtedness owing on any bond, debenture, note or other
evidence of Indebtedness for borrowed money in an aggregate amount in
excess of Two Million Five Hundred Thousand ($2,500,000) Dollars of
Borrower or such Restricted Subsidiary to be due and payable prior to its
expressed maturity by reason of any default by Borrower or such Restricted
Subsidiary in the performance or observance of any obligation or
condition.
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, 5.11 and
5.12, 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 Restricted Subsidiary under Chapter 7
or Chapter 11, respectively, of the federal Bankruptcy Code or any similar
proceeding will be commenced against Borrower or any Restricted Subsidiary
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
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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.
(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 Restricted Subsidiary 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 Restricted Subsidiary 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 Restricted Subsidiary; or (vi) make a general
assignment for the benefit of creditors.
(b) The Board of Directors of Borrower or the
governing body of any Restricted Subsidiary adopts 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 Restricted Subsidiary 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 Five Million ($5,000,000) 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
Restricted Subsidiary by any means, including, without limitation, levy,
distraint, replevin or self-help.
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7.1.9 Dissolution. Any order, judgment or decree will be
entered against Borrower or any Restricted Subsidiary having assets in
excess of $100,000 decreeing the dissolution or division of it and such
order will remain undischarged or unstayed for a period in excess of
thirty (30) days.
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 request 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 will 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 will 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; fourth, to a cash collateral account maintained at
the Agent up to the aggregate face amount of all outstanding letters of
credit issued hereunder to secure Borrower's reimbursement obligation in
connection with such letters of credit; and fifth, to Borrower or as
otherwise provided by any Requirement of Law. During the existence of any
Event of Default, at the request of the Agent and/or the Requisite Banks,
Borrower shall forthwith deposit into a cash collateral account with the
Agent an amount of cash equal to the aggregate face amount of all
outstanding letters of credit issued hereunder, to secure Borrower's
reimbursement obligation in connection with such letters of credit.
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
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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.
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 12:00 p.m.
Eastern 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 12:00 p.m. Eastern 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
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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
12:00 p.m. (Eastern Time), and otherwise on the next Business Day.
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 Loans. 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
information or notices 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, only with the prior
written consent of the Requisite Banks or all of the Banks, as the case
may be. When Agent requests the consent of the Requisite Banks and does
not receive a written denial thereof from any Bank within ten (10)
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
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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.
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). The Agent shall use its best efforts to assist the Banks in
determining when any such excess payment has been made and in facilitating
the recovery thereof. 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,
enforceability, 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 or all of the Banks, as the case
may require.
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
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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
decisions to participate in the Loans 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.
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 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 another
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
out-of-pocket expenses) incurred by Agent under or in connection with this
Agreement or another 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 another 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 another
Loan Document, unless it is indemnified to its satisfaction by the Banks
against losses, costs, liabilities, and expenses. If any indemnity in
favor of Agent is impaired, Agent 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
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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.
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
Loans 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 acting in its capacity as Agent,
for any claims of Borrower arising from this Agreement, all such claims
being assertable only against the Banks.
8.12 Sharing Among Banks. Without affecting the rights of the
Borrower hereunder, each of the Banks agrees with every other Bank that,
in the event it shall receive payment on account of the Loan in excess of
its pro rata portion, according to the principal amount of its
participation in Advances then outstanding, of a payment due all of the
Banks, whether such payment be voluntary, involuntary or by operation of
law, by application of setoff of any indebtedness or otherwise, then such
Bank shall promptly purchase from each of the other Banks, without
recourse, for cash and at face value, ratably in accordance with the
principal amounts of the participations in Advances then outstanding,
interest of the other Banks in the Loans to such an amount that each of
the Banks shall have received payment pro rata on account of its
participation in the Loans in accordance with the unpaid principal amount
thereof then owing to it; provided, that if any such purchase be made by
any Bank and if any such excess payment relating thereto or any part
thereof is thereafter recovered from such Bank, appropriate adjustments in
the related purchases from the other Banks shall be made by rescission and
restoration of the purchase price as to the portion of such excess payment
so recovered.
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
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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 rate equal to 2% above the highest Effective Rate
hereunder, will be part of the Obligations, payable on demand. Upon and
during the continuance of an Event of Default, Borrower shall reimburse
each Bank for such Bank's reasonable fees, costs and expenses incurred in
connection with the enforcement of this Agreement and the other Loan
Documents. 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.
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
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(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 all of the 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.
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 Loans hereunder and the
execution and delivery of the Notes.
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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.
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,
the letters of credit issued under this Agreement and the Loans may be
tried and litigated 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. 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.
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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.
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.
[PURPOSELESSLY LEFT BLANK - SIGNATURES ON FOLLOWING PAGES]
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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to
be executed and delivered as of the date first hereinabove set forth.
WITNESS: "BORROWER"
MUELLER INDUSTRIES, INC.
By:
Its:
"BANKS"
WITNESS: MICHIGAN NATIONAL BANK, a national
banking association
By:
Joseph A. Vito
Its: City Manager
Ratable Share: 16%
Line of Credit Commitment: $16,000,000
Term Loan Commitment: $20,000,000
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NATIONSBANK, N.A.
By:
Its:
Ratable Share: 12.8%
Line of Credit Commitment: $12,800,000
Term Loan Commitment: $16,000,000
THE FIRST NATIONAL BANK OF CHICAGO
By:
Its:
Ratable Share: 12.8%
Line of Credit Commitment: $12,800,000
Term Loan Commitment: $16,000,000
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MERCANTILE BANK NATIONAL ASSOCIATION
By:
Its:
Ratable Share: 10%
Line of Credit Commitment: $10,000,000
Term Loan Commitment: $12,500,000
FIRST TENNESSEE BANK NATIONAL
ASSOCIATION
By:
Its:
Ratable Share: 12.8%
Line of Credit Commitment: $12,800,000
Term Loan Commitment: $16,000,000
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FIRST UNION NATIONAL BANK
By:
Its:
Ratable Share: 12.8%
Line of Credit Commitment: $12,800,000
Term Loan Commitment: $16,000,000
FIRST AMERICAN NATIONAL BANK
By:
Its:
Ratable Share: 12.8%
Line of Credit Commitment: $12,800,000
Term Loan Commitment: $16,000,000
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UNION PLANTERS BANK, N.A.
By:
Its:
Ratable Share: 10%
Line of Credit Commitment: $10,000,000
Term Loan Commitment: $12,500,000
"AGENT"
MICHIGAN NATIONAL BANK, a
national banking association
By:
Joseph A. Vito
Its: City Manager
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EXHIBIT 2.3
AMENDED AND RESTATED
LINE OF CREDIT NOTE
Amount: $12,800,000.00
Due Date: May 30, 2001 Dated as of December 30, 1998
FOR VALUE RECEIVED, MUELLER INDUSTRIES, INC., a Delaware corporation
("Borrower") promises to pay to the order of FIRST UNION NATIONAL BANK
("Bank"), in immediately available United States funds, the principal sum
of TWELVE MILLION EIGHT HUNDRED THOUSAND and no/100 ($12,800,000.00)
Dollars or such lesser sum as will have been advanced by Bank to Borrower
under this Note, pursuant to the terms of the Amended and Restated Credit
Agreement dated as of December 30, 1998, as from time to time amended,
among Borrower, the Banks identified therein, and Michigan National Bank,
as Agent, (the "Credit Agreement"), plus interest, per annum, at the
Effective Rate (as hereafter defined). Except as otherwise defined
herein, all capitalized terms used herein shall have the meanings set
forth in the Credit Agreement, all of the terms and conditions of which
are herein incorporated by this reference.
This Note is one of the Line of Credit Notes referred to in the
Credit Agreement. Advances of principal, repayment, and readvances may be
made under the Credit Agreement and this Note from time to time as
provided therein, but the Bank may refuse to make advances or readvances
during the existence of any Event of Default or Unmatured Event of Default
or when the conditions precedent set forth in the Credit Agreement are not
satisfied. No individual Advance will have a maturity date beyond the
Line of Credit Maturity.
Advances under this Note shall bear interest as provided in the
Credit Agreement (each, an "Effective Rate").
Interest and principal shall be paid on the dates and in the manner
provided in the Credit Agreement. 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.
Borrower may prepay, in whole or in part, any Prime Rate or Federal
Funds Advances under this Note at any time. LIBOR Advances may only be
prepaid upon five (5) days' prior written notice and upon payment by
Borrower on the date of prepayment of the applicable Yield Maintenance
Payment. If at any time during the term of this Note, the Total
Outstanding Amount will exceed $100,000,000, 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
$100,000,000.
All Advances 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
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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 Bank 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 this Note and the Credit Agreement.
Both principal and interest are payable in immediately available
United States funds to the Agent on behalf of the Bank at 800 Military
Street, Port Huron, Michigan 48060, Attention: Joseph A. Vito, or at such
other address as Agent may hereto specify to Borrower in writing.
Interest will be calculated on a daily, outstanding balance basis
and will be computed for the actual number of days elapsed on the basis of
a 360 day year. At no time will the interest charged hereunder be greater
than the Maximum Rate. Payments received by Agent which would otherwise
cause said interest rate to exceed such Maximum Rate will, to the extent
of such excess, be deemed principal payments.
During the existence of any Event of Default, or after the Line of
Credit Maturity, or after demand or acceleration of maturity, Borrower
will be obligated to Bank and will pay Bank, in addition to the interest
stated above, additional interest which will accrue at a default rate
equal to two percent (2%) per annum of the outstanding principal balance
hereof and which will be reflected in the statement of account sent to
Borrower prior to each payment date.
If any required installment is not paid within ten (10) days after
the date the same is due, upon Agent's demand Borrower will forthwith pay
Bank a late charge equal to 5 cents ($.05) for each dollar of the
installment so overdue. The late charge will apply individually to all
payments past due, and there will be no daily pro rata adjustment.
Any other provision of the Credit Agreement or any other Loan
Document to the contrary notwithstanding, Borrower hereby grants Bank a
right 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 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. Borrower agrees to pay all of Agent's costs
incurred in the collection of this Note, including reasonable attorneys'
fees.
Acceptance by Bank of any payment in an amount less than the amount
then due will be deemed an acceptance on account only, and Borrower's
failure to pay the entire amount then due will be and continue to be an
event of default. Borrower waives presentment for payment, demand, notice
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of non-payment, notice of protest or protest of this Note. The liability
of Borrower under this Note will be absolute and unconditional, without
regard to the liability of any other party.
Borrower expressly assumes all risk of loss or delay in the delivery
of any payments by mail, and no course of conduct or dealing will affect
Borrower's assumption of these risks.
Upon any occurrence of an Event of Default as defined in the Credit
Agreement ("Event of Default"), Bank may, without further notice and
without demand or presentation, declare the entire unpaid principal
balance hereunder and all accrued interest, to be immediately due and
payable, anything contained herein or in any document executed in
connection herewith to the contrary notwithstanding.
Upon the occurrence of an Event of Default, neither the failure of
the Bank promptly to exercise its right to declare the outstanding
principal and accrued and unpaid interest hereunder to be immediately due
and payable, nor failure to exercise any other right or remedy the Bank
may have upon default, nor the acceptance by the Bank of late payments,
nor the failure of the Bank to demand strict performance of any obligation
of Borrower or of any other person who may be liable hereunder, will
constitute a waiver of any such rights in connection with any future Event
of Default.
Bank may hold and apply at any time after an Event of Default its
own indebtedness or liability to Borrower in payment of any indebtedness
hereunder.
Borrower and all endorsers, sureties and guarantors hereof, hereby
jointly and severally waive presentment for payment, notice of non
payment, notice of protest or protest of this Note, diligence in
collection or bringing suit, and hereby consent to any and all extensions
of time, renewals, waivers, or modifications that may be granted by Bank
with respect to payment or any other provisions of this Note, and to the
release of any collateral or any part thereof, with or without
substitution and hereby waive any and all defenses of a surety. The
liability of Borrower will be absolute and unconditional, without regard
to the liability of any other party hereto.
Borrower, and any other person who may be liable hereunder in any
capacity, agrees to pay all reasonable costs of collection, including
reasonable attorney's fees and expenses, in case the principal on this
Note or any payment of interest hereon is not paid on the respective dates
due (whether by demand, maturity, acceleration or otherwise), or in case
it becomes necessary to protect any security for this Note, whether suit
is brought or not.
Any default in any of the conditions, covenants, obligations or
agreements contained in any of the Loan Documents or any other instruments
securing and/or evidencing this indebtedness will constitute an Event of
Default under this Note. Reference is hereby made to the agreement(s) and
document(s) described above for additional terms and conditions relating
to this Note.
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This Note, made in the State of Michigan, will be governed and
construed according to the laws of the State of Michigan.
WITNESS: MUELLER INDUSTRIES, INC.
By:
Its: Executive Vice President
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EXHIBIT 2.10
TERM NOTE
Amount: $20,000,000
Due Date: December 31, 2003 Dated as of December 30, 1998
FOR VALUE RECEIVED, MUELLER INDUSTRIES, INC., a Delaware corporation
("Borrower") promises to pay to the order of MICHIGAN NATIONAL BANK ("Bank"),
in immediately available United States funds, the principal sum of TWENTY
MILLION and no/100 ($20,000,000.00) Dollars, plus interest, per annum, at the
Effective Rate (as hereafter defined).
This Note is one of the Term Notes referred to in the Amended and
Restated Credit Agreement dated as of December 30, 1998, as from time to time
amended, among Borrower, the Banks identified therein, and Michigan National
Bank, as Agent (the "Credit Agreement"). Except as otherwise defined herein,
all capitalized terms used herein shall have the meanings set forth in the
Credit Agreement, all of the terms and conditions of which are herein
incorporated by this reference.
This Note shall bear interest as provided in the Credit Agreement.
Interest and installment principal payments hereon shall be made on the
dates and in the manner provided in the Credit Agreement. Installment
payments of principal, in the amount of $526,315.79 each, shall commence on
the last day of the Interest Period that ends in June, 1999. On the Due Date,
the entire balance hereof shall be due and payable. The Borrower acknowledges
that, absent prepayment, there will be a significant balloon payment due at
maturity.
This Term Note may be prepaid in whole or in part at any time and from
time to time, pursuant to the terms of the Credit Agreement.
Both principal and interest are payable in immediately available United
States funds to the Agent on behalf of the Bank at 800 Military Street, Port
Huron, Michigan 48060, Attention: Joseph A. Vito, or at such other address as
Agent may hereto specify to Borrower in writing.
Interest will be calculated on a daily, outstanding balance basis and
will be computed for the actual number of days elapsed on the basis of a 360
day year. At no time will the interest charged hereunder be greater than the
Maximum Rate. Payments received by Agent which would otherwise cause said
interest rate to exceed such Maximum Rate will, to the extent of such excess,
be deemed principal payments.
During the existence of any Event of Default, or after the Line of Credit
Maturity, or after demand or acceleration of maturity, Borrower will be
obligated to Bank and will pay Bank, in addition to the interest stated above,
additional interest which will accrue at a default rate equal to two percent
(2%) per annum of the outstanding principal balance hereof and which will be
reflected in the statement of account sent to Borrower prior to each payment
date.
-53-
<PAGE>
If any required installment is not paid within ten (10) days after the
date the same is due, upon Agent's demand Borrower will forthwith pay Bank a
late charge equal to 5 cents ($.05) for each dollar of the installment so
overdue. The late charge will apply individually to all payments past due,
and there will be no daily pro rata adjustment.
Any other provision of the Credit Agreement or any other Loan Document to
the contrary notwithstanding, Borrower hereby grants Bank a right 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 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. Borrower agrees to pay all of Agent's costs incurred in the
collection of this Note, including reasonable attorneys' fees.
Acceptance by Bank of any payment in an amount less than the amount then
due will be deemed an acceptance on account only, and Borrower's failure to
pay the entire amount then due will be and continue to be an event of default.
Borrower waives presentment for payment, demand, notice of non-payment,
notice of protest or protest of this Note. The liability of Borrower under
this Note will be absolute and unconditional, without regard to the liability
of any other party.
Borrower expressly assumes all risk of loss or delay in the delivery of
any payments by mail, and no course of conduct or dealing will affect
Borrower's assumption of these risks.
Upon any occurrence of an Event of Default as defined in the Credit
Agreement ("Event of Default"), Bank may, without further notice and without
demand or presentation, declare the entire unpaid principal balance hereunder
and all accrued interest, to be immediately due and payable, anything
contained herein or in any document executed in connection herewith to the
contrary notwithstanding.
Upon the occurrence of an Event of Default, neither the failure of the
Bank promptly to exercise its right to declare the outstanding principal and
accrued and unpaid interest hereunder to be immediately due and payable, nor
failure to exercise any other right or remedy the Bank may have upon default,
nor the acceptance by the Bank of late payments, nor the failure of the Bank
to demand strict performance of any obligation of Borrower or of any other
person who may be liable hereunder, will constitute a waiver of any such
rights in connection with any future Event of Default.
Bank may hold and apply at any time after an Event of Default its own
indebtedness or liability to Borrower in payment of any indebtedness
hereunder.
Borrower and all endorsers, sureties and guarantors hereof, hereby
jointly and severally waive presentment for payment, notice of non payment,
notice of protest or protest of this Note, diligence in collection or bringing
suit, and hereby consent to any and all extensions of time, renewals, waivers,
or modifications that may be granted by Bank with respect to payment or any
other provisions of this Note, and to the release of any collateral or any
part thereof, with or without substitution and hereby waive any and all
defenses of a surety. The liability of Borrower will be absolute and
unconditional, without regard to the liability of any other party hereto.
-54-
<PAGE>
Borrower, and any other person who may be liable hereunder in any
capacity, agrees to pay all reasonable costs of collection, including
reasonable attorney's fees and expenses, in case the principal on this Note or
any payment of interest hereon is not paid on the respective dates due
(whether by demand, maturity, acceleration or otherwise), or in case it
becomes necessary to protect any security for this Note, whether suit is
brought or not.
Any default in any of the conditions, covenants, obligations or
agreements contained in any of the Loan Documents or any other instruments
securing and/or evidencing this indebtedness will constitute an Event of
Default under this Note. Reference is hereby made to the agreement(s) and
document(s) described above for additional terms and conditions relating to
this Note.
This Note, made in the State of Michigan, will be governed and construed
according to the laws of the State of Michigan.
WITNESS: MUELLER INDUSTRIES, INC.
By:
Its: Executive Vice President
-55-
1999 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 4.125 percent to 144 percent of base annual salary.
The CEO and Chairman participate in this plan, however, their bonuses are
specifically determined by the board of directors. The bonus percent is
based on a variety of guidelines including the performance levels of the
respective business units measured by earnings before tax.
STOCK OPTION AGREEMENT
This Option Agreement (the "Agreement") is made as of the 7th day of
May, 1997, between Mueller Industries, Inc., a Delaware corporation (the
"Company"), and William D. O'Hagan (the "Optionee").
WHEREAS, the Company desires to afford the Optionee the opportunity
to purchase shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company.
NOW, THEREFORE, in connection with the mutual covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option. By action of its Board of Directors dated May
7, 1997, the Company hereby grants to the Optionee the right and option
(the "Option") to purchase up to, but not exceeding in the aggregate,
90,000 shares of Common Stock, on the terms and conditions herein set
forth. Provided that the Compensation Committee gives its prior written
approval, Optionee shall have the right to transfer all or part of the
options granted hereunder to family members or family trusts.
2. Definitions; Conflicts. The Option is not being granted
pursuant to the Mueller Industries, Inc. 1994 Stock Option Plan (the
"Plan"), and shall be exercisable only for shares of Common Stock held in
treasury by the Company. The Company shall at all times maintain a
sufficient number of treasury shares to allow for the exercise of the
vested and exercisable portion of the Option. Notwithstanding that the
Option is not being granted under the Plan, the terms and provisions of
the Plan are incorporated herein by reference as if it had been so
granted, except for the provisions of Sections 3, 5(h) and 8 thereof.
3. Purchase Price. The purchase price of each share of Common
Stock covered by the Option shall be $39.75 (the "Purchase Price").
4. Term of Options. The term of the Option shall be ten (10) years
from the date hereof, subject to earlier termination as provided in
Section 6 hereof.
5. Vesting of Options. The Option, subject to the terms,
conditions and limitations contained herein, shall vest and become
exercisable with respect to the shares of Common Stock in accordance with
the following installments: 20% on the first anniversary of the date
hereof, and an additional 20% on each of the succeeding four anniversaries
of the date hereof; provided that, with respect to each such installment,
the Optionee has remained in continuous employment with the Company from
the date hereof through the date such installment is designated to vest.
Notwithstanding the foregoing, if there is a "Change in Control," as such
term is defined in the Amendment, effective as of August 10, 1995, in the
Employment Agreement between Optionee and the Company, all remaining
options shall become exercisable as provided in said Employment Agreement,
as amended.
-1-
<PAGE>
6. Termination of Employment. Except as otherwise provided in
Optionee's existing employment agreement with the Company:
(a) In the event the Optionee's employment with the Company is
terminated for any reason other than death or disability (within the
meaning of Section 22(e)(3) of the Internal Revenue Code of 1986, as
amended (the "Code")), the Option shall immediately lapse as of the date of
such termination whether or not exercisable on such date.
(b) In the event the Optionee's employment with the Company is
terminated by reason of the Optionee's death or disability (within the
meaning of Section 22(e)(3) of the Code), the Option shall remain exercisable
for a period of up to twelve months after termination of employment, to the
extent exercisable at the time of termination of employment, and shall lapse
as to any shares of Common Stock for which it has yet to become exercisable
as of the date of such termination of employment.
7. No Rights as a Shareholder. The Optionee shall have no rights
as a shareholder with respect to any shares of Common Stock issuable upon
the exercise of the Option until the date of issuance to the Optionee of a
certificate evidencing such shares of Common Stock. No adjustments, other
than as provided in Section 7 of the Plan, shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or distributions for which the record date is prior to the date the
certificate for such shares of Common Stock issued.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, the Option may be exercised by written
notice to the Company at its principal executive offices, presently
located at 6799 Great Oaks Road, Suite 200, Memphis, TN 38183-2100, Attn:
General Counsel. Such notice shall state the election to exercise the
Option and the number of shares of Common Stock in respect of which the
Option is being exercised, shall be signed by the person or persons so
exercising the Option and shall either:
(a) be accompanied by payment in full of the Purchase Price for
such shares of Common Stock; or
(b) fix a date, not less than five (5) nor more than ten (10)
business days from the date such notice shall be delivered to the Company,
for the payment in full of the Purchase Price for such shares of Common
Stock.
Payment of such Purchase Price shall be made in United States dollars
by certified check or bank cashier's check payable to the order of the
Company. Subject to such procedures and rules as may be adopted from time
to time by the Option Plan Committee of the Board of Directors, the
Optionee may also pay such Purchase Price by (i) tendering to the Company
shares of Common Stock with an aggregate Fair Market Value (as defined in
the Plan) on the date of exercise equal to such Purchase Price, (ii)
delivery to the Company of a copy of irrevocable instructions to a
stockbroker to sell shares of Common Stock and to deliver promptly to the
Company an amount sufficient to pay such Purchase Price, or (iii) any
combination of the methods of payment described in clauses (i) and (ii)
and in the preceding sentence. The certificate for shares of Common Stock
as to which the Option shall have been so exercised shall be registered in
the name of the person or persons so exercising the Option. All shares of
-2-
<PAGE>
Common Stock purchased upon the exercise of the Option as provided herein
shall be fully paid and non-assessable.
9. Income Tax Withholding. The Company may make such provisions
and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law
to be withheld with respect to the exercise of the Option and the issuance
of the shares of Common Stock, including, but not limited to, deducting
the amount of any such withholding taxes from any other amount then or
thereafter payable by the Company, or any subsidiary thereof, to the
Optionee, or requiring the Optionee, or the beneficiary or legal
representative of the Optionee, to pay to the Company the amount required
to be withheld or to execute such documents as the Company deems necessary
or desirable to enable it to satisfy its withholding obligations.
10. Non-Incentive Stock Option. The Option granted hereunder is not
intended to be an "incentive stock option" within the meaning of Section
422 of the Code.
11. Registration. The Company shall file a registration statement
on Form S-8 under the Securities Act of 1933, as amended (the "Act"), with
respect to the sale of shares of Common Stock subject to the Option and
shall take such other action as may be required to complete the
registration of such shares under the Act and to comply with applicable
blue sky laws.
12. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
13. Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such State.
14. Headings. Headings are for the convenience of the parties and
are not deemed to be part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
MUELLER INDUSTRIES, INC.
By: /S/HARVEY L. KARP
Name: Harvey L. Karp
Title: Chairman of Board
OPTIONEE
/S/WILLIAM D. O'HAGAN
William D. O'Hagan
-3-
STOCK OPTION AGREEMENT
This Option Agreement (the "Agreement") is made as of the 9th day of
October, 1998, between Mueller Industries, Inc., a Delaware corporation (the
"Company"), and William D. O'Hagan (the "Optionee").
WHEREAS, the Company desires to afford the Optionee the opportunity
to purchase shares of Common Stock, par value $.01 per share (the "Common
Stock"), of the Company.
NOW, THEREFORE, in connection with the mutual covenants hereinafter
set forth and for other good and valuable consideration, the receipt and
adequacy of which is hereby acknowledged, the parties hereto agree as
follows:
1. Grant of Option. By action of its Board of Directors dated October
9, 1998, the Company hereby grants to the Optionee the right and option
(the "Option") to purchase up to, but not exceeding in the aggregate,
200,000 shares of Common Stock, on the terms and conditions herein set
forth. Provided that the Compensation Committee gives its prior written
approval, Optionee shall have the right to transfer all or part of the
options granted hereunder to family members or family trusts.
2. Definitions; Conflicts. The Option is not being granted
pursuant to the Mueller Industries, Inc. 1994 Stock Option Plan (the
"Plan"), and shall be exercisable only for shares of Common Stock held in
treasury by the Company. The Company shall at all times maintain a
sufficient number of treasury shares to allow for the exercise of the
vested and exercisable portion of the Option. Notwithstanding that the
Option is not being granted under the Plan, the terms and provisions of
the Plan are incorporated herein by reference as if it had been so
granted, except for the provisions of Sections 3, 5(h) and 8 thereof.
3. Purchase Price. The purchase price of each share of Common
Stock covered by the Option shall be $15.9375 (the "Purchase Price").
4. Term of Options. The term of the Option shall be ten (10) years
from the date hereof, subject to earlier termination as provided in
Section 6 hereof.
5. Vesting of Options. The Option, subject to the terms,
conditions and limitations contained herein, shall vest and become
exercisable with respect to the shares of Common Stock in accordance with
the following installments: 20% on the first anniversary of the date
hereof, and an additional 20% on each of the succeeding four anniversaries
of the date hereof; provided that, with respect to each such installment,
the Optionee has remained in continuous employment with the Company from
the date hereof through the date such installment is designated to vest.
Notwithstanding the foregoing, if there is a "Change in Control," as such
term is defined in the Amended and Restated Employment Agreement, effective
September 17, 1997, between Optionee and the Company, all remaining options
shall become exercisable as provided in said Employment Agreement, as amended.
-1-
<PAGE>
6. Termination of Employment. Except as otherwise provided in
Optionee's existing employment agreement with the Company:
(a) In the event the Optionee's employment with the Company is
terminated for any reason other than death or disability (within the meaning
of Section 22(e)(3) of the Internal Revenue Code of 1986, as amended (the
"Code")), the Option shall immediately lapse as of the date of such
termination whether or not exercisable on such date.
(b) In the event the Optionee's employment with the Company is
terminated by reason of the Optionee's death or disability (within the
meaning of Section 22(e)(3) of the Code), the Option shall remain exercisable
for a period of up to twelve months after termination of employment, to the
extent exercisable at the time of termination of employment, and shall lapse
as to any shares of Common Stock for which it has yet to become exercisable
as of the date of such termination of employment.
7. No Rights as a Shareholder. The Optionee shall have no rights
as a shareholder with respect to any shares of Common Stock issuable upon
the exercise of the Option until the date of issuance to the Optionee of a
certificate evidencing such shares of Common Stock. No adjustments, other
than as provided in Section 7 of the Plan, shall be made for dividends
(ordinary or extraordinary, whether in cash, securities or other property)
or distributions for which the record date is prior to the date the
certificate for such shares of Common Stock issued.
8. Method of Exercising Option. Subject to the terms and
conditions of this Agreement, the Option may be exercised by written
notice to the Company at its principal executive offices, presently
located at 6799 Great Oaks Road, Suite 200, Memphis, TN 38183-2100, Attn:
General Counsel. Such notice shall state the election to exercise the
Option and the number of shares of Common Stock in respect of which the
Option is being exercised, shall be signed by the person or persons so
exercising the Option and shall either:
(a) be accompanied by payment in full of the Purchase Price for
such shares of Common Stock; or
(b) fix a date, not less than five (5) nor more than ten (10)
business days from the date such notice shall be delivered to the Company,
for the payment in full of the Purchase Price for such shares of Common
Stock.
Payment of such Purchase Price shall be made in United States dollars
by certified check or bank cashier's check payable to the order of the
Company. Subject to such procedures and rules as may be adopted from time
to time by the Option Plan Committee of the Board of Directors, the
Optionee may also pay such Purchase Price by (i) tendering to the Company
shares of Common Stock with an aggregate Fair Market Value (as defined in
the Plan) on the date of exercise equal to such Purchase Price, (ii)
delivery to the Company of a copy of irrevocable instructions to a
stockbroker to sell shares of Common Stock and to deliver promptly to the
Company an amount sufficient to pay such Purchase Price, or (iii) any
combination of the methods of payment described in clauses (i) and (ii)
and in the preceding sentence. The certificate for shares of Common Stock
as to which the Option shall have been so exercised shall be registered in
the name of the person or persons so exercising the Option. All shares of
-2-
<PAGE>
Common Stock purchased upon the exercise of the Option as provided herein
shall be fully paid and non-assessable.
9. Income Tax Withholding. The Company may make such provisions
and take such steps as it may deem necessary or appropriate for the
withholding of all federal, state, local and other taxes required by law
to be withheld with respect to the exercise of the Option and the issuance
of the shares of Common Stock, including, but not limited to, deducting
the amount of any such withholding taxes from any other amount then or
thereafter payable by the Company, or any subsidiary thereof, to the
Optionee, or requiring the Optionee, or the beneficiary or legal
representative of the Optionee, to pay to the Company the amount required
to be withheld or to execute such documents as the Company deems necessary
or desirable to enable it to satisfy its withholding obligations.
10. Non-Incentive Stock Option. The Option granted hereunder is not
intended to be an "incentive stock option" within the meaning of Section
422 of the Code.
11. Registration. The Company shall file a registration statement
on Form S-8 under the Securities Act of 1933, as amended (the "Act"), with
respect to the sale of shares of Common Stock subject to the Option and
shall take such other action as may be required to complete the
registration of such shares under the Act and to comply with applicable
blue sky laws.
12. Binding Effect. This Agreement shall be binding upon the heirs,
executors, administrators and successors of the parties hereto.
13. Governing Law. This Agreement shall be construed and
interpreted in accordance with the laws of the State of Delaware
applicable to contracts made and to be performed in such State.
14. Headings. Headings are for the convenience of the parties and
are not deemed to be part of this Agreement.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as of the date and year first written above.
MUELLER INDUSTRIES, INC.
By: /S/HARVEY L. KARP
Name: Harvey L. Karp
Title: Chairman of the Board
OPTIONEE
/S/WILLIAM D. O'HAGAN
William D. O'Hagan
-3-
<PAGE>
MUELLER INDUSTRIES, INC.
1998 ANNUAL REPORT
Mueller Industries, Inc. 1998 Annual Report
Mueller: Focused on Growth
Mueller Industries, Inc.
Mueller Industries, Inc. is a leading manufacturer of copper tube and
fittings; brass and copper alloy rod, bar and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular
products. Mueller's plants are located throughout the United States and in
Canada, France and Great Britain. The Company also owns a short line
railroad in Utah and various natural resource properties.
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<PAGE>
MUELLER INDUSTRIES, INC.
Financial Highlights
(Dollars in thousands, except per share data)
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
<S> <C> <C> <C> <C> <C>
Summary of Operations
Net sales $ 929,391 $ 888,997 $ 718,312 $ 678,838 $ 550,003
Product shipments
(in millions of pounds) 644.6 545.3 447.0 388.3 380.6
Net income $ 75,445 $ 69,770 $ 61,173 $ 44,823 $ 27,926
Diluted earnings per share $ 1.90 $ 1.78 $ 1.57 $ 1.17 $ 0.70
Significant Year-End Data
Cash and cash equivalents $ 80,568 $ 69,978 $ 96,956 $ 48,357 $ 34,492
Ratio of current assets to current liabilities 2.7 to 1 3.1 to 1 3.5 to 1 3.1 to 1 2.7 to 1
Long-term debt (including current portion) $ 194,549 $ 72,093 $ 59,650 $ 75,902 $ 94,736
Debt as a percent of total capitalization 27.9% 14.7% 14.6% 21.0% 28.1%
Stockholders' equity $ 502,122 $ 418,040 $ 348,082 $ 285,875 $ 241,948
Book value per share $ 14.02 $ 11.94 $ 9.98 $ 8.24 $ 6.95
Capital expenditures $ 55,440 $ 36,865 $ 18,868 $ 40,980 $ 48,152
</TABLE>
-2
<PAGE>
A Report to our Stockholders, Customers and Employees
Mueller is focused on growth. We are committed to building a world-class
manufacturing company, with the objective of increasing shareholder value.
It is therefore a pleasure to report that 1998 was a year of both
financial and strategic achievement.
Sales, net earnings, pounds of product shipped and earnings per share all
set records. Substantial improvements were made in manufacturing and
customer service. Also, we completed three acquisitions that offer major
opportunities for future growth.
A Seventh Year of Record Results
Net income increased to $75.4 million in 1998, compared to $69.8 million
in 1997, a gain of 8 percent. Earnings rose to $1.90 a diluted share, up 7
percent from $1.78 in the prior year. Net sales increased to $929.4
million in 1998, up from $889.0 million in 1997. Mueller shipped 645
million pounds of product in 1998, 18 percent more than in 1997.
Capital Investments Fuel Organic Growth
Mueller's U.S. manufacturing operations performed well in 1998. Brass rod
had a record year, while copper tube, copper fittings and plastic fittings
all posted their second best annual earnings. Volume increased in each of
these four key businesses.
In 1997, we began a two-year program to build a copper casting facility
adjoining our tube mill in Fulton, Mississippi; this program is discussed
further on page 6. A separate program to improve our ACR tube operation,
begun late last year, should be completed in 1999. This investment will
reduce the cost of making ACR tube, while enhancing throughput and
quality.
A multi-year program to improve the efficiency of our copper fittings
operations is proceeding well. Conversion costs continue to decline at
both the Covington, Tennessee facility and the high-volume copper fittings
plant in Fulton, Mississippi. We anticipate further improvement in 1999
and beyond.
We are also continuing to invest in our plastic fittings factories. A new
program was initiated in the fall of 1998 to upgrade our molds, which will
reduce part weight and material cost.
The brass rod mill in Port Huron, Michigan is improving its casting and
finishing capabilities. These initiatives, to be completed in 1999, should
result in increased efficiency. Other businesses in the Industrial
Products Division performed well in 1998, and are positioned to show
further improvement in 1999.
European Operations Reach Milestone
In the first half of 1997, Mueller acquired three copper tube mills in
Europe for a modest investment. We determined that the best way to reduce
costs and increase productivity was to consolidate operations. In
-3-
<PAGE>
accordance with that program, manufacturing ceased at our mill in
Laigneville, France, in December 1998. We are consolidating operations
from that facility into our other two European mills. After incurring
losses in 1998, we expect our European operations to break even by the
second half of 1999, and thereafter make increasingly positive
contributions. We continue to view Europe's large market for copper tube
as a substantial opportunity for earnings growth.
Progress at Other Businesses
Utah Railway Company had a good year, with an earnings increase of 27
percent. Coal tonnage hauled increased by 12 percent over 1997. Revenue
from its new switching services in Utah's central corridor also grew.
Separately, Mueller has entered into a contract to sell Alaska Gold
Company. This sale is subject to various contingencies. If completed, the
transaction will result in a modest capital gain.
Acquisitions Provide Further Opportunities for Growth
Mueller completed three acquisitions in 1998. In November, we acquired
Halstead Industries, Inc., with 1998 sales in excess of $200 million. This
purchase strengthens our copper tube and line sets businesses, by adding a
copper tube mill in Wynne, Arkansas, and a line sets plant in Clinton,
Tennessee, creating opportunities for rationalization of production and
distribution. We also have the opportunity of reducing manufacturing costs
in Wynne through capital investments.
In August, we purchased B&K Industries, Inc., a significant import
distributor of residential and commercial plumbing products in the United
States. B&K had sales of approximately $60 million in 1998. B&K has the
expertise to facilitate the sale of Mueller's manufactured products in the
large, and growing, retail marketplace. Rapid progress has already been
made with the establishment of major new national accounts.
In September, we purchased Lincoln Brass Works, Inc., with 1998 sales of
about $35 million. Lincoln has strong metal fabrication and machining
capabilities that complement our existing brass forging business.
Lincoln's know-how in metal valves is of particular value to us.
Mueller will continue to seek acquisitions that relate to our core
businesses and product lines. Our acquisition strategy is discussed later
in this report.
Mueller's Financial Condition is Excellent
Our strong balance sheet enabled us to invest more than $200 million for
acquisitions and capital improvements in 1998. At the end of the year,
Mueller held $81 million in cash and had a modest 28 percent debt-to-total
capitalization ratio. Shortly after our fiscal year-end, we completed
a $125 million unsecured bank financing on attractive terms. At the same
time, we restored availability under our $100 million line of credit. We
have the financial resources, earnings and cash flow to fund substantial
additional growth.
-4-
<PAGE>
Management Strength Continues to Grow
The dedication, initiative and enthusiasm of our management team, and of
all our employees, has been indispensable to Mueller's success. Mueller
continues to attract dynamic and talented employees. The individuals
pictured on the following pages are symbolic of the growing strength of
our management team.
In 1997, Mueller introduced a strategic management system, the Balanced
Scorecard (BSC). The BSC expands corporate goals beyond traditional
financial objectives to include measurements of long-term strength, such
as customer service, internal process improvement and employee
development. The BSC helps management focus on those facets of our
business that are critical to Mueller's continued, long-term growth. It
was an essential part of 1998's accomplishments, and it will enable us to
effectively manage our rapidly growing enterprise.
Allan Mactier retired from Mueller's Board of Directors in November 1998,
after serving on the Board since 1990. His wisdom and counsel contributed
materially to the Board's deliberations. G. E. Manolovici, a Mueller Board
member from 1990 to 1993, has returned to the Board. He now chairs the
Board's Audit Committee, and serves on the Compensation Committee. Also,
effective April 1, 1999, Earl W. Bunkers will retire as our chief
financial officer; he contributed significantly to the success we have
enjoyed during his 8 years of service.
The Economic Outlook is Positive
Key economic factors indicate another solid year for the U.S. housing
industry. Mortgage rates remain low by historical standards; the interest
rate on thirty-year fixed rate mortgages is near 7 percent. Housing starts
are currently running at an annual rate of over 1.8 million units; the
last full year with 1.8 million starts was 1986. Consumer confidence
continues strong. Inflation last year was only 1.6 percent, the lowest
rate since 1965. Unemployment is at its lowest level in a generation. This
is a very positive environment for our business.
Sincerely,
/S/HARVEY L. KARP
Harvey L. Karp
Chairman of the Board
/S/WILLIAM D. O'HAGAN
William D. O'Hagan
President and Chief Executive Officer
March 17, 1999
[PHOTO}
Harvey L. Karp, Chairman of the Board (right), and William D. O'Hagan,
President and Chief Executive Officer
-5-
<PAGE>
[GRAPH]
<TABLE>
Product shipments have grown rapidly...
(millions of pounds)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Product shipments 380.6 388.3 447.0 545.3 644.6
</TABLE>
[GRAPH]
<TABLE>
...as has net income...
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net income $27.9 $44.8 $61.2 $69.8 $75.4
</TABLE>
[GRAPH]
<TABLE>
...and earnings per share.
(dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Earnings per share $0.70 $1.17 $1.57 $1.78 $1.90
</TABLE>
[GRAPH]
Company Overview
Standard Products Division
[GRAPH]
<TABLE>
Net Sales
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net Sales $309 $397 $442 $561 $624
</TABLE>
[GRAPH]
<TABLE>
Operating Income
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Operating Income $28 $41 $75 $73 $86
</TABLE>
U.S. Copper Tube
PLANTS:
Fulton, Mississippi
Wynne, Arkansas
Clinton, Tennessee
-6-
<PAGE>
PRODUCTS AND APPLICATIONS
Water tube, in straight lengths and coils for plumbing and
construction
Dehydrated coils and nitrogen-charged straight lengths for
refrigeration and air-conditioning
Industrial tube, in straight lengths and level-wound coils, for
fittings, redraw, etc.
Line sets for controlling the flow of refrigerant gases
CUSTOMERS
Plumbing wholesalers, home centers and hardware wholesalers
and co-ops
Air-conditioning and refrigeration wholesalers and OEMs
Mueller's copper fittings plants and OEMs
Wholesalers and OEMs
1998 HIGHLIGHTS
Acquired Halstead Industries (renamed Mueller Copper Tube Products,
Inc.) * Acquired B&K Industries * Completed major work on Fulton
copper casting facility * Expanded distribution warehouse *
Installed new runout table in Fulton
1999 OBJECTIVES
Rationalize production between Wynne and Fulton mills * Initiate
capital investments at Wynne, including new extruding and drawing
equipment * Start-up copper casting facility * Improve process to
wash, rinse and dry ACR tube * Enhance information systems
supporting customer service
Copper Fittings
PLANTS
Fulton, Mississippi
Covington, Tennessee
Port Huron, Michigan
Strathroy, Ontario, Canada
PRODUCTS AND APPLICATIONS
Over 1,500 wrot copper elbows, tees and adapters, and assorted cast
copper fittings for plumbing, heating, air-conditioning and
refrigeration
CUSTOMERS
Plumbing and air-conditioning wholesalers, home centers, hardware
wholesalers and co-ops, and OEMs
1998 HIGHLIGHTS
Acquired B&K Industries * Continued modernization of Covington plant *
Achieved substantial efficiency improvements at Fulton facility *
Developed integrated customer service facility
1999 OBJECTIVES
Finish modernization of Covington plant * Rebuild coldheader
equipment in Port Huron * Upgrade warehouse management technology
at regional distribution centers
Plastic Fittings
PLANTS
Kalamazoo, Michigan
Cerritos, California
Upper Sandusky, Ohio
PRODUCTS AND APPLICATIONS
A full line of over 1,000 PVC and ABS plastic fittings and valves
for drainage, waste and ventilation, in housing and commercial
construction, recreational vehicles and manufactured housing
-7-
<PAGE>
CUSTOMERS
Plumbing wholesalers, home centers, hardware wholesalers and co-ops,
and distributors to the manufactured housing and recreational
vehicle industry
1998 HIGHLIGHTS
Acquired B&K Industries * Installed additional presses * Updated
molds * Purchased previously leased facilities in Cerritos
1999 OBJECTIVES
Upgrade Kalamazoo warehouse * Install new tooling * Increase direct
shipments from Kalamazoo and Cerritos
European Copper Tube
PLANTS
Bilston, Great Britain
Longueville, France
PRODUCTS AND APPLICATIONS
Copper tube in various lengths, diameters and hardnesses for
plumbing, refrigeration and heating
Industrial tube for redraw, copper fittings, etc.
CUSTOMERS
Builders' merchants, plumbing, refrigeration and heating wholesalers
OEMs
1998 HIGHLIGHTS
Ceased manufacturing at Laigneville on December 30, 1998 * Installed
spinner blocks and material handling equipment in Longueville *
Acquired drawbenches and other equipment for Longueville and
Bilston
1999 OBJECTIVES
Rationalize tube production and distribution * Install new
information systems * Update bundling and capping equipment in
Bilston
Industrial Products Division
[GRAPH]
<TABLE>
Net Sales
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Net Sales $225 $251 $256 $293 $275
</TABLE>
[GRAPH]
<TABLE>
Operating Income
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Operating Income $17 $20 $27 $30 $31
</TABLE>
Brass Rod
PLANTS
Port Huron, Michigan
-8-
<PAGE>
PRODUCTS AND APPLICATIONS
A broad range of rounds, squares, hexagons and special shapes in
free machining, thread rolling and forging alloys for numerous end
products, including plumbing brass, valves and fittings, and
industrial machinery and equipment
CUSTOMERS
OEMs, contract machining companies and distributors
1998 HIGHLIGHTS
Achieved record shipments * Increased casting capacity * Installed
automated bundling system
1999 OBJECTIVES
Upgrade casting process * Upgrade straighteners * Continue to
improve yield
Engineered Products
PLANTS
Port Huron, Michigan
Marysville, Michigan
Hartsville, Tennessee
Jacksboro, Tennessee
Waynesboro, Tennessee
North Wales, Pennsylvania
Salisbury, Maryland
PRODUCTS AND APPLICATIONS
Brass and aluminum hot metal forgings in assorted alloys for
plumbing brass, valves and fittings, and industrial machinery and
equipment
Cold formed aluminum and copper products for automotive, industrial
and recreational components
Valves and custom OEM products for refrigeration and air-
conditioning applications
Custom valve and other metal assemblies for the gas appliance and
BBQ grill markets
Shaped and formed tube, produced to tight tolerances, for baseboard
heating, appliances, medical instruments, etc.;
coaxial cables
CUSTOMERS
OEMs
1998 HIGHLIGHTS
Acquired Lincoln Brass Works * Consolidated sales organization *
Invested in annealing, cleaning and machining
1999 OBJECTIVES
Invest to improve manufacturing processes and reduce costs * Offer
customers additional value-added products, based on our full range
of manufacturing capabilities
Other Businesses
Utah Railway Company, established in 1912, hauls coal to connections
with national carriers, power plants and to other destinations. Utah
Railway Company also provides train switching services in Utah's
central corridor. Separately, Alaska Gold Company mines placer gold in
Nome, Alaska. Mueller also owns other natural resource properties.
1998 HIGHLIGHTS
Purchased 10 locomotives to support switching operations
1999 OBJECTIVES
Build new yard track to strengthen switching capabilities * Divest
Alaska Gold Company
-9-
<PAGE>
MANUFACTURING EXCELLENCE LEADS TO GROWTH
Mueller is a world-class manufacturing company. Over the past five years
we have invested more than $200 million in capital improvements. These
investments have eliminated bottlenecks, improved quality and pushed down
production costs. Mueller is now one of the lowest-cost manufacturers in
each of our product lines.
For 1999, we have budgeted $50 million for more capital additions and
improvements. Our objective is to achieve a return on investment of at
least 20 percent.
The largest investment project in 1999 is the modernization of our
recently acquired copper tube mill in Wynne, Arkansas. Plans are in place
to upgrade the Wynne facility with new extruding and drawing equipment. We
anticipate cost reductions and productivity improvements similar to those
achieved from the modernization of our mill in Fulton, Mississippi.
The rationalization of production between Wynne and the mill in Fulton is
already under way. Instead of making a full product line in Wynne, and a
full line in Fulton, each facility will focus on those items at which it
is most efficient. This specialization will minimize changeovers, reduce
tooling costs and increase capacity.
[PHOTO]
A program is under way to reduce the cost of making ACR tube.
[PHOTO]
Casting facility near completion
[PHOTO]
In 1997, we began a two-year program to build a copper casting facility
adjoining our tube mill in Fulton, Mississippi. This $33.4 million
investment will allow the mill to use a lower-cost mix of copper scrap and
cathode, while improving billet quality. This project is on schedule to
start operations this spring. Since copper represents by far Mueller's
largest production cost, savings can be realized when the spread between
the price of scrap and the price of cathode widens.
"Two mills can make tube much more efficiently than one. The possibilities
are incredible!"
[PHOTO]
BRUCE CLEMENTS joined Mueller in September 1998, as Vice President of
Copper Tube Manufacturing.
[GRAPH]
<TABLE>
Capital improvements have pushed down
manufacturing and distribution costs
(Costs per pound, excluding raw materials; 1995=100)
1995 1996 1997 1998
<S> <C> <C> <C> <C>
Copper Tube (Fulton) 100 90 88 88
Copper Fittings 100 95 91 88
Plastic Fittings 100 88 81 74
Brass Rod 100 97 92 87
</TABLE>
-10-
<PAGE>
SUPERIOR CUSTOMER SERVICE ADDS VALUE TO MUELLER PRODUCTS
Mueller is dedicated to superior customer service. We will not be
satisfied until every order is shipped complete, error-free and delivered
on time. In pursuit of this goal, we have programs in place to ensure
product availability and timely delivery.
We have installed state-of-the-art information systems, including
Electronic Data Interchange (EDI), and have invested in employee training
programs. Recently, we inaugurated an integrated customer service
facility. This facility allows the same individual to support the customer
from order entry throughout fulfillment, thereby ensuring quality service.
B&K Industries, Inc., acquired in August 1998, is known for going beyond
the call of duty to find solutions for customer needs. B&K's extensive
import line, coupled with Mueller's manufactured products, provides our
retail customers with one-stop sourcing and efficient purchasing. B&K's
expertise in serving the retail marketplace has already allowed Mueller to
establish major new national accounts.
[PHOTO]
B&K's logo is recognized as a mark of quality in home centers and hardware
stores nationwide.
"Mueller believes in long-term business relationships. Knowing our
customers is key to our own success!"
[PHOTO]
PETER BERKMAN is the President of B&K Industries, acquired in August 1998.
[PHOTO]
DIRECT SHIPMENT GETS TUBE TO THE CUSTOMER FASTER
Last year we expanded the Fulton tube mill's distribution capabilities.
More than 65 percent of the shipments from the mill now go directly to the
customer, instead of through distribution centers. Direct shipment reduces
handling costs, improves service and enables more effective use of
inventory.
[PHOTO]
-11-
<PAGE>
ACQUISITIONS STRENGTHEN OUR CORE BUSINESSES
Mueller has made nine acquisitions over the past five years. Every
acquisition has strengthened our core businesses. By focusing on our
industry, we have been able to leverage existing manufacturing, sales and
distribution capabilities.
This acquisition strategy has created economies of scale, extended our
product lines, opened up new markets and made our Company an increasingly
valuable resource to our customers.
We expect to continue to grow through strategic acquisitions. The
candidates of greatest interest are sound businesses where new investment
can generate long-term growth. We do not require an acquisition to be
immediately accretive to earnings; however, we do insist on a clear vision
of the acquisition's ability to build future value.
Mueller ended 1998 with $81 million in cash, a $100 million line of credit
available and a modest 28 percent debt-to-total-capitalization ratio. We
have the resources to support further acquisitions and to make the
investments required to realize the potential of the companies we buy.
"Every acquisition has strengthened our core businesses!"
[PHOTO]
DAVID RICE joined Mueller in April 1998, as Controller of the Industrial
Products Division.
[PHOTO]
Mueller's line sets business grew substantially with the acquisition of
Halstead in November 1998.
[PHOTO]
Lincoln Brass Works, acquired in September 1998, is a large consumer of
Mueller brass rod.
NINE ACQUISITIONS IN FIVE YEARS STRENGTHEN MUELLER'S CORE BUSINESSES
SEPTEMBER 1994 DWV PLASTIC FITTINGS
Purchased plants in Michigan and California. Began rationalizing
production of over 1,000 different DWV plastic fittings between new
plants and existing plant in Ohio. By 1998, per pound production and
distribution costs had fallen 45 percent from 1993 levels.
JUNE 1996 LINE SETS
Entered line sets business. Line sets are made from copper tube and
sold by our sales force to wholesale and OEM customers.
JUNE 1996 MUELLER TOOL & MACHINE
Purchased a custom tool fabricator, enabling faster tool and machine
development in support of copper fittings and other manufacturing
operations.
DECEMBER 1996 PRECISION TUBE
Bought redraw facility, manufacturing copper tubing, copper alloy
tubing, aluminum tubing and fabricated tubular products. Strong
presence in the baseboard heating industry.
-12-
<PAGE>
FEBRUARY 1997 WEDNESBURY TUBE
Purchased copper tube mill in England. Mueller's manufacturing expands
to Europe, which has a copper tube market as large as the United
States.
MAY 1997 DESNOYERS
Acquired copper tube operations near Paris, expanding our presence in
Europe. Both Desnoyers and Wednesbury were acquired for a modest
investment, with the objective of reducing their cost structure and
increasing productivity.
AUGUST 1998 B&K INDUSTRIES
Bought a significant import distributor of residential and commercial
plumbing products. B&K's distribution network and expertise give
Mueller new access to the retail marketplace.
SEPTEMBER 1998 LINCOLN BRASS WORKS
Purchased operation with strong metal fabrication and machining
capabilities that complement existing brass forging operation.
Lincoln is also a large consumer of Mueller brass rod and forgings.
NOVEMBER 1998 HALSTEAD INDUSTRIES
Acquired a U.S. producer of copper tube and line sets, creating
opportunity to realize substantial economies of scale.
[GRAPH]
<TABLE>
Over the past five years, Mueller has invested more than $400 million to
grow our businesses.
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Capital Expenditures $48.2 $41.0 $18.9 $36.9 $ 55.4
Acquisitions $12.8 $ 0.0 $ 0.4 $37.9 $158.5
</TABLE>
[GRAPH]
<TABLE>
However, debt remains a modest percent of total capitalization...
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Debt $ 94.7 $ 75.9 $ 59.6 $ 72.1 $194.5
Equity $241.9 $285.9 $348.1 $418.0 $502.1
Ratio (percent) 28.1% 21.0% 14.6% 14.7% 27.9%
</TABLE>
[GRAPH]
<TABLE>
...supported by powerful cash flow.
(millions of dollars)
1994 1995 1996 1997 1998
<S> <C> <C> <C> <C> <C>
Earnings Before Interest,
Taxes, Depreciation
and Amortization (EBITDA) $ 56.4 $ 81.9 $108.9 $123.2 $135.0
</TABLE>
-13-
<PAGE>
Financial Review
Overview
Mueller Industries, Inc. is a leading manufacturer of copper tube and
fittings; brass and copper alloy rod, bar and shapes; aluminum and brass
forgings; aluminum and copper impact extrusions; plastic fittings and
valves; refrigeration valves and fittings; and fabricated tubular
products. Mueller's plants are located throughout the United States and in
Canada, France and Great Britain. The Company also owns a short line
railroad in Utah and natural resource properties in the Western U.S.
The Company's businesses are managed and organized into three
segments: (i) Standard Products Division (SPD); (ii) Industrial Products
Division (IPD); and (iii) Other Businesses. SPD manufactures and sells
copper tube, and copper and plastic fittings and valves. Outside of the
United States, SPD manufactures copper tube in Europe and copper fittings
in Canada. SPD sells these products to wholesalers in the HVAC (heating,
ventilation and air-conditioning), plumbing and refrigeration markets, and
to distributors to the manufactured housing and recreational vehicle
industries. IPD manufactures and sells brass and copper alloy rod, bar and
shapes; aluminum and brass forgings; aluminum and copper impact
extrusions; refrigeration valves and fittings; fabricated tubular
products; and gas valves and assemblies. IPD sells its products primarily
to original equipment manufacturers (OEMs), many of which are in the HVAC,
plumbing and refrigeration markets. Other Businesses include Utah Railway
Company, Alaska Gold Company and other natural resource properties and
interests. SPD and IPD account for more than 96 percent of consolidated
net sales and more than 86 percent of consolidated total assets.
During 1998, the Company completed three acquisitions: (i) Halstead
Industries, Inc. (Halstead) operates a copper tube mill in Wynne, Arkansas
and a line sets factory in Clinton, Tennessee; (ii) B&K Industries, Inc.
(B&K), based in Elk Grove Village, Illinois, is a significant import
distributor of residential and commercial plumbing products in the United
States that sells through all major distribution channels including
hardware co-ops, home centers, plumbing wholesalers, hardware wholesalers,
OEMs and manufactured housing wholesalers; and (iii) Lincoln Brass Works,
Inc. (Lincoln) produces custom valve assemblies, custom metal assemblies,
gas delivery systems and tubular products, primarily for the gas appliance
market, at two manufacturing facilities in Tennessee.
New housing starts and commercial construction are important
determinants of the Company's sales to the HVAC, 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 and commercial buildings.
Profitability of certain of the Company's product lines depends upon
the "spreads" between the cost of raw material and the selling prices of
its completed products. The open market prices for copper cathode and
scrap, for example, influence the selling price of copper tubing, a
principal product manufactured by the Company. The Company attempts to
minimize the effects of fluctuations in material costs by passing through
these costs to its customers. "Spreads" fluctuate based upon competitive
market conditions.
-14-
<PAGE>
Results of Operations
1998 Performance Compared to 1997
Consolidated net sales in 1998 were $929.4 million or 4.5 percent
higher than $889.0 million in 1997. Pounds of product sold totaled 644.6
million in 1998 or 18.2 percent more than the 545.3 million pounds sold in
1997. Net selling prices generally fluctuate with changes in raw material
prices; therefore, pounds sold is an additional measurement of the
Company's growth. For example, the COMEX average copper price in 1998 was
approximately 27 percent lower than the 1997 average. This decline impacts
the Company's net sales and cost of goods sold.
Acquisitions contributed to growth in 1998. Businesses acquired in
1997 added approximately $168.6 million to the Company's 1998 net sales
and those acquired in 1998 added approximately $59.7 million. The Halstead
acquisition was completed in the fourth quarter of 1998 and the other two
acquisitions were completed in the third quarter. Growth from core product
lines that existed prior to the 1997 and 1998 acquisitions added 6.1
percent to the Company's 1998 growth measured in pounds of product
shipped.
Cost of goods sold increased $15.5 million, or 2.2 percent, to $720.3
million in 1998. This increase is primarily attributable to acquisitions
and higher sales of core products. Gross profit was 22.5 percent of net
sales in 1998 compared to 20.7 percent in 1997 and cost of sales improved
accordingly. This 1.8 percent rate improvement resulted from lower
manufacturing costs, continued higher yields from production, reduced
metal costs and improved spreads in certain products, particularly copper
tube.
Depreciation and amortization increased $3.9 million, or 18.6
percent, to $24.9 million in 1998 compared to $21.0 million in 1997. This
increase was due to capital expenditures in recent years, $55.4 million in
1998 and $36.9 million in 1997, and to the 1997 and 1998 acquisitions.
Selling, general and administrative expense increased $11.9 million,
or 18.7 percent, to $75.4 million in 1998. When measured on a basis of
cost per pound of product sold, these expenses averaged 11.7 cents a pound
in 1998 and 11.6 cents a pound in 1997. Approximately 90 percent of the
$11.9 million increase was attributable to businesses acquired in 1997 and
1998.
Interest expense increased 17.5 percent in 1998 to $5.8 million. The
1998 increase resulted primarily from funds borrowed against the Company's
line of credit in the fourth quarter of 1998 to purchase Halstead and from
certain debt assumed by the Company in the acquisition of B&K. The Company
capitalized interest of $.8 million for major capital improvement projects
in 1998 compared to $.1 million in 1997.
The provision for environmental reserves totaled $2.1 million in 1998
compared to $3.1 million in 1997. This provision is based on updated
information and on results of ongoing environmental remediation and
monitoring programs at previously identified sites.
-15-
<PAGE>
Other income decreased to $8.5 million in 1998 from $9.2 million in
1997. Within this classification, interest income increased $1.5 million
to $5.1 million in 1998 while gains from disposal of non-manufacturing
properties decreased $1.5 million to $2.2 million in 1998. Rent and
royalty income decreased $.8 million from $2.2 million in 1997.
The Company provided $33.9 million for income taxes in 1998, of which
$4.9 million was deferred. Current income tax expense of $29.0 million
increased approximately $.8 million over 1997 primarily because of
increased taxable income. The 31.0 percent effective tax rate for 1998,
which is comparable to the 1997 rate, reflects the recognition of certain
tax attributes discussed in Note 6 and certain favorable state tax
credits, including IRB financings.
The Company's employment increased from 3,378 positions at the end of
1997 to 4,788 at the 1998 year-end. Of this increase, 1,335 positions
relate to businesses acquired during 1998.
Standard Products Division
Net sales by SPD were $624.4 million in 1998 compared to $560.8
million in 1997 for an 11.3 percent increase. Operating income was $85.5
million in 1998 compared to $73.0 million in 1997. The profit improvement
resulted from increased volume, lower manufacturing costs and improved
spreads in certain products, particularly copper tube.
Industrial Products Division
IPD's net sales were $274.6 million in 1998 compared to $292.9
million in 1997. Due to the lower cost of raw materials, the average
selling price for finished product was approximately 20 percent lower in
1998 compared to 1997's levels. Operating income was $31.2 million in 1998
compared to $29.6 million in 1997. Increased volume and lower
manufacturing costs accounted for the profit improvement.
Other Businesses
Utah Railway Company hauled 5.5 million tons of coal in 1998 or 11.6
percent more than in 1997. Revenue totaled $23.5 million in 1998 compared
to $19.7 million in 1997. In late 1998, there was a fire at one of the
coal mines served by Utah Railway Company. We expect the mine to re-open
in 1999, though this is not certain. Extensive delays would have a
negative impact on the future profitability of the railroad. Alaska Gold
Company's net sales were $8.2 million in 1998 compared to $15.5 million in
1997. Alaska Gold sold its 1998 gold production in 1998, whereas in 1997
it sold two years of gold production. Continuing low gold prices have
caused suspension of Alaska Gold's winter open pit mining, although summer
mining activity will continue. Separately, Mueller has entered into a
contract to sell Alaska Gold Company, subject to various contingencies.
1997 Performance Compared to 1996
Consolidated net sales of $889.0 million in 1997 compares with $718.3
million in 1996. The increase was due to acquisitions, internal growth and
gold sales of $15.5 million. Businesses acquired during 1997 added
approximately $128.6 million to net sales. In 1997, the Company's core
-16-
<PAGE>
manufacturing businesses shipped 545.3 million pounds of product compared
to 447.0 million pounds in 1996. Of this increase, 73.9 percent was
attributable to acquired businesses. Net sales were also affected by lower
copper prices, which were partially offset by higher prices of other
products.
Cost of goods sold totaled $704.8 million in 1997 compared to $554.6
million in 1996. The increase is primarily attributable to acquisitions,
higher sales volume and gold sales. The Company's gross profit, excluding
acquisitions, was 23.4 percent compared to 22.8 percent in 1996. This
improvement resulted from continued higher yields, cost reductions and
certain price increases. Including acquisitions, gross profit increased
$20.5 million to $184.2 million, or 20.7 percent of net sales in 1997.
Depreciation and amortization totaled $21.0 million in 1997 compared
to $18.5 million in 1996. This increase was due to heavy capital
investment programs in recent years and to the 1997 acquisitions.
Selling, general and administrative expense increased $8.7 million in
1997 to $63.5 million or 7.1 percent of net sales. It was 7.6 percent in
1996. The 1997 increase was due mainly to the acquisitions and higher
sales volume.
Interest expense decreased 7.1 percent in 1997 to $5.0 million
compared to $5.3 million in 1996. The provision for environmental reserves
totaled $3.1 million in 1997 compared to $2.0 million in 1996. The 1997
provision relates to Mining Remedial Recovery Company, a non-core
subsidiary, and is based on updated information and results of ongoing
environmental remediation and monitoring programs at previously identified
sites. Other income increased to $9.2 million in 1997 from $5.3 million in
1996. This increase occurred primarily from higher gold royalty income and
gains from the sale of coal mining property in Hiawatha, Utah, and certain
other properties at Alaska Gold.
The Company provided $31.1 million for income taxes in 1997, of which
$2.8 million was deferred. Current tax expense of $28.3 million increased
$5.1 million over 1996 because of higher taxable income. The 30.8 percent
effective tax rate for 1997, which is equal to the 1996 rate, reflects the
recognition of certain tax attributes discussed in Note 6 and certain
favorable state tax credits including IRB financings.
The Company's employment level increased to 3,378 at year-end.
Substantially all of the additional employees relate to businesses
acquired during 1997.
Standard Products Division
In 1997, SPD net sales increased $118.6 million to $560.8 million, a
26.8 percent increase over 1996. Much of the increase in net sales is
attributable to acquisitions that occurred in the first half of 1997.
Operating income was $73.0 million in 1997, a $2.2 million decrease from
1996. Losses at acquired European businesses offset operating income
improvements at the Company's U.S. businesses. Improvements at the
Company's domestic operations resulted from higher sales volumes,
favorable pricing in copper and plastic fittings, and overall productivity
gains.
-17-
<PAGE>
Industrial Products Division
IPD's net sales were $292.9 million in 1997, a 14.3 percent increase
over 1996. Operating income was $29.6 million in 1997 compared to $27.5
million in 1996. Operating income increased primarily due to higher sales
volume, as well as productivity and yield improvements in manufacturing
operations.
Other Businesses
Net sales were $35.7 million in 1997 compared to $20.3 million in
1996. The increase was primarily due to gold sales of $15.5 million in
1997; none was sold in 1996. Transportation revenues of Utah Railway
Company were $19.7 million in 1997 compared to $20.0 million in 1996. Utah
Railway Company hauled 4.9 million tons of coal in 1997, down 21.7 percent
from 1996. This decline was the result of temporary operating difficulties
at the coal mines served, along with service disruptions in the Union
Pacific system. Alaska Gold Company sold 54,500 ounces of gold in 1997,
including production and royalty gold from both 1997 and 1996.
Liquidity and Capital Resources
The Company's cash and cash equivalents balance increased $10.6
million during 1998 to $80.6 million at year-end. Major components of the
1998 change include $98.9 million of cash provided by operating
activities, $201.1 million of cash used in investing activities and $113.3
million of cash provided by financing activities.
Net income of $75.4 million in 1998 was the primary component of cash
provided by operating activities. Depreciation and amortization of $24.9
million and deferred income taxes of $4.9 million were the primary non-
cash adjustments. Major changes in working capital included a $13.0
million decrease in receivables, a $3.2 million increase in other assets
and a $9.2 million decrease in current and other liabilities.
Major components of net cash used in investing activities in 1998
included $55.4 million for capital expenditures and $158.5 million for
business acquisitions. Investments in acquisitions include Halstead, B&K
and Lincoln. Other components include escrowed IRB proceeds and a note
receivable. Capital expenditures were primarily related to improvements in
manufacturing processes as well as the purchase of previously leased land
and buildings for one of the Company's existing facilities.
Net cash provided by financing activities totaled $113.3 million. In
1997, the Company entered into IRB financing agreements for two capital
projects in Mississippi. These IRB financing obligations totaled $27.5
million, of which $6.4 million remained in escrow at the 1998 year-end.
These IRBs have favorable tax attributes. Also, during 1998 the Company
paid $19.4 million of scheduled debt repayments.
The Company used its line of credit facility to fund the acquisition
of Halstead in the fourth quarter of 1998. This involved implementation of
a temporary bulge facility to increase the Company's borrowing
availability under its existing line of credit to $125 million. At the end
of the fiscal year, borrowings outstanding under this facility were at
$120 million.
-18-
<PAGE>
Subsequent to fiscal year-end, the Company completed a restructured
financing arrangement by borrowing $125 million in an unsecured term note
(Term Note) from its bank syndicate. The Term Note matures on December 31,
2003 and carries an interest rate based on 90-day LIBOR. Additionally, the
restructured financing restored to its original level the Company's $100
million unsecured line of credit (Credit Facility) which expires in May
2001. The Credit Facility may be extended for successive one-year periods
by agreement of the parties. Subsequent to the restructuring, there are no
outstanding borrowings against the Credit Facility. The Company did,
however, have approximately $4.2 million in letters of credit backed by
this Credit Facility at the end of 1998. At December 26, 1998, the
Company's total debt was $194.5 million or 27.9 percent of its total
capitalization.
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.
The Company is implementing a $33.4 million capital improvement
project at its Fulton copper tube mill to improve the utilization of scrap
metal and enhance the mill's casting processes. This project is also
expected to improve yield, productivity and billet quality. The project,
when completed in the first half of 1999, will allow the tube mill to use
more scrap copper when market conditions warrant.
The Company is considering various long-term capital investments for
its businesses, including its recently acquired Wynne, Arkansas copper
tube mill, European operations and others, that will improve their cost
structure and productivity.
Management believes that cash provided by operations and currently
available cash of $80.6 million will be adequate to meet the Company's
normal future capital expenditure and operational needs. Additionally, the
remaining escrowed IRB cash will be used to partially fund certain capital
improvement projects. The Company's current ratio is 2.7 to 1 at December
26, 1998.
Environmental Matters
The Company ended 1998 with total environmental reserves of
approximately $16.3 million. This balance includes $7.3 million for
businesses acquired in 1998. 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.
Market Risk
The Company is exposed to market risk from changes in foreign
exchange, interest rates and raw material costs. To reduce such risks, the
Company may periodically use financial instruments. All hedging
transactions are authorized and executed pursuant to policies and
procedures. Further, the Company does not buy or sell financial
instruments for trading purposes. A discussion of the Company's accounting
policies for management of market risk is included in the Summary of
Significant Accounting Policies in the Notes to the Consolidated Financial
Statements.
-19-
<PAGE>
Interest Rates
At December 26, 1998, the fair value of the Company's debt is
estimated at $195.2 million, using yields obtained for similar types of
borrowing arrangements and taking into consideration the underlying terms
of the debt. Such fair value exceeds the carrying value of debt at
December 26, 1998 by $.7 million. Market risk is estimated as the
potential change in fair value resulting from a hypothetical 10 percent
decrease in interest rates and amounts to $.6 million at December 26,
1998.
The Company had $142.2 million of variable rate debt outstanding at
December 26, 1998. At this borrowing level, a hypothetical 10 percent
increase in interest rates would have a $.8 million unfavorable impact on
the Company's pretax earnings and cash flows. The primary interest rate
exposure on floating rate debt is based on LIBOR.
Foreign Currency Exchange Rates
Foreign currency exposures arising from transactions include firm
commitments and anticipated transactions denominated in a currency other
than an entity's functional currency. The Company and its subsidiaries
generally enter into transactions denominated in their respective
functional currencies. Foreign currency exposures arising from
transactions denominated in currencies other than the functional currency
are not material; however, the Company may utilize certain forward fixed
rate contracts to hedge such transactional exposures.
The Company's primary foreign currency exposure arises from foreign-
denominated revenues and profits and their translation into U.S. dollars.
The primary currencies to which the Company is exposed include the
Canadian dollar, the British pound sterling, and the French franc. The
Company generally views as long-term its investments in foreign
subsidiaries with a functional currency other than the U.S. dollar. As a
result, the Company generally does not hedge these net investments. The
net investment in foreign subsidiaries translated into U.S. dollars using
the year-end exchange rates is $27.3 million at December 26, 1998. The
potential loss in value of the Company's net investment in foreign
subsidiaries resulting from a hypothetical 10 percent adverse change in
quoted foreign currency exchange rates at December 26, 1998 amounts to
$2.7 million. This change would be reflected in the equity section of the
Company's Consolidated Balance Sheet.
Cost of Raw Materials
Copper and brass represent the largest component of the Company's
variable costs of production. The cost of these materials is subject to
global market fluctuations caused by factors beyond the Company's control.
Significant increases in the cost of metal, to the extent not reflected in
prices for the Company's finished products, could materially and adversely
affect the Company's business, results of operations and financial
condition.
The Company enters into forward fixed price arrangements with certain
customers. The Company may utilize futures or option contracts to hedge
risks associated with forward fixed price arrangements. The Company may
also utilize futures or option contracts to manage price risk associated
-20-
<PAGE>
with inventory. The total amount of such contracts was approximately 5.3
million pounds at December 26, 1998 and includes varying maturity dates in
1999. Gains or losses with respect to these positions are reflected in
earnings upon the sale of inventory. Periodic value fluctuations of the
contracts generally offset the value fluctuations of the underlying fixed
price transactions or inventory.
Year 2000 Program
The Company has established a Year 2000 program to evaluate, confirm
compliance and identify any necessary changes to its information
technology (IT) and operating (non-IT) systems to address Year 2000
requirements. The Company has retained a consulting firm specializing in
this area to assist in the program. To date, the Company has expensed
approximately $.7 million related to this outside consultant and it
believes that future expenses will be approximately $.4 million in 1999.
There are four phases to this program: assessment; inventory; test and
correction; and certification. Assessment involves the examination of the
Company's IT and non-IT systems for specific date impacts, component
complexity and inter-relationships. Inventory involves the identification
and categorization of the Company's systems, applications, data
structures, system interfaces, programmable logic controllers, etc.,
which, based on the assessment, potentially raise certain Year 2000
issues. Once the assessment and inventory are completed, the Company plans
to determine Year 2000 compliance through a combination of corrections,
testing, use assessments and third party verifications. Once this is
completed, Mueller will be positioned to certify its systems and
facilities as Year 2000 compliant. The Company expects its Year 2000
Program will be completed by September 30, 1999.
The Company has completed its assessment and inventory of its IT
systems. Based on this assessment, Mueller has replaced certain hardware
and modified its developed software code at a cost which is immaterial.
Certain business systems of the Company's European businesses are not Year
2000 compliant, but this will be resolved within the context of an overall
upgrade to these information systems in order to accommodate, among other
things, the Euro single currency. Total implementation costs for this
upgrade are estimated at approximately $.9 million.
The Company has completed its assessment and inventory of non-IT
systems at over half of its North American manufacturing facilities.
Mueller selected these factories for assessment and inventory because of
their importance or likelihood of Year 2000 issues. Assessment and
inventory at the remaining factories is scheduled for completion by the
end of the second quarter. At the surveyed facilities, Mueller has
identified a small number of non-IT systems which were not Year 2000
compliant. The Company plans to replace and/or correct and certify as
compliant these systems by the second quarter of 1999 at an estimated cost
that is not material. To the extent Mueller does not identify all non-IT
systems which are not Year 2000 compliant, production on individual pieces
of equipment might be curtailed for a period of time. However, management
believes that the risk that it would be unable to maintain customer
services due to Year 2000 equipment failures is low.
-21-
<PAGE>
The Company is in the process of contacting its major product
and service suppliers to determine their Year 2000 readiness, and will
continue to follow up these inquiries to ensure, to the best of its
ability, that these suppliers will be Year 2000 compliant. Nonetheless,
there can be no assurance that the systems used by these suppliers will be
remediated in a timely manner, which, if not remediated, may have an
adverse effect on Mueller. The Company intends to defer development of any
Year 2000 contingency plans until it completes its assessment of third
party suppliers, which is scheduled to be completed at all currently owned
locations by June 1999. The Company estimates that it has no exposure for
contingencies related to the Year 2000 issue for the products it has sold.
Recently Issued Accounting Standards
During 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). This statement requires companies to record
derivative instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of a derivative would be accounted for depending on the use of a
derivative and whether it qualifies for hedge accounting. SFAS No. 133 is
effective for the Company's fiscal year 2000. Because of the Company's
minimal historical use of derivatives, management anticipates that the
adoption of SFAS No. 133 will not have a significant effect on earnings or
the financial position of the Company.
Cautionary Statement Regarding Forward-Looking Information
This Annual Report contains various forward-looking statements and
includes assumptions concerning the Company's operations, future results
and prospects. These foward-looking statements are based on current
expectations and are subject to risk and uncertainties. In connection with
the "safe harbor" provisions of the Private Securities Litigation Reform
Act of 1995, Mueller provides the following cautionary statement
identifying important economic, political and technological factors, among
others, the absence of which could cause actual results or events to
differ materially from those set forth in or implied by the forward-
looking statements and related assumptions.
Such factors include: (i) continuation of the current and projected
future business environment, including interest rates and capital and
consumer spending; (ii) fluctuations in commodity prices (including prices
of copper and other raw materials); (iii) competitive factors and
competitor responses to Mueller initiatives; (iv) successful
implementation and completion of major capital projects; (v) stability of
government laws and regulations, including taxes; (vi) changes in labor
relations; and (vii) continuation of the environment to make acquisitions,
domestic and foreign, including regulatory requirements and market values
of candidates.
-22-
<PAGE>
Mueller Industries, Inc.
Consolidated Statements of Income
Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
<TABLE>
(In thousands, except per share data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales $ 929,391 $ 888,997 $ 718,312
Cost of goods sold 720,293 704,801 554,570
-------- -------- --------
Gross profit 209,098 184,196 163,742
Depreciation and amortization 24,899 20,998 18,472
Selling, general and administrative
expense 75,390 63,489 54,808
-------- -------- --------
Operating income 108,809 99,709 90,462
Interest expense (5,839) (4,968) (5,346)
Environmental reserves (2,133) (3,100) (2,045)
Other income, net 8,503 9,180 5,341
-------- -------- --------
Income before income taxes 109,340 100,821 88,412
Income tax expense (33,895) (31,051) (27,239)
-------- -------- --------
Net income $ 75,445 $ 69,770 $ 61,173
======== ======== ========
Weighted average shares for basic
earnings per share 35,452 34,997 34,799
Effect of dilutive stock options 4,192 4,253 4,194
-------- -------- --------
Adjusted weighted average shares for
diluted earnings per share 39,644 39,250 38,993
-------- -------- --------
Basic earnings per share $ 2.13 $ 1.99 $ 1.76
======== ======== ========
Diluted earnings per share $ 1.90 $ 1.78 $ 1.57
======== ======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-23-
<PAGE>
Mueller Industries, Inc.
Consolidated Balance Sheets
As of December 26, 1998 and December 27, 1997
<TABLE>
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Assets
Current assets
Cash and cash equivalents $ 80,568 $ 69,978
Accounts receivable, less allowance for doubtful
accounts of $4,929 in 1998 and $3,680 in 1997 155,601 128,902
Inventories 134,732 98,181
Current deferred income taxes 5,140 5,023
Other current assets 6,283 6,967
-------- --------
Total current assets 382,324 309,051
Property, plant and equipment, net 379,082 260,364
Goodwill, net 75,988 -
Deferred income taxes - 7,837
Other assets 37,300 33,524
-------- --------
Total Assets $ 874,694 $ 610,776
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-24-
<PAGE>
Mueller Industries, Inc.
Consolidated Balance Sheets
As of December 26, 1998 and December 27, 1997
<TABLE>
(In thousands, except share data)
<CAPTION>
1998 1997
<S> <C> <C>
Liabilities and Stockholders' Equity
Current liabilities
Current portion of long-term debt $ 19,980 $ 18,980
Accounts payable 46,641 30,530
Accrued wages and other employee costs 26,636 21,095
Other current liabilities 49,317 29,952
-------- --------
Total current liabilities 142,574 100,557
Long-term debt, less current portion 174,569 53,113
Pension liabilities 5,924 6,743
Postretirement benefits other than pensions 6,660 7,479
Environmental reserves 16,321 10,368
Deferred income taxes 10,490 2,040
Other noncurrent liabilities 15,680 11,745
-------- --------
Total liabilities 372,218 192,045
-------- --------
Minority interest in subsidiaries 354 691
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
100,000,000; issued 40,091,502 in 1998 and
40,000,000 in 1997; outstanding 35,807,596
in 1998 and 35,017,416 in 1997 401 200
Additional paid-in capital, common 258,171 253,928
Retained earnings since January 1, 1991 273,198 197,753
Cumulative translation adjustments (3,317) (3,232)
Treasury common stock, at cost (26,331) (30,609)
-------- --------
Total stockholders' equity 502,122 418,040
Commitments and contingencies - -
-------- --------
Total Liabilities and Stockholders' Equity $ 874,694 $ 610,776
======== ========
See accompanying notes to consolidated financial statements.
</TABLE>
-25-
<PAGE>
Mueller Industries, Inc.
Consolidated Statements of Cash Flows
Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Operating activities:
Net income $ 75,445 $ 69,770 $ 61,173
Reconciliation of net income to net cash
provided by operating activities:
Depreciation and amortization 24,899 20,998 18,472
Provision for doubtful accounts
receivable 556 107 435
Minority interest in subsidiaries,
net of dividend paid (337) 294 397
Deferred income taxes 4,870 2,830 4,144
Gain on disposal of properties (2,156) (3,702) (973)
Changes in assets and liabilities, net of
businesses acquired:
Receivables 12,973 (24,422) (5,628)
Inventories (4,875) 1,329 (10,070)
Other assets (3,219) (5,451) (793)
Current liabilities (6,016) (3,543) 12,477
Other liabilities (3,165) (5,416) (495)
Other, net (65) 136 (439)
-------- -------- --------
Net cash provided by operating activities 98,910 52,930 78,700
-------- -------- --------
Investing activities:
Acquisition of businesses (158,514) (37,874) (417)
Capital expenditures (55,440) (36,865) (18,868)
Proceeds from sales of properties 2,559 5,826 4,142
Escrowed IRB proceeds 14,739 (21,146) -
Note receivable (4,484) - -
-------- -------- --------
Net cash used in investing activities (201,140) (90,059) (15,143)
-------- -------- --------
Financing activities:
Proceeds from issuance of long-term debt 120,000 27,500 -
Repayments of long-term debt (19,396) (18,133) (16,252)
Proceeds from the sale of treasury stock 7,284 615 1,294
Proceeds from line of credit, net 5,451 - -
-------- -------- --------
Net cash provided by (used in)
financing activities 113,339 9,982 (14,958)
-------- -------- --------
See accompanying notes to consolidated financial statements.
-26-
<PAGE>
Effect of exchange rate changes on cash (519) 169 -
-------- -------- --------
Increase (decrease) in cash and
cash equivalents 10,590 (26,978) 48,599
Cash and cash equivalents at the
beginning of the year 69,978 96,956 48,357
-------- -------- --------
Cash and cash equivalents at the
end of the year $ 80,568 $ 69,978 $ 96,956
======== ======== ========
</TABLE>
For supplemental disclosures of cash flow information, see
Notes 1, 4, 6 and 12.
See accompanying notes to consolidated financial statements.
-27-
<PAGE>
Mueller Industries, Inc.
Consolidated Statements of Stockholders' Equity
Years Ended December 26, 1998, December 27, 1997 and December 28, 1996
(In thousands)
<TABLE>
<CAPTION>
Common Stock Additional Cumulative Treasury Stock
Number Paid-In Retained Translation Number
of Shares Amount Capital Earnings Adjustments of Shares Cost Total
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, December 30, 1995 40,000 $ 200 $ 253,969 $ 66,810 $ (2,545) 5,301 $(32,559) $285,875
Comprehensive income:
Net income - - - 61,173 - - - 61,173
Other comprehensive income:
Foreign currency translation - - - - (260) - - (260)
--------
Comprehensive income 60,913
Issuance of shares under
employee stock purchase plan - - 484 - - (79) 484 968
Issuance of shares under
incentive stock option plan - - (239) - - (92) 565 326
------- --- ------- ------- ----- ------ ------- --------
Balance, December 28, 1996 40,000 200 254,214 127,983 (2,805) 5,130 (31,510) 348,082
Comprehensive income:
Net income - - - 69,770 - - - 69,770
Other comprehensive income:
Foreign currency translation - - - - (427) - - (427)
--------
Comprehensive income 69,343
Issuance of shares under
incentive stock option plan - - (286) - - (148) 901 615
------- --- ------- ------- ----- ------ ------- -------
Balance, December 27, 1997 40,000 200 253,928 197,753 (3,232) 4,982 (30,609) 418,040
Comprehensive income:
Net income - - - 75,445 - - - 75,445
Other comprehensive income:
Foreign currency translation - - - - (85) - - (85)
--------
Comprehensive income 75,360
Issuance of shares under
incentive stock option plan - - (765) - - (698) 4,278 3,513
Par value of shares issued in
connection with a two-for-
one stock split - 200 (200) - - - - -
Issuance of shares for
business acquisition 92 1 2,837 - - - - 2,838
Note receivable from officer - - (1,400) - - - - (1,400)
Tax benefit related to
employee stock options - - 3,771 - - - - 3,771
------- --- ------- ------- ----- ------ ------- -------
Balance, December 26, 1998 40,092 $ 401 $ 258,171 $ 273,198 $ (3,317) 4,284 $(26,331) $502,122
======= === ======= ======= ===== ====== ======= =======
<FN>
See accompanying notes to consolidated financial statements.
</TABLE>
-28-
<PAGE>
Notes to Consolidated Financial Statement
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 rod, bar and
shapes; aluminum and brass forgings; aluminum and copper impact
extrusions; plastic fittings and valves; refrigeration valves and
fittings; fabricated tubular products; and gas valves and assemblies. The
Company markets its products to the HVAC, plumbing, refrigeration,
hardware and other industries. During 1998, the Company operated 22
factories in 8 states, Canada, Great Britain and France 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 its U.S. copper tube and copper fittings
inventories is valued on a last-in, first-out (LIFO) basis. Other
inventories, including the non-material components of U.S. copper tube and
copper fittings, are valued on a first-in, first-out (FIFO) basis.
Inventory costs include material, labor costs and manufacturing overhead.
Depreciation
Depreciation of buildings, machinery and equipment is provided on the
straight-line method over the estimated useful lives ranging from 20 to 40
years for buildings and 5 to 20 years for machinery and equipment.
Amortization
Amortization of goodwill is computed on a straight-line basis over 25
or 30 years. Other intangible assets are amortized on a straight-line
basis over estimated useful lives ranging from 3 to 10 years.
Revenue Recognition
Revenue is recognized when products are shipped or services are
performed.
-29-
<PAGE>
Pensions and Other Postretirement Benefit Plans
During 1998, the Company adopted Statement of Financial Accounting
Standards No. 132, Employers' Disclosures about Pensions and Other
Postretirement Benefits (SFAS No. 132). The provisions of SFAS No. 132
revise disclosure requirements related to pension and other postretirement
benefit plans. It does not change the methods of measurement or
recognition of assets, liabilities and benefit costs of these plans.
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 as permitted by Statement of Financial Accounting
Standards No. 123, Accounting for Stock-Based Compensation (SFAS No. 123).
Earnings Per Share
Basic earnings per share has been computed based on the average
number of common shares outstanding. Diluted earnings per share reflects
the increase in average common shares outstanding that would result from
the assumed exercise of outstanding stock options calculated using the
treasury stock method.
Income Taxes
The Company accounts for income taxes using the liability method
required by Statement of Financial Accounting Standards 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 26, 1998 and December 27, 1997, temporary investments
consisted of certificates of deposit, commercial paper, bank repurchase
agreements and U.S. and foreign government securities totaling $81.4
million and $70.9 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
HVAC, plumbing, refrigeration, hardware, automotive, OEMs and others.
The Company minimizes its exposure to 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 of finished
products to its customers.
-30-
<PAGE>
The Company enters into forward fixed price arrangements with certain
customers. The Company may utilize futures or option contracts to hedge
risks associated with forward fixed price arrangements. The Company may
also utilize futures or option contracts to manage price risk associated
with inventory. Gains or losses with respect to these positions are
reflected in earnings upon the sale of inventory. Periodic value
fluctuations of the contracts generally offset the value fluctuations of
the underlying fixed price transactions or inventory. At year-end, the
Company held open hedge forward contracts to deliver approximately $3.8
million of copper.
The Company's sales are principally denominated and collected in the
U.S. dollar. Certain sales are collected in other currencies. The market
risk regarding currency exchange rate fluctuations may be hedged using
forward contracts. At year-end, the Company held open forward contracts to
deliver the equivalent of approximately $1.0 million in other currencies.
Foreign Currency Translation
For foreign subsidiaries, the functional currency is the local
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 Consolidated Statements of Income were
not significant.
Comprehensive Income
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS No. 130). This
statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive income for the Company consists of net
income and foreign currency translation adjustments and is presented in
the Consolidated Statements of Stockholders' Equity. The adoption of SFAS
No. 130 by the Company had no impact on total stockholders' equity. Prior
year financial statements have been reclassified to conform to the SFAS
No. 130 requirements.
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 1998, the Financial Accounting Standards Board issued
Statement No. 133, Accounting for Derivative Instruments and Hedging
Activities (SFAS No. 133). This statement requires companies to record
derivative instruments on the balance sheet as assets or liabilities,
measured at fair value. Gains or losses resulting from changes in the
values of a derivative would be accounted for depending on the use of the
derivative and whether it qualifies for hedge accounting. SFAS No. 133 is
-31-
<PAGE>
effective for the Company's fiscal year 2000. Because of the Company's
minimal historical use of derivatives, management anticipates that the
adoption of SFAS No. 133 will not have a significant effect on earnings or
the financial position of the Company.
Reclassifications
Certain amounts in the 1997 and 1996 consolidated financial
statements have been reclassified to conform to the 1998 presentation.
Note 2 - Inventories
Inventories consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Raw material and supplies $ 26,544 $ 19,960
Work-in-process 18,196 20,283
Finished goods 89,672 57,531
Gold 320 407
-------- --------
Inventories $ 134,732 $ 98,181
======== ========
</TABLE>
Inventories valued using the LIFO method totaled $28.9 million at
December 26, 1998 and $20.2 million at December 27, 1997. The approximate
FIFO cost of such inventories was $26.9 million at December 26, 1998 and
$22.8 million at December 27, 1997.
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>
1998 1997
<S> <C> <C>
Land and land improvements $ 12,537 $ 9,859
Buildings 67,879 38,099
Machinery and equipment 370,080 281,013
Construction in progress 41,686 20,531
-------- --------
492,182 349,502
Less accumulated depreciation (113,100) (89,138)
-------- --------
Property, plant and equipment, net $ 379,082 $ 260,364
======== ========
</TABLE>
-32-
<PAGE>
Note 4 - Long-Term Debt
Long-term debt consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Line of credit at floating rate
subsequently refinanced
by a term note $ 120,000 $ -
Line of credit at floating rate,
matures March 31, 2000 19,840 -
8.38% Unsecured notes payable,
due through 2000 7,142 10,714
7.54% Unsecured note payable, due through 1999 5,000 9,000
1993 Series IRBs with interest at 6.95%, due
through 2000 5,714 8,571
1994 Series IRBs with interest at 8.825%, due
through 2001 6,429 9,000
1997 Series IRBs with interest at 7.39%, due
through 2014 20,625 24,125
1997 Series IRBs with interest at 7.31%, due
through 2009 1,925 2,385
Other, including capitalized lease obligations 7,874 8,298
-------- --------
194,549 72,093
Less current portion of long-term debt (19,980) (18,980)
-------- --------
Long-term debt $ 174,569 $ 53,113
======== ========
</TABLE>
The Company has an unsecured $100 million line of credit (the Credit
Facility) which was temporarily increased to $125 million in November
1998. During the fourth quarter of 1998, the Company borrowed $120 million
under the Credit Facility. Proceeds from this borrowing were used to fund
the acquisition of Halstead Industries, Inc. (Halstead) including payment
of Halstead's existing debt.
On December 30, 1998, subsequent to fiscal year-end, the Company
executed an Amended and Restated Credit Agreement (the Agreement) with its
syndicate of eight banks. The Agreement established an unsecured, $125
million term note, the proceeds of which were primarily used to pay down
the balance under the Credit Facility. The Agreement also returned the
ceiling under the Credit Facility to its original level of $100 million.
The Agreement requires quarterly principal payments on the term note of
approximately $3.3 million plus interest through 2003, with a balloon
payment of $62.5 million due December 31, 2003. Interest is based on the
90-day LIBOR interest rate plus a premium of 110 to 130 basis points as
determined by certain financial ratios.
The Company's Credit Facility expires in May 2001, but may be
extended for successive one-year periods by agreement of the parties.
-33-
<PAGE>
Borrowings under the Credit Facility bear interest, at the Company's
option, at (i) prime rate less .5 percent, (ii) LIBOR plus .27 percent,
subject to adjustment, or (iii) Federal Funds rate plus .65 percent. A
commitment fee of 17.5 basis points per year on the unused portion of the
Credit Facility is payable quarterly. Availability of funds under the
Credit Facility is reduced by the amount of certain outstanding letters of
credit, which totaled approximately $4.2 million at December 26, 1998.
During 1998, the Company assumed an additional $22 million line of credit
under similar terms in connection with the acquisition of B&K Industries,
Inc. (B&K). This line of credit is secured by certain assets of B&K and
matures March 31, 2000.
Borrowings under the above arrangements 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
debt covenants.
Aggregate annual maturities of the Company's debt after execution of
the Agreement are $26.6 million, $51.8 million, $16.3 million, $17.7
million and $17.4 million (not including the balloon payment of $62.5
million under the Agreement due December 31, 2003) for the fiscal years
1999 through 2003, respectively, and $69.7 million thereafter. Interest
paid in 1998, 1997 and 1996 was $6.3 million, $4.8 million and $5.2
million, respectively. During 1998, 1997 and 1996 the Company capitalized
interest of $.8 million, $.1 million and $.3 million, respectively,
related to its major capital improvement programs. Using a discounted cash
flow analysis, the fair value of the Company's debt approximates book
value at the end of 1998 and 1997, based on the estimated current
incremental borrowing rates for similar types of borrowing arrangements.
Note 5 - Stockholders' Equity
In May 1998, the Company declared a two-for-one stock split 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.
-34-
<PAGE>
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.
Note 6 - Income Taxes
The components of income before income taxes were taxed under the
following jurisdictions:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Domestic $ 108,135 $ 101,577 $ 80,557
Foreign 1,205 (756) 7,855
-------- -------- --------
Income before income taxes $ 109,340 $ 100,821 $ 88,412
======== ======== ========
</TABLE>
Income tax expense consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Current tax expense:
Federal $ 24,882 $ 23,855 $ 18,296
Foreign 2,400 2,666 3,249
State and local 1,743 1,700 1,550
-------- -------- --------
Current tax expense 29,025 28,221 23,095
-------- -------- --------
Deferred tax expense (benefit):
Federal 4,226 3,872 3,995
Foreign 595 (1,263) -
State and local 49 221 149
-------- -------- --------
Deferred tax expense 4,870 2,830 4,144
-------- -------- --------
Income tax expense $ 33,895 $ 31,051 $ 27,239
======== ======== ========
</TABLE>
U.S. income and foreign withholding taxes are provided on the
earnings of foreign subsidiaries that are expected to be remitted to the
extent that taxes on the distribution of such earnings would not be offset
by foreign tax credits.
-35-
<PAGE>
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>
1998 1997 1996
<S> <C> <C> <C>
Expected income tax expense $ 38,269 $ 35,287 $ 30,944
State and local income tax,
net of federal benefit 1,133 1,254 1,027
Foreign income taxes 2,119 (398) 1,035
Closing Agreement (3,105) - -
Valuation allowance (5,481) (4,226) (4,622)
Other, net 960 (866) (1,145)
-------- -------- --------
Income tax expense $ 33,895 $ 31,051 $ 27,239
======== ======== ========
</TABLE>
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>
1998 1997
<S> <C> <C>
Deferred tax assets:
Accounts receivable $ 988 $ 1,047
Inventories 1,762 1,762
Pension, OPEB and accrued items 7,335 9,939
Other reserves 11,668 9,963
Deferred loss 26,562 -
Net operating loss carryforwards 29,612 38,218
Loss carryforward-prior abandonment
of preferred stock 16,887 40,757
Foreign tax credits 1,711 2,106
Alternative minimum tax credit
carryforwards 4,026 4,053
-------- --------
Total deferred tax assets 100,551 107,845
Less valuation allowance (46,592) (52,073)
-------- --------
Deferred tax assets, net of
valuation allowance 53,959 55,772
-------- --------
Deferred tax liabilities:
Property, plant and equipment 59,005 43,522
Other 304 1,430
-------- --------
Total deferred tax liabilities 59,309 44,952
-------- --------
Net deferred tax (liability) asset $ (5,350) $ 10,820
======== ========
</TABLE>
-36-
<PAGE>
As of December 26, 1998, the Company had net operating loss
carryforwards (NOLs) available to offset future federal taxable income of
$84.6 million, of which $73.8 million have been recognized. These NOLs
expire as follows: $11.5 million in 2001, $6.5 million in 2002, $59.8
million in 2005 and $6.8 million in 2006. Annual limitations on these NOLs
are approximately $17.3 million through 2001 and approximately $14.4
million through 2006. During 1998, 1997 and 1996, the Company recognized
$4.1 million, $3.8 million and $.7 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 in the future by reducing the valuation allowance. The tax
effect of future recognition of any of the remaining NOLs of approximately
$10.8 million will reduce the deferred income tax provisions in the
periods recognized. In addition, the Company has alternative minimum tax
credit carryforwards of approximately $4.0 million which are available to
reduce future federal regular income taxes, if any, over an indefinite
period.
In August 1998, the Company entered into a comprehensive closing
agreement (the Closing Agreement) with the Internal Revenue Service, which
concluded the audit of the years 1993 through 1995. 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 abandonment of the preferred stock resulted in the Company
recognizing a tax loss. The Closing Agreement specifies that the character
of the tax loss is a capital loss. The remaining $44.4 million of this
unrecognized capital loss is available to offset capital gains of the
Company, if any, through December 30, 2000. The tax benefits relating to
this loss will be recognized primarily as additions to paid-in capital.
The Closing Agreement also provides for an ordinary loss of
approximately $70 million, of which $14 million has been recognized.
Realization of this ordinary loss is dependent upon the occurrence of
certain events. For financial reporting purposes, additional recognition
may occur in future periods based upon the assessment of realization. Such
assessments would consider relevant risks associated with realization.
Income taxes paid were approximately $26.8 in 1998, $29.9 million in
1997 and $19.3 million in 1996.
-37-
<PAGE>
Note 7 - Other Current Liabilities
Other current liabilities consist of the following:
<TABLE>
(In thousands)
<CAPTION>
1998 1997
<S> <C> <C>
Accrued discounts and allowances $ 15,022 $ 6,985
Accrued severance and related
costs for acquired businesses 9,266 -
Freight settlements due to other railroads 2,866 3,724
Income taxes payable 1,393 1,559
Other 20,770 17,684
-------- --------
Other current liabilities $ 49,317 $ 29,952
======== ========
</TABLE>
Note 8 - Employee Benefits
The Company sponsors several qualified and nonqualified pension plans
and other postretirement benefit plans for certain of its employees. The
following tables provide a reconciliation of the changes in the plans'
benefit obligations and the fair value of the plans' assets over the two-
year period ending December 26, 1998, and a statement of the plans' funded
status as of December 26, 1998 and December 27, 1997:
<TABLE>
(In thousands)
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in benefit
obligation:
Obligation at
beginning of year $ 47,394 $ 47,498 $ 8,118 $ 9,320
Service cost 2,384 525 14 24
Interest cost 5,305 3,476 633 636
Participant
contributions 177 - - -
Actuarial loss (gain) 3,343 (124) (111) (1,275)
Business acquisitions 25,209 - - -
Benefit payments (3,812) (3,981) (613) (587)
Foreign currency
translation
adjustment 227 - - -
-------- -------- -------- --------
Obligation at end
of year $ 80,227 $ 47,394 $ 8,041 $ 8,118
======== ======== ======== ========
-38-
<PAGE>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Change in fair value
of plan assets:
Fair value of
plan assets at
beginning
of year $ 59,567 $ 49,523 $ - $ -
Actual return on
plan assets 7,693 13,903 - -
Employer contributions 3,087 122 613 587
Participant contributions 177 - - -
Business acquisitions 25,072 - - -
Benefit payments (3,812) (3,981) (613) (587)
Foreign currency
translation adjustment 227 - - -
-------- -------- -------- --------
Fair value of plan assets
at end of year $ 92,011 $ 59,567 $ - $ -
======== ======== ======== ========
Funded status:
Funded (underfunded)
status at end of year $ 11,784 $ 12,173 $ (8,041) $ (8,118)
Unrecognized prior
service cost 2,389 2,957 - -
Unrecognized gain (17,481) (22,304) (1,197) (1,132)
-------- -------- -------- --------
Net amount recognized $ (3,308) $ (7,174) $ (9,238) $ (9,250)
======== ======== ======== ========
</TABLE>
The following table provides the amounts recognized in the
Consolidated Balance Sheets as of December 26, 1998 and December 27, 1997:
<TABLE>
(In thousands)
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Prepaid benefit cost $ 1,806 $ 1,027 $ - $ -
Accrued benefit
liability (5,114) (8,201) (9,238) (9,250)
-------- -------- -------- --------
Net amount recognized $ (3,308) $ (7,174) $ (9,238) $ (9,250)
======== ======== ======== ========
</TABLE>
For actuarial purposes, the annual rate of increase in the per capita
cost of covered health care benefits ranges from 8.2 to 8.9 percent for
1999. The rate is assumed to decrease gradually to 6.25 percent for 2003
and remain at that level thereafter.
-39-
<PAGE>
The components of net periodic benefit cost are as follows:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Pension Benefits:
Service cost $ 2,384 $ 525 $ 490
Interest cost 5,305 3,476 3,232
Expected return on
plan assets (6,838) (3,956) (3,372)
Amortization of prior
service cost 568 560 560
Amortization of net gain (1,462) (738) (598)
-------- -------- --------
Net periodic benefit cost $ (43) $ (133) $ 312
======== ======== ========
Other Benefits:
Service cost $ 14 $ 24 $ 25
Interest cost 633 636 717
Amortization of net gain (34) (26) -
-------- -------- --------
Net periodic benefit cost $ 613 $ 634 $ 742
======== ======== ========
</TABLE>
The Company acquired Lincoln Brass Works, Inc. (Lincoln) on September
15, 1998, and Halstead on October 30, 1998, including their pension
benefit plans.
The assumptions used in the measurement of the Company's benefit
obligation are as follows:
<TABLE>
(In thousands)
<CAPTION>
Pension Benefits Other Benefits
1998 1997 1998 1997
<S> <C> <C> <C> <C>
Weighted-average
assumptions:
Discount rate 7.0%-7.75% 7.0%-7.75% 7.5%-8.5% 7.5%-8.5%
Expected return on
plan assets 7.5%-8.5% 7.5%-8.5% N/A N/A
Rate of compensation
increases 3.25% 3.50% N/A N/A
</TABLE>
The Wednesbury pension plan uses the rate of compensation increase in
its benefit formula. All other pension plans are based on length of
service.
-40-
<PAGE>
The assumed health care cost trend rates have a significant effect on
the amounts reported for the health care plans. A one percent change in
the assumed health care cost trend rates would have had the following
effects during 1998:
<TABLE>
(In thousands)
<CAPTION>
1 Percent 1 Percent
Increase Decrease
<S> <C> <C>
Effect on total of service and interest cost
components of net periodic postretirement
health care benefit cost $ 49 $ (44)
Effect on the health care component of the
accumulated postretirement benefit obligation 580 (524)
</TABLE>
The Company has employee savings plans that qualify under Section
401(k). Compensation expense for the 401(k) match was $1.2 million in
1998, $.8 million in 1997 and $.5 million in 1996.
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 the
Company's liability under the Act 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.
In 1996, the Company established a nonqualified, deferred
compensation plan, which permits certain management employees to annually
elect to defer, on a pre-tax basis, a portion of their compensation. The
deferred 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 $.5 million, $.3
million and $.1 million in 1998, 1997 and 1996, respectively. 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 $2.9 million and $2.1 million at December 26, 1998 and
December 27, 1997, respectively.
-41-
<PAGE>
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 1998, 1997 and 1996.
Note 9 - Commitments and Contingencies
The Company is subject to environmental standards imposed by federal,
state, local and foreign environmental laws and regulations. It has
provided and charged to income $2.1 million in 1998, $3.1 million in 1997
and $2.0 million in 1996, for pending environmental matters. 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.
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.
The Company leases certain facilities and equipment under operating
leases expiring on various dates through 2008. The lease payments under
these agreements aggregate to approximately $7.9 million in 1999, $5.1
million in 2000, $3.1 million in 2001, $2.3 million in 2002, $2.3 million
in 2003 and $7.9 million thereafter. Total lease expense amounted to $8.8
million in 1998, $7.7 million in 1997 and $7.7 million in 1996.
Note 10 - Other Income
Other income, net included in the Consolidated Statements of Income
consists of the following:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Rent and royalties $ 1,420 $ 2,188 $ 1,413
Interest income 5,127 3,584 3,352
Gain on disposal of properties, net 2,156 3,702 973
Minority interest in income of
subsidiaries (200) (294) (397)
-------- -------- --------
Other income, net $ 8,503 $ 9,180 $ 5,341
======== ======== ========
</TABLE>
Note 11 -Stock Options
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.
-42-
<PAGE>
Under existing plans, the Company may grant options to purchase
shares of common stock at prices not less than the fair market value of
the stock on the date of the grant. Generally, the options vest annually
in 20 percent increments over a 5 year period beginning one year from the
date of the grant. Any unexercised options expire after not more than 10
years. No options may be granted after 10 years from the date of plan
adoption.
Additionally, the Company has granted stock options to key executives
as retention incentives and inducements to enter into employment
agreements with the Company. Generally, these special grants have terms
and conditions similar to those granted under the Company's other stock
option plans.
On June 15, 1998, the Company loaned $4.5 million, on a full recourse
basis, to an officer. The officer used $1.4 million of the proceeds to
exercise options to purchase Company stock. That portion of the loan has
been classified as a reduction of additional paid-in capital, while the
remaining balance of the loan is included in other assets in the Company's
consolidated financial statements. The loan is secured by common stock of
the Company.
The income tax benefit associated with the exercise of these options
reduced income taxes payable, classified as other current liabilities, by
$3.8 million. Such benefits are reflected as additions directly to
additional paid-in capital.
A summary of the Company's stock option activity and related
information follows:
<TABLE>
(Shares in thousands)
<CAPTION>
Weighted Average
Options Exercise Price
<S> <C> <C>
Outstanding at December 30, 1995 5,301 $ 3.68
Granted 149 18.71
Exercised (92) 3.57
Expired, cancelled, or surrendered (10) 2.03
--------
Outstanding at December 28, 1996 5,348 4.11
Granted 321 21.33
Exercised (148) 4.20
--------
Outstanding at December 27, 1997 5,521 5.11
Granted 403 20.62
Exercised (698) 5.05
Expired, cancelled, or surrendered (54) 15.20
--------
Outstanding at December 26, 1998 5,172 $ 6.22
========
Options exercisable at:
December 28, 1996 4,383 $ 2.74
December 27, 1997 4,601 3.07
December 26, 1998 4,194 3.46
</TABLE>
-43-
<PAGE>
Exercise prices for stock options outstanding at December 26, 1998,
ranged from $2.06 to $37.04. Of the 5.2 million stock options that are
outstanding at year-end, 3.6 million are owned by Mr. Harvey Karp and
expire one year after Mr. Karp's separation from employment with the
Company. Mr. Karp's options have an exercise price of $2.06 per share. The
weighted average remaining life of the remaining 1.6 million shares is 6.8
years, and the weighted average exercise price of these shares is $15.74.
The weighted average fair value per option granted was $8.69 in 1998,
$9.31 in 1997 and $8.45 in 1996.
As of December 26, 1998, the Company had reserved 4.3 million shares
of its common stock for issuance pursuant to certain stock option plans.
Additionally, the Company had reserved 15 thousand shares of preferred
stock for issuance pursuant to the shareholder rights plan.
Pro forma information regarding net income and earnings per share is
required by 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 the
following weighted average assumptions for the years 1998, 1997 and 1996:
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;
and no dividend payments. The risk free interest rate used in the model
was 4.85 percent for 1998, 5.55 percent for 1997 and 6.50 percent for
1996.
The pro forma information is determined using the Black-Scholes
option valuation model. 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 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 periods. The
Company's pro forma information follows:
<TABLE>
(In thousands, except per share data)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net income $ 75,445 $ 69,770 $ 61,173
SFAS No. 123 compensation expense (1,316) (960) (560)
-------- -------- --------
SFAS No. 123 pro forma net income $ 74,129 $ 68,810 $ 60,613
======== ======== ========
Pro forma earnings per share:
Basic $ 2.09 $ 1.97 $ 1.74
Diluted $ 1.88 $ 1.76 $ 1.56
======== ======== ========
</TABLE>
-44-
<PAGE>
Because SFAS No. 123 applies only to stock-based compensation awards
for 1995 and later 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.
Note 12 - Acquisitions
On October 30, 1998, the Company acquired approximately 58 percent of
Halstead's outstanding shares. The remaining shares were acquired on
November 20, 1998, for a total purchase price of approximately $95 million
cash. The Company also paid off existing bank debt of Halstead for
approximately $24.8 million. Halstead operates a copper tube mill in
Wynne, Arkansas, and a line sets facility in Clinton, Tennessee.
On September 15, 1998, the Company acquired Lincoln, which operates
manufacturing facilities in Jacksboro, Tennessee and Waynesboro,
Tennessee. Lincoln produces custom control valve assemblies, as well as
custom metal assemblies, gas delivery systems and tubular products
primarily for the gas appliance market. For a nominal consideration, the
Company acquired 100 percent of the outstanding common shares of Lincoln.
Lincoln's existing bank debt of approximately $7.5 million was paid off by
the Company at closing.
On August 10, 1998, the Company completed the acquisition of B&K, an
import distributor of residential and commercial plumbing products in the
United States. B&K sells to all major distribution channels including
hardware co-ops, home centers, plumbing wholesalers, hardware wholesalers,
OEMs and manufactured housing wholesalers. The purchase price was $33.5
million, of which approximately 90 percent was paid in cash and the
remainder paid in shares of Mueller common stock.
During the first half of 1997, the Company acquired the assets and
certain liabilities of Precision Tube Company, Inc., the assets of
Wednesbury Tube Company and Desnoyers S.A.
Each of the acquisitions was accounted for using the purchase method
of accounting. Therefore, the results of operations of the acquired
businesses were included in the consolidated financial statements of the
Company from their respective acquisition dates. The purchase price for
these acquisitions, which was financed by available cash balances and
credit facilities, has been allocated to the assets of the acquired
businesses based on their respective fair market values. The total fair
value of assets acquired in 1998 and 1997 was $240.1 million and $69.8
million, respectively. Liabilities assumed in the acquisitions were $78.7
million in 1998 and $31.9 million in 1997. The excess of the purchase
price over the net assets acquired in 1998 was approximately $76.5 million
which is being amortized over 25 or 30 years. The consolidated financial
statements reflect the preliminary allocations of the Halstead and Lincoln
purchase prices, as the purchase price allocations have not been
finalized.
The following condensed pro forma consolidated results of operations
are presented as if the acquisitions had occurred at the beginning of
1997. This information combines the historical results of operations of
the Company and the acquired businesses after the effects of estimated
purchase accounting adjustments. The pro forma information does not
-45-
<PAGE>
purport to be indicative of the results that would have been obtained if
the operations had actually been combined during the periods presented and
is not necessarily indicative of operating results to be expected in
future periods.
<TABLE>
(In thousands, except per share data)
<CAPTION>
1998 1997
<S> <C> <C>
Net sales $1,168,103 $1,283,175
Net income 71,369 54,644
Pro forma earnings per share:
Basic $ 2.01 $ 1.56
Diluted $ 1.80 $ 1.39
========= =========
</TABLE>
The final assessment of fair values of the assets and reserves
associated with the Desnoyers S.A. acquisition was completed during 1998.
The determination of final fair values resulted in adjustments consisting
of changes from initially recorded values. These adjustments increased
property, plant and equipment and other current liabilities by
approximately $12.4 million and $8.6 million, respectively, and decreased
other assets by approximately $3.8 million.
Note 13 - Industry Segments
In 1998, the Company adopted Statement of Financial Accounting
Standards No. 131, Disclosures About Segments of an Enterprise and Related
Information, which changes the way the Company reports information about
its operating segments. The information for 1997 and 1996 has been
restated from the prior year's presentation in order to conform to the
1998 presentation.
The Company's three reportable segments include its Standard Products
Division (SPD), its Industrial Products Division (IPD) and Other
Businesses. These segments are classified primarily by the markets for
their products. Performance of segments is generally evaluated by their
operating income.
SPD manufactures copper tube and fittings, plastic fittings and line
sets. These products are manufactured in the U.S., Canada and Europe and
are sold primarily to wholesalers.
IPD manufactures brass rod, impact extrusions and forgings as well as
a variety of end-products including plumbing brass; automotive components;
valves and fittings; and specialty copper, copper-alloy and aluminum
tubing. These products are sold primarily to OEM customers.
The Other Businesses segment is comprised primarily of a short line
railroad.
Summarized segment and geographic information is shown in the
following tables. Geographic sales data indicates the location from which
-46-
<PAGE>
products are shipped. Unallocated expenses include general corporate
expenses, plus certain charges or credits not included in segment
activity.
Segment Information:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales:
Standard Products Division $ 624,437 $ 560,787 $ 442,206
Industrial Products Division 274,597 292,869 256,206
Other Businesses 31,637 35,688 20,286
Elimination of intersegment sales (1,280) (347) (386)
-------- -------- --------
$ 929,391 $ 888,997 $ 718,312
======== ======== ========
Depreciation and amortization:
Standard Products Division $ 14,913 $ 12,410 $ 10,467
Industrial Products Division 5,948 5,057 4,243
Other Businesses 1,699 1,479 1,388
General corporate 2,339 2,052 2,374
-------- -------- --------
$ 24,899 $ 20,998 $ 18,472
======== ======== ========
Operating income:
Standard Products Division $ 85,530 $ 72,972 $ 75,210
Industrial Products Division 31,216 29,555 27,472
Other Businesses 5,661 3,458 2,385
Unallocated expenses (13,598) (6,276) (14,605)
-------- -------- --------
$ 108,809 $ 99,709 $ 90,462
======== ======== ========
Expenditures for long-lived assets:
Standard Products Division $ 198,135 $ 49,880 $ 6,460
Industrial Products Division 16,735 8,273 5,361
Other Businesses 4,782 2,727 3,131
-------- -------- --------
$ 219,652 $ 60,880 $ 14,952
======== ======== ========
Segment assets:
Standard Products Division $ 610,914 $ 357,646 $ 239,589
Industrial Products Division 144,004 127,609 109,877
Other Businesses 50,446 51,378 52,285
General corporate 69,330 74,143 107,606
-------- -------- --------
$ 874,694 $ 610,776 $ 509,357
======== ======== ========
</TABLE>
-47-
<PAGE>
Geographic Information:
<TABLE>
(In thousands)
<CAPTION>
1998 1997 1996
<S> <C> <C> <C>
Net sales:
United States $ 754,024 $ 753,771 $ 687,745
Foreign 175,367 135,226 30,567
-------- -------- --------
$ 929,391 $ 888,997 $ 718,312
======== ======== ========
Long-lived assets:
United States $ 448,852 $ 264,747 $ 221,433
Foreign 43,518 29,141 3,148
-------- -------- --------
$ 492,370 $ 293,888 $ 224,581
======== ======== ========
</TABLE>
Note 14 - Quarterly Financial Information (Unaudited)
<TABLE>
(In thousands, except per share data)
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter Quarter
<S> <C> <C> <C> <C>
1998
Net sales $ 226,652 $ 225,867 $ 212,746 $ 264,126
Gross profit (1) 51,195 52,349 48,794 56,760
Net income 19,265 19,710 18,765 17,705
Diluted earnings per share 0.49 0.50 0.47 0.45
1997
Net sales $ 201,366 $ 215,437 $ 229,133 $ 243,061
Gross profit (1) 45,582 42,752 47,757 48,105
Net income 15,758 16,339 18,051 19,622
Diluted earnings per share 0.40 0.42 0.46 0.50
<FN>
(1) Gross profit is net sales less cost of goods sold, which excludes
depreciation and amortization.
</TABLE>
-48-
<PAGE>
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 26, 1998 and December 27, 1997,
and the related consolidated statements of income, stockholders' equity and
cash flows for each of the three years in the period ended December 26,
1998. 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 26, 1998 and December 27, 1997, and
the consolidated results of its operations and its cash flows for each of
the three years in the period ended December 26, 1998, in conformity with
generally accepted accounting principles.
/S/ERNST & YOUNG LLP
Memphis, Tennessee
February 5, 1999
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<PAGE>
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 1998 and 1997 were as follows:
<TABLE>
<CAPTION>
High Low Close
<S> <C> <C> <C>
1998
Fourth quarter $ 27 $ 14 7/8 $ 20 1/16
Third quarter 40 23 13/16 26 1/2
Second quarter 38 1/16 29 11/16 37
First quarter 32 1/2 25 1/32 31 31/32
1997
Fourth quarter $ 28 11/16 $ 21 7/32 $ 26 19/32
Third quarter 24 1/8 21 1/4 22 5/8
Second quarter 22 11/16 18 1/16 21 1/2
First quarter 22 7/8 18 19 7/8
</TABLE>
As of March 1, 1999, the number of holders of record of Mueller's common
stock was approximately 3,200. The New York Stock Exchange's closing price
for Mueller's common stock on March 1, 1999 was $21.50.
The Company has paid no cash dividends on its common stock and presently
does not anticipate paying cash dividends in the near future.
-50-
<PAGE>
Selected Financial Data
(In thousands, except per share data)
<TABLE>
<CAPTION>
1998 (1) 1997 (1) 1996 1995 1994
<S> <C> <C> <C> <C> <C>
For the fiscal year:
Net sales $ 929,391 $ 888,997 $ 718,312 $ 678,838 $ 550,003
Operating income 108,809 99,709 90,462 64,011 43,952
Net income 75,445 69,770 61,173 44,823 27,926
Diluted earnings
per share (2) 1.90 1.78 1.57 1.17 0.70
At year-end:
Total assets 874,694 610,776 509,357 450,835 430,755
Long-term debt 174,569 53,113 44,806 59,653 76,125
<FN>
(1) Includes the effects of acquisitions described in Note 12 to the
consolidated financial statements.
(2) In 1998 and 1995, the Company declared two-for-one stock splits
effected in the form of 100 percent dividends. Diluted earnings per
share has been restated to reflect the splits for all periods presented.
</TABLE>
-51-
<PAGE>
Directors, Corporate Officers and Divisional Management
Board of Directors
Harvey L. Karp Chairman of the Board,
Mueller Industries, Inc.
Robert B. Hodes(1)(3) Counsel, Willkie Farr & Gallagher
G.E. Manolovici(1)(2) Private Investor
William D. O'Hagan President and Chief Executive Officer,
Mueller Industries, Inc.
Robert J. Pasquarelli(1)(2)(3) General Manager - Mansfield,
Armco, Inc.
(1) Member of the Audit Committee
(2) Member of the Compensation Committee
(3) Member of the Nominating Committee
Executive 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*
Lee R. Nyman Senior Vice President
Manufacturing/Engineering
William H. Hensley Vice President, General Counsel and
Secretary
Kent A. McKee Vice President and
Chief Financial Officer **
*Retiring April 1, 1999
**Effective April 1, 1999
Other Officers and Management
Robert A. Haskins Vice President Sales and Marketing
Lowell J. Hill Vice President Human Resources
Richard G. Miller Vice President Business Development
Michael E. Stoll Vice President Purchasing
Richard W. Corman Corporate Controller
-52-
<PAGE>
Standard Products Division
Roy C. Harris Division General Manager
Larry D. Birch Vice President North American Sales
Gregory L. Christopher Vice President Supply Chain Management
Bruce R. Clements Vice President Manufacturing -
Copper Tube
Daniel R. Corbin Vice President Manufacturing -
Plastic Fittings
Robert L. Fleeman Vice President International Sales
John B. Hansen Vice President Marketing
Tommy L. Jamison Vice President Manufacturing -
Copper Fittings
Louis F. Pereira General Manager Canadian Operations
Andrew A. Sippel Controller
B&K Industries
Peter D. Berkman President
European Operations
Roger Y. Boutonnet Director - French Operations
Peter J. S. Brookes Finance Director
Peter J. Marsh Sales Director - U.K.
Brian Parsons Manufacturing Director - U.K.
Industrial Products Division
James H. Rourke Group Vice President
Chuck W. Blackledge General Manager - Precision Tube
Gerald J. Leary Vice President & General Manager -
Engineered Products
Kevin N. McGrath Vice President Sales and Marketing
William F. Navarre Vice President Manufacturing
David G. Rice Controller
-53-
<PAGE>
Other Businesses
Gary L. Barker President -
Arava Natural Resources Company
Michael W. Baum President -
Mining Remedial Recovery Company
John E. West III Executive Vice President -
Utah Railway Company
Shareholder Information
Annual Meeting
The Annual Meeting of Stockholders will be held at the Company's
Headquarters at 8285 Tournament Drive, Suite 150,
Memphis, TN 38125,
10:00 A.M. local time,
May 6, 1999.
Common Stock
Mueller common stock is traded
on the NYSE - Symbol MLI.
Form 10-K
Copies of the Company's Annual Report on Form 10-K are
available upon written request:
c/o Mueller Industries, Inc.
8285 Tournament Drive, Suite 150 Memphis, TN 38125
Attention: Investor Relations
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.
-54-
<PAGE>
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 Refrigeration Company, Inc. Michigan
Mueller Refrigeration Holding Co., Inc. Delaware
Mueller Refrigeration Products L.P. (2)
Mueller LBHC, Inc. (3) Delaware
Lincoln Brass Works, Inc. Michigan
Advanced Catalyst Systems, L.L.C. Michigan
Lincoln Brass Works, L.P. (4)
Mueller Streamline Co. Delaware
Precision Tube Company, Inc. Pennsylvania
Mueller Tool and Machine, Inc. Delaware
Mueller Casting Company, Inc. Delaware
WTC Holding Company, Inc. Michigan
Wednesbury Tube & Fittings
Company Limited United Kingdom
DENO Investment Company, Inc. Michigan
Mueller de Mexico (5) Mexico
DENO Holding Company, Inc. Michigan
DENO Acquisition France
Desnoyers, S.A. (6) France
Toutubes, S.A.R.L. France
B & K Industries, Inc. Illinois
Mueller Copper Tube Products, Inc. Delaware
Mueller Streamline FSC Ltd. Virgin Islands
Arava Natural Resources Company, Inc. Delaware
United States Fuel Company Nevada
King Coal Company Utah
-1-
<PAGE>
List of Subsidiaries (continued)
State or Country
Subsidiary* of Incorporation
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
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) Tennessee Limited Partnership between Mueller East, Inc. and
Mueller Fittings Company, Inc.
(2) Tennessee Limited Partnership between Mueller Refrigeration
Holding Co., Inc. and Mueller Refrigeration Company, Inc.
(3) Owned by Mueller Refrigeration Company, Inc. and Mueller Refrigeration
Products, L.P.
(4) Tennessee Limited Partnership between Mueller Refrigeration Company, Inc.
and Mueller Refrigeration Products, L.P.
(5) Owned by DENO Investment Company (99.8%) and Mueller Streamline
Co. (.2%).
(6) Less than 1% of the outstanding common stock of Desnoyers, S.A.
is owned by third parties.
-2-
<PAGE>
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 5, 1999,
included in the 1998 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. 333-52325, No. 33-54705, No. 33-41478 and
No. 33-47307) pertaining to the 1998 Stock Option Plan, 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 5, 1999, 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 26,
1998, and the related financial statement schedule included therein filed
with the Securities and Exchange Commission.
ERNST & YOUNG LLP
Memphis, Tennessee
March 23, 1999
<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 26, 1998 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-26-1998
<PERIOD-END> DEC-26-1998
<CASH> 80,568
<SECURITIES> 0
<RECEIVABLES> 160,530
<ALLOWANCES> 4,929
<INVENTORY> 134,732
<CURRENT-ASSETS> 382,324
<PP&E> 492,182
<DEPRECIATION> 113,100
<TOTAL-ASSETS> 874,694
<CURRENT-LIABILITIES> 142,574
<BONDS> 174,569
0
0
<COMMON> 401
<OTHER-SE> 501,721
<TOTAL-LIABILITY-AND-EQUITY> 874,694
<SALES> 929,391
<TOTAL-REVENUES> 929,391
<CGS> 720,293
<TOTAL-COSTS> 720,293
<OTHER-EXPENSES> 100,289
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 5,839
<INCOME-PRETAX> 109,340
<INCOME-TAX> 33,895
<INCOME-CONTINUING> 75,445
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 75,445
<EPS-PRIMARY> 2.13
<EPS-DILUTED> 1.90
</TABLE>
