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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
/ X / ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the fiscal year ended October 31, 1997.
or
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number: 333-18019
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WCI STEEL, INC.
(Exact name of registrant as specified in its charter)
OHIO 34-1585405
(State of incorporation) (I.R.S. Employer Identification No.)
1040 PINE AVE., S.E., WARREN, OHIO 44483-6528
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (330) 841-8314
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
Title of each class Name of exchange on which registered
------------------- ------------------------------------
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
None.
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the last 90 days.
/ X / Yes / / No
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of the registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this form 10-K. / X /
The aggregate market value of the voting stock of the registrant held by
non-affiliates of the registrant at December 12, 1997 was $0.
<PAGE> 2
The number of shares of Common Stock (no par value, $.01 stated value) of the
registrant outstanding as of December 12, 1997 was 100.
DOCUMENTS INCORPORATED BY REFERENCE
None.
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WCI STEEL, INC. AND SUBSIDIARIES
FORM 10-K
INDEX
--------------------------------
PART I Page No.
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Item 1. Business 4
Item 2. Properties 12
Item 3. Legal Proceedings 12
Item 4. Submission of Matters to a Vote of Security Holders 13
PART II
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Item 5. Market for Registrant's Common Equity and
Related Stockholder Matters 14
Item 6. Selected Financial Data 15
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of
Operations 17
Item 8. Financial Statements and Supplementary Data 23
Item 9. Changes In and Disagreements with Accountants
on Accounting and Financial Disclosure 40
PART III
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Item 10. Directors and Executive Officers of the Registrant 41
Item 11. Executive Compensation 42
Item 12. Security Ownership of Certain Beneficial Owners
and Management 43
Item 13. Certain Relationships and Related Transactions 44
PART IV
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Item 14. Exhibits, Financial Statement Schedule,
and Reports on Form 8-K 46
Financial Statement Schedule
(including Independent Auditors Report on Financial
Statement Schedule) 47
Signatures 49
Exhibit Index 50
<PAGE>
<PAGE> 4
PART I
ITEM 1. BUSINESS
GENERAL
WCI Steel, Inc. (WCI or Company), a niche oriented integrated producer of
value-added, custom steel products, was incorporated in Ohio in 1988 and
commenced operations on September 1, 1988. WCI's primary facility covers
approximately 1,100 acres in Warren, Ohio, with additional facilities owned
by subsidiaries located in Niles and Youngstown, Ohio, all of which are
situated between Cleveland and Pittsburgh. WCI currently produces
approximately 170 grades of flat rolled custom and commodity steel products.
Total shipments were 1,328,931 tons in fiscal 1997 and 1,396,732 tons in
fiscal 1996. Custom flat rolled products, which include high carbon, alloy
and high strength, silicon electrical and galvanized steel, constituted
approximately 67.6% of net tons shipped during fiscal 1997 and 57.9% during
fiscal 1996. Major users of WCI products are steel converters, steel service
centers, construction product companies, electrical equipment manufacturers
and, to a lesser extent, automobile and automotive parts manufacturers.
PRODUCTS
OVERVIEW
WCI produces a wide range of custom flat rolled steel products, including
high carbon, alloy and high strength, silicon electrical and galvanized
steel. In these markets, WCI competes principally on the basis of (a)
customer and product requirements, including small order quantities,
specialized chemistries, narrow widths and delivery performance, (b) quality
and (c) price. WCI's commodity steel product sales consist principally of
hot and cold rolled low carbon sheet steel. In these markets, WCI competes
principally on the basis of price and delivery performance. Export sales
were approximately 2% of net sales during the last three fiscal years.
<TABLE>
<CAPTION>
Net Tons Shipped Percent of Total
Fiscal Year Ended Fiscal Year Ended
October 31, October 31,
1997 1996 1995 1997 1996 1995
<S> <C> <C> <C> <C> <C> <C>
Custom Products:
Hot and Cold
Rolled............. 481,740 426,945 358,556 36.2 30.5 29.3
Coated.............. 416,854 382,352 367,444 31.4 27.4 30.1
------- ------- ------- ---- ---- ----
Total Custom Products 898,594 809,297 726,000 67.6 57.9 59.4
Total Commodity...... 430,337 587,435 495,940 32.4 42.1 40.6
------- ------- ------- ---- ---- ----
Total Steel
Products........... 1,328,931 1,396,732 1,221,940 100.0% 100.0% 100.0%
========= ========= ========= ===== ===== =====
</TABLE>
<PAGE> 5
CUSTOM PRODUCTS
High Carbon, Alloy, High Strength---WCI has developed niche markets for
high carbon, alloy and high strength steel products that are sold to strip
converters, steel service centers, and automobile and automotive parts
manufacturers. Products required by the strip converter customers are
characterized by low order quantities, relatively narrow width and specific
metallurgical properties. WCI presently produces over 100 specialized
chemistries for these niche markets.
WCI's customers in this sector, in turn, supply end-users which have highly
specific and defined product needs requiring the strip converter to order
steel with close gauge tolerances, minimal crown profiles, critical surface
qualities and, in certain cases, in narrow widths.
In the high carbon and alloy market, WCI competes with several other domestic
integrated producers, as well as various steel producers in Canada, Europe
and Japan. In the high strength market, WCI competes with various major
integrated mills.
Silicon---Silicon electrical steel is sheet steel that exhibits certain
electrical or magnetic properties. The magnetic properties of this product
permit electric motors to run at high speeds for extended periods of time
with greater efficiency while minimizing heat loss.
The market for electrical sheet steel can be divided into two main segments:
grain oriented silicon sheet and non-grain oriented silicon sheet. The
distinction between grain and non-grain oriented silicon sheet pertains to
the electrical properties of the steel. WCI's silicon annealing line is
designed for production of non-grain oriented silicon sheet and all of WCI's
silicon shipments are in this segment. Presently, there is one domestic
competitor in this category and other foreign competitors. In addition, the
Company's product also competes with cold rolled motor laminations produced
by several other integrated steel makers which have been developed as a
substitute product for silicon steels in certain applications.
Galvanized---Galvanized steel is zinc-coated sheet steel produced on WCI's
hot dipped galvanizing line. The market for galvanized sheet steel is
divided into two broad categories: heavy and light gauge steel. Heavy gauge
galvanized steel is used in the manufacture of electrical boxes, automotive
bumpers, culvert coil and grain bins, as well as many other end uses.
WCI's galvanized finishing line is suited to produce heavy gauge steel, and
as a result, a majority of WCI's galvanized shipments are in this sector.
WCI competes with several other integrated producers and minimills, as well
as independent producers in the heavy gauge galvanized steel market.
COMMODITY PRODUCTS
In fiscal 1997, WCI shipped 430,337 tons in the aggregate of hot and cold
rolled low carbon sheet and strip and low carbon semi-finished steel, which
represented approximately 32.4% of the Company's net tons shipped. Hot
rolled low carbon sheet is more price sensitive than custom hot rolled steels
and is sold to steel service centers or manufacturers producing a broad array
of products, including tubing, stampings and roll formed parts. Cold rolled
<PAGE> 6
sheet and strip is purchased by service centers, container manufacturers, and
the automotive and appliance industries. In these commodity steel markets,
WCI competes with all major integrated producers and several minimills.
MARKETING
WCI's marketing and sales strategy is to focus on increasing sales of custom
products and on becoming a major supplier to its strategic customer base.
Over 50% of WCI's shipments are to customers within 200 miles of the Warren
facility. WCI believes that, due to the large number of active and potential
customers in this geographic area, it has an advantage over competitors
located farther away.
WCI has approximately 300 active accounts. The Company has a direct sales
force which is assisted in the field by a staff of technical service
representatives with strong metallurgical and technical backgrounds.
Collectively, the sales force and technical staff comprise a knowledgeable
team qualified to identify and meet customers' needs.
Marketing and pricing are centralized at the Warren facility, where the
marketing strategy and the pricing levels are established for all WCI
products. WCI's marketing staff works closely with the sales and technical
service representatives to coordinate its sales and marketing strategies.
CUSTOMERS
WCI's customer base is dominated by steel converters and steel service
centers, which in fiscal 1997 represented 65.8% of shipments. The remaining
shipments were direct to end users.
The following table sets forth the percentage of WCI's net tons shipped to
various markets for the past three fiscal years.
<TABLE>
<CAPTION>
Fiscal Year Ended
October 31,
Customer Category 1997 1996 1995
<S> <C> <C> <C>
Conversion/further processing...... 42.5% 44.6% 39.3%
Steel service centers.............. 23.3 24.0 23.0
Construction....................... 15.8 11.5 13.1
Electrical equipment............... 7.3 7.1 8.4
Direct automotive.................. 6.3 8.1 11.1
Other.............................. 4.8 4.7 5.1
------ ------ ------
Total............................ 100.0% 100.0% 100.0%
====== ====== ======
</TABLE>
In fiscal years 1997, 1996, and 1995, WCI's twenty largest customers
represented approximately 57%, 56%, and 56%, respectively, of net sales.
No customer accounted for as much as 10% of net sales in fiscal 1997.
<PAGE> 7
BACKLOG
On October 31, 1997, WCI's order backlog was approximately 232,000 net tons
with an approximate value of $116 million compared to approximately 255,000
net tons with an approximate value of $128 million at October 31, 1996, based
in each case on the then current prices. Under the applicable orders, WCI is
scheduled to ship substantially all of the orders in the October 31, 1997
backlog by January 31, 1998.
COMPETITION
The domestic steel industry is highly competitive. Despite significant
reductions in raw steel production capacity by major domestic producers in
the 1980s, the domestic industry continues to be adversely affected by excess
world capacity.
In the United States, WCI competes with many other domestic steel companies.
WCI also faces increasing competitive pressures from minimills. Minimills
are generally smaller volume steel producers that use ferrous scrap metals as
their basic raw material. Compared to integrated producers, minimills, which
rely on less capital intensive hot metal sources, have certain advantages.
Since minimills typically are not unionized, they have more flexible work
rules that have resulted in lower employment costs per net ton shipped.
Since 1989, significant flat rolled minimill capacity has been constructed
and these minimills now compete with integrated producers in product areas
that traditionally had not faced significant competition from minimills. In
addition, there is significant additional flat rolled minimill capacity under
construction or announced with various planned commissioning dates through
1999. These minimills are expected to compete with the Company primarily in
the commodity flat rolled steel market. In addition, the increased
competition in commodity product markets has resulted in certain integrated
producers increasing product offerings to compete with the Company's custom
products.
During 1996 and 1997, the domestic steel market experienced significant
increases in imports of foreign produced flat rolled products. The relative
strength of the U.S. dollar and economy versus the strength of foreign
currencies and economies, Europe in particular, can significantly affect the
import/export trade balance for flat rolled steel products. The status of
the trade balance may significantly affect the ability of the new minimill
capacity to come on-line without disrupting the domestic flat rolled steel
market.
Materials such as aluminum, cement, composites, glass and plastics compete as
substitutes for steel in many markets.
MANUFACTURING PROCESS
In WCI's primary steelmaking process, iron ore pellets, coke, limestone,
sinter and other raw materials are consumed in the blast furnace to produce
"hot metal." Hot metal is further converted into liquid steel through the
Basic Oxygen Furnace (BOF) process where impurities are removed, recycled
scrap is added and metallurgical properties for end use are determined on a
<PAGE> 8
batch-by-batch basis. WCI's BOF has two vessels, each with a steelmaking
capacity of 182 tons per heat. From the BOF, the heats of steel are sent to
the Ladle Metallurgy Facility (LMF), where the temperature and chemistry of
the steel are adjusted to precise tolerances. In addition, the steel may be
vacuum degassed to further improve its cleanliness. Liquid steel from the
LMF then is formed into slabs through the process of continuous casting. The
twin-strand continuous slab caster (Continuous Caster) allows WCI to cast all
of its steel products. After continuous casting, slabs then are reheated,
reduced and finished by extensive rolling, shaping, tempering and, in certain
cases, by the application of coatings at WCI's downstream operations.
Finished products are normally shipped to customers in the form of coils.
WCI has linked its steelmaking and rolling equipment with a computer based
integrated manufacturing control system to coordinate production and sales
activities.
RAW MATERIALS
WCI's steelmaking operations are dependent on reliable supplies of various
raw materials, principally iron ore pellets, coke and energy. WCI believes
that it has adequate sources of its principal raw materials to meet its
present needs.
Iron Ore Pellets
WCI has a contract with a major supplier of iron ore pellets for its
requirements in fiscal 1998 and no less than half of its requirements in
fiscal 1999. Iron ore pellets satisfied approximately 71% of WCI's iron ore
requirements in fiscal 1997, while WCI's sinter plant provided the balance.
The iron ore pellet contract requires WCI to purchase all of its iron ore
pellet requirements for 1998 from the contracting vendor. WCI carries an
increased level of iron ore pellet inventory immediately preceding the winter
months, due to the curtailment of vendor shipments during the winter as a
result of the freezing of the Great Lakes.
Coke
Coke is the principal fuel used to produce liquid iron and is an essential
ingredient in steelmaking. WCI has contracts with two integrated steel
producers for its estimated coke requirements through fiscal 1999. WCI's
coke requirements are approximately 600,000 tons per year. The domestic
supply of coke has decreased significantly over the last decade and may
decrease further in the future due to the requirements of the Clean Air Act.
As the Company does not own a coke battery, it is dependent upon commercially
available domestic or imported coke to sustain its operations. Although the
Company believes that there will be adequate supplies of domestic or imported
coke available for its purposes after the expiration of its contracts in
1999, there can be no assurance to such effect.
Energy and Gases
WCI's steel operation consumes large amounts of electricity, natural gas,
oxygen and other industrial gases. WCI purchases its electrical power
requirements under a contract that extends to 2002 from a local utility.
<PAGE> 9
WCI can generate approximately 20% of its own electrical needs. Natural gas
is also purchased pursuant to a supply contract that extends to 2000. Oxygen
is delivered from supplier-owned plants located at the Warren facility.
Pursuant to a contract entered into in 1988, WCI is required to purchase all
coke oven gas produced at an adjoining coke plant, which is usable by WCI, at
a price based upon, but at a discount to, natural gas prices.
ENVIRONMENTAL MATTERS
In common with much of the steel industry, WCI's facilities are located on
sites that have been used for heavy industrial purposes for decades. WCI is
subject to numerous federal, state and local environmental laws and
regulations governing, among other things, air emissions, waste water
discharge and solid and hazardous waste disposal. WCI has made and intends
to continue to make the necessary expenditures for environmental remediation
and compliance with environmental laws and regulations. Environmental laws
and regulations have changed rapidly in recent years, and WCI may be subject
to more stringent environmental laws and regulations in the future.
Compliance with more stringent environmental laws and regulations could have
a material adverse effect on the Company's financial condition and results of
operations.
On June 29, 1995, the Department of Justice, on behalf of the Environmental
Protection Agency (EPA), instituted a civil action against WCI under the
Clean Water Act in the United States District Court for the Northern District
of Ohio. The action alleges numerous violations of the Company's National
Pollution Discharge Elimination System permit alleged to have occurred during
the years 1989 through 1996, inclusive. On March 29, 1996, the Department of
Justice on behalf of the EPA, instituted another civil action against the
Company in the same court under the Clean Air Act alleging violations by the
Company of the work practice, inspection and notice requirements for
demolition and renovation of the National Emission Standard for Hazardous Air
Pollutants for Asbestos and also violations of the particulate standard and
the opacity limits applicable to the Company's facilities in Warren, Ohio.
Each action seeks a civil penalty not to exceed the statutory maximum of
$25,000 per day per violation and also seeks an injunction against continuing
violations. The Company believes that imposition of the statutory maximum
penalty for the alleged violations is unlikely based upon past judicial
penalties imposed under the Clean Water Act and the Clean Air Act, and that
it has defenses to liability. By letter dated November 1, 1996, EPA's Region
V Water Division Director requested information pursuant to the Clean Water
Act from the Company relating to the Warren facility, including information
as to the effect of a prohibition against federal procurement of the
Company's products on the Company's business. The Company responded to the
EPA's request on December 2, 1996. The Company has not been notified that
the EPA will seek a federal procurement prohibition based on alleged permit
violations. However, there can be no assurance that a federal procurement
prohibition will not be imposed. The Company is negotiating with the EPA
toward a settlement of these matters. If the Company is unable to reach a
negotiated settlement and if a substantial penalty similar to the
statutory maximum penalty or federal procurement prohibition were imposed, it
could have a material adverse effect on the operating results or financial
condition of the Company, the extent of which the Company is unable to
estimate at this time. These actions are in discovery. The Clean Air Act
civil action has a trial date scheduled for May 1998. No trial date has been
established for the Clean Water Act civil action.
<PAGE> 10
WCI has obtained a storage permit under the Resource Conservation and
Recovery Act (RCRA), for waste pickle liquor at its Warren facility acid
regeneration plant. As a provision of the permit, the Company will be
required to undertake a corrective action program with respect to historical
material handling practices at the Warren facility. In April 1997, the
Company received notice from the EPA that it had approved a workplan for the
first investigation step of the corrective action program, the RCRA Facility
Investigation (RFI), which is expected to be completed in 1999. The workplan
identifies thirteen historical solid waste management units which are subject
to the RFI. The final scope of the corrective action required to remediate
or reclaim any contamination that may be present at or emanating from the
Warren facility is dependent upon the findings of the RFI and the development
and approval of the corrective action program. Accordingly, the Company is
unable at this time to estimate the final cost of the corrective action
program or the period over which such costs may be incurred, and there can be
no assurance that it would not have a material adverse effect on the
financial condition of the Company.
WCI received from the EPA a formal request dated April 1, 1994 for
information pursuant to Section 3007 of the RCRA and Section 104(e) of the
Comprehensive Environmental Response, Compensation and Liability Act of 1980,
as amended (CERCLA). The request required WCI to submit information relating
to the generation, storage, treatment and disposal of solid or hazardous
wastes or hazardous substances at the Warren facility. The request also
required WCI to submit certain financial information and other information
needed to evaluate the facility's compliance with the RCRA and CERCLA
requirements. The Company made the requested information available to the
EPA during 1994 and the EPA examined the information in March 1997. The
request did not identify violations, seek to impose penalties or monetary
sanctions or require the performance of remedial activities or other capital
expenditures. Among other items, the request sought information about a
specific area at which waste management occurred at the Warren facility under
a prior owner. This area was remediated by the prior owner before the
facility was sold to WCI, and the area is also scheduled to be investigated
under the corrective action RFI. Under EPA guidance, the area will not be
addressed under CERCLA when it is included in the corrective action process.
Because of the past remediation of the area by a prior owner and the
inclusion of the area in the corrective action process, WCI believes that the
area would not be regarded as a priority risk under CERCLA.
The Company operates a landfill at its Warren facility which receives waste
materials from the iron and steel-making operations. The Company has
submitted a plan to state environmental authorities to replace this landfill
with a new lined landfill. The plan involves closure by removal of the
present landfill by selling approximately one-third of its contents to
established markets for construction materials and recycling most of the
remaining contents over an extended period at the sinter plant in Youngstown,
Ohio operated by the Company's subsidiary, Youngstown Sinter Company, and
disposing of any non-salable or non-recyclable material in the new lined
landfill. The new lined landfill construction and existing landfill closure,
if pursued, is expected to be completed in seven consecutive phases. The
estimated cost through Phase I is approximately $2.7 million to $3.7 million
expended over three years. The estimated cost for Phase II is approximately
$1.5 million expended over six years, and the estimated cost for Phase III is
approximately $1.6 million expended over ten years. Construction is expected
to begin during fiscal 1998.
<PAGE> 11
During 1997, the EPA proposed new standards regulating particulate matter and
ozone emissions. Data relating to these standards is to be collected and
analyzed with implementation as early as 2004. These standards have been the
subject of significant discussion throughout federal and state governments,
and changes to the standards or the implementation date may be made prior to
final approval. Like much of the steel, utilities and other industries,
WCI's current operations are not expected to comply with these proposed
standards. WCI cannot currently assess the impact of these proposed
standards on its results of operations or financial condition.
EMPLOYEES
As of October 31, 1997, WCI had 550 salaried employees and 1,701 hourly
employees. Most of the employees are located at the Warren facility with the
hourly employees being represented by the United Steelworkers of America
(USWA) with which WCI has a four-year collective bargaining agreement that
expires August 31, 1999.
BENEFIT PLANS
Hourly Profit Sharing Plan
Certain hourly employees represented by the USWA participate in a profit
sharing plan under which the Company pays 12% of pretax income as defined in
the profit sharing agreement. The Company advances one-half of the amounts
due under this plan on a quarterly basis, within 45 days following the end of
each fiscal quarter, and pays the remaining amounts by February 15 of the
subsequent year.
Salaried Variable Compensation Plan
WCI has a variable compensation plan for salaried employees known as the
Company Performance Compensation Program (CPC). Under the CPC, salaried
employees receive variable compensation based on WCI's pretax income as
defined in the plan. CPC payments are measured as a percentage of the
employees base salary and paid quarterly.
Pension
WCI has defined contribution retirement plans that cover substantially all
employees. WCI funds contributions to these plans as earned on a monthly
basis. Company contributions to the plans are based on employee age, length
of service and compensation.
The Company has a defined benefit floor offset pension plan which covers
substantially all hourly employees at the Warren facility. The plan, when
combined with benefits from the Company's defined contribution plan and
benefits from a predecessor company's defined benefit pension plan, will
provide a minimum level of pension benefits for eligible employees. Benefits
are based on age and years of service, but not compensation. Under this
plan, employees will receive upon retirement a monthly benefit equal to $35
times the number of years of service with WCI or its predecessors. If the
employee has at least 30 years of service at retirement, the monthly benefit
is subject to certain minimums based on age at retirement.
<PAGE> 12
Monthly benefits under the defined benefit plan are reduced by the benefit
payable from the Company's defined contribution plan (as an annuity
equivalent) and benefits payable from a defined benefit pension plan of
certain predecessor companies. No named executive officer is eligible to
participate in this plan.
Postretirement Health Care
WCI provides postretirement health care benefits to employees who retire
while meeting certain age and service eligibility requirements. The Company
has established a trust to hold contributions to fund future postretirement
health care and life insurance obligations related to the hourly workforce.
This trust holds liens on certain assets of the Company and one of its
subsidiaries to secure the Company's obligation for postretirement health
care benefits. Minimum Company contributions are $.50 per hour worked or a
minimum of approximately $1.5 million per year.
ITEM 2. PROPERTIES
WCI's Warren, Ohio facility, situated on approximately 1,100 acres, includes
a blast furnace, a two vessel BOF shop, an LMF and a vacuum degasser,
a twin-strand Continuous Caster, a 56-inch hot strip mill, 54-inch tandem and
temper mills, annealing facilities, a silicon continuous anneal line, hot-dip
galvanizing and terne coating lines and other finishing facilities. The
blast furnace was relined during 1995 as part of its planned maintenance, a
procedure which is performed on a routine basis every six to eight years.
Youngstown Sinter Company, a subsidiary of the Company, owns and operates a
sinter plant located in Youngstown, Ohio on 51 acres. The sinter plant
converts plant waste dusts and iron ore into resources useable in the blast
furnace, reducing WCI's iron ore pellet feed requirements by approximately
29% in fiscal 1997.
WCI's Niles Properties, Inc. is located approximately five miles from the
Warren facility, and has approximately 600,000 square feet of building space.
Presently, four steel users are tenants at the Niles facility, using 52% of
the space. WCI is continuing to seek other appropriate tenants.
WCI believes that its facilities are well maintained and they are considered
satisfactory for their purposes.
See Note 4 to the Consolidated Financial Statements, Part II, Item 8, for a
description of liens related to the Company's property, plant and equipment.
ITEM 3. LEGAL PROCEEDINGS
On January 23, 1996, two retired employees instituted an action against the
Company and the USWA in the United States District Court for the Northern
District of Ohio alleging in substance that certain distributions made by the
Company to employees and benefit plans violated certain agreements, the
Employee Retirement Income Security Act (ERISA), the National Labor Relations
Act and common law. On July 31, 1997 the court granted the Company's motion
to dismiss this action and entered judgement in favor of the Company and the
USWA. The Plaintiffs have filed an appeal regarding the court's decision to
dismiss.
<PAGE> 13
On April 5, 1996, an employee instituted an action for damages against the
Company in the Court of Common Pleas, Trumbull County, Ohio alleging that,
under Ohio common law, her privacy rights were violated and that she has been
subjected to sexual harassment. On April 28, 1997 the plaintiff filed for
summary judgement. The Company denies plaintiff's allegations of liability
and has opposed the plaintiff's motion for summary judgement on which the
court has yet to rule. The court has set a trial date in February 1998.
For a description of pending litigation related to environmental matters, see
"Item 1. Business-Environmental Matters."
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote of security holders during the quarter
ended October 31, 1997.
<PAGE> 14
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The Company is a direct wholly-owned subsidiary of The Renco Group, Inc.
(Renco). There is no established public trading market for the Company's
common stock. As of December 12, 1997, the Company had one shareholder. The
Company paid cash dividends three times during fiscal 1996 aggregating
$6,567,000 and three times during fiscal 1997 aggregating $118,000,000. See
Note 4 to the Consolidated Financial Statements, Part II, Item 8 for
limitations on dividends.
<PAGE> 15
ITEM 6. SELECTED FINANCIAL DATA
<TABLE>
<CAPTION>
Fiscal Year Ended October 31,
1993 1994(1) 1995(2) 1996(3) 1997(4)
(Dollars and tons in thousands, except per ton amounts)
<S> <C> <C> <C> <C> <C>
Statement of Income Data:
Net Sales..................... $578,639 $709,363 $630,990 $660,801 $668,470
Cost of products sold......... 492,000 574,610 544,789 550,609 547,545
-------- -------- -------- -------- --------
Gross margin.................. 86,639 134,753 86,201 110,192 120,925
Depreciation and amortization. 20,978 19,868 21,178 22,547 23,174
Selling, general and
administrative expenses...... 19,144 34,889 19,675 22,074 29,355
-------- -------- -------- -------- --------
Operating income.............. 46,517 79,996 45,348 65,571 68,396
Interest expense.............. 23,182 28,709 25,787 24,968 31,690
Interest and other income..... 301 1,505 6,212 6,545 1,239
-------- -------- -------- -------- --------
Income before income taxes,
extraordinary losses on
early retirement of debt
and cumulative effect of
change in accounting
principle.................... 23,636 52,792 25,773 47,148 37,945
Income taxes.................. 9,485 21,939 10,313 19,108 14,482
-------- -------- -------- -------- --------
Income before extraordinary
losses on early retirement
of debt and cumulative effect
of change in accounting
principle.................... $ 14,151 $ 30,853 $ 15,460 $ 28,040 $ 23,463
======== ======== ======== ======== ========
Other Operating Data:
Net tons shipped.............. 1,302 1,468 1,222 1,397 1,329
Percent custom products....... 53.9% 56.9% 59.4% 57.9% 67.6%
Average selling price per net
ton shipped.................. $ 445 $ 483 $ 516 $ 473 $ 503
Average cost per net ton
shipped...................... 378 391 446 394 412
Average gross margin per
net ton shipped.............. 67 92 71 79 91
Average operating income per
net ton shipped.............. 36 54 37 47 51
Balance Sheet Data:
Cash, cash equivalents and
short-term investments....... 9,366 71,426 106,548 139,541 18,989
Working capital (excluding
cash, cash equivalents and
short-term investments)...... 49,510 69,193 61,881 42,093 66,913
Property, plant and equipment,
net.......................... 206,951 196,212 189,733 205,121 224,620
Total assets.................. 396,342 481,596 519,159 567,453 470,751
Total debt (including current
portion)..................... 136,858 216,108 213,854 211,506 302,937
Shareholder's equity (deficit) 69,168 43,877 59,495 79,880 (90,866)
<FN>
- ------------------------
(1) Fiscal 1994 Statement of Income reflects $11.1 million of compensation expenses
related to the Company's initial public offering and the offering of the 10.5%
senior notes.
<PAGE> 16
(2) Fiscal 1995 results were adversely impacted by a 54 day labor contract dispute and
resulting work stoppage commencing September 1, 1995 and a 36 day blast furnace
reline commencing on April 1, 1995.
(3) The Company's custom product mix and the results for fiscal 1996 were adversely
impacted by a 54 day labor contract dispute and resulting work stoppage which was
concluded on October 24, 1995.
(4) Fiscal 1997 statement of income reflects $8.6 million of compensation expenses
related to the Transactions described in Management's Discussion and Analysis of
Financial Condition and Results of Operations.
</FN>
</TABLE>
<PAGE> 17
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Unless otherwise indicated, references to a year are to the Company's fiscal
year ended October 31.
RESULTS OF OPERATIONS
Fiscal 1997 Compared to Fiscal 1996
Net sales in 1997 were $668.5 million on 1,328,931 tons shipped, representing a
1.2% increase in net sales and a 4.9% decrease in tons shipped compared to
1996. The upgrade of the hot strip mill, substantially completed during 1997,
required several equipment outages and resulted in lower shipping volume during
the second and third quarters. Net sales per ton shipped increased 6.3% to
$503 compared to $473 for 1996. This increase is primarily the result of
changes in product mix with shipments of custom carbon, alloy and electrical
steels accounting for 67.6% in 1997 and 57.9% in 1996 and, to a lesser extent,
increases in product selling prices. The Company's custom product mix in 1996
was adversely effected by a 54 day labor contract dispute and resulting work
stoppage which was concluded on October 24, 1995. Selling prices were
generally strong through the third quarter of 1997 but began to decline late
in the fourth quarter of 1997 due to minimill capacity additions, a high level
of imports, and the reentry into the market of a major integrated mill. As a
result of the foregoing conditions, sales prices are expected to remain lower
in early 1998. In addition, shipments during 1997 and 1996 included 22,642
tons and 45,904 tons, respectively, of lower value added semi-finished steel.
The Company expects to continue to ship semi-finished products during the
first two quarters of 1998 while the upgrade to the hot strip mill is fully
implemented.
Gross margin (net sales less cost of goods sold) was $120.9 million in 1997
compared to $110.2 million in 1996. The increase in gross margin reflects the
increase in selling prices and improvement in product mix offset somewhat by
higher LIFO inventory charges and lower shipping volume in 1997. Charges under
the LIFO inventory valuation method amounted to $3.3 million in 1997, including
$2.1 million in the fourth quarter, compared to essentially no LIFO charge in
1996.
Operating income was $68.4 million, $51 per ton shipped, for 1997 compared to
$65.6 million, $47 per ton shipped, for 1996. The operating results for 1997
reflect the increase in gross margin discussed above offset by $8.6 million of
compensation expenses related to the Transactions (as defined below).
Excluding the expenses incurred as a result of the Transactions, operating
income was $77.0 million during 1997 or $58 per ton shipped.
Interest expense increased to $31.7 million in 1997 compared to $25.0 million
in 1996 as a result of the issuance of $300 million 10% Senior Secured Notes
(Senior Secured Notes) and the retirement of $206.1 million principal amount of
10.5% Senior Notes (Senior Notes) on November 27, 1996. Interest income
decreased to $1.1 million in 1997 compared to $6.2 million in 1996 as a result
<PAGE> 18
of lower cash, cash equivalent and short-term investments in 1997 due to the
Transactions.
As a result of the items discussed above, income before the extraordinary loss
was $23.5 million in 1997 compared to $28.0 million in 1996. During 1997, the
Company recognized an extraordinary loss of $19.6 million, net of income taxes,
on the early retirement of $206.1 million principal amount of Senior Notes.
As a result, the Company had net income of $3.9 million in 1997.
Fiscal 1996 Compared to Fiscal 1995
Net sales in 1996 were $660.8 million on 1,396,732 tons shipped, representing a
4.7% increase in net sales and a 14.3% increase in tons shipped compared to
1995. Net sales per ton shipped declined 8.3% to $473 compared to $516 for
1995 due to lower prices realized in the spot market as well as a change in
product mix. The 1996 period included the sale of approximately 46,000 tons
of lower value added semi-finished steel and a lower mix of custom carbon,
alloy and electrical steel products which accounted for 57.9% of total
shipments in 1996 compared with 59.4% in 1995. The sales mix and volume were
adversely affected during the first two quarters of fiscal 1996 by a labor
contract dispute and resulting work stoppage which was concluded October 24,
1995. During the third and fourth quarters of fiscal 1996, the Company's
product mix returned to a more traditional mix, with sales of custom products
accounting for 64.8% of shipments compared to 62.4% during the comparable
period in 1995. Shipments for the three months ended October 31, 1996 were
342,147 tons compared to 208,522 during the same period in 1995 which was
adversely affected by the work stoppage.
Gross margin was $110.2 million in 1996 compared to $86.2 million in 1995. The
increase in gross margin reflects higher volume and improved per ton operating
costs, offset somewhat by the lower sales prices in 1996 and the changes in
product mix mentioned above, and a loss of $13.6 million of gross margin during
the fourth quarter of 1995 as a result of the work stoppage.
Operating income was $65.6 million, $47 per ton shipped, for 1996 compared to
$45.3 million, $37 per ton shipped, for 1995. The results for 1996 and 1995
reflect the gross margin discussed above, higher depreciation and amortization
expense associated with the completion of a blast furnace reline in May of 1995
and higher selling, general and administrative expenses in the fourth quarter
of 1996 compared to the same period in 1995. Selling, general and
administrative expenses for the fourth quarter of 1996 were $3.3 million
higher than during the same period in 1995 due primarily to reductions in
expense in the fourth quarter of 1995 under the Company's variable
compensation programs as a result of the loss incurred during that period.
As a result of the items discussed above, net income increased to $28.0 million
for 1996 compared to net income of $15.5 million for 1995.
<PAGE> 19
LIQUIDITY AND CAPITAL RESOURCES
WCI's liquidity requirements result from capital investments, working capital
requirements, postretirement health care and pension funding, interest expense
and, to a lesser extent, principal payments on its indebtedness. WCI has met
these requirements in each fiscal year since 1992 from cash balances and cash
provided by operating activities. The Company's primary sources of liquidity
as of October 31, 1997 consisted of cash and cash equivalents of $19.0
million and available borrowing under its $100 million revolving credit
agreement (Revolver).
The Revolver has a maximum borrowing limit of $100 million, is secured by
eligible inventories and receivables, as defined therein, and expires on
December 29, 1999. As of October 31, 1997, WCI had no borrowings outstanding
under the Revolver, with a borrowing limit of $94.5 million net of $5.5
million in outstanding letters of credit.
Cash from Operations
Cash provided by operating activities was $39.6 million for 1997 compared to
$78.0 million and $60.7 million for 1996 and 1995, respectively. The decrease
in operating cash flow in 1997 compared to 1996 resulted from significantly
higher in-process steel inventory in 1997 as a result, in part, of the hot
strip mill upgrade and a working capital benefit experienced in 1996 following
the resolution of a work stoppage in late 1995.
As of October 31, 1997, at pricing then in effect, WCI had commitments under
raw material supply contracts of approximately $33.8 million for each of 1998
and 1999.
Capital Expenditures
Capital expenditures were $39.9 million, $35.4 million and $26.2 million during
1997, 1996 and 1995, respectively. Capital expenditures are estimated to be
approximately $30 million in 1998. The higher level of capital investment in
1997 and 1996 reflect expenditures on the hot strip mill upgrade and hydrogen
anneal facility and expenditures in 1995 reflect the blast furnace reline.
Management has funded the Company's capital expenditures in 1997, 1996 and
1995 through cash balances and cash provided by operating activities. At
October 31, 1997, the Company had commitments for capital expenditures of
approximately $8.1 million.
Debt and Equity Transactions
On November 27, 1996 WCI Steel Holdings, Inc., a wholly-owned subsidiary of
Renco, completed a tender offer in which it purchased substantially all the
outstanding shares of common stock of the Company not held by Renco (Equity
Tender Offer). Following the completion of the Equity Tender Offer, WCI Steel
Holdings, Inc. was merged with and into the Company with the Company surviving
as a wholly-owned subsidiary of Renco. The total consideration paid for the
common stock tendered and to non-tendering shareholders pursuant to the merger
of WCI Steel Holdings, Inc. with and into the Company was approximately
$56,934,000, including related expenses.
<PAGE> 20
On the same date, the Company completed the sale of $300,000,000 Senior Secured
Notes. The proceeds from the Senior Secured Notes, with existing cash balances
of the Company, were used to complete the Equity Tender Offer, complete a
tender offer in which the Company acquired $206,120,000 of the $206,400,000
aggregate principal amount of the then outstanding Senior Notes at a rate of
$1,125.00 per $1,000 principal amount outstanding plus accrued interest, pay a
$108,000,000 dividend to Renco, make contractual compensation payments to
certain executives of the Company and pay related transaction costs
(Transactions). As a result of these Transactions, the Company recognized an
extraordinary loss of $19,606,000, net of taxes, and compensation expenses of
$8,577,000 in the first quarter of 1997. The Company's liquidity was
significantly reduced and its debt service requirements significantly increased
as a result of these Transactions. Management anticipates that cash flow from
operations and availability under the Revolver will be sufficient to finance
the Company's liquidity needs for the foreseeable future.
The Revolver and the indenture governing the Senior Secured Notes contain
numerous covenants and prohibitions that limit the financial activities of the
Company, including requirements that the Company satisfy certain financial
ratios and limitations on the incurrence of additional indebtedness.
The ability of the Company to meet its debt service requirements and to comply
with such covenants will be dependent upon future operating performance and
financial results of the Company, which will be subject to financial,
economic, political, competitive and other factors affecting the Company,
many of which are beyond its control.
Postretirement Benefit Plans
The Company provides postretirement health care and life insurance benefits to
substantially all employees who retire from the Company upon meeting certain
age and length of service eligibility requirements. Under terms of the
Company's labor contract, the Company is required to pay current claims and to
contribute $.50 per hour worked by certain hourly employees, or a minimum of
$1.5 million annually to a trust established to fund future benefits. Claims
paid by the Company totaled $2.4 million, $1.7 million and $0.5 million during
1997, 1996 and 1995, respectively.
The Company has a defined benefit pension plan which covers substantially all
bargained for employees and provides a minimum level of pension benefits based
on age and years of service when combined with benefits provided under the
Company's defined contribution plan and a predecessor company's defined
benefit plan. The Company made minimal contributions to the plan during 1997.
Under the minimum funding requirements of ERISA, the Company is required to
contribute approximately $1.1 million in 1998 and $8.1 million in 1999 to this
plan.
<PAGE> 21
Environmental Matters
WCI has incurred and, in the future, will continue to incur capital
expenditures for matters relating to environmental control and monitoring.
Capital expenditures for environmental control and monitoring were $0.8
million, $0.3 million and $2.3 million in 1997, 1996, and 1995,
respectively.
Future environmental capital expenditures may be dependent in part upon the
outcome of certain pending environmental matters. Operating costs for control
and monitoring equipment, excluding depreciation and amortization expense, were
$10.8 million, $9.6 million and $8.9 million for 1997, 1996 and 1995,
respectively. Operating costs for fiscal 1998 for control and monitoring
equipment are not expected to increase significantly from the prior periods.
Environmental laws and regulations have changed rapidly in recent years, and
WCI may be subject to more stringent environmental laws and regulations in the
future. Compliance with more stringent environmental laws and regulations could
have a material adverse effect on WCI's consolidated financial position and
future results of operations. During 1997, the EPA proposed new standards
regulating particulate matter and ozone emissions. Data relating to these
standards is to be collected and analyzed with implementation as early as 2004.
These standards have been the subject of significant discussion throughout
federal and state governments, and changes to the standards or the
implementation date may be made prior to final approval. Like much of the
steel, utilities and other industries, WCI's current operations are not
expected to comply with these proposed standards. WCI cannot currently assess
the impact of these proposed standards on its results of operations or
financial condition. In addition, the EPA has asserted certain alleged
environmental violations against the Company which are described in Note 12
to the Consolidated Financial Statements.
Year 2000 Business Matters
Many information and process control systems used in the current business
environment were designed to use only two digits in the date field and thus
may not function properly in the year 2000. Over the past several years, the
Company has been assessing and modifying its business systems to be year 2000
compliant. The Company has a thorough plan to achieve year 2000 compliance
with respect to its business systems, including systems and user testing
scheduled to commence in 1998. The Company does not currently expect year
2000 issues related to its business systems to have any material effect on
the Company's costs or to cause any significant disruption in operations.
The Company has initiated a program to assess its process control environment
for year 2000 compliance, which is expected to be completed by May 31, 1998,
and intends to make the necessary modifications to prevent disruption to its
operations. The Company is unable at this time to estimate the cost or
potential effect on its operations of achieving year 2000 compliance in its
process control environment.
<PAGE> 22
Forward-Looking Statements
This report includes "forward-looking statements" within the meaning of the
Private Securities Litigation Reform Act of 1995 which involve known and
unknown risks, uncertainties and other important factors that could cause the
actual results, performance or achievements of the Company to differ
materially from any future results, performance or achievements expressed or
implied by such forward-looking statements. Such risks, uncertainties and
other important factors include, among others: general economic and business
conditions; increasing industry capacity and levels of imports of steel or
steel products; industry trends, including product pricing; competition;
currency fluctuations; the loss of any significant customers; availability of
qualified personnel; and major equipment failures. These forward-looking
statements speak only as of the date of this report. The Company expressly
disclaims any obligation or undertaking to disseminate any updates or
revisions to any forward-looking statement contained herein to reflect any
change in the Company's expectations with regard thereto or any change in
events, conditions or circumstances on which any such statement is based.
<PAGE> 23
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
( Dollars in thousands, except per share amount )
October 31,
------------------------
1997 1996
--------- ---------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents.........................$ 18,989 $ 90,395
Short-term investments............................ - 49,146
Accounts receivable, less allowances for doubtful
accounts of $1,627 and $1,600, respectively..... 65,202 65,869
Inventories....................................... 106,293 96,675
Recoverable income taxes.......................... 4,273 -
Deferred income taxes............................. 8,188 10,637
Prepaid expenses.................................. 1,640 1,244
--------- ---------
Total current assets......................... 204,585 313,966
Property, plant and equipment, net.................. 224,620 205,121
Intangible pension asset............................ 20,982 27,505
Other assets, net................................... 20,564 20,861
--------- ---------
Total assets............................$ 470,751 $ 567,453
========= =========
LIABILITIES and SHAREHOLDER'S EQUITY
Current liabilities
Current portion of long-term debt.................$ 1,319 2,448
Accounts payable.................................. 64,123 79,138
Accrued liabilities............................... 51,504 40,697
Income taxes...................................... 1,737 10,049
--------- ---------
Total current liabilities......................... 118,683 132,332
Long-term debt, excluding current portion........... 301,618 209,058
Deferred income taxes............................... 7,497 4,365
Postretirement health care benefits................. 85,755 81,795
Pension benefits.................................... 31,489 34,011
Other liabilities................................... 16,575 26,012
--------- ---------
Total liabilities....................... 561,617 487,573
--------- ---------
Shareholder's equity (deficit)
Preferred stock, par value $1,000 per share, 5,000
shares authorized, none issued. ................ - -
Common stock, no par value, stated value $.01 per
share, 40,000,000 shares authorized, 100 and
36,623,700 shares issued at October 31, 1997
and 1996, respectively.......................... - 366
Additional paid-in capital........................ - 570
Retained earnings (deficit)....................... (90,866) 80,144
Treasury stock at cost, 222,300 shares at October
31,1996. ....................................... - (1,200)
--------- ---------
Total shareholder's equity (deficit)..... (90,866) 79,880
Commitments and contingencies....................... - -
Total liabilities and --------- ---------
shareholder's equity (deficit)..........$ 470,751 $ 567,453
========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 24
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME
(Dollars in thousands)
Years ended October 31,
-------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
Net sales.......................................$ 668,470 $ 660,801 $ 630,990
Operating costs and expenses
Cost of products sold.......................... 547,545 550,609 544,789
Depreciation and amortization.................. 23,174 22,547 21,178
Selling, general and administrative expenses... 29,355 22,074 19,675
--------- --------- ---------
600,074 595,230 585,642
--------- --------- ---------
Operating income................................ 68,396 65,571 45,348
--------- --------- ---------
Other income (expense)
Interest expense............................... (31,690) (24,968) (25,787)
Interest and other income, net................. 1,239 6,545 6,212
--------- --------- ---------
(30,451) (18,423) (19,575)
--------- --------- ---------
Income before income taxes and
extraordinary loss......................... 37,945 47,148 25,773
Income tax expense.............................. 14,482 19,108 10,313
--------- --------- ---------
Income before extraordinary loss............. 23,463 28,040 15,460
Extraordinary loss on early retirement of
debt, net of income taxes..................... 19,606 - -
--------- --------- ---------
Net income......................................$ 3,857 $ 28,040 $ 15,460
========= ========= =========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 25
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDER'S EQUITY (DEFICIT)
(Dollars in thousands)
Years ended October 31, 1997, 1996, and 1995
-------------------------------------------------------------
Total
Additional Retained Shareholder's
Preferred Common Paid-In Earnings Treasury Equity
Stock Stock Capital (Deficit) Stock (Deficit)
--------- -------- -------- --------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Balance at October 31, 1994.......$ - $ 366 $ 300 $ 43,211 $ - $ 43,877
Net income........................ - - - 15,460 - 15,460
Other............................. - - 158 - - 158
-------- -------- ------- -------- -------- --------
Balance at October 31, 1995.......$ - $ 366 $ 458 $ 58,671 $ - $ 59,495
Net income........................ - - - 28,040 - 28,040
Dividends paid on Common Stock.... - - - (6,567) - (6,567)
Treasury stock purchases.......... - - - - (1,200) (1,200)
Other............................. - - 112 - - 112
-------- -------- ------- -------- -------- --------
Balance at October 31, 1996.......$ - $ 366 $ 570 $ 80,144 $ (1,200) $ 79,880
Net income........................ - - - 3,857 - 3,857
Dividends paid on Common Stock.... - - - (118,000) - (118,000)
Repurchase of Common Stock........ - (366) (901) (56,867) 1,200 (56,934)
Other............................. - - 331 - - 331
-------- -------- ------- -------- -------- --------
Balance at October 31, 1997....... - - - ($90,866) - ($90,866)
======== ======== ======= ======== ======== ========
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 26
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
Years ended October 31,
--------------------------------
1997 1996 1995
--------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income.....................................$ 3,857 $ 28,040 $ 15,460
Adjustments to reconcile net income to net
cash provided by operating activities
Depreciation and amortization................ 20,243 19,617 19,713
Amortization of deferred blast furnace
maintenance costs.......................... 2,931 2,930 1,465
Amortization of financing costs.............. 1,435 2,180 2,180
Postretirement health care benefits.......... 3,960 5,508 10,066
Pension benefits............................. 5,101 6,507 -
Provision for losses on accounts receivable.. 27 (658) 117
Deferred income taxes........................ 5,581 (5,537) 3,118
Extraordinary loss........................... 32,786 - -
Other........................................ 356 (6) (836)
Cash provided (used) by changes in certain
assets and liabilities
Accounts receivable........................ 640 (31,595) 39,696
Inventories................................ (9,618) 4,414 7,334
Prepaid expenses and other assets.......... (389) (132) (1,031)
Accounts payable........................... (15,015) 31,398 (25,209)
Accrued liabilities........................ 9,707 1,113 (4,823)
Income taxes payable and recoverable, net.. (12,585) 14,398 (11,275)
Other liabilities.......................... (9,437) (182) 4,756
--------- --------- ---------
Net cash provided by operating activities...... 39,580 77,995 60,731
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Additions to property, plant and equipment... (39,902) (35,384) (14,575)
Deferred blast furnace maintenance costs..... - - (11,598)
Gross proceeds from the sale of assets....... 135 497 2,818
Short-term investments, net.................. 49,146 (36,864) (12,282)
--------- --------- ---------
Net cash provided (used) by investing
activities................................... 9,379 (71,751) (35,637)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net proceeds from issuance of Senior Secured
Notes...................................... 290,103 - -
Repurchase of Senior Notes................... (233,085) - -
Repurchase of Common Stock................... (56,934) - -
Dividends paid............................... (118,000) (6,567) -
Principal payments on other long-term debt... (2,449) (2,348) (2,254)
Purchases of treasury stock.................. - (1,200) -
--------- --------- ---------
Net cash used by financing activities........ (120,365) (10,115) (2,254)
--------- --------- ---------
Net (decrease) increase in cash and cash
equivalents................................ (71,406) (3,871) 22,840
Cash and cash equivalents at beginning
of year.................................... 90,395 94,266 71,426
--------- --------- ---------
Cash and cash equivalents at end of year.....$ 18,989 $ 90,395 $ 94,266
========= ========= =========
<PAGE> 27
Supplemental disclosure of cash flow
information
Cash paid for interest...................$ 21,412 $ 22,888 $ 23,718
Cash paid for income taxes .............. 8,306 10,247 18,471
<FN>
See accompanying notes to consolidated financial statements.
</FN>
</TABLE>
<PAGE> 28
WCI STEEL, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(1) Summary of Significant Accounting Policies
- -----------------------------------------------------------------------------
The Company is a wholly-owned subsidiary of The Renco Group, Inc. (Renco
or Parent).
(a) Nature of Operations
The Company is a niche oriented integrated producer of value-added,
custom steel products. The Company produces a wide range of custom flat
rolled products at its primary facility in Warren, Ohio, including high
carbon, alloy and high strength, silicon electrical and galvanized steel.
The Company's primary customers are steel converters, steel service
centers, construction product companies, electrical equipment
manufacturers and to a lesser extent, automobile and automotive parts
manufacturers located principally in the U.S.
During 1997 and 1996, no single customer accounted for 10% or more
of net sales. During 1995, sales to the Company's largest customer
accounted for 10.0% of net sales. Concentration of credit risk related
to trade receivables is limited due to the large number of customers
in a variety of industries and geographic locations.
Since its inception, the Company has had labor agreements with the
United Steelworkers of America (USWA) and other organized labor
organizations. The USWA represents approximately 75% of the Company's
employees. The Company has a four-year agreement with the USWA that
expires September 1, 1999.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of the Company
and its wholly-owned subsidiaries. All significant intercompany profits,
transactions, and balances have been eliminated in consolidation.
(c) Cash and Cash Equivalents
Cash and cash equivalents include cash on hand and short-term investments
with maturities of three months or less from the date of acquisition.
(d) Short-term Investments
Short-term investments consist of United States government or agency
issues which have maturities of less than one year but greater than
three months when purchased. These investments are stated at cost plus
accrued interest which approximates market value.
(e) Inventories
Inventories are stated at the lower of cost or market. Cost is determined
by the last-in, first-out (LIFO) method.
(f) Property, Plant and Equipment
Property, plant and equipment is recorded at cost. Depreciation is
calculated on the straight-line method over the estimated useful lives
of the assets (buildings 20 to 30 years and machinery and equipment
<PAGE> 29
4 to 25 years with a weighted average of 18 years). Expenditures for
normal repairs and maintenance are charged to expense as incurred.
(g) Other Assets
Other assets include deferred financing costs which are amortized using
the effective yield method over the term of the related financing and
deferred blast furnace maintenance costs which are amortized using the
straight-line method over a six-year period.
(h) Income Taxes
The Company is included in the consolidated income tax return of Renco.
Under the terms of the tax sharing agreement with Renco, income taxes are
allocated to the Company on a separate return basis, except that
transactions between the Company, its subsidiaries, Renco and Renco's
other subsidiaries are accounted for on a cash basis and the Company does
not receive the benefit of net operating tax loss carryforwards, unless
such tax losses were a result of timing differences between the Company's
accounting for tax and financial reporting purposes.
(i) Environmental Compliance Costs
Environmental expenditures that relate to current operations are expensed
or capitalized as appropriate. Expenditures that relate to an existing
condition caused by past operations, and which do not contribute to
current or future revenue generation, are expensed. Liabilities are
recorded when environmental assessments and/or remedial expenditures are
probable, and the cost can be reasonably estimated. Generally, the
timing of these accruals coincides with the earlier of completion of a
feasibility study or the Company's development of, or commitment to, a
plan of action based on the then known facts.
(j) Use of Estimates in Preparation of Consolidated Financial Statements
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities
and disclosure of contingent assets and liabilities at the date of the
consolidated financial statements and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ
from those estimates.
(2) Inventories
- -----------------------------------------------------------------------------
Inventories consist of the following:
October 31,
------------------------
1997 1996
(Dollars in thousands)
Raw materials........................$ 33,725 $ 40,828
Finished and semi-finished product... 82,216 62,340
Supplies............................. 561 393
--------- ---------
116,502 103,561
Less LIFO reserve.................... 10,209 6,886
--------- ---------
$ 106,293 $ 96,675
========= =========
<PAGE> 30
(3) Property, Plant and Equipment
- -----------------------------------------------------------------------------
Property, plant and equipment is comprised of the following:
October 31,
------------------------
1997 1996
(Dollars in thousands)
Land and improvements................ $ 463 $ 493
Buildings............................ 27,433 25,641
Machinery and equipment.............. 313,628 254,118
Construction in progress............. 6,265 32,558
--------- ---------
347,789 312,810
Less accumulated depreciation........ 123,169 107,689
--------- ---------
$ 224,620 $ 205,121
========= =========
(4) Long-Term Debt
- -----------------------------------------------------------------------------
Long-term debt consists of the following:
October 31,
-----------------------
1997 1996
(Dollars in thousands)
Senior Secured Notes with interest
at 10% payable semi-annually,
due 2004..........................$ 300,000 $ -
Senior Notes with interest at 10.5%
payable semi-annually, due 2002... 280 206,400
Revolving Credit Facility(Revolver)
with interest at prime plus 0.5%
(9.00% at October 31, 1997)
payable monthly................... - -
Other............................... 2,657 5,106
--------- ---------
302,937 211,506
Less current portion of long-term
debt.............................. 1,319 2,448
--------- ---------
$ 301,618 $ 209,058
========= =========
The Company has a $100,000,000 Revolver secured by and subject to
eligible inventories and receivables as defined, reduced by any
outstanding letters of credit. The Revolver is subject to an annual
commitment fee of .5% of the unused balance up to $75,000,000 payable
monthly. There were no borrowings outstanding under the Revolver
as of or during the year ended October 31, 1997. The Revolver, which
expires December 29, 1999, also provides for up to an aggregate amount of
$20,000,000 in letters of credit. The Company had approximately
$5,536,000 in letters of credit outstanding at October 31, 1997. The
Revolver is subject to a penalty of $500,000 if terminated, without
being refinanced with the same lender, prior to December 29, 1998 and
$250,000 thereafter if terminated before expiration.
On November 27, 1996 WCI Steel Holdings, Inc., a wholly-owned subsidiary
of The Renco Group, Inc., completed a tender offer in which it purchased
substantially all the outstanding shares of Common Stock of the Company
not held by Renco (Equity Tender Offer). Following the completion of the
<PAGE> 31
Equity Tender Offer, WCI Steel Holdings, Inc. was merged with and into
the Company with the Company surviving as a wholly-owned subsidiary of
Renco. The total consideration paid for the common stock tendered and
the common stock reacquired as a result of the merger of WCI Steel
Holdings, Inc. with and into the Company was approximately $56,934,000,
including related expenses.
On the same date, the Company completed the sale of $300,000,000 10%
senior secured notes (Senior Secured Notes) due 2004. The proceeds
from the Senior Secured Notes, with existing cash balances of the
Company, were used to complete the Equity Tender Offer, a tender offer in
which the Company acquired $206,120,000 of the $206,400,000 aggregate
principal amount of the then outstanding Senior Notes at a rate of
$1,125 per $1,000 principal amount outstanding plus accrued interest,
pay a $108,000,000 dividend to Renco, make contractual compensation
payments to certain executives of the Company and pay related transaction
costs (Transactions). As a result of these Transactions, the Company
recognized an extraordinary loss of $19,606,000, net of income tax
benefits of $13,180,000, and compensation expenses of approximately
$8,577,000 in the first quarter of fiscal 1997.
The Senior Secured Notes are secured by a second priority lien on
substantially all of the existing property, plant and equipment of the
Company which will become a first priority lien if all of the Senior
Notes are extinguished. The second priority lien is shared with a lien
held by the VEBA Trust discussed in Note 8.
The Company's Revolver and Senior Secured Notes contain certain financial
and other covenants, including maintenance of specified levels of net
worth as defined, working capital, and debt service and limitations on
capital expenditures. Additional covenants limit the incurrence of
additional indebtedness, payments affecting subsidiaries, transactions
with affiliates, sale/leaseback transactions, impairment of security
interest, consolidations, mergers and transfer of the Company's assets.
The Company is permitted to declare and pay dividends, and make other
transactions with affiliates provided no condition of default exists or
will exist, and the accumulated amount of such transactions is no greater
than fifty percent (50%) of the consolidated net income as defined (less
100% of any consolidated net loss) earned for periods subsequent to
October 31, 1996 when taken as a single accounting period less management
fees paid to Renco in excess of $1,200,000 annually for the same period.
Under these agreements $4,296,000 was available for dividends and other
transactions with affiliates at October 31, 1997.
Aggregate principal payments on long-term debt for the five years
subsequent to October 31, 1997 are as follows: $1,319,000 in 1998,
$116,000 in 1999, $122,000 in 2000, $128,000 in 2001, and $415,000
in 2002.
As of October 31, 1997, the fair value of the Senior Secured Notes was
$313,500,000 based on the quoted market price.
(5) Accrued Liabilities
- -----------------------------------------------------------------------------
Accrued liabilities included employment related costs of $28,442,000 and
$26,026,000 and interest of $12,555,000 and $3,712,000 at October 31,
1997 and 1996, respectively.
(6) Employee Compensation Plans
- -----------------------------------------------------------------------------
The Company has variable compensation plans for the benefit of
substantially all employees. The amount of compensation due under these
<PAGE> 32
plans is based on the Company's income as defined under each plan. Total
expense under the plans was $24,588,000, $14,000,000, and $11,093,000
for the years ended October 31, 1997, 1996, and 1995, respectively.
Certain amounts under these plans represent deferred compensation.
(7) Pension Plans
- -----------------------------------------------------------------------------
The Company has defined contribution retirement plans that cover
substantially all employees. The Company funds these retirement plan
contributions as accrued. The Company's contributions to the plans are
based on employee age, length of service and compensation. Company
contributions, paid or accrued, aggregated approximately $5,929,000,
$5,376,000 and $4,988,000 for the years ended October 31, 1997, 1996, and
1995, respectively.
The Company sponsors a defined benefit pension plan which covers
substantially all bargained-for employees, provides minimum pension
benefits based on age, years of service and benefits provided under the
Company's defined contribution plan and a predecessor company's defined
benefit plan. The Company intends to make future contributions to the
plan in amounts that meet or exceed the minimum funding requirements of
ERISA.
The following table sets forth the actuarial present value of benefit
obligations and funded status of the plan:
October 31,
---------------------
1997 1996
(Dollars in thousands)
Accumulated benefit obligation, including
vested benefits of $32,833 and $31,912,
respectively............................... $ 48,519 $ 47,947
======== ========
Projected benefit obligation................. $ 49,077 $ 48,498
Plan assets at fair value.................... 15,930 13,936
-------- --------
Projected benefit obligation in excess
of plan assets............................. 33,147 34,562
Unrecognized net gain from past experience
different from that assumed and effects
of changes in assumptions.................. 13,697 10,937
Unrecognized prior service cost.............. (35,237) (38,993)
Additional minimum liability................. 20,982 27,505
-------- --------
Accrued pension cost......................... 32,589 34,011
Less pension liability due within one year... 1,100 -
-------- --------
Long-term pension liability.................. $ 31,489 $ 34,011
======== ========
Plan assets consist primarily of listed domestic and foreign common
stocks and corporate and government bonds. An assumed discount rate of
7.25% and 7.5% in 1997 and 1996, respectively, and an expected return on
plan assets of 8.5% were used for purposes of valuing the benefits under
the defined benefit pension plan.
<PAGE> 33
The following table sets forth the components of pension expense:
Years Ended October 31,
-----------------------
1997 1996
(Dollars in thousands)
Service cost........................... $ (332) $ (213)
Interest cost.......................... 3,404 3,477
Actual return on plan assets........... (3,188) (828)
Amortization of unrecognized:
Prior service cost................. 3,756 3,831
Net gain and deferral.............. 1,486 290
------- -------
$ 5,126 $ 6,557
======= =======
No pension expense related to this plan was recognized during 1995
as a result of the plan being adopted on October 27, 1995.
(8) Postretirement Health Care Benefits
- -----------------------------------------------------------------------------
The Company provides postretirement health care and life insurance
benefits to substantially all employees who retire from the Company
upon meeting certain age and length of service eligibility requirements.
The following table sets forth the plan's accumulated postretirement
benefit obligation (APBO):
Years Ended October 31,
----------------------
1997 1996
(Dollars in thousands)
Accumulated postretirement
benefit obligation
Retirees................................ $ 23,923 $ 15,374
Fully eligible active plan participants. 32,641 33,877
Other active participants............... 52,434 40,294
-------- --------
108,998 89,545
Plan assets at fair value................. 8,485 3,332
-------- --------
APBO in excess of plan assets............. 100,513 86,213
Unrecognized prior service cost resulting
from plan amendments.................... (6,859) (4,356)
Unrecognized net loss from past experience
different from that assumed and from
changes in assumptions.................. (7,899) (62)
-------- --------
Accrued postretirement benefit cost....... $ 85,755 $ 81,795
======== ========
Plan assets consist primarily of listed common stocks and corporate and
government bonds. The APBO was determined using a discount rate of 7.25%
and 7.5% in 1997 and 1996, respectively, an expected return on plan
assets of 8.5%, and an assumed health care cost trend rate of 8% in 1998,
gradually declining to 5% after 2003. Assuming a 1% increase in the
health care cost trend rate, the APBO at October 31, 1997 would increase
by $19,099,000 along with an increase in the 1997 service and interest
cost components of $1,710,000.
<PAGE> 34
Net periodic postretirement benefit costs included the following
components:
Years Ended October 31,
------------------------------
1997 1996 1995
(Dollars in thousands)
Service cost..................... $ 2,232 $ 2,272 $ 2,562
Interest cost.................... 7,260 6,541 7,007
Actual return on plan assets..... (1,254) (188) -
Net amortization and deferral.... 2,004 1,698 1,025
------- ------- -------
Net periodic postretirement
benefit cost................... $10,242 $10,323 $10,594
======= ======= =======
Total claims paid by the Company during the years ended October 31, 1997,
1996 and 1995 were $2,383,000, $1,671,000 and $528,000, respectively.
In addition, the Company is required to contribute a minimum of $.50 per
hour worked by certain hourly employees to a Voluntary Employees
Beneficiaries Trust (VEBA Trust) established to fund future
postretirement health care and life insurance benefits. Contributions to
the trust amounted to $3,899,000 and $3,144,000 during 1997 and 1996,
respectively. In accordance with the Company's labor contract, the
Company will continue to pay current claims as incurred until the trust
assets exceed 50% of the APBO for the hourly employees who are
beneficiaries of the trust.
(9) Income Taxes
- -----------------------------------------------------------------------------
The provision for income tax expense (benefit) is comprised of the
following:
Years Ended October 31,
-------------------------------
1997 1996 1995
(Dollars in thousands)
Federal income taxes
Current....................... $ 8,301 $ 18,861 $ 5,770
Deferred...................... 4,461 (3,714) 2,662
State income taxes
Current....................... 600 5,784 1,427
Deferred...................... 1,120 (1,823) 454
-------- -------- --------
Provision for
income taxes.................. $ 14,482 $ 19,108 $ 10,313
======== ======== ========
In addition to the above income taxes, the Company recognized $13,180,000
of current income tax benefits in 1997 related to the extraordinary loss
on the early retirement of debt (see note 4).
<PAGE> 35
A reconciliation between income tax expense reported and income tax
expense computed by applying the federal statutory rate to income before
income taxes and extraordinary loss follows:
Years Ended October 31,
-------------------------------
1997 1996 1995
(Dollars in thousands)
Income taxes at federal
statutory rate................ $ 13,282 $ 16,502 $ 9,020
State income taxes, net of
federal income tax benefit.... 1,118 2,574 1,223
Other........................... 82 32 70
-------- -------- --------
$ 14,482 $ 19,108 $ 10,313
======== ======== ========
Deferred income taxes result from temporary differences in the financial
basis and tax basis of assets and liabilities. Total deferred tax assets
amounted to approximately $51,492,000 and $54,719,000 as of October 31,
1997 and 1996; the most significant items comprising the deferred tax
assets were postretirement benefits of $30,084,000 and $27,516,000,
respectively, and compensation accruals of $7,137,000 and $10,968,000,
respectively. Total deferred tax liabilities amounted to approximately
$50,801,000 and $48,447,000 as of October 31, 1997 and 1996,
respectively, consisting primarily of deferred taxes on inventory of
$3,526,000 and $2,939,000, respectively, and fixed assets of $46,810,000
and $45,276,000, respectively. The Company had no valuation allowance
for realization of deferred tax assets as of October 31, 1997 or 1996.
As a result of the tax sharing agreement discussed in Note 1 (h), the
Company's recoverable income taxes of $4,273,000 at October 31, 1997 is
due from Renco.
(10) Leases
- -----------------------------------------------------------------------------
The Company leases a portion of its operating and data processing
equipment. Minimum future lease payments under noncancellable operating
leases are $1,555,000, $1,257,000, $934,000, $513,000, and $7,000 for
the years ending October 31, 1998, 1999, 2000, 2001 and 2002,
respectively. Rent expense for noncancellable operating leases amounted
to approximately $1,386,000, $1,094,000, and $1,033,000, for the years
ended October 31, 1997, 1996, and 1995, respectively.
(11) Agreement with The Renco Group, Inc.
- -----------------------------------------------------------------------------
The Company has a management services agreement with Renco under which
Renco provides certain management services to the Company. Under terms of
this agreement, the Company is charged a monthly fee of $100,000. The
term of this agreement extends to October 31, 1998. Total expense for
management services fees amounted to $1,200,000 for each of the years
ended October 31, 1997, 1996, and 1995. At October 31, 1996, $480,000
was owed to Renco for management services fees.
To obtain the advantages of volume, Renco purchases certain insurance
coverage for its subsidiaries, including the Company, and the actual
cost of such insurance, without markup, is reimbursed by the covered
subsidiaries. The major areas of the Company's insurance coverage
obtained under the Renco programs are property, business interruption,
general, product and auto liability and workers' compensation (other
<PAGE> 36
than Ohio for which the Company is self insured). In fiscal 1997, 1996
and 1995, the Company incurred costs of approximately $1.7 million, $2.0
million and $1.7 million, respectively, under the Renco insurance
program. The Company believes that its insurance costs under this
program were less than it would have incurred if it had obtained its
insurance directly.
(12) Commitments and Contingencies
- -----------------------------------------------------------------------------
At October 31, 1997, the Company had commitments to purchase data
processing services of approximately $24,811,000 in the aggregate over
the remaining 4.5 years of its management information systems agreement
and purchased services of approximately $5,463,000, $5,322,000 and
$5,573,000 in 1997, 1996 and 1995, respectively, under the agreement.
At October 31, 1997, at pricing then in effect, the Company had
firm commitments for the purchase of raw materials and gases of
approximately $33,758,000 in 1998 and $35,591,000 thereafter. In
addition, at October 31, 1997 the Company had commitments for capital
expenditures of approximately $8,052,000.
In common with much of the steel industry, the Company's facilities are
located on sites that have been used for heavy industrial purposes for
decades. The Company is and will continue to be subject to numerous
federal, state and local environmental laws and regulations governing,
among other things, air emissions, waste water discharge and solid and
hazardous waste disposal. The Company has made and intends to continue
to make the necessary expenditures for environmental remediation and
compliance with environmental laws and regulations. Environmental laws
and regulations have changed rapidly in recent years, and the Company may
be subject to more stringent environmental laws and regulations in the
future. During 1997 the EPA proposed new standards regulating
particulate matter and ozone emissions. Data relating to these standards
is to be collected and analyzed with implementation as early as 2004.
These standards have been the subject of significant discussion
throughout federal and state governments, and changes to the standards or
the implementation date may be made prior to final approval. Like much
of the steel, utilities and other industries, the Company's current
operations are not expected to comply with these proposed standards. The
Company cannot currently assess the impact of these proposed standards on
its results of operations or financial condition. Compliance with more
stringent environmental laws and regulations could have a material
adverse effect on the Company's financial condition and results of
operations.
On June 29, 1995, the Department of Justice, on behalf of the
Environmental Protection Agency (EPA), instituted a civil action against
the Company under the Clean Water Act in the United States District Court
for the Northern District of Ohio. The action alleges numerous
violations of the Company's National Pollution Discharge Elimination
System permit alleged to have occurred during the years 1989 through
1996, inclusive. On March 29, 1996, the Department of Justice on behalf
of the EPA, instituted another civil action against the Company in the
same court under the Clean Air Act alleging violations by the Company of
the work practice, inspection and notice requirements for demolition and
renovation of the National Emission Standard for Hazardous Air Pollutants
for Asbestos and also violations of the particulate standard and the
opacity limits applicable to the Company's facilities in Warren, Ohio.
Each action seeks a civil penalty not to exceed the statutory maximum of
<PAGE> 37
$25,000 per day per violation and also seeks an injunction against
continuing violations. The Company believes that imposition of the
statutory maximum penalty for the alleged violations is unlikely based
upon past judicial penalties imposed under the Clean Water Act and the
Clean Air Act, and that it has defenses to liability. By letter dated
November 1, 1996, EPA's Region V Water Division Director requested
information pursuant to the Clean Water Act from the Company relating to
the Warren facility, including, information as to the effect of a
prohibition against federal procurement of the Company's products on the
Company's business. The Company responded to the EPA's request on
December 2, 1996. The Company has not been notified that the EPA will
seek a federal procurement prohibition based on alleged permit
violations. However, there can be no assurance that a federal
procurement prohibition will not be imposed. The Company is negotiating
with the EPA toward a settlement of these matters. If the Company is
unable to reach a negotiated settlement, and if a substantial penalty
similar to the statutory maximum penalty or federal procurement
prohibition were imposed, it could have a material adverse effect on the
operating results or financial condition of the Company, the extent of
which the Company is unable to estimate at this time. These actions are
in discovery. The Clean Air Act civil action has a trial date scheduled
for May 1998. No trial date has been established for the Clean Water
Act civil action.
The Company has obtained a Resource Conservation and Recovery Act
(RCRA) storage permit for waste pickle liquor at its Warren facility
acid regeneration plant. As a provision of the permit, the Company will
be required to undertake a corrective action program with respect to
historical material handling practices at the Warren facility. In April
1997 the Company received notice from the EPA that it had approved a
workplan for the first investigation step of the corrective action
program, the RCRA Facility Investigation (RFI). The workplan identifies
thirteen historical solid waste management units which are the subject of
the RFI. The final scope of the corrective action required to remediate
or reclaim any contamination that may be present at or emanating from the
Warren facility is dependent upon the findings of the RFI and the
development and approval of a corrective action program. Accordingly,
the Company is unable at this time to estimate the final cost of the
corrective action program or the period over which such costs may be
incurred and there can be no assurance that it will not have a material
adverse effect on the financial condition of the Company.
On January 23, 1996, two retired employees instituted an action against
the Company and the USWA in the United States District Court for the
Northern District of Ohio alleging in substance that certain
distributions made by the Company to employees and benefit plans violated
certain agreements, the Employee Retirement Income Security Act, the
National Labor Relations Act and common law. On July 31, 1997, the court
granted the Company's motion to dismiss this action and entered judgement
in favor of the Company and the USWA. The plaintiffs have filed an
appeal regarding the court's decision to dismiss.
On April 5, 1996, an employee instituted an action for damages against
the Company in the Court of Common Pleas, Trumbull County, Ohio alleging
that, under Ohio common law, her privacy rights were violated and that
she has been subjected to sexual harassment. On April 28, 1997 the
plaintiff filed for summary judgement. The Company denies plaintiff's
allegations of liability and has opposed the plaintiff's motion for
summary judgement on which the court has yet to rule. The court has set
a trial date in February 1998.
<PAGE> 38
In addition to the above matters, the Company is contingently liable with
respect to lawsuits and other claims incidental to the ordinary course of
its operations. A liability has been established for an amount, which
the Company believes is adequate, based on information currently
available, to cover the costs to resolve the above described matters,
including remediation, if any, except for any costs of corrective action
that may result from the RFI for which no estimate can currently be made.
The outcome of the above described matters could have a material adverse
effect on the future operating results of the Company in a particular
quarterly or annual period, however, the Company believes that the effect
of such matters will not have a material adverse effect on the Company's
consolidated financial position.
(13) Selected Quarterly Data (Unaudited)
- -----------------------------------------------------------------------------
The following is a summary of unaudited quarterly results for the years
ended October 31, 1997 and 1996:
Three Months Ended 1997 January 31 April 30 July 31 October 31
----------------------------------------------------
(Dollars in thousands)
Net sales................ $ 160,907 $ 172,634 $ 165,917 $ 169,012
Gross margin............. 29,298 31,343 31,559 28,725
Income before
extraordinary loss..... 1,713 7,777 8,150 5,823
Net income (loss)........ (17,893) 7,777 8,150 5,823
Three Months Ended 1996 January 31 April 30 July 31 October 31
----------------------------------------------------
(Dollars in thousands)
Net sales................ $ 148,493 $ 166,959 $ 174,695 $ 170,654
Gross margin............. 22,989 26,261 29,430 31,512
Net income............... 4,788 6,194 8,130 8,928
During the three months ended January 31, 1997, the Company recognized
$8,577,000 of compensation expenses and an extraordinary loss, net of income
taxes, of $19,606,000 related to the Transactions. During the three months
ended October 31, 1997 and 1996, the Company recorded a charge of $2,123,000
and a benefit of $1,042,000, respectively, under the LIFO inventory valuation
method.
<PAGE> 39
INDEPENDENT AUDITORS' REPORT
To the Shareholder and Board of Directors
WCI Steel, Inc. and Subsidiaries:
We have audited the accompanying consolidated balance sheets of WCI Steel,
Inc. and subsidiaries (a wholly-owned subsidiary of The Renco Group, Inc.) as
of October 31, 1997 and 1996, and the related consolidated statements of
income, shareholder's equity (deficit), and cash flows for each of the years
in the three-year period ended October 31, 1997. These consolidated
financial statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these consolidated 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 consolidated financial statements referred to above
present fairly, in all material respects, the financial position of WCI
Steel, Inc. and subsidiaries as of October 31, 1997 and 1996, and the results
of their operations and their cash flows for each of the years in
the three-year period ended October 31, 1997, in conformity with generally
accepted accounting principles.
/S/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG Peat Marwick LLP
Cleveland, Ohio
December 4, 1997
<PAGE> 40
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
<PAGE> 41
PART III
ITEM 10. DIRECTORS AND OFFICERS
The following table sets forth certain information regarding the directors
and executive officers of the Company:
Name Age Position
Ira Leon Rennert.................. 63 Chairman of the Board and Director
Edward R. Caine................... 59 President and Chief Executive Officer
Patrick T. Kenney................. 57 Vice President, Operations
Patrick G. Tatom.................. 47 Vice President, Commercial
Bret W. Wise...................... 37 Vice President, Finance and
Chief Financial Officer
Ira Leon Rennert has been Chairman, Chief Executive Officer and
principal shareholder of WCI's parent company, Renco (including
predecessors), since Renco's first acquisition in 1975, and Chairman of
WCI since its formation in 1988. Renco holds controlling interests in a
number of manufacturing and distribution concerns operating in
businesses not competing with WCI, including Renco Metals, Inc. and AM
General Corporation, for both of which he serves as a Director.
Edward R. Caine has been President and Chief Executive Officer since
April 1, 1996. Mr. Caine was a Director of the Company from April 1,
1996 through December 16, 1996. Prior to joining WCI, Mr. Caine had 37
years of experience in the steel industry with U.S. Steel, most recently
as General Manager of U.S. Steel's Fairfield, Alabama integrated steel
operations from April 1991 to March 1996.
Patrick T. Kenney has served as Vice President, Operations since June
1994 and, prior to that, as General Superintendent of Finishing
Operations of WCI since its inception.
Patrick G. Tatom has served as Vice President, Commercial since November
1, 1995 and served as Vice President, Sales from February 1994 through
October 31, 1995 and as General Manager of Sales from September 1988 to
February 1994.
Bret W. Wise joined WCI as Vice President, Finance and Chief Financial
Officer effective September 1, 1994. Prior to joining WCI, Mr. Wise was
a partner with the accounting and consulting firm of KPMG Peat Marwick
LLP and had been with that firm in various capacities from June 1982
through August 31, 1994.
Since December 16, 1996, Mr. Rennert has been the sole Director of the
Company.
<PAGE> 42
ITEM 11. EXECUTIVE COMPENSATION
The following table sets forth certain information concerning
compensation of the named executive officers by the Company for
services rendered to it in all capacities during fiscal 1997,
1996 and 1995:
<TABLE>
<CAPTION>
Summary Compensation Table
Annual Long-term
Compensation (1) Compensation
----------------- ---------------------------
Fiscal Restricted LTIP All Other
Name and Position Year Salary Bonus Stock Awards (2) Payouts(3) Compensation (4)
<S> <C> <C> <C> <C> <C>
Ira Leon Rennert(5)... 1997 - - - - $1,200,000
Chairman of the 1996 - - - - 1,200,000
Board 1995 - - - - 1,200,000
Edward R. Caine....... 1997 $259,133 $100,000 - $5,900,000 $ 25,370
President and Chief 1996 159,616 360,394 $115,625 386,945 18,977
Executive Officer 1995 - - - - -
(since April 1, 1996)
Patrick T. Kenney..... 1997 $132,567 $ 50,000 - $2,360,000 $ 16,413
Vice President, 1996 132,494 50,000 $ 32,375 543,533 14,563
Operations 1995 132,129 75,000 - - 10,938
Patrick G. Tatom...... 1997 $131,067 $ 50,000 - $2,360,000 $ 12,501
Vice President, 1996 130,983 50,000 $ 32,375 404,248 10,782
Commercial 1995 130,566 75,000 - - 7,813
Bret W. Wise.......... 1997 $142,860 $ 50,000 - $2,360,000 $ 10,164
Vice President, 1996 142,848 50,000 $ 46,250 310,748 8,275
Finance and Chief 1995 132,401 75,000 - - 4,875
Financial Officer
- ----------------------
<FN>
(1) Value of perquisites and other personal benefits did not exceed the lesser of $50,000 or
10% of total salary and bonus per named executive officer.
(2) The amounts shown as "Restricted Stock Awards" in the table for each named executive
officer for fiscal 1996 represent the value of restricted stock grant awards made in June
1996 computed as the number of restricted shares granted multiplied by the closing market
price for the Common Stock on the last full trading day before the restricted stock grant
award. The number of restricted shares granted to each of the named executive officers in
June 1996 was 25,000 shares to Mr. Caine, 7,000 shares to each of Messrs. Kenney and Tatom
and 10,000 shares to Mr. Wise. The restriction on 25% of the shares originally granted to
the named executive officers was scheduled to expire on July 1 of each of 1997, 1999, 2002
and 2004. The Company waived the transfer restrictions applicable to the restricted shares
to permit the holders of such shares to tender their shares in the Equity Tender Offer.
See Note 4 to the consolidated financial statements for a description of the Equity Tender
Offer.
(3) The amounts shown as "LTIP Payouts" in the table for each named executive officer represent
contractual payments under such officer's Net Worth Appreciation Agreement. See "Net
Worth Appreciation Agreements."
(4) The other compensation shown, except for Mr. Rennert for all periods (See note 5),
consists of WCI contributions to a defined contribution pension plan.
(5) Mr. Rennert receives no compensation directly from WCI. He is Chairman of the Board and
the principal stockholder of Renco which receives a management fee from WCI pursuant to
Management Consultant Agreement. The amounts shown as all other compensation to
<PAGE> 43
Mr. Rennert are the management fees paid by WCI to Renco for each fiscal year. See "Stock
Ownership and Certain Relationships and Transactions."
</FN>
</TABLE>
Net Worth Appreciation Agreements
The named executive officers (with the exception of Mr. Rennert) are each
parties to Net Worth Appreciation Agreements with the Company, pursuant to which
each earns as deferred compensation a fixed percentage, ranging from 2% to 5%,
of cumulative net income, as defined, during the term of their employment.
Assuming all of the Company's executive officers had retired at October 31, 1997
and their respective maximum percentage had vested, an aggregate of $2,723,182
would have been payable to such executive officers pursuant to the Net Worth
Appreciation Agreements.
The Net Worth Appreciation Agreements also provide that in the event of payment
of a dividend, the active participants are entitled to receive a percentage of
the dividend equal to their full net worth percentage under their agreement. In
the event substantially all the assets of the Company are sold, active
participants are deemed to be vested and are entitled to receive a payment equal
to their percentage of the net proceeds of the sale as defined in the
agreements. The agreements also provide for payments in the event of permanent
disability or death.
Active participants are entitled to receive the balance of the vested amount
earned under their Net Worth Appreciation Agreement in 40 equal quarterly
payments commencing upon the earlier of age 62 or twenty years after the date
the participant was first employed by the Company. Receipt by each employee of
his payment is conditioned on his observance of his confidentiality and
non-compete agreement with the Company.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The following table sets forth certain information as of December 12, 1997
regarding the beneficial ownership of Common Stock by each beneficial owner of
5% or more of the Common Stock, each director and each named executive officer
of the Company during the last fiscal year, and by all directors and executive
officers of the Company as a group. Except as otherwise noted, the persons
named in the table below have sole voting and investment power with respect to
all shares shown as beneficially owned by them.
<TABLE>
<CAPTION>
Beneficial Ownership
as of December 12, 1997
-----------------------
Shares of
Name of Beneficial Owners and Address of 5% Beneficial Owners Common Stock Percent
<S> <C> <C>
The Renco Group, Inc......................................... 100 100.0%
30 Rockefeller Plaza
42nd Floor
New York, NY 10112
Ira Leon Rennert(1).......................................... 100 100.0%
c/o The Renco Group, Inc.
30 Rockefeller Plaza
42nd Floor
New York, NY 10112
All directors and executive officers as a group (5 persons)... 100 100.0%
<PAGE> 44
- --------------------
<FN>
(1) Mr. Rennert is deemed to beneficially own the Common Stock of the Company owned
by Renco due to the ownership by himself and trusts established by him (but
of which he is not a trustee) for himself and members of his family of a total of
97.9% of the outstanding Common Stock of Renco.
<FN>
</TABLE>
By virtue of Renco's ownership of all the outstanding shares of Common Stock,
and Mr. Rennert's ownership of a majority of the stock of Renco, Mr. Rennert is
in position to control actions that require the consent of a majority of the
holders of the Company's outstanding shares of Common Stock, including the
election of the Board of Directors.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Under a Management Consultant Agreement, effective October 1, 1992, as amended,
between Renco and WCI, WCI pays a monthly fee of $100,000 to Renco. The
Management Consultant Agreement provides that WCI shall not make any payment
thereunder which would violate any of its agreements with respect to any of its
outstanding indebtedness. The Management Consultant Agreement extends to
October 31, 1998 and thereafter shall continue for additional terms of three
years each unless sooner terminated by either party by giving six months prior
written notice. In the year ended October 31, 1997, WCI incurred management
fees in the amount of $1,200,000. The Company believes that the cost of
obtaining the type and quality of services rendered by Renco under the
Management Consultant Agreement was, and continues to be, no less favorable than
that at which the Company could obtain such services from unaffiliated entities.
WCI is included in the consolidated federal income tax return of Renco. Under
the terms of the tax sharing agreement with Renco, income taxes are allocated to
WCI on a separate return basis except that transactions between WCI and Renco
and its other subsidiaries are accounted for on a cash basis and not on an
accrual basis. WCI is not entitled to the benefit of net tax loss
carryforwards, unless such tax losses were the result of timing differences
between WCI's accounting for tax and financial reporting purposes. As of
October 31, 1997, WCI had no net operating tax loss carryforwards. Renco has
agreed to indemnify WCI for any tax imposed on or paid by WCI in excess of the
amount payable by WCI and its subsidiaries under the tax sharing agreement. As
of October 31, 1997, WCI had recoverable income taxes of $4.3 million under this
agreement.
To obtain the advantages of volume, Renco purchases certain insurance coverage
for its subsidiaries, including the Company, and the actual cost of such
insurance, without markup, is reimbursed by the covered subsidiaries. The major
areas of the Company's insurance coverage obtained under the Renco programs are
property, business interruption, general, product and auto liability and
workers' compensation (other than Ohio for which the Company is self insured).
The premiums for director and officer, fidelity, fiduciary, property, business
interruption, auto liability and casualty umbrella are allocated by Renco
substantially as indicated in the underlying policies. General and product
liability and workers' compensation coverages (excluding the Ohio self insured
program) are loss sensitive programs with both fixed and variable premium
components. The fixed premium component for this coverage is allocated to each
insured Renco subsidiary based on factors that include historical guaranteed
cost premium, the overall growth of each subsidiary and an assessment of risk
based on loss experience. The fixed component is subject to revision resulting
<PAGE> 45
from the insurance carrier's audit of actual premium factors. As claims (the
variable component) are paid, each insured within the loss sensitive program is
charged for its claims up to a maximum amount and subject to an overall maximum
for all insured subsidiaries. Each insured Renco subsidiary has been assigned
an individual maximum cost based on historical guaranteed cost premiums. The
overall and individual subsidiary maximums are subject to revision based on
audit of actual premium factors. If an insured Renco subsidiary reaches its
individual maximum cost, the other insured subsidiaries are required to share
proportionately in the excess cost of the subsidiary which has reached its
individual maximum.
In fiscal 1997, the Company incurred costs of approximately $1.7 million under
the Renco insurance program. The Company believes that its insurance costs
under this program were less than it would have incurred if it had obtained its
insurance directly.
<PAGE 46
PART IV
ITEM 14. Exhibits, Financial Statement Schedule, and Reports on Form 8-K
(a) Documents Filed as a Part of This Report.
1. Consolidated Financial Statements.
The consolidated financial statements listed below together with the report
thereon of the independent auditors dated December 4, 1997, are included in this
report for ITEM 8. and is incorporated by reference herein.
Consolidated Balance Sheets at October 31, 1997 and 1996.
Consolidated Statements of Income for the fiscal years ended
October 31, 1997, 1996 and 1995.
Consolidated Statements of Shareholder's Equity (Deficit) for the fiscal
years ended October 31, 1997, 1996 and 1995.
Consolidated Statements of Cash Flows for the fiscal years ended
October 31, 1997, 1996 and 1995.
Notes to Consolidated Financial Statements.
Independent Auditors' Report.
2. Financial Statement Schedule.
Independent Auditors' Report on Financial Statement Schedule.
Schedule II - Valuation and Qualifying Accounts.
3. Exhibits Required to be Filed by Item 601 of Regulation S-K.
The information called for by this paragraph is contained in the Exhibit
Index of this report which is incorporated herein by reference.
(b) Reports on Form 8-K.
No current reports on Form 8-K were filed during the last quarter of the period
covered by this report.
<PAGE> 47
INDEPENDENT AUDITORS' REPORT ON FINANCIAL STATEMENT SCHEDULE
To the Shareholder and Board of Directors
WCI Steel, Inc. and Subsidiaries:
Under date of December 4, 1997, we reported on the consolidated balance sheets
of WCI Steel, Inc. and subsidiaries as of October 31, 1997 and 1996, and the
related consolidated statements of income, shareholder's equity (deficit), and
cash flows for each of the years in the three-year period ended October 31,
1997, which are contained as part of this report herein. In connection with our
audits of the aforementioned consolidated financial statements, we also audited
the related financial statement schedule (Schedule II - Valuation and Qualifying
Accounts) also contained as part of this report herein. This financial
statement schedule is the responsibility of the Company's management. Our
responsibility is to express an opinion on the financial statement schedule
based on our audits.
In our opinion, the related financial statement schedule, when considered in
relation to the basic consolidated financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/S/ KPMG PEAT MARWICK LLP
- -------------------------
KPMG Peat Marwick LLP
Cleveland, Ohio
December 4, 1997
<PAGE> 48
<TABLE>
<CAPTION>
WCI STEEL, INC. AND SUBSIDIARIES
SCHEDULE II--VALUATION AND QUALIFYING ACCOUNTS
ALLOWANCE FOR DOUBTFUL ACCOUNTS
FOR THE YEARS ENDED OCTOBER 31, 1997, 1996 AND 1995.
(DOLLARS IN THOUSANDS)
ADDITIONS
BALANCE AT ------------------------ BALANCE AT
BEGINNING CHARGED TO CHARGES TO DEDUCTIONS END
CLASSIFICATION OF YEAR EXPENSE (b) OTHER (c) OF YEAR
- -------------- ----------- ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
ALLOWANCE FOR DOUBTFUL ACCOUNTS (a):
Year ended October 31, 1997...... $1,600 $ 64 $ -- $ 37 $1,627
Year ended October 31, 1996...... 2,258 (646) -- 12 1,600
Year ended October 31, 1995...... 2,400 117 -- 259 2,258
- -------------------------
<FN>
(a) Allowance for doubtful accounts is shown as a reduction of accounts receivable in the
Company's Consolidated Financial Statements.
(b) Charges to expense for the provision for doubtful accounts.
(c) Trade receivables written-off.
</FN>
</TABLE>
<PAGE> 49
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 the 15th day of December
1997.
WCI STEEL, INC.
By: /S/ EDWARD R. CAINE
---------------
Edward R. Caine
President and Chief Executive
Officer
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 indicated on the 15th day of December, 1997.
Signature Title
/S/ IRA LEON RENNERT
----------------
Ira Leon Rennert Chairman of the Board and Director
/S/ EDWARD R. CAINE
---------------
Edward R. Caine President and Chief Executive Officer
(principal executive officer)
/S/ BRET W. WISE
------------
Bret W. Wise Vice President, Finance and
Chief Financial Officer
(principal financial and accounting officer)
/S/ JOHN P. JACUNSKI
----------------
John P. Jacunski Controller
Supplemental Information to be Furnished With Reports Filed Pursuant to Section
15(d) of the Act by Registrants Which Have Not Registered Securities Pursuant to
Section 12 of the Act.
No annual report to security holders covering the registrant's last fiscal year
and no proxy statement, form of proxy or other proxy soliciting material with
respect to any annual or other meeting of security holders has been or will be
sent to security holders.
<PAGE> 50
Exhibit Index
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
3.1 --Articles of Incorporation of the Registrant, filed April 13, 1998 and Articles
of Amendment filed May 18, 1988, July 15, 1988, November 29, 1991, December 14,
1993 and July 13, 1994.(7)
3.2 --Code of Regulations of the Registrant, as amended December 16, 1996.(11)
4.1 --Indenture, dated as of December 14, 1993, among Renco Steel, Inc. (which
subsequently was merged into the Registrant), as issuer, the Registrant, as
guarantor, and Shawmut Bank Connecticut, National Association (now known as
Fleet National Bank), as trustee, relating to the 10 1/2% Senior Notes Due 2002,
Series A and the 10 1/2% Senior Notes Due 2002, Series B of the Registrant
(containing, as exhibits, specimens of the Series A Senior Notes and Series B
Senior Notes).(3)
4.1.1 --First Supplemental Indenture to the indenture, dated as of December 14, 1993,
among Renco Steel, Inc. which subsequently was merged into the Registrant), as
issuer, the Registrant, as guarantor, and Shawmut Bank Connecticut, National
Association (now known as Fleet National Bank), as trustee, relating to the
10 1/2% Senior Notes Due 2002, Series A and the 10 1/2% Senior Notes Due 2002,
Series B of the Registrant (containing, as exhibits, specimens of the Series A
Senior Notes and Series B Senior Notes).(3)
4.1.2 --Second Supplemental Indenture to the indenture, dated as of December 14, 1993,
among Renco Steel, Inc. (which subsequently was merged into the Registrant), as
issuer, the Registrant, as guarantor, and Shawmut Bank Connecticut, National
Association (now known as Fleet National Bank), as trustee, relating to the
10 1/2% Senior Notes Due 2002, Series A and the 10 1/2% Senior Notes Due 2002,
Series B of the Registrant (containing, as exhibits, specimens of the Series A
Senior Notes and Series B Senior Notes).(11)
4.2 --Indenture, dated as of November 27, 1996, between the Registrant, as issuer, and
Fleet National Bank, as trustee, relating to the 10% Senior Secured Notes due
2004, Series A, and the 10% Senior Secured Notes due 2004, Series B of the
Registrant (containing, as exhibits, specimens of the Series A Senior Secured
Notes and Series B Senior Secured Notes).(11)
10.1 --[Intentionally Omitted]
10.2.2 --Amended and Restated Net Worth Appreciation Agreement, effective November 1,
1995, between the Registrant and Patrick T. Kenney.(11)
10.2.3 --Amended and Restated Net Worth Appreciation Agreement, effective November 1,
1995, between the Registrant and Patrick G. Tatom.(11)
10.2.4 --Amended and Restated Net Worth Appreciation Agreement, effective November 1,
1995, between the Registrant and Bret W. Wise.(11)
10.2.7 --Net Worth Appreciation Agreement, effective April 1, 1996, between the
Registrant and Edward R. Caine.(11)
10.3 --Management Consultant Agreement, dated October 1, 1992, between Registrant and
The Renco Group, Inc.(1)
10.3.1 --Amendment No. 1, dated April 22, 1994, to Management Consultant Agreement.(4)
</TABLE>
<PAGE> 51
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
10.4 --Amended and Restated Loan and Security Agreement dated December 29, 1992 between
the Registrant and Congress Financial Corporation and Security Pacific Business
Credit Inc. (the "Revolving Credit Agreement").(1)
10.4.1 --Amendment No. 1 to the Revolving Credit Agreement, dated December 14, 1993.(3)
10.4.2 --[Intentionally Omitted]
10.4.3 --Indemnification Agreement, dated as of December 14, 1993, among the Registrant
and the lenders under the Revolving Credit Agreement.(3)
10.4.4 --Intercreditor Agreement, dated December 14, 1993, among the Shawmut Bank
Connecticut, National Association, Congress Financial Corporation and Security
Pacific Business Credit Inc.(3)
10.4.5 --Amendment No. 2 to the Revolving Credit Agreement, dated July 13, 1994.(5)
10.4.6 --Amendment No. 3 to the Revolving Credit Agreement, dated March 28, 1995.(8)
10.4.7 --Amendment No. 4 to the Revolving Credit Agreement, dated February 23, 1996.(9)
10.4.8 --Amendment No. 5 to the Revolving Credit Agreement, dated March 8, 1996.(9)
10.4.9 --Amendment No. 6 to the Revolving Credit Agreement, dated June 17, 1996.(10)
10.4.10 --Amendment No. 7 to the Revolving Credit Agreement, dated November 27, 1996.(11)
10.4.11 --Intercreditor Agreement, dated November 27, 1996, between Fleet National Bank
and Congress Financial Corporation.(11)
10.4.12 --Amendment No. 8 to the Revolving Credit Agreement, dated October 31, 1997.
10.4.13 --Guarantee by Registrant, WCI Steel Production Control Services Inc., WCI Steel
Metallurgical Services Inc. and Niles Properties, Inc. in favor of Congress
Financial Corporation and Security Pacific Business Credit, Inc., dated October
31, 1997.
10.4.14 --Guarantee by WCI Steel Production Control Services Inc., WCI Steel Metallurgical
Services Inc. and WCI Steel Sales L.P. in favor of Congress Financial
Corporation and Security Pacific Business Credit, Inc., dated October 31, 1997.
10.5.1 --Intercreditor Agreement, dated November 27, 1996, among Fleet National Bank,
Bank One Trust Company, N.A. and the Registrant.(11)
10.5.2 --Indemnification Agreement, dated as of November 27, 1996, between the Registrant
and Bank One Trust Company, N.A. (11)
10.6 --Promissory Note, dated August 31, 1988, in the original principal amount of
$5,552,000 made by the Registrant to LTV Steel Company, Inc.(1)
10.7 --Loan Agreement, dated as of May 1, 1990, between the Director of Development of
the State of Ohio and Youngstown Sinter Company (Ohio Enterprise Bond Fund
Program).(1)
10.8 --Agreement, dated June 11, 1990, between the City of Youngstown, Ohio and
Youngstown Sinter Company (with UDAG Grant Agreement).(1)
</TABLE>
<PAGE> 52
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
- ---------- ----------------------------------------------------------------------------------
<C> <S>
22 --List of Subsidiaries of Registrant.
27 --Financial Data Schedule
- ----------------
<FN>
(1) Incorporated by reference to the same-numbered exhibit filed with the Company's Registration
Statement on Form S-4, as amended (File No. 33-58648), originally filed with the Commission
on February 23, 1993.
(2) Incorporated by reference to Exhibit 22 filed with the Company's Registration Statement on
Form S-4, as amended (File No. 33-58648), originally filed with the Commission on February
23, 1993.
(3) Incorporated by reference to the same-numbered exhibit filed with the Company's Registration
Statement on Form S-4 (File No. 33-74108), filed with the Commission on January 14, 1994.
(4) Incorporated by reference to same-numbered exhibit filed with the Company's Pre-Effective
Amendment No. 2 to Registration Statement on Form S-1 (File No. 33-75722), filed with the
Commission on April 28, 1994.
(5) Incorporated by reference to exhibit 10.4.5 filed with the Company's Pre-Effective Amendment
No. 3 to Registration Statement on Form S-1 (File No. 33-75722), filed with the Commission
on May 4, 1994.
(6) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended July 31,
1994 (File No. 1-13028).
(7) Incorporated by reference to the Company's Form 10-K for the fiscal year ended October 31,
1994 (File No. 1-13028).
(8) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended April
30, 1995 (File No. 1-13028).
(9) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended April
30, 1996 (File No. 1-13028).
(10) Incorporated by reference to the Company's Form 10-Q for the quarterly period ended July
31, 1996 (File No. 1-13028).
(11) Incorporated by reference to same-numbered exhibit filed with the Company's Registration
Statement on Form S-4, as amended (File No. 333-18019), originally filed with the
Commission on December 17, 1996.
</FN>
</TABLE>
EXHIBIT 10.4.12
AMENDMENT NO. 8 TO
AMENDED AND RESTATED LOAN AND SECURITY AGREEMENT
October 31, 1997
WCI Steel, Inc.
1040 Pine Avenue, S.E.
Warren, Ohio 44483-6528
Gentlemen:
Congress Financial Corporation, a California corporation ("Congress")
and Bank America Business Credit, Inc., a Delaware corporation, as assignee
of, and together with Congress, individually and collectively, "Lenders") and
Congress Financial Corporation, as agent for Lenders (in such capacity,
"Agent") have entered into financing arrangements with WCI Steel, Inc., an
Ohio corporation ("WCI Steel"), pursuant to which Agent on behalf of Lenders
may make loans and advances and provide other financial accommodations to WCI
Steel as set forth in the Amended and Restated Loan and Security Agreement,
dated as of December 29, 1992, by and among Agent, Lenders and WCI Steel, as
amended and supplemented pursuant to Amendment No. 1 to Amended and Restated
Loan and Security Agreement, dated as of December 14, 1993, Amendment No. 2
to Amended and Restated Loan and Security Agreement, dated as of July 13,
1994, Amendment No. 3 to Amended and Restated Loan and Security Agreement,
dated as of March 28, 1995, Amendment No. 4 to Amended and Restated Loan and
Security Agreement, dated as of February 23, 1996, Amendment No. 5 to Amended
and Restated Loan and Security Agreement, dated as of March 8, 1996,
Amendment No. 6 to Amended and Restated Loan and Security Agreement, dated as
of June 17, 1996, and Amendment No. 7 to Loan and Security Agreement, dated
November 27, 1996 (as the same is amended and supplemented hereby or may
hereafter be further amended, modified, supplemented, extended, renewed,
restated or replaced, the "Loan Agreement") and the other Financing
Agreements (as such term is defined in the Loan Agreement).
WCI Steel and its subsidiaries have requested that Agent and each of
Lenders (a) consent to the formation of WCI Metallurgical (as hereinafter
defined), WCI Production (as hereinafter defined) and WCI Sales LP (as
hereinafter defined), (b) permit the transfer of existing receivables of WCI
Steel to WCI Sales LP on the date hereof, (c) permit intercompany sales of
inventory after the date hereof from WCI Steel to WCI Sales LP for resale to
Account Debtors, (d) include WCI Sales LP as a borrower under the Loan
Agreement, and (e) permit WCI Metallurgical and WCI Production to provide
certain sales and production services to WCI Steel and WCI Sales LP.
Agent and Lenders are willing to so consent, subject to the terms and
conditions contained herein. By this Amendment, Agent, Lenders and Borrower
desire and intend to evidence such consent and related amendments.
In consideration of the foregoing, the mutual agreements and covenants
contained herein, and other good and valuable consideration, the adequacy and
sufficiency of which is hereby acknowledged, Agent, Lenders and Borrower
agree as follows:
1. Definitions.
(a) Additional Definitions. As used herein, the following terms
shall have the respective meanings given to them below and the Loan Agreement
shall be deemed and is hereby amended to include, in addition and not in
limitation of, each of the following definitions:
(i) "WCI Metallurgical" shall mean WCI Steel Metallurgical
Services, Inc., an Ohio corporation, and its successors and assigns.
(ii) "WCI Production" shall mean WCI Steel Production Control
Services Inc., an Ohio corporation, and its successors and assigns.
(iii) "WCI Sales LP" shall mean WCI Steel Sales L.P., an Ohio
limited partnership, and its successors and assigns.
(iv) "WCI Sales LP Limited Partnership Agreement" shall mean
the Limited Partnership Agreement, dated October 2, 1997, between WCI
Metallurgical and WCI Production, as the same now exists or may hereafter be
amended, modified, supplemented, extended, renewed, restated or replaced.
(v) "WCI Steel" shall mean WCI Steel, Inc., an Ohio
corporation, and its successors and assigns.
(b) Amendment to Definition. All references to the term
"Borrower" or "Debtor" in the Loan Agreement or in any of the Financing
Agreements shall be deemed and each such reference is hereby amended to mean,
jointly and severally, individually and collectively, WCI Sales LP and WCI
Steel.
(c) Interpretation. For purposes of this Amendment, unless
otherwise defined herein, all terms used herein, including, but not limited
to, those terms used and/or defined in the recitals hereto, shall have the
respective meanings assigned thereto in the Loan Agreement.
2. Consents. Subject to the terms and conditions contained herein,
Agent and Lenders hereby consent to: (a) the formation of WCI Sales LP, WCI
Metallurgical and WCI Production, (b) the transfer as of the date hereof by
WCI Steel to WCI Sales LP of all of the existing Accounts of WCI Steel,
provided, that, such consent shall not be construed to release or terminate
the security interests and liens of Agent in such Accounts, which security
interests and liens of Agent shall continue and remain in full force and
effect with respect to such Accounts as so transferred and WCI Sales LP shall
acquire such Accounts subject to the security interests and liens of Agent,
(c) intercompany sales of Inventory after the date hereof by WCI Steel to WCI
Sales LP, provided, that, such consent shall not be construed to release or
terminate the security interests and liens of Agent in such Inventory, which
security interests and liens of Agent shall continue and remain in full force
and effect, and WCI Sales LP shall acquire such Inventory subject to the
security interests and liens of Agent, and (d) certain payments to WCI
Metallurgical and WCI Production in exchange for sales and production
services provided by each of them to WCI Steel and WCI Sales LP.
3. Assumption of Obligations.
(a) WCI Sales LP hereby expressly (i) assumes and agrees to be
directly liable to Agent and Lenders, jointly and severally with WCI Steel,
for all Obligations under, contained in, or arising out of the Loan Agreement
and the other Financing Agreements applicable to WCI Steel as a Borrower and
as applied to WCI Sales LP as a Borrower, (ii) agrees to perform, comply with
and be bound by all terms, conditions and covenants of the Loan Agreement and
the other Financing Agreements applicable to WCI Steel and as applied to WCI
Sales LP as a Borrower, with the same force and effect as if WCI Sales LP had
originally executed and been an original Borrower as a signatory to the Loan
Agreement and the other Financing Agreements, and (iii) agrees that Agent and
Lenders shall have all rights, remedies and interests, including security
interests in and to the Collateral granted pursuant to Section 5 hereof, the
Loan Agreement and the other Financing Agreements, with respect to WCI Sales
LP and its properties and assets with the same force and effect as Agent and
Lenders have with respect to WCI Steel and its assets and properties as if
WCI Sales LP had originally executed and had been an original Borrower as a
signatory to the Loan Agreement and the other Financing Agreements.
(b) WCI Steel and WCI Sales LP shall be liable for all amounts due
to Agent and Lenders under this Agreement, regardless of which of them
actually receives the Loans or other extensions of credit hereunder or the
amount of such Loans received or the manner in which Agent or any Lender
accounts for such Loans, Letter of Credit Accommodations or other extensions
of credit on its books and records. The Obligations with respect to Loans
made to WCI Steel or WCI Sales LP and the Obligations arising as a result of
the joint and several liability of WCI Steel or WCI Sales LP, with respect to
Loans made to either WCI Steel or WCI Sales LP, shall be separate and
distinct obligations, but all such other Obligations shall be primary
obligations of WCI Steel and WCI Sales LP. The Obligations arising as a
result of the joint and several liability of WCI Steel and WCI Sales LP with
respect to Loans, Letter of Credit Accommodations or other extensions of
credit made to the other shall, to the fullest extent permitted by law, be
unconditional irrespective of (i) the validity or enforceability, avoidance
or subordination of the Obligations of the other or of any promissory note or
other document evidencing all or any part of the Obligations of the other,
(ii) the absence of any attempt to collect the Obligations from the other
Borrower, or any other security therefor, or the absence of any other action
to enforce the same, (iii) the waiver, consent, extension, forbearance or
granting of any indulgence by Agent or any Lender with respect to any
provisions of any instrument evidencing the Obligations of the other
Borrower, or any part thereof, or any other agreement now or hereafter
executed by the other Borrower and delivered to Agent or any Lender, (iv) the
failure by Agent or any Lender to take any steps to perfect and maintain its
security interest in, or to preserve its rights and maintain its security or
collateral for the Obligations of the other Borrower, (v) the election of
Agent or any Lender in any proceeding instituted under the Bankruptcy Code,
of the application of Section 1111(b)(2) of the Bankruptcy Code, (vi) any
borrowings or grant or a security interest by the other Borrower, as
debtor-in-possession under Section 364 of the Bankruptcy Code, (vii) the
disallowance of all or any portion of the claim(s) of Agent or any Lender for
the repayment of the Obligations of the other Borrower under Section 502 of
the Bankruptcy Code, or (viii) any other circumstances which might constitute
a legal or equitable discharge or defense of a guarantor or of the other
Borrower. With respect to the Obligations arising as a result of the joint
and several liability of WCI Steel and WCI Sales LP with respect to Loans,
Letter of Credit Accommodations or other extensions of credit made to the
other Borrower hereunder, each of WCI Steel and WCI Sales LP waives, until
the Obligations shall have been paid in full and this Agreement shall have
been terminated, any right to enforce any right of subrogation or any remedy
which Agent or any Lender now has or may hereafter have against WCI Steel and
WCI Sales LP, any endorser or any guarantor of all or any part of the
Obligations, and any benefit of, and any right to participate in, any
security or collateral given to Agent. Upon any Event of Default, Agent may
proceed directly and at once, without notice, against either WCI Steel or WCI
Sales LP to collect and recover the full amount, or any portion of the
Obligations, without first proceeding against the other Borrower or any other
Person, or against any security or collateral for the Obligations. Each of
WCI Steel and WCI Sales LP consents and agrees that Agent shall be under no
obligation to marshall any assets in favor of WCI Steel and WCI Sales LP or
against or in payment of any or all of the Obligations.
4. Loans. Section 3.1(a) of the Loan Agreement is hereby deleted in
its entirety and replaced with the following:
"3.1 Loans.
(a) Subject to, and upon the terms and conditions contained
herein:
(i) At the request of WCI Sales LP, or at the request
of WCI Steel on behalf of WCI Sales LP, each of Lenders severally,
but not jointly, agrees to lend to WCI Sales LP and authorizes and
appoints Agent to make Loans to WCI Sales LP, for the account of
and as Agent for Lenders, in such amounts from time to time as Agent
shall determine, in its discretion, upon such request, of up to:
(A) xxxxxxxxxxxxxxxxx percent of the Net Amount of Eligible Accounts
of WCI Sales LP (or such greater or lesser percentage thereof as
Agent may determine from time to time), plus (B) sixty (60%) percent
of the Value of Eligible Inventory of WCI Sales LP taking into account
the elimination of intercompany profit (or such greater or lesser
percentage thereof as Agent may determine from time to time).
(ii) At the request of WCI Steel, each of Lenders
severally, but not jointly, agrees to lend to WCI Steel, and
authorizes and appoints Agent to make Loans to WCI Steel, for the
account of and as Agent for Lenders, in such amounts from time to
time as Agent shall determine in its discretion, upon such request,
of up to xxxxxxxxxxx percent of the Value of Eligible Inventory of
WCI Steel (or such greater or lesser Percentage thereof as Agent
may determine from time to time)."
5. Appointment of Agent for Requesting Loans and Receipt of Loans and
Statements.
(a) WCI Sales LP hereby irrevocably appoints and constitutes WCI
Steel as its agent to request and receive Loans and Letter of Credit
Accommodations pursuant to the Loan Agreement and the other Financing
Agreements from Agent and Lenders in the name or on behalf of WCI Sales LP.
Agent and Lenders may disburse the Loans to such bank account of WCI Steel or
otherwise make such Loans to WCI Sales LP and provide such Letter of Credit
Accommodations to WCI Sales LP as WCI Steel may designate or direct, without
notice to WCI Sales LP, any Obligor or any other person at any time obligated
on or in respect of the Obligations.
(b) WCI Steel hereby accepts the appointment by WCI Sales LP as
the agent of WCI Sales LP pursuant to Section 5(a) hereof. WCI Steel shall
ensure that the disbursements of any Loans to WCI Sales LP requested by or
paid to WCI Steel or the issuance of any Letter of Credit Accommodations for
WCI Sales LP shall be paid to or for the account of WCI Sales LP.
(c) WCI Sales LP hereby irrevocably appoints and constitutes WCI
Steel as its agent to receive statements of account and all other notices
from Agent and Lenders with respect to the Obligations or otherwise under or
in connection with the Loan Agreement and the other Financing Agreements.
(d) No purported termination of the appointment of WCI Steel as
agent as aforesaid shall be effective, except after ten (10) days prior
written notice to Agent.
6. Direct Grant of Security Interest. Without limiting the provisions
of Section 3(a) hereof, the Loan Agreement and the other Financing
Agreements, as collateral security for the prompt performance, payment and
performance when due of all of the Obligations of WCI Sales LP to each of
Agent and Lenders, WCI Sales LP hereby grants to each of Agent and Lenders, a
continuing security interest in, and lien upon, and right of setoff against,
and WCI Sales LP hereby pledges and assigns to each of Agent and Lenders, all
now owned and hereafter acquired and arising assets and properties of WCI
Sales LP, all of which shall be included in the definition of Collateral as
set forth in the Loan Agreement (which definition is hereby amended
accordingly), including, without limitation, the following:
(a) (i) all Accounts; (ii) all monies, securities and other
property and the proceeds thereof, now or hereafter held or received by, or
in transit to, Agent, Lenders or any Participant from or for WCI Sales LP,
whether for safekeeping, pledge, custody, transmission, collection or
otherwise, and all of WCI Sales LP's deposits (general or special), balances,
sums and credits with Agent, Lenders or any Participant at any time existing;
(iii) all right, title and interest, and all enforcement and other rights,
remedies, and security and liens, in, to and in respect of the Accounts and
other Collateral, including, without limitation, rights of stoppage in
transit, replevin, repossession, sequestration and reclamation and other
rights and remedies of an unpaid vendor, lienor or secured party, guaranties
or other contracts of suretyship with respect to the Accounts, deposits or
other security for the obligation of any Account Debtor, credit and other
insurance; (iv) all right, title and interest in, to and in respect of all
goods relating to Accounts, including, without limitation, all goods
described in invoices, documents, contracts or instruments with respect to,
or otherwise representing or evidencing, any Account or other Collateral,
including, without limitation, all returned, reclaimed or repossessed goods;
(v) all deposit accounts; and (vi) all other general intangibles of every
kind and description (other than trademarks and patents), including, without
limitation, (A) the interests of WCI Sales LP in any surety, insurance or
bonds, letters of credit or other guaranties and (B) claims and other choses
in action;
(b) all Inventory;
(c) all present and future books and records relating to any of
the above, including, without limitation, all ledgers, books of account,
records, tapes, cards, computer programs, computer disks or tape files,
computer printouts, computer runs, computer data and other computer prepared
information in the possession or control of WCI Sales LP, any computer
service bureau or other third person; and
(d) all products and proceeds of the foregoing, in any form,
including, without limitation, any insurance proceeds and any claims against
third persons for loss or damage to or destruction of any or all of the
foregoing.
Notwithstanding anything to the contrary set forth in this Section 6 hereof,
the Collateral shall not include the Equipment, the Real Property or the
other assets of WCI Sales LP described on Exhibit M hereto and the Collateral
shall not include proceeds of business interruption insurance.
7. Loans, Investments, Guarantees. Section 7.5 of the Loan Agreement
is hereby amended by adding a new Section 7.5(k) as follows:
"(k) the guarantees by WCI Steel, WCI Sales LP,
WCI Production and WCI Metallurgical in favor of
Lenders and Agent."
8. Exhibits. Exhibits B, C, D, J, and L to the Loan Agreement are
hereby amended to include, in addition and not in limitation, the additional
information set forth on the Exhibits B, C, D, J and L attached hereto.
9. Representations, Warranties and Covenants. In addition to the
continuing representations, warranties and covenants heretofore or hereafter
made by WCI Steel, WCI Sales LP, WCI Production, WCI Metallurgical and Niles
to Agent and/or Lenders pursuant to the other Financing Agreements, each of
WCI Steel, WCI Sales LP, WCI Production, WCI Metallurgical and Niles hereby
represents, warrants and covenants with and to Agent and Lenders as follows
(which representations, warranties and covenants are continuing and shall
survive the execution and delivery hereof and shall be incorporated into and
made a part of the Financing Agreements):
(a) This Amendment and each other agreement or instrument to be
executed and delivered by each of WCI Steel, WCI Sales LP, WCI Production,
WCI Metallurgical and Niles hereunder have been duly authorized, executed and
delivered by all necessary action on the part of each of WCI Steel, WCI Sales
LP, WCI Production, WCI Metallurgical and Niles which is a party hereto and
thereto and, if necessary, their respective stockholders, and is in full
force and effect as of the date hereof, as the case may be, and the
agreements and obligations of each of WCI Steel, WCI Sales LP, WCI
Production, WCI Metallurgical and Niles, as the case may be, contained herein
and therein constitute legal, valid and binding obligations of each of WCI
Steel, WCI Sales LP, WCI Production, WCI Metallurgical and Niles, as the case
may be, enforceable against them in accordance with their terms.
(b) All of the outstanding shares of capital stock of each of WCI
Production and WCI Metallurgical have been duly authorized, validly issued
and are fully paid and non-assessable, free and clear of all claims, liens,
pledges and encumbrances of any kind. WCI Steel is the beneficial and direct
owner of record of one hundred (100%) percent of the issued and outstanding
shares of capital stock of each of WCI Production Services and WCI
Metallurgical.
(c) No action of, or filing with, or consent of any governmental
or public body or authority, other than the filing of UCC financing
statements, and no approval or consent of any other party, is required to
authorize, or is otherwise required in connection with, the execution,
delivery and performance of this Amendment.
(d) All of the representations and warranties set forth in the
Loan Agreement and the other Financing Agreements, each as amended hereby,
are true and correct in all material respects on and as of the date hereof as
if made on the date hereof, except as affected by transactions expressly
contemplated or permitted by this Amendment and except to the extent any such
representation or warranty is made as of a specified date, in which case such
representation or warranty shall have been true and correct as of such date.
(e) As of the date hereof, and after giving effect to the
provisions of this Amendment, no Event of Default, and no condition or event
which, with the giving of notice or lapse of time, or both, would constitute
an Event of Default, exists or has occurred and is continuing.
(f) WCI Metallurgical is an Ohio corporation, duly organized and
validly existing in good standing under the laws of the State of Ohio. WCI
Production is an Ohio corporation, duly organized and validly existing in
good standing under the laws of the State of Ohio. The sole general partner
of WCI Sales LP is and shall be WCI Production and the sole limited partner
of WCI Sales LP is and shall be WCI Metallurgical. WCI Sales LP is an Ohio
limited partnership, duly formed and validly existing in good standing under
the laws of the State of Ohio. Each of WCI Sales LP, WCI Metallurgical and
WCI Production (i) is duly licensed or qualified to do business as a foreign
corporation and is in good standing in each of the jurisdictions set forth in
Exhibit B annexed hereto, which are the only jurisdictions where the nature
of the properties owned or licensed or the nature of the business makes such
licensing or qualification to do business necessary, and (ii) has all
requisite power and authority to own, lease and operate its properties and to
carry on its business as it is now being conducted and will be conducted in
the future.
(g) The WCI Sales LP Limited Partnership Agreement has been duly
and validly authorized, executed and delivered and constitutes a valid
binding agreement enforceable in accordance with its terms.
(h) The assets and properties of WCI Sales LP, WCI Production and
WCI Metallurgical are owned by them, free and clear of all security
interests, liens and encumbrances of any kind, nature or description, except
those security interests granted pursuant hereto or the Loan Agreement in
favor of Agent and Lenders and except for Liens (if any) permitted under
Section 7.4 of the Loan Agreement or the other Financing Agreements. WCI
Sales LP, WCI Production and WCI Metallurgical do not, and shall not, own any
Equipment or Real Property having a value in the aggregate of more than
$1,000,000 and the only other assets of WCI Sales LP are and shall be
Accounts and Inventory. The only business of WCI Sales LP is, and shall be,
the resale to third party customers of Inventory sold by WCI Steel to WCI
Sales LP.
(i) All sales of Inventory by WCI Steel to WCI Sales LP after the
date hereof shall be in the ordinary course of and pursuant to the reasonable
requirements of its business and upon fair and reasonable terms no less
favorable to WCI Steel than it would obtain in a comparable arm's length
transaction with a person other than an Affiliate (except that the price of
such Inventory so sold by WCI Steel to WCI Sales LP may be between
xxxxxxxxxxxx percent and xxxxxxxxxxxxxxxxxx percent of the market value of
such Inventory based on the sales price to the ultimate third party
customer). All services provided by WCI Production to WCI Steel and WCI
Steel LP for planning steel production and all services provided by WCI
Metallurgical to WCI Steel and WCI Sales LP for making steel and furnishing
services to customers of WCI Sales LP shall be in the ordinary course of and
pursuant to the reasonable requirements of the business of WCI Steel and WCI
Sales LP and upon fair and reasonable terms no less favorable to each of WCI
Steel and WCI Sales LP than it would obtain in a comparable arm's length
transaction with a person other than an Affiliate.
(j) Within twenty (20) days after the date hereof, WCI Steel and
WCI Sales LP shall obtain and deliver such amendment to the existing Blocked
Account arrangements as Agent shall require, in form and substance
satisfactory to Agent, to reflect the transactions provided for herein, duly
executed and delivered by the banks at which such Blocked Accounts are
maintained by Borrower.
10. Conditions Precedent. The effectiveness of the consents, waiver
and other terms and conditions contained herein shall be subject to the
receipt by Agent of each of the following, in form and substance satisfactory
to Agent:
(a) the Guarantee by WCI Sales LP, WCI Metallurgical and WCI
Production in favor of Lenders and Agent with respect to the Obligations of
WCI Steel to Lenders and Agent;
(b) the Guarantee by WCI Steel, Niles, WCI Metallurgical and WCI
Production in favor of Lenders and Agent with respect to the Obligations of
WCI Sales LP to Lenders and Agent;
(c) the Security Agreement by WCI Metallurgical in favor of
Lenders and Agent;
(d) the Security Agreement by WCI Production in favor of Lenders
and Agent;
(e) such UCC financing statements and other documents and
instruments by WCI Sales LP, WCI Production and WCI Metallurgical which
Lenders in their sole discretion have determined are necessary to perfect the
security interests of Agent and Lenders in all assets now or hereafter owned
by WCI Sales LP, WCI Production and WCI Metallurgical;
(f) the Certificate of Incorporation, and all amendments thereto,
of each of WCI Production and WCI Metallurgical certified by the Secretary of
State of its jurisdiction of incorporation as of the most recent practicable
date certifying that each of the foregoing documents remains in full force
and effect and has not been modified or amended, except as described therein,
together with a copy of the By-Laws of each of WCI Production and WCI
Metallurgical, certified by the secretary of each of WCI Production and WCI
Metallurgical, and a certificate from the secretary of each of WCI
Metallurgical and WCI Production dated the date hereof certifying that each
of the foregoing documents remains in full force and effect and has not been
modified or amended, except as described therein;
(g) the Certificate of Limited Partnership, and all amendments
thereto, of WCI Sales LP certified by the Secretary of State of Ohio,
together with the WCI Sales Limited Partnership Agreement and a certificate
from the managing partner of WCI Sales LP dated the date hereof certifying
that each of the foregoing documents remains in full force and effect and has
not been modified or amended, except as described therein;
(h) evidence, as of the most recent practicable date, that each of
WCI Sales LP, WCI Production and WCI Metallurgical is duly qualified and in
good standing in each jurisdiction set forth in Exhibit B hereto;
(i) a Secretary's Certificate of Directors' Resolutions with
Shareholder's Consent evidencing the adoption and existence of corporate
resolutions approving the execution, delivery and performance by each of WCI
Sales L.P., WCI Production and WCI Metallurgical of this Amendment and the
agreements, documents and instruments to be delivered pursuant to this
Amendment, together with such opinions of counsel to with respect thereto,
addressed to Lenders and Agent as Lenders shall reasonably require.
11. Additional Events of Default. The parties hereto acknowledge,
confirm and agree that the failure of Borrower to comply with the covenants,
conditions and agreements contained herein shall constitute an Event of
Default under the Financing Agreements (subject to the applicable cure
period, if any, with respect thereto provided for in the Loan Agreement as in
effect on the date hereof).
12. Effect of this Amendment. Except as modified pursuant hereto, no
other waivers, changes or modifications to the Financing Agreements are
intended or implied, and in all other respects, the Financing Agreements are
hereby specifically ratified, restated and confirmed by all parties hereto as
of the effective date hereof. To the extent of conflict between the terms of
this Amendment and the other Financing Agreements, the terms of this
Amendment shall control.
13. Further Assurances. The parties hereto shall execute and deliver
such additional documents and take such additional actions as may be
necessary to effectuate the provisions and purposes of this Amendment.
14. Governing Law. The rights and obligations hereunder of each of the
parties hereto shall be governed by and interpreted and determined in
accordance with the laws of the State of New York.
15. Binding Effect. This Amendment shall be binding upon and inure to
the benefit of each of the parties hereto and their respective successors and
assigns. Any acknowledgment or consent contained herein shall not be
construed to constitute a consent to any other or further action by Borrower,
WCI Metallurgical, WCI Production, WCI Sales LP or Niles or to entitle
Borrower or any of such persons to any other consent. The Loan Agreement and
this Amendment shall be read and construed as one agreement.
16. Counterparts. This Amendment may be executed in any number of
counterparts, but all of such counterparts shall together constitute but one
and the same agreement. In making proof of this Amendment, it shall not be
necessary to produce or account for more than one counterpart thereof signed
by each of the parties thereto.
[REMAINDER OF PAGE INTENTIONALLY OMITTED]
<PAGE>
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed and delivered by their authorized officers as of the day and
year first above written.
Very truly yours,
WCI STEEL, INC.
By:/S/ BRET W. WISE
------------
Title: Assistant Secretary
WCI STEEL SALES L.P.
By: WCI STEEL PRODUCTION CONTROL
SERVICES INC., as its general partner
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
ACCEPTED AND AGREED:
CONGRESS FINANCIAL CORPORATION,
individually and as Agent
By:/S/ LAURENCE S. FORTE
-----------------
Title: First Vice President
BANKAMERICA BUSINESS CREDIT, INC.
By:/S/ EARNEST PELLI
-------------
Title: Vice President
[SIGNATURES CONTINUE ON NEXT PAGE]
[SIGNATURES CONTINUED FROM PREVIOUS PAGE]
ACKNOWLEDGED AND CONSENTED TO:
NILES PROPERTIES, INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Treasurer
WCI STEEL PRODUCTION CONTROL SERVICES INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
WCI STEEL METALLURGICAL SERVICES INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
EXHIBIT B
WCI Steel Metallurgical Services. Inc.
Incorporated in Ohio. Qualified as a foreign corporation in:
Alabama
California
Colorado
Connecticut
Georgia
Illinois
Indiana
Kentucky
Louisiana
Michigan
North Carolina
New Jersey
New York
Pennsylvania
South Carolina
Tennessee
Texas
Wisconsin
West Virginia
WCI Steel Production Services. Inc.
Incorporated in Ohio. Qualified as a foreign corporation in:
Michigan
Pennsylvania
WCI Steel Sales Limited Partnership
A limited partnership formed under the laws of Ohio. Qualified to do
business in:
Michigan
<PAGE>
EXHIBIT C
WCI Steel Metallurgical Services, Inc.
1040 Pine Avenue, S.E.
Warren, Ohio 44483
WCI Steel Production Services, Inc.
1040 Pine Avenue, S.E.
Warren, Ohio 44483
WCI Steel Sales L.P.
1040 Pine Avenue, S.E.
Warren, Ohio 44483
<PAGE>
EXHIBIT D
Location of Collateral
1040 Pine Avenue, S.E.
Warren, OH 44483-6528
<PAGE>
EXHIBIT J
Corporate Names; Tradenames; Prior Transactions
None.
<PAGE>
Schedule 4.3
Existing Liens
None.
Permitted Liens includes:
(i) mechanics, materialmen, warehousemen and other like statutory
liens arising in the ordinary course of the Guarantor's business to the
extent (a) such liens secure Obligations which are not overdue or (b) until
foreclosure of similar proceedings shall have been commenced, such liens
secure Obligations relating to claims or liabilities which are (1) fully
insured and being defended at the sole cost and expense and the sole risk of
the insurer or (2) being contested in good faith by appropriate proceedings
diligently pursued and available to the Guarantor which proceedings have the
effect of preventing the forfeiture or sale of the property or asset subject
to such lien and are adequately escrowed for or reserved;
(ii) liens for taxes not yet due and payable or liens for taxes
being contested in good faith and by appropriate proceedings for which
adequate reserves have been established in accordance with GAAP,
(iii) liens (other than any lien imposed by ERISA) incurred or
deposits made in the ordinary course of business (a) in connection with
liability insurance, workers' compensation, unemployment insurance and other
types of social security or (b) to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, contracts,
performance and return-of-money bonds and other similar obligations incurred
in the ordinary course of business;
(iv) leases or subleases granted to third persons not interfering
with the ordinary course of business of the Guarantor;
(v) any attachment or judgment lien arising from a judgment not
giving rise to an Event of Default, or an act, condition or event which with
notice or passage of time or both would constitute an Event of Default so
long as such lien, if encumbering Collateral, has not attached to such
Collateral for more than forty-five (45) days and so long as no enforcement
action has commenced with respect to such Collateral;
(vi) easements, rights-of-way, restrictions, encroachments,
licenses, zoning restrictions and other similar charges or encumbrances, in
each cases not interfering in any material respect with the business of the
Guarantor;
(vii) non-consensual liens which may arise or be created under
ERISA and under environmental laws that are being contested in good faith and
as to which adequate reserves have been established to the extent required by
GAAP and secure obligations that are not reasonably likely to have a Material
Adverse Effect, and which are not reasonably likely to adversely affect the
Agent's rights with respect to the Collateral or the value thereof; and
<PAGE>
(viii) purchase money mortgages or other purchase money liens or
security interests up to $500,000 upon any specified fixed assets hereafter
acquired or liens or security interests existing on any such future fixed
assets at the time of acquisition thereof and including in any event any
capital or finance leases; provided that: (a) no such purchase money lien or
security interest (or capital or finance lease, as the case may be) with
respect to specific future fixed assets or as refinanced shall extend to or
cover any other property other than the specific fixed assets so acquired, or
acquired subject to such lien or security interest (or lease) and the
proceeds thereof; (b) such lien or security interest only secures the
obligation to pay the purchase price of such specific fixed assets (or the
obligations under the capital or finance lease); (c) the principal amount
secured thereby shall not exceed one hundred percent (100%) of the cost of
the fixed assets so acquired; and (d) no Event of Default, or act, condition
or event which with notice or passage of time or both would constitute an
Event of Default, shall exist or have occurred and be continuing.
<PAGE>
Schedule 4.7
Bank Accounts for WCI Production Control Services. Inc.
Bank Account Number Purpose/Type
Corestates xxxx-xxxx Account Payable
Schedule 4.7
Bank Accounts for WCI Metallurgical Services. Inc.
Bank Account Number Purpose/Type
Corestates xxxx-xxxx Account Payable
EXHIBIT 10.4.13
GUARANTEE
As of October 31, 1997
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: WCI Steel, Inc. ("Borrower")
Gentlemen:
Congress Financial Corporation ("Congress"), BankAmerica Business
Credit, Inc., as assignee of Security Pacific Business Credit Inc. ("BABC",
and together with Congress, individually and collectively, "Lenders"),
Congress Financial Corporation, as agent for Lenders (in such capacity,
"Agent") and Borrower have entered into certain financing arrangements
pursuant to which Agent and Lenders may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Amended and
Restated Loan and Security Agreement, dated as of December 29, 1992, by and
among Borrower, WCI Steel Sales L.P., Agent and Lenders (as the same now
exists or may hereafter be amended, modified, supplemented, extended,
renewed, restated or replaced, the "Loan Agreement"), and other agreements,
amendments, documents and instruments referred to therein or at any time
executed and/or delivered in connection therewith or related thereto,
including, but not limited to, this Guarantee (all of the foregoing, together
with the Loan Agreement, as the same now exist or may hereafter be amended,
modified, supplemented, extended, renewed, restated or replaced, being
collectively referred to herein as the "Financing Agreements").
Due to the close business and financial relationships between Borrower
and each and all of the undersigned (individually and collectively,
"Guarantors"), in consideration of the benefits which will accrue to
Guarantors and as an inducement for and in consideration of Agent and Lenders
making loans and advances and providing other financial accommodations to
Borrower pursuant to the Loan Agreement and the other Financing Agreements,
each of Guarantors hereby jointly and severally agrees in favor of Agent and
Lenders as follows:
1. Guarantee.
(a) Each of Guarantors absolutely and unconditionally, jointly and
severally, guarantees and agrees to be liable for the full and indefeasible
payment and performance when due of the following (all of which are
collectively referred to herein as the "Guaranteed Obligations"): all
obligations, liabilities and indebtedness of any kind, nature and description
of Borrower to Agent and Lenders and/or their affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether
arising under the Loan Agreement, the other Financing Agreements or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Loan Agreement or
after the commencement of any case with respect to Borrower under the United
States Bankruptcy Code or any similar statute (including, without limitation,
the payment of interest and other amounts, which would accrue and become due
but for the commencement of such case, whether or not such amounts are
allowed or allowable in whole or in part in any such case and including
loans, interest, fees, charges and expenses related thereto and all other
obligations of Borrower or its successors to Agent and Lenders arising after
the commencement of such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Agent and Lenders and all expenses (including, without limitation,
attorneys' fees and legal expenses) incurred by Agent and Lenders in
connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of
Borrower's obligations, liabilities and indebtedness as aforesaid to Agent
and Lenders, the rights of Agent and Lenders in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims
by or against Agent and Lenders directly or indirectly arising out of or
related to the relationships between Borrower, any of Guarantors or any other
Obligor (as hereinafter defined) and Agent and Lenders, whether such expenses
are incurred before, during or after the initial or any renewal term of the
Loan Agreement and the other Financing Agreements or after the commencement
of any case with respect to Borrower or any of Guarantors under the United
States Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of collection.
Each of Guarantors agrees that Agent and Lenders need not attempt to collect
any Guaranteed Obligations from Borrower, any one of Guarantors or any other
Obligor or to realize upon any collateral, but may require any one of
Guarantors to make immediate payment of all of the Guaranteed Obligations to
Agent and Lenders when due, whether by maturity, acceleration or otherwise,
or at any time thereafter. Agent and Lenders may apply any amounts received
in respect of the Guaranteed Obligations to any of the Guaranteed
Obligations, in whole or in part (including attorneys' fees and legal
expenses incurred by Agent and Lenders with respect thereto or otherwise
chargeable to Borrower or Guarantors) and in such order as Agent and Lenders
may elect.
(c) Payment by Guarantors shall be made to Agent and Lenders at
the office of Agent from time to time on demand as Guaranteed Obligations
become due. Guarantors shall make all payments to Agent and Lenders on the
Guaranteed Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. One or more successive or concurrent actions may be
brought hereon against any of Guarantors either in the same action in which
Borrower or any of the other Guarantors or any other Obligor is sued or in
separate actions. In the event any claim or action, or action on any
judgment, based on this Guarantee is brought against any of Guarantors, each
of Guarantors agrees not to deduct, set-off, or seek any counterclaim for or
recoup any amounts which are or may be owed by Agent and Lenders to any of
Guarantors.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans
and advances and providing other financial accommodations to Borrower and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Borrower or any of Guarantors are
entitled are hereby waived by each of Guarantors. Each of Guarantors also
waives notice of and hereby consents to, any amendment, modification,
supplement, extension, renewal, or restatement of the Loan Agreement and any
of the other Financing Agreements, including, without limitation, extensions
of time of payment of or increase or decrease in the amount of any of the
Guaranteed Obligations, the interest rate, fees, other charges, or any
collateral, and the guarantee made herein shall apply to the Loan Agreement
and the other Financing Agreements and the Guaranteed Obligations as so
amended, modified, supplemented, renewed, restated or extended, increased or
decreased, the taking, exchange, surrender and releasing of collateral or
guarantees now or at any time held by or available to Agent and Lenders for
the obligations of Borrower or any other party at any time liable on or in
respect of the Guaranteed Obligations or who is the owner of any property
which is security for the Guaranteed Obligations (individually, an "Obligor"
and collectively, the "Obligors"), including, without limitation, the
surrender or release by Agent and Lenders of any one of Guarantors hereunder,
the exercise of, or refraining from the exercise of any rights against
Borrower, any of Guarantors or any other Obligor or any collateral, the
settlement, compromise or release of, or the waiver of any default with
respect to, any of the Guaranteed Obligations and any financing by Agent and
Lenders of Borrower under Section 364 of the United States Bankruptcy Code or
consent to the use of cash collateral by Agent and Lenders under Section 363
of the United States Bankruptcy Code. Each of Guarantors agrees that the
amount of the Guaranteed Obligations shall not be diminished and the
liability of Guarantors hereunder shall not be otherwise impaired or affected
by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to
this Guarantee, nor shall any other circumstance which might otherwise
constitute a defense available to or legal or equitable discharge of Borrower
in respect of any of the Guaranteed Obligations, or any one of Guarantors in
respect of this Guarantee, affect, impair or be a defense to this Guarantee.
Without limitation of the foregoing, the liability of Guarantors hereunder
shall not be discharged or impaired in any respect by reason of any failure
by Agent and Lenders to perfect or continue perfection of any lien or
security interest in any collateral or any delay by Agent and Lenders in
perfecting any such lien or security interest. As to interest, fees and
expenses, whether arising before or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute, Guarantors shall be liable therefor, even if Borrower's liability
for such amounts does not, or ceases to, exist by operation of law. Each of
Guarantors acknowledges that Agent and Lenders have not made any
representations to any of Guarantors with respect to Borrower, any other
Obligor or otherwise in connection with the execution and delivery by
Guarantors of this Guarantee and Guarantors are not in any respect relying
upon Agent and Lenders or any statements by Agent and Lenders in connection
with this Guarantee.
(c) Each of Guarantors hereby irrevocably and unconditionally
waives and relinquishes all statutory, contractual, common law, equitable and
all other claims against Borrower, any collateral for the Guaranteed
Obligations or other assets of Borrower or any other Obligor, for
subrogation, reimbursement, exoneration, contribution, indemnification,
setoff or other recourse in respect to sums paid or payable to Agent and
Lenders by each of Guarantors hereunder and each of Guarantors hereby further
irrevocably and unconditionally waives and relinquishes any and all other
benefits which Guarantors might otherwise directly or indirectly receive or
be entitled to receive by reason of any amounts paid by or collected or due
from Guarantors, Borrower or any other Obligor upon the Guaranteed
Obligations or realized from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantors by Borrower or any other Obligor is hereby subordinated in right
of payment to the indefeasible payment in full to Agent and Lenders of the
Guaranteed Obligations and all such amounts and any security and guarantees
therefor are hereby assigned to Agent and Lenders as security for the
Guaranteed Obligations.
4. Acceleration. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantors for the entire Guaranteed Obligations shall mature
and become immediately due and payable, even if the liability of Borrower or
any other Obligor therefor does not, upon the occurrence of any act,
condition or event which constitutes an Event of Default as such term is
defined in the Loan Agreement.
5. Account Stated. The books and records of Agent and Lenders showing
the account between Agent and Lenders and Borrower shall be admissible in
evidence in any action or proceeding against or involving Guarantors as prima
facie proof of the items therein set forth, and the monthly statements of
Agent and Lenders rendered to Borrower, to the extent to which no written
objection is made within thirty (30) days from the date of sending thereof to
Borrower, shall be deemed conclusively correct and constitute an account
stated between Agent and Lenders and Borrower and be binding on Guarantors.
6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to
have been created in reliance on this Guarantee. Each of Guarantors shall
continue to be liable hereunder until one of Agent's and Lenders' officers
actually receives a written termination notice from a Guarantor sent to Agent
and Lenders at their addresses set forth above by certified mail, return
receipt requested and thereafter as set forth below. Such notice received by
Agent and Lenders from any one of Guarantors shall not constitute a
revocation or termination of this Guarantee as to any of the other
Guarantors. Revocation or termination hereof by any of Guarantors shall not
affect, in any manner, the rights of Agent and Lenders or any obligations or
duties of any of Guarantors (including the Guarantor which may have sent such
notice) under this Guarantee with respect to Guaranteed Obligations which
have been created, contracted, assumed or incurred prior to the receipt by
Agent and Lenders of such written notice of revocation or termination as
provided herein, including, without limitation, all amendments, extensions,
renewals and modifications of such Guaranteed Obligations (whether or not
evidenced by new or additional agreements, documents or instruments executed
on or after such notice of revocation or termination), all interest, fees
and similar charges accruing or due on and after revocation or termination,
and (iii) all attorneys' fees and legal expenses, costs and other expenses
paid or incurred on or after such notice of revocation or termination in
attempting to collect or enforce any of the Guaranteed Obligations against
Borrower, Guarantors or any other Obligor (whether or not suit be brought),
or Guaranteed Obligations which have been created, contracted, assumed or
incurred after the receipt by Agent and Lenders of such written notice of
revocation or termination as provided herein pursuant to any contract entered
into by Agent and Lenders prior to receipt of such notice. The sole effect
of such revocation or termination by any of Guarantors shall be to exclude
from this Guarantee the liability of such Guarantor for those Guaranteed
Obligations arising after the date of receipt by Agent and Lenders of such
written notice which are unrelated to Guaranteed Obligations arising or
transactions entered into prior to such date. Without limiting the
foregoing, this Guarantee may not be terminated and shall continue so long as
the Loan Agreement shall be in effect (whether during its original term or
any renewal, substitution or extension thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations,
Agent and Lenders are required to surrender or return such payment or
proceeds to any Person for any reason, then the Guaranteed Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Guarantee shall continue in full force and effect as if
such payment or proceeds had not been received by Agent and Lenders. Each of
Guarantors shall be liable to pay to Agent and Lenders, and does indemnify
and hold Agent and Lenders harmless for the amount of any payments or
proceeds surrendered or returned. This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Agent and Lenders
in reliance upon such payment or proceeds. This Section 7 shall survive the
termination or revocation of this Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision
hereof shall be amended, modified, waived or discharged orally or by course
of conduct, but only by a written agreement signed by an authorized officer
of Agent and Lenders. Agent and Lenders shall not by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of
their rights, powers and/or remedies unless such waiver shall be in writing
and signed by an authorized officer of Agent and Lenders. Any such waiver
shall be enforceable only to the extent specifically set forth therein. A
waiver by Agent and Lenders of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Agent and Lenders would otherwise have on any
future occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Each of WCI Steel
Production Control Services Inc. and WCI Steel Metallurgical Services, Inc.
is a corporation duly organized and in good standing under the laws of its
state or other jurisdiction of incorporation and is duly qualified as a
foreign corporation and in good standing in all states or other jurisdictions
where the nature and extent of the business transacted by it or the ownership
of assets makes such qualification necessary, except for those jurisdictions
in which the failure to so qualify would not have a material adverse effect
on the financial condition, results of operation or businesses of any of
Guarantors or the rights of Agent and Lenders hereunder or under any of the
other Financing Agreements. WCI Steel Sales L.P. is a limited partnership
duly organized and in good standing under the laws of the state in which it
was formed and is duly qualified and in good standing in all states or other
jurisdictions where the nature and extent of the business transacted by it or
the ownership of assets makes such qualification necessary, except for those
jurisdictions in which the failure to so qualify would not have a material
adverse effect on the financial condition, results of operation or businesses
of any of Guarantors or the rights of Agent and Lenders hereunder or under
any of the other Financing Agreements. The execution, delivery and
performance of this Guarantee is within the corporate powers or authority of
each of Guarantors, has been duly authorized and is not in contravention of
law or the terms of the certificates of incorporation, limited partnership
agreement, by-laws, or other organizational documentation of each of
Guarantors, or any indenture, agreement or undertaking to which any of
Guarantors is a party or by which any of Guarantors or its property are
bound. This Guarantee constitutes the legal, valid and binding obligation of
each of Guarantors enforceable in accordance with its terms. Any one of
Guarantors signing this Guarantee shall be bound hereby whether or not any of
the other Guarantors or any other person signs this Guarantee at any time.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Guarantee
and any dispute arising out of the relationship between any of Guarantors and
Agent and Lenders, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of New York (without giving effect
to principles of conflicts of law).
(b) Each of Guarantors hereby irrevocably consents and submits to
the non-exclusive jurisdiction of the Supreme Court of the State of New York
in New York County and the United States District Court for the Southern
District of New York and waives any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Guarantee or any of the other Financing Agreements or in any way connected
with or related or incidental to the dealings of any of Guarantors and Agent
and Lenders in respect of this Guarantee or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising and whether in contract, tort,
equity or otherwise, and agrees that any dispute arising out of the
relationship between any of Guarantors or Borrower and Agent and Lenders or
the conduct of any such persons in connection with this Guarantee, the other
Financing Agreements or otherwise shall be heard only in the courts described
above (except that Agent and Lenders shall have the right to bring any action
or proceeding against any of Guarantors or its property in the courts of any
other jurisdiction which Agent and Lenders deem necessary or appropriate in
order to realize on collateral at any time granted by Borrower or any of
Guarantors to Agent and Lenders or to otherwise enforce their rights against
any of Guarantors or its property).
(c) Each of Guarantors hereby waives personal service of any and
all process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the
U.S. mails, or, at Agent and Lenders' option, by service upon any of
Guarantors in any other manner provided under the rules of any such courts.
Within thirty (30) days after such service, any of Guarantors so served shall
appear in answer to such process, failing which such Guarantors shall be
deemed in default and judgment may be entered by Agent and Lenders against
Guarantors for the amount of the claim and other relief requested.
(d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTEE OR
ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND AGENT AND
LENDERS IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. EACH OF GUARANTORS HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY OF GUARANTORS OR AGENT AND LENDERS MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF GUARANTORS AND AGENT AND LENDERS TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Agent and Lenders shall not have any liability to Guarantors
(whether in tort, contract, equity or otherwise) for losses suffered by
Guarantors in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Guarantee, or any act,
omission or event occurring in connection herewith, unless it is determined
by a final and non-appealable judgment or court order binding on Agent and
Lenders that the losses were the result of acts or omissions constituting
gross negligence or willful misconduct. In any such litigation, Agent and
Lenders shall be entitled to the benefit of the rebuttable presumption that
they acted in good faith and with the exercise of ordinary care in the
performance by them of the terms of the Loan Agreement and the other
Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Agent and Lenders at their addresses set forth above
and to each of Guarantors at its chief executive office set forth below, or
to such other address as either party may designate by written notice to the
other in accordance with this provision, and (b) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier
service with instructions to deliver the next business day, one (1) business
day after sending; and if by certified mail, return receipt requested, five
(5) days after mailing.
12. Partial Invalidity. If any provision of this Guarantee is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be permitted by
applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement
and understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their respective successors and assigns and shall inure to the
benefit of Agent and Lenders and their successors, endorsees, transferees and
assigns. The liquidation, dissolution or termination of any of Guarantors
shall not terminate this Guarantee as to such entity or as to any of the
other Guarantors.
15. Construction. All references to the term "Guarantors" wherever
used herein shall mean each and all of Guarantors and their respective
successors and assigns, individually and collectively, jointly and severally
(including, without limitation, any receiver, trustee or custodian for any of
Guarantors or any of their respective assets or any of Guarantors in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code). All references to the term "Agent and Lenders" wherever used herein
shall mean Agent and Lenders and their successors and assigns and all
references to the term "Borrower" wherever used herein shall mean Borrower
and its successors and assigns (including, without limitation, any receiver,
trustee or custodian for Borrower or any of their assets or Borrower in their
capacity as debtors or debtors-in-possession under the United States
Bankruptcy Code). All references to the term "Person" or "person" wherever
used herein shall mean any individual, sole proprietorship, partnership,
corporation (including, without limitation, any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality of political
subdivision thereof. All references to the plural shall also mean the
singular and to the singular shall also mean the plural.
<PAGE>
IN WITNESS WHEREOF, each of Guarantors has executed and delivered this
Guarantee as of the day and year first above written.
WCI STEEL PRODUCTION CONTROL
SERVICES INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
----------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
WCI STEEL METALLURGICAL SERVICES
INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
---------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
WCI STEEL SALES L.P.
By: WCI Production Control Services
Inc., its general partner
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
---------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
<PAGE>
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Secretary of WCI STEEL
PRODUCTION CONTROL SERVICES INC., the corporation described in and which
executed the foregoing instrument; and that he signed his name thereto by
order of the Board of Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Secretary of WCI STEEL
METALLURGICAL SERVICES INC., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Secretary of WCI STEEL
PRODUCTION CONTROL SERVICES, INC., the sole general partner of WCI STEEL
SALES LP, the limited partnership described in and which executed the
foregoing instrument; and that he signed his name thereto by order of such
general partner of the limited partnership.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
EXHIBIT 10.4.14
GUARANTEE
As of October 31, 1997
Congress Financial Corporation
1133 Avenue of the Americas
New York, New York 10036
Re: WCI Steel Sales L.P. ("Borrower")
Gentlemen:
Congress Financial Corporation ("Congress"), BankAmerica Business
Credit, Inc., as assignee of Security Pacific Business Credit Inc. ("BABC",
and together with Congress, individually and collectively, "Lenders"),
Congress Financial Corporation, as agent for Lenders (in such capacity,
"Agent") and Borrower have entered into certain financing arrangements
pursuant to which Agent and Lenders may make loans and advances and provide
other financial accommodations to Borrower as set forth in the Amended and
Restated Loan and Security Agreement, dated as of December 29, 1992, by and
among Borrower, WCI Steel, Inc., Agent and Lenders (as the same now exists or
may hereafter be amended, modified, supplemented, extended, renewed, restated
or replaced, the "Loan Agreement"), and other agreements, amendments,
documents and instruments referred to therein or at any time executed and/or
delivered in connection therewith or related thereto, including, but not
limited to, this Guarantee (all of the foregoing, together with the Loan
Agreement, as the same now exist or may hereafter be amended, modified,
supplemented, extended, renewed, restated or replaced, being collectively
referred to herein as the "Financing Agreements").
Due to the close business and financial relationships between Borrower
and each and all of the undersigned (individually and collectively,
"Guarantors"), in consideration of the benefits which will accrue to
Guarantors and as an inducement for and in consideration of Agent and Lenders
making loans and advances and providing other financial accommodations to
Borrower pursuant to the Loan Agreement and the other Financing Agreements,
each of Guarantors hereby jointly and severally agrees in favor of Agent and
Lenders as follows:
1. Guarantee.
(a) Each of Guarantors absolutely and unconditionally, jointly and
severally, guarantees and agrees to be liable for the full and indefeasible
payment and performance when due of the following (all of which are
collectively referred to herein as the "Guaranteed Obligations"): all
obligations, liabilities and indebtedness of any kind, nature and description
of Borrower to Agent and Lenders and/or their affiliates, including
principal, interest, charges, fees, costs and expenses, however evidenced,
whether as principal, surety, endorser, guarantor or otherwise, whether
arising under the Loan Agreement, the other Financing Agreements or
otherwise, whether now existing or hereafter arising, whether arising before,
during or after the initial or any renewal term of the Loan Agreement or
after the commencement of any case with respect to Borrower under the United
States Bankruptcy Code or any similar statute (including, without limitation,
the payment of interest and other amounts, which would accrue and become due
but for the commencement of such case, whether or not such amounts are
allowed or allowable in whole or in part in any such case and including
loans, interest, fees, charges and expenses related thereto and all other
obligations of Borrower or its successors to Agent and Lenders arising after
the commencement of such case), whether direct or indirect, absolute or
contingent, joint or several, due or not due, primary or secondary,
liquidated or unliquidated, secured or unsecured, and however acquired by
Agent and Lenders and all expenses (including, without limitation,
attorneys' fees and legal expenses) incurred by Agent and Lenders in
connection with the preparation, execution, delivery, recording,
administration, collection, liquidation, enforcement and defense of
Borrower's obligations, liabilities and indebtedness as aforesaid to Agent
and Lenders, the rights of Agent and Lenders in any collateral or under this
Guarantee and all other Financing Agreements or in any way involving claims
by or against Agent and Lenders directly or indirectly arising out of or
related to the relationships between Borrower, any of Guarantors or any other
Obligor (as hereinafter defined) and Agent and Lenders, whether such expenses
are incurred before, during or after the initial or any renewal term of the
Loan Agreement and the other Financing Agreements or after the commencement
of any case with respect to Borrower or any of Guarantors under the United
States Bankruptcy Code or any similar statute.
(b) This Guarantee is a guaranty of payment and not of collection.
Each of Guarantors agrees that Agent and Lenders need not attempt to collect
any Guaranteed Obligations from Borrower, any one of Guarantors or any other
Obligor or to realize upon any collateral, but may require any one of
Guarantors to make immediate payment of all of the Guaranteed Obligations to
Agent and Lenders when due, whether by maturity, acceleration or otherwise,
or at any time thereafter. Agent and Lenders may apply any amounts received
in respect of the Guaranteed Obligations to any of the Guaranteed
Obligations, in whole or in part (including attorneys' fees and legal
expenses incurred by Agent and Lenders with respect thereto or otherwise
chargeable to Borrower or Guarantors) and in such order as Agent and Lenders
may elect.
(c) Payment by Guarantors shall be made to Agent and Lenders at
the office of Agent from time to time on demand as Guaranteed Obligations
become due. Guarantors shall make all payments to Agent and Lenders on the
Guaranteed Obligations free and clear of, and without deduction or
withholding for or on account of, any setoff, counterclaim, defense, duties,
taxes, levies, imposts, fees, deductions, withholding, restrictions or
conditions of any kind. One or more successive or concurrent actions may be
brought hereon against any of Guarantors either in the same action in which
Borrower or any of the other Guarantors or any other Obligor is sued or in
separate actions. In the event any claim or action, or action on any
judgment, based on this Guarantee is brought against any of Guarantors, each
of Guarantors agrees not to deduct, set-off, or seek any counterclaim for or
recoup any amounts which are or may be owed by Agent and Lenders to any of
Guarantors.
2. Waivers and Consents.
(a) Notice of acceptance of this Guarantee, the making of loans
and advances and providing other financial accommodations to Borrower and
presentment, demand, protest, notice of protest, notice of nonpayment or
default and all other notices to which Borrower or any of Guarantors are
entitled are hereby waived by each of Guarantors. Each of Guarantors also
waives notice of and hereby consents to, any amendment, modification,
supplement, extension, renewal, or restatement of the Loan Agreement and any
of the other Financing Agreements, including, without limitation, extensions
of time of payment of or increase or decrease in the amount of any of the
Guaranteed Obligations, the interest rate, fees, other charges, or any
collateral, and the guarantee made herein shall apply to the Loan Agreement
and the other Financing Agreements and the Guaranteed Obligations as so
amended, modified, supplemented, renewed, restated or extended, increased or
decreased, the taking, exchange, surrender and releasing of collateral or
guarantees now or at any time held by or available to Agent and Lenders for
the obligations of Borrower or any other party at any time liable on or in
respect of the Guaranteed Obligations or who is the owner of any property
which is security for the Guaranteed Obligations (individually, an "Obligor"
and collectively, the "Obligors"), including, without limitation, the
surrender or release by Agent and Lenders of any one of Guarantors hereunder,
the exercise of, or refraining from the exercise of any rights against
Borrower, any of Guarantors or any other Obligor or any collateral, the
settlement, compromise or release of, or the waiver of any default with
respect to, any of the Guaranteed Obligations and any financing by Agent and
Lenders of Borrower under Section 364 of the United States Bankruptcy Code or
consent to the use of cash collateral by Agent and Lenders under Section 363
of the United States Bankruptcy Code. Each of Guarantors agrees that the
amount of the Guaranteed Obligations shall not be diminished and the
liability of Guarantors hereunder shall not be otherwise impaired or affected
by any of the foregoing.
(b) No invalidity, irregularity or unenforceability of all or any
part of the Guaranteed Obligations shall affect, impair or be a defense to
this Guarantee, nor shall any other circumstance which might otherwise
constitute a defense available to or legal or equitable discharge of Borrower
in respect of any of the Guaranteed Obligations, or any one of Guarantors in
respect of this Guarantee, affect, impair or be a defense to this Guarantee.
Without limitation of the foregoing, the liability of Guarantors hereunder
shall not be discharged or impaired in any respect by reason of any failure
by Agent and Lenders to perfect or continue perfection of any lien or
security interest in any collateral or any delay by Agent and Lenders in
perfecting any such lien or security interest. As to interest, fees and
expenses, whether arising before or after the commencement of any case with
respect to Borrower under the United States Bankruptcy Code or any similar
statute, Guarantors shall be liable therefor, even if Borrower's liability
for such amounts does not, or ceases to, exist by operation of law. Each of
Guarantors acknowledges that Agent and Lenders have not made any
representations to any of Guarantors with respect to Borrower, any other
Obligor or otherwise in connection with the execution and delivery by
Guarantors of this Guarantee and Guarantors are not in any respect relying
upon Agent and Lenders or any statements by Agent and Lenders in connection
with this Guarantee.
(c) Each of Guarantors hereby irrevocably and unconditionally
waives and relinquishes all statutory, contractual, common law, equitable and
all other claims against Borrower, any collateral for the Guaranteed
Obligations or other assets of Borrower or any other Obligor, for
subrogation, reimbursement, exoneration, contribution, indemnification,
setoff or other recourse in respect to sums paid or payable to Agent and
Lenders by each of Guarantors hereunder and each of Guarantors hereby further
irrevocably and unconditionally waives and relinquishes any and all other
benefits which Guarantors might otherwise directly or indirectly receive or
be entitled to receive by reason of any amounts paid by or collected or due
from Guarantors, Borrower or any other Obligor upon the Guaranteed
Obligations or realized from their property.
3. Subordination. Payment of all amounts now or hereafter owed to
Guarantors by Borrower or any other Obligor is hereby subordinated in right
of payment to the indefeasible payment in full to Agent and Lenders of the
Guaranteed Obligations and all such amounts and any security and guarantees
therefor are hereby assigned to Agent and Lenders as security for the
Guaranteed Obligations.
4. Acceleration. Notwithstanding anything to the contrary contained
herein or any of the terms of any of the other Financing Agreements, the
liability of Guarantors for the entire Guaranteed Obligations shall mature
and become immediately due and payable, even if the liability of Borrower or
any other Obligor therefor does not, upon the occurrence of any act,
condition or event which constitutes an Event of Default as such term is
defined in the Loan Agreement.
5. Account Stated. The books and records of Agent and Lenders showing
the account between Agent and Lenders and Borrower shall be admissible in
evidence in any action or proceeding against or involving Guarantors as prima
facie proof of the items therein set forth, and the monthly statements of
Agent and Lenders rendered to Borrower, to the extent to which no written
objection is made within thirty (30) days from the date of sending thereof to
Borrower, shall be deemed conclusively correct and constitute an account
stated between Agent and Lenders and Borrower and be binding on Guarantors.
6. Termination. This Guarantee is continuing, unlimited, absolute and
unconditional. All Guaranteed Obligations shall be conclusively presumed to
have been created in reliance on this Guarantee. Each of Guarantors shall
continue to be liable hereunder until one of Agent's and Lenders' officers
actually receives a written termination notice from a Guarantor sent to Agent
and Lenders at their addresses set forth above by certified mail, return
receipt requested and thereafter as set forth below. Such notice received by
Agent and Lenders from any one of Guarantors shall not constitute a
revocation or termination of this Guarantee as to any of the other
Guarantors. Revocation or termination hereof by any of Guarantors shall not
affect, in any manner, the rights of Agent and Lenders or any obligations or
duties of any of Guarantors (including the Guarantor which may have sent such
notice) under this Guarantee with respect to Guaranteed Obligations which
have been created, contracted, assumed or incurred prior to the receipt by
Agent and Lenders of such written notice of revocation or termination as
provided herein, including, without limitation, all amendments, extensions,
renewals and modifications of such Guaranteed Obligations (whether or not
evidenced by new or additional agreements, documents or instruments executed
on or after such notice of revocation or termination), all interest, fees
and similar charges accruing or due on and after revocation or termination,
and (iii) all attorneys' fees and legal expenses, costs and other expenses
paid or incurred on or after such notice of revocation or termination in
attempting to collect or enforce any of the Guaranteed Obligations against
Borrower, Guarantors or any other Obligor (whether or not suit be brought),
or Guaranteed Obligations which have been created, contracted, assumed or
incurred after the receipt by Agent and Lenders of such written notice of
revocation or termination as provided herein pursuant to any contract entered
into by Agent and Lenders prior to receipt of such notice. The sole effect
of such revocation or termination by any of Guarantors shall be to exclude
from this Guarantee the liability of such Guarantor for those Guaranteed
Obligations arising after the date of receipt by Agent and Lenders of such
written notice which are unrelated to Guaranteed Obligations arising or
transactions entered into prior to such date. Without limiting the
foregoing, this Guarantee may not be terminated and shall continue so long as
the Loan Agreement shall be in effect (whether during its original term or
any renewal, substitution or extension thereof).
7. Reinstatement. If after receipt of any payment of, or proceeds of
collateral applied to the payment of, any of the Guaranteed Obligations,
Agent and Lenders are required to surrender or return such payment or
proceeds to any Person for any reason, then the Guaranteed Obligations
intended to be satisfied by such payment or proceeds shall be reinstated and
continue and this Guarantee shall continue in full force and effect as if
such payment or proceeds had not been received by Agent and Lenders. Each of
Guarantors shall be liable to pay to Agent and Lenders, and does indemnify
and hold Agent and Lenders harmless for the amount of any payments or
proceeds surrendered or returned. This Section 7 shall remain effective
notwithstanding any contrary action which may be taken by Agent and Lenders
in reliance upon such payment or proceeds. This Section 7 shall survive the
termination or revocation of this Guarantee.
8. Amendments and Waivers. Neither this Guarantee nor any provision
hereof shall be amended, modified, waived or discharged orally or by course
of conduct, but only by a written agreement signed by an authorized officer
of Agent and Lenders. Agent and Lenders shall not by any act, delay,
omission or otherwise be deemed to have expressly or impliedly waived any of
their rights, powers and/or remedies unless such waiver shall be in writing
and signed by an authorized officer of Agent and Lenders. Any such waiver
shall be enforceable only to the extent specifically set forth therein. A
waiver by Agent and Lenders of any right, power and/or remedy on any one
occasion shall not be construed as a bar to or waiver of any such right,
power and/or remedy which Agent and Lenders would otherwise have on any
future occasion, whether similar in kind or otherwise.
9. Corporate Existence, Power and Authority. Each of Guarantors is a
corporation duly organized and in good standing under the laws of its state
or other jurisdiction of incorporation and is duly qualified as a foreign
corporation and in good standing in all states or other jurisdictions where
the nature and extent of the business transacted by it or the ownership of
assets makes such qualification necessary, except for those jurisdictions in
which the failure to so qualify would not have a material adverse effect on
the financial condition, results of operation or businesses of any of
Guarantors or the rights of Agent and Lenders hereunder or under any of the
other Financing Agreements. The execution, delivery and performance of this
Guarantee is within the corporate powers of each of Guarantors, has been duly
authorized and is not in contravention of law or the terms of the
certificates of incorporation, by-laws, or other organizational documentation
of each of Guarantors, or any indenture, agreement or undertaking to which
any of Guarantors is a party or by which any of Guarantors or its property
are bound. This Guarantee constitutes the legal, valid and binding
obligation of each of Guarantors enforceable in accordance with its terms.
Any one of Guarantors signing this Guarantee shall be bound hereby whether or
not any of the other Guarantors or any other person signs this Guarantee at
any time.
10. Governing Law; Choice of Forum; Service of Process; Jury Trial
Waiver.
(a) The validity, interpretation and enforcement of this Guarantee
and any dispute arising out of the relationship between any of Guarantors and
Agent and Lenders, whether in contract, tort, equity or otherwise, shall be
governed by the internal laws of the State of New York (without giving effect
to principles of conflicts of law).
(b) Each of Guarantors hereby irrevocably consents and submits to
the non-exclusive jurisdiction of the Supreme Court of the State of New York
in New York County and the United States District Court for the Southern
District of New York and waives any objection based on venue or forum non
conveniens with respect to any action instituted therein arising under this
Guarantee or any of the other Financing Agreements or in any way connected
with or related or incidental to the dealings of any of Guarantors and Agent
and Lenders in respect of this Guarantee or any of the other Financing
Agreements or the transactions related hereto or thereto, in each case
whether now existing or hereafter arising and whether in contract, tort,
equity or otherwise, and agrees that any dispute arising out of the
relationship between any of Guarantors or Borrower and Agent and Lenders or
the conduct of any such persons in connection with this Guarantee, the other
Financing Agreements or otherwise shall be heard only in the courts described
above (except that Agent and Lenders shall have the right to bring any action
or proceeding against any of Guarantors or its property in the courts of any
other jurisdiction which Agent and Lenders deem necessary or appropriate in
order to realize on collateral at any time granted by Borrower or any of
Guarantors to Agent and Lenders or to otherwise enforce their rights against
any of Guarantors or its property).
(c) Each of Guarantors hereby waives personal service of any and
all process upon it and consents that all such service of process may be made
by certified mail (return receipt requested) directed to its address set
forth on the signature pages hereof and service so made shall be deemed to be
completed five (5) days after the same shall have been so deposited in the
U.S. mails, or, at Agent and Lenders' option, by service upon any of
Guarantors in any other manner provided under the rules of any such courts.
Within thirty (30) days after such service, any of Guarantors so served shall
appear in answer to such process, failing which such Guarantors shall be
deemed in default and judgment may be entered by Agent and Lenders against
Guarantors for the amount of the claim and other relief requested.
(d) EACH OF GUARANTORS HEREBY WAIVES ANY RIGHT TO TRIAL BY JURY OF
ANY CLAIM, DEMAND, ACTION OR CAUSE OF ACTION ARISING UNDER THIS GUARANTEE OR
ANY OF THE OTHER FINANCING AGREEMENTS OR IN ANY WAY CONNECTED WITH OR
RELATED OR INCIDENTAL TO THE DEALINGS OF ANY OF GUARANTORS AND AGENT AND
LENDERS IN RESPECT OF THIS GUARANTEE OR ANY OF THE OTHER FINANCING AGREEMENTS
OR THE TRANSACTIONS RELATED HERETO OR THERETO IN EACH CASE WHETHER NOW
EXISTING OR HEREAFTER ARISING, AND WHETHER IN CONTRACT, TORT, EQUITY OR
OTHERWISE. EACH OF GUARANTORS HEREBY AGREES AND CONSENTS THAT ANY SUCH
CLAIM, DEMAND, ACTION OR CAUSE OF ACTION SHALL BE DECIDED BY COURT TRIAL
WITHOUT A JURY AND THAT ANY OF GUARANTORS OR AGENT AND LENDERS MAY FILE AN
ORIGINAL COUNTERPART OF A COPY OF THIS AGREEMENT WITH ANY COURT AS WRITTEN
EVIDENCE OF THE CONSENT OF GUARANTORS AND AGENT AND LENDERS TO THE WAIVER OF
THEIR RIGHT TO TRIAL BY JURY.
(e) Agent and Lenders shall not have any liability to Guarantors
(whether in tort, contract, equity or otherwise) for losses suffered by
Guarantors in connection with, arising out of, or in any way related to the
transactions or relationships contemplated by this Guarantee, or any act,
omission or event occurring in connection herewith, unless it is determined
by a final and non-appealable judgment or court order binding on Agent and
Lenders that the losses were the result of acts or omissions constituting
gross negligence or willful misconduct. In any such litigation, Agent and
Lenders shall be entitled to the benefit of the rebuttable presumption that
they acted in good faith and with the exercise of ordinary care in the
performance by them of the terms of the Loan Agreement and the other
Financing Agreements.
11. Notices. All notices, requests and demands hereunder shall be in
writing and (a) made to Agent and Lenders at their addresses set forth above
and to each of Guarantors at its chief executive office set forth below, or
to such other address as either party may designate by written notice to the
other in accordance with this provision, and (b) deemed to have been given or
made: if delivered in person, immediately upon delivery; if by telex,
telegram or facsimile transmission, immediately upon sending and upon
confirmation of receipt; if by nationally recognized overnight courier
service with instructions to deliver the next business day, one (1) business
day after sending; and if by certified mail, return receipt requested, five
(5) days after mailing.
12. Partial Invalidity. If any provision of this Guarantee is held to
be invalid or unenforceable, such invalidity or unenforceability shall not
invalidate this Guarantee as a whole, but this Guarantee shall be construed
as though it did not contain the particular provision held to be invalid or
unenforceable and the rights and obligations of the parties shall be
construed and enforced only to such extent as shall be permitted by
applicable law.
13. Entire Agreement. This Guarantee represents the entire agreement
and understanding of this parties concerning the subject matter hereof, and
supersedes all other prior agreements, understandings, negotiations and
discussions, representations, warranties, commitments, proposals, offers and
contracts concerning the subject matter hereof, whether oral or written.
14. Successors and Assigns. This Guarantee shall be binding upon
Guarantors and their respective successors and assigns and shall inure to the
benefit of Agent and Lenders and their successors, endorsees, transferees and
assigns. The liquidation, dissolution or termination of any of Guarantors
shall not terminate this Guarantee as to such entity or as to any of the
other Guarantors.
15. Construction. All references to the term "Guarantors" wherever
used herein shall mean each and all of Guarantors and their respective
successors and assigns, individually and collectively, jointly and severally
(including, without limitation, any receiver, trustee or custodian for any of
Guarantors or any of their respective assets or any of Guarantors in its
capacity as debtor or debtor-in-possession under the United States Bankruptcy
Code). All references to the term "Agent and Lenders" wherever used herein
shall mean Agent and Lenders and their successors and assigns and all
references to the term "Borrower" wherever used herein shall mean Borrower
and its successors and assigns (including, without limitation, any receiver,
trustee or custodian for Borrower or any of their assets or Borrower in their
capacity as debtors or debtors-in-possession under the United States
Bankruptcy Code). All references to the term "Person" or "person" wherever
used herein shall mean any individual, sole proprietorship, partnership,
corporation (including, without limitation, any corporation which elects
subchapter S status under the Internal Revenue Code of 1986, as amended),
limited liability company, limited liability partnership, business trust,
unincorporated association, joint stock corporation, trust, joint venture or
other entity or any government or any agency or instrumentality of political
subdivision thereof. All references to the plural shall also mean the
singular and to the singular shall also mean the plural.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, each of Guarantors has executed and delivered this
Guarantee as of the day and year first above written.
WCI STEEL PRODUCTION CONTROL SERVICES INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
---------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
WCI STEEL METALLURGICAL SERVICES INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Secretary
---------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
WCI STEEL, INC.
By:/S/ BRET W. WISE
------------
Title: Assistant Secretary
-------------------
Chief Executive Office
----------------------
1040 Pine Avenue, S.E.
Warren, Ohio 44482
NILES PROPERTIES, INC.
By:/S/ PAUL A. SANTUZZI
----------------
Title: Treasurer
---------
Chief Executive Office
----------------------
1818 N. Main Street, N.E.
Niles Ohio 44446
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Secretary of WCI Steel
Production Control Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Secretary of WCI Steel
Metallurgical Services Inc., the corporation described in and which executed
the foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Bret W. Wise,
to me known, who stated that he is the Assistant Secretary of WCI Steel,
Inc., the corporation described in and which executed the foregoing
instrument; and that he signed his name thereto by order of the Board of
Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
STATE OF OHIO )
) ss.:
COUNTY OF TRUMBULL )
On this 31 day of October, 1997, before me personally came Paul A.
Santuzzi, to me known, who stated that he is the Treasurer of Niles
Properties, Inc., the corporation described in and which executed the
foregoing instrument; and that he signed his name thereto by order of the
Board of Directors of said corporation.
/S/ WILMA J. VUKOVICH
-----------------
Notary Public
WILMA J. VUKOVICH, Notary Public
State of Ohio
My Commission Expires April 14, 2000
EXHIBIT 22
WCI STEEL, INC.
Form 10-K October 31, 1997
List of Subsidiaries of Registrant
State of Incorporation
Name of Subsidiary or Organization
------------------ -----------------------
Niles Properties, Inc. Ohio
Youngstown Sinter Company Ohio
WCI Steel Production Control Services Inc. Ohio
WCI Steel Metallurgical Services Inc. Ohio
WCI Steel Sales L.P. Ohio
Registrant owns all of the outstanding capital stock of or interests in
each of said subsidiaries.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONDENSED CONSOLIDATED BALANCE SHEETS AT October 31, 1997 AND THE
CONDENSED CONSOLIDATED STATEMENTS OF INCOME FOR THE FISCAL YEAR ENDED
October 31, 1997 AND IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO
SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 18,989
<SECURITIES> 0
<RECEIVABLES> 66,829
<ALLOWANCES> 1,627
<INVENTORY> 106,293
<CURRENT-ASSETS> 204,585
<PP&E> 347,789
<DEPRECIATION> 123,169
<TOTAL-ASSETS> 470,751
<CURRENT-LIABILITIES> 118,683
<BONDS> 301,618
0
0
<COMMON> 0
<OTHER-SE> (90,866)
<TOTAL-LIABILITY-AND-EQUITY> 470,751
<SALES> 668,470
<TOTAL-REVENUES> 668,470
<CGS> 547,545
<TOTAL-COSTS> 547,545
<OTHER-EXPENSES> 52,465
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 31,690
<INCOME-PRETAX> 37,945
<INCOME-TAX> 14,482
<INCOME-CONTINUING> 3,857
<DISCONTINUED> 0
<EXTRAORDINARY> (19,606)
<CHANGES> 0
<NET-INCOME> 3,857
<EPS-PRIMARY> .00
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