FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended December 28, 1996
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 No. 0-22416
KENTUCKY ELECTRIC STEEL, INC.
(Exact name of Registrant as specified in its charter)
Delaware 61-1244541
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification
Number)
P. O. Box 3500, Ashland, Kentucky 41105-3500
(Address of principal executive office, Zip Code)
(606) 929-1222
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act
of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to
such filing requirements for the past 90 days.
YES x NO
The number of shares outstanding of each of the issuer's classes of common
stock, as of February 11, 1997, is as follows:
4,628,099 shares of voting common stock, par value $.01 per share.
<PAGE>
KENTUCKY ELECTRIC STEEL, INC.
TABLE OF CONTENTS
Page
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Condensed Consolidated Balance Sheets ................. 3
Condensed Consolidated Statements of Operations ....... 4
Condensed Consolidated Statements of Cash Flows ....... 5
Notes to Condensed Consolidated Financial Statements .. 6-7
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations .................8-10
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K ...................... 11
SIGNATURES ........................................... 12
<PAGE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONDENSED CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
December September
28, 1996 28, 1996
<S> ASSETS <C> <C>
CURRENT ASSETS
Cash and cash equivalents $ 127 $ 124
Accounts receivable, less allowance for doubtful
accounts of $535 at December 28, 1996 and $390
at September 28, 1996 10,709 12,113
Inventories 16,436 17,367
Operating supplies and other current assets 5,433 5,067
Refundable income taxes 540 540
Deferred tax assets 276 680
------- -------
Total current assets 33,521 35,891
------- -------
PROPERTY, PLANT AND EQUIPMENT
Land and buildings 4,353 4,353
Machinery and equipment 37,774 37,774
Construction in progress 2,332 1,412
Less - accumulated depreciation (8,671) (7,852)
------- -------
Net property, plant and equipment 35,788 35,687
------- -------
DEFERRED TAX ASSETS 7,511 6,263
------- -------
OTHER ASSETS 658 592
------- -------
Total assets $ 77,478 $ 78,433
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES
Advances on line of credit $ 9,652 $ 7,546
Accounts payable 7,508 7,214
Capital expenditures payable payable 1,890 2,404
Accrued liabilities 2,504 3,639
Current portion of long-term debt 125 125
------- -------
Total current liabilities 21,679 20,928
------- -------
LONG-TERM DEBT 20,000 20,000
------- -------
OTHER LIABILITIES 445 395
------- -------
Total liabilities 42,124 41,323
------- -------
SHAREHOLDERS' EQUITY
Preferred stock, $.01 par value, 1,000,000
shares authorized, no shares issued - -
Common stock, $.01 par value, 15,000,000
shares authorized, 4,974,099 shares issued 50 50
Additional paid-in capital 15,710 15,710
Less treasury stock - 346,000 and 273,000
shares at cost, respectively (2,608) (2,165)
Deferred compensation (350) (421)
Retained earnings 22,552 23,936
------- -------
Total shareholders' equity 35,354 37,110
------- -------
Total liabilities and shareholders' equity $ 77,478 $ 78,433
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(Dollars in Thousands, Except Per Share Data)
(Unaudited)
<CAPTION>
Three Months Ended
December December
28, 1996 30, 1995
<S> <C> <C>
NET SALES $ 23,382 $ 23,688
COST OF GOODS SOLD 23,396 21,112
------- -------
Gross profit (loss) (14) 2,576
SELLING AND ADMINISTRATIVE EXPENSES 1,725 1,963
------- -------
Operating income (loss) (1,739) 613
INTEREST INCOME AND OTHER 5 5
INTEREST EXPENSE (494) (358)
------- -------
Income (loss) before income taxes (2,228) 260
PROVISION (CREDIT) FOR INCOME TAXES (844) 98
------- -------
Net income (loss) $ (1,384) $ 162
NET INCOME (LOSS) PER COMMON SHARE $ (.30) $ .03
WEIGHTED AVERAGE SHARES OUTSTANDING 4,658,691 4,871,140
<FN>
See notes to condensed consolidated financial statements
</TABLE>
<TABLE>
KENTUCKY ELECTRIC STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
(Unaudited)
<CAPTION>
Three Months Ended
December December
28, 1996 30, 1995
<S> <C> <C>
Cash Flows From Operating Activities:
Net income (loss) $ (1,384) $ 162
Adjustments to reconcile net income (loss) to
net cash flows from operating activities:
Depreciation and amortization 894 641
Change in deferred taxes (1,248) 224
Change in other (20) (213)
Change in current assets and current
liabilities:
Accounts receivable 1,404 382
Inventories 931 (647)
Operating supplies and other
current assets (366) (233)
Deferred tax assets 404 (137)
Accounts payable 294 (1,867)
Accrued liabilities (1,135) (1,141)
Accrued income taxes refundable/payable - 1
------- -------
Net cash flows from
operating activities (226) (2,828)
------- -------
Cash Flows From Investing Activities:
Capital expenditures (920) (997)
Decrease in capital expenditures payable (514) (813)
------- -------
Net cash flows from
investing activities (1,434) (1,810)
------- -------
Cash Flows From Financing Activities:
Net advances (repayments) on line of credit 2,106 (6,346)
Repayments on long-term debt - (9,001)
Proceeds from long-term debt borrowings - 20,000
Purchases of treasury stock (443) (159)
------- -------
Net cash flows from financing activities 1,663 4,494
------- -------
Net increase (decrease) in cash
and cash equivalents 3 (144)
Cash and Cash Equivalents at Beginning of Period 124 327
------- -------
Cash and Cash Equivalents at End of Period $ 127 $ 183
Interest Paid, net of amount capitalized $ 870 $ 284
Income Taxes Paid $ - $ 11
<FN>
See notes to condensed consolidated financial statements
</TABLE>
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
KENTUCKY ELECTRIC STEEL, INC
(1) Basis of Presentation
The accompanying unaudited condensed consolidated financial
statements represent Kentucky Electric Steel, Inc. and its wholly-owned
subsidiary, KESI Finance Company, (the Company). KESI Finance Company
was formed in October 1996 to finance the Ladle Metallurgy Project.
All significant intercompany accounts and transactions have been
eliminated. These statements have been prepared in accordance with
generally accepted accounting principles for interim financial
information and the instructions to Form 10-Q and Article 10 of
Regulation S-X. Accordingly, they do not include all of the
information and footnotes required by generally accepted accounting
principles for complete financial statements. In the opinion of
management, all adjustments (consisting of normal recurring
adjustments) considered necessary for a fair presentation have been
included. Operating results for the three-month period ended December
28, 1996, are not necessarily indicative of the results that may be
expected for the year ended September 27, 1997. For further
information, refer to the financial statements and footnotes thereto
included in the Company's annual report on Form 10-K for the year ended
September 28, 1996.
Net income per common share is calculated based on 4,658,691 and
4,871,140 weighted average number of common shares outstanding during
the quarters ended December 28, 1996, and December 30, 1995,
respectively.
(2) Accounting Policies
Fiscal Year End
The Company's fiscal year ends on the last Saturday of September.
Property, Plant, Equipment and Depreciation
Property, plant and equipment is recorded at cost, less
accumulated depreciation. For financial reporting purposes,
depreciation is provided on the straight-line method over the estimated
useful lives of the assets, generally 3 to 12 years for machinery and
equipment and 15 to 30 years for buildings and improvements.
Depreciation for income tax purposes is computed using accelerated
methods. Expenditures for maintenance and repairs are charged to
expense as incurred. Expenditures for equipment renewals which extend
the useful life of any asset are capitalized.
The Company capitalizes interest costs as part of the historical
cost of constructing major capital assets. Interest costs of $7,834
and $52,474 were capitalized for the three months ended December 28,
1996 and December 30, 1995, respectively.
Recent Accounting Pronouncements
In October 1995, the Financial Accounting Standards Board issued
Statement No. 123 (SFAS No. 123) related to accounting for stock-based
compensation. SFAS No. 123 establishes financial accounting and
reporting standards for stock-based employee compensation plans. The
statement encourages the use of the fair value based method to measure
compensation cost for stock-based employee compensation plans, however,
it also continues to allow the intrinsic value based method of
accounting as prescribed by APB Opinion No. 25. If the intrinsic value
based method is used, the statement requires pro forma disclosures of
net income and earning per share, as if the fair value based method of
accounting had been applied. The fair value based method requires
compensation cost be measured at the grant date based upon the value of
the award and recognized over the service period, which is normally the
vesting period. The Company adopted SFAS No. 123 effective September
29, 1996 and continues to use the intrinsic value based method of
accounting.
(3) Inventories
Inventories at December 28, 1996 and September 28, 1996 consist of
the following ($000's):
December 28, September 28,
1996 1996
Raw materials $ 4,092 $ 4,069
Semi-finished and finished goods 12,344 13,298
Total inventories $ 16,436 $ 17,367
(4) Long-Term Debt
The Company's unsecured senior notes and bank credit facility
agreements were amended, effective December 28, 1996, to reduce the
required fixed charge coverage ratio, increase the minimum net worth
requirement and revise other miscellaneous provisions of the
agreements. In connection with the amendment, the amount of the
Company's unsecured bank credit facility has been reduced from $24.5
million to $17.5 million. With this amendment, the Company continues
to be in compliance with the financial covenants and management
believes it is probable that the Company will continue to be in
compliance with the amended covenants.
(5) Commitments and Contingencies
The Company has various commitments for the purchase of materials,
supplies and energy arising in the ordinary course of business.
The Company is subject to various claims, lawsuits and
administrative proceedings, arising in the ordinary course of business
with respect to commercial, product liability and other matters, which
seek remedies or damages. The Company believes that any liability that
may ultimately be determined will not have a material effect on its
financial position or results of operations.
The Company generates both hazardous wastes and non-hazardous
wastes which are subject to various governmental regulations.
Estimated costs to be incurred in connection with environmental matters
are accrued when the prospect of incurring costs for testing or
remedial action is deemed probable. The Company is not aware of any
material asserted or unasserted environmental claims against the
Company and no accruals for such matters have been recorded in the
accompanying balance sheets. However, discovery of unknown conditions
could result in the recording of accruals in the periods in which they
become known.
<PAGE>
KENTUCKY ELECTRIC STEEL, INC.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
General. The Company manufacturers special bar quality alloy and
carbon steel bar flats to precise customer specifications for sale in a
variety of niche markets. Its primary markets are manufacturers of
leaf-spring suspensions, cold drawn bar converters, flat bed truck
trailers, and steel service centers.
Net Sales. Net sales for the three months ended December 28, 1996
decreased by $.3 million (1.3%) to $23.4 million from $23.7 million
for the three months ended December 30, 1995. The decrease in net
sales was primarily due to a decrease in average net selling price,
offset by an increase in shipments from 53,000 tons for the first
fiscal quarter of 1996 to 55,000 tons for the first fiscal quarter of
1997. The decrease in average selling price is primarily attributable
to price reductions reflecting market conditions and pricing pressures.
Shipments for the first fiscal quarter of 1996 were impacted by
customers inventory adjustments and a softening in demand.
Cost of Goods Sold. Cost of goods sold for the three months ended
December 28, 1996 increased by $2.3 million (10.8%) to $23.4 million
from $21.1 million for the three months ended December 30, 1995. As a
percentage on net sales, cost of goods sold increased from 89.1% for
the first fiscal quarter of 1996 to 100.1% for the first fiscal quarter
of 1997. The increase in cost of goods sold is due to higher
conversion costs, additional depreciation related to the start-up of
the ladle metallurgy facility, and caster problems, offset somewhat by
lower scrap costs. Conversion costs reflect lower production related
to the start-up of the ladle metallurgy facility and the effect of a
December melt shop shutdown. The shutdown was necessary to repair the
caster superstructure and to convert an additional caster strand for
increased production of the thicker, wider products. Productivity in
the rolling mill, which had been negatively impacted in prior periods
due to the start-up of the expansion projects, improved during the
quarter. However, lower production in the melt shop and the depletion
of billet inventory reduced finished goods production.
Gross Profit (Loss). As a result of the above, the first quarter
of fiscal 1997 reflected a loss of $14,000 as compared to gross profit
of $2.6 million for the first quarter of fiscal 1996. As a percentage
of net sales, gross profit decreased from 10.9% for the first quarter
of fiscal 1996 to (.1%) for the first quarter of fiscal 1997.
Selling and Administrative Expenses. Selling and administrative
expenses include salaries and benefits, corporate overhead, insurance,
sales commissions and other expenses incurred in the executive, sales
and marketing, shipping, personnel, and other administrative
departments. Selling and administrative expenses decreased by
approximately $238,000 for the three months ended December 28, 1996 as
compared to the same period in fiscal 1996. As a percentage of net
sales, such expenses decreased from 8.3% for the three months ended
December 30, 1995 to 7.4% for the three months ended December 28, 1996.
The decrease in selling and administrative was primarily the result of
a reduction in the provision for uncollectible accounts, which was
higher in the first quarter of fiscal 1996 due to problems with certain
specific accounts.
Operating Income (Loss). For the reasons described above,
operating income decreased by $2.3 million from $.6 million in the
first three months of fiscal 1996 to an operating loss of $1.7 million
in the first three months of fiscal 1997. As a percentage of net
sales, operating income (loss) decreased from 2.6% for the first fiscal
quarter of 1996 to (7.4%) for the first fiscal quarter of 1997.
Interest Expense. Interest expense increased by $136,000 for the
three months ended December 28, 1996 from $358,000 for the first
quarter of fiscal 1996 to $494,000 for the first quarter of fiscal
1997, net of interest capitalized of $52,474 and $7,834, respectively.
The increase in interest expense was attributed to the additional debt
incurred in financing the capital expansion projects and the reduction
of capitalized interest due to the completion and start-up of the ladle
metallurgy facility.
Net Income. As a result of the above, net income decreased by $1.5
million for the three months ended December 28, 1996 from $162,000 for
the first quarter of fiscal 1996 to a net loss of $1.4 million for the
first quarter of fiscal 1997.
Liquidity and Capital Resources
The cash flows used by operating activities was $226,000 for the
first quarter of fiscal 1997 as compared to $2.8 million for the first
quarter of fiscal 1996. First quarter of fiscal 1997 operating cash
flows were negatively impacted by the net loss and a decrease in
accrued liabilities, which have been offset due to a decrease in
accounts receivable and inventories. The cash flows used by investing
activities consist of capital expenditures of $.9 million for the first
quarter of fiscal 1997 and $1.0 million for the first quarter of fiscal
1996 and reductions in capital expenditures payable of $.5 million and
$.8 million for the first quarter of fiscal 1997 and 1996,
respectively.
The cash flows from financing activities was $1.7 million in the
first quarter of fiscal 1997 as compared to $4.5 million for the first
quarter of fiscal 1996. The cash flows from financing activities of
$1.7 million for the first quarter of fiscal 1997 reflects advances of
$2.1 million on the Company's line of credit and $.4 million for
purchase of treasury stock. The cash flows from financing activities
of $4.5 million for the first quarter of fiscal 1996 reflects repayment
of $6.3 million on the Company's line of credit and $9.0 million
repayment of long-term debt, however, these amounts have been offset
with the proceeds of $20.0 million of new long-term debt.
Working capital at December 28, 1996 was $11.8 million as compared
to $15.0 million at September 28, 1996, and the current ratio was 1.5
to 1.0 as compared to 1.7 to 1.0. The decrease in working capital and
current ratio is primarily attributed to a decrease in accounts
receivable and inventories.
The Company's unsecured senior notes and bank credit facility
agreements were amended, effective December 28, 1996, to reduce the
required fixed charge coverage ratio, increase the minimum net worth
requirement and revise other miscellaneous provisions of the
agreements. In connection with the amendment, the amount of the
Company's unsecured bank credit facility has been reduced from $24.5
million to $17.5 million. With this amendment, the Company continues
to be in compliance with the financial covenants and management
believes it is probable that the Company will continue to be in
compliance with the amended covenants.
The Company's primary ongoing cash requirements are for the payment
of retainage on the capital expansion projects and current capital
expenditures. The two sources for the Company's liquidity are
internally generated funds and its bank credit facility. The Company
had $9.7 million in borrowings outstanding as of December 28, 1996.
The Company believes that the bank credit facility and internally
generated funds will be sufficient to fund its ongoing cash needs
through the next twelve-month period.
Outlook
The melt shop was shut down for ten days from December 24, 1996
through January 3, 1997 to repair the superstructure and to convert an
additional caster strand for increased production of the thicker, wider
products. The major modifications to the new equipment are complete
and all of the Company's efforts are focused on increasing production.
We believe the second quarter will be another difficult quarter as
the Company focuses its efforts on increasing production. The
Company's new product sizes continue to be well received by the
marketplace. Although the spring market is somewhat soft, the
Company's backlog remains firm and the Company is cautiously optimistic
about the future strength of the markets it serves.
Forward-Looking Statements
The matters discussed or incorporated by reference in this Report
on Form 10-Q that are forward-looking statements (as defined in the
Private Securities Litigation Reform Act of 1995) including those
statements in "Outlook" above, involve risks and uncertainties. These
risks and uncertainties include, but are not limited to, the reliance
on truck and utility vehicle industry; excess industry capacity;
product demand and industry pricing; volatility of raw material costs,
especially steel scrap; intense foreign and domestic competition;
management's estimate of niche market data; the cyclical and capital
intensive nature of the industry; and cost of compliance with
environmental regulations. These risks and uncertainties could cause
actual results of the Company to differ materially from those projected
or implied by such forward-looking statements.
<PAGE>
PART II. - OTHER INFORMATION
ITEM 6. Exhibits and Reports on Form 8-K
A) Exhibits
3.1 Certification of Incorporation of Kentucky Electric
Steel, Inc., filed as Exhibit 3.1 to Registrant's
Registration Statement on Form S-1 (No. 33-67140),
and incorporated by reference herein.
3.2 By-Laws of Kentucky Electric Steel, Inc., filed as
Exhibit 3.2 to Registrant's Registration Statement
on Form S-1 (No. 33-67140), and incorporated by
reference herein.
4.4 First Amendment Agreement to Senior Note Agreement
between Registrant and a group of institutional
investors.
4.5 Amendment No. 1 to Amended and Restated Loan
Agreement between Registrant and National City
Bank, Kentucky.
10.15 First Addendum to Agreement with Morgan-Pomini
Company for Rolling and Finishing End Modernization
27 Financial Data Schedule
B) Reports on Form 8-K - None.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
DATED: February 11, 1997 KENTUCKY ELECTRIC STEEL, INC.
(Registrant)
\s\ William J. Jessie
William J. Jessie, Vice President,
Secretary, Treasurer, and
Principal Financial Officer
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Kentucky Electric Steel, Inc.'s condensed consolidated financial
statements as of and for the three month period ended December 28, 1996
included in this Company's quarterly report on Form 10-Q and is
qualified in its entirety by reference to such condensed consolidated
financial statements.
</LEGEND>
<CIK> 0000910394
<NAME> KENTUCKY ELECTRIC STEEL, INC.
<MULTIPLIER> 1,000
<CURRENCY> U.S. DOLLARS
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> SEP-27-1997
<PERIOD-START> SEP-29-1996
<PERIOD-END> DEC-28-1996
<EXCHANGE-RATE> 1
<CASH> 127
<SECURITIES> 0
<RECEIVABLES> 11244
<ALLOWANCES> 535
<INVENTORY> 16436
<CURRENT-ASSETS> 33521
<PP&E> 44459
<DEPRECIATION> 8671
<TOTAL-ASSETS> 77478
<CURRENT-LIABILITIES> 21679
<BONDS> 20000
<COMMON> 50
0
0
<OTHER-SE> 35304
<TOTAL-LIABILITY-AND-EQUITY> 77478
<SALES> 23382
<TOTAL-REVENUES> 23382
<CGS> 23396
<TOTAL-COSTS> 23396
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 494
<INCOME-PRETAX> (2228)
<INCOME-TAX> (844)
<INCOME-CONTINUING> (1384)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (1384)
<EPS-PRIMARY> (30)
<EPS-DILUTED> (30)
</TABLE>
KENTUCKY EL ECTRIC STEEL, INC.
___________ ______________________________
FIRST AMEND MENT AGREEMENT
___________ ______________________________
January 30, 1997
To the Noteholders
Whose Names are set forth on
the Signature Pages hereto:
Ladies and Gentlemen:
Reference is made to those certain Note Agreements dated
as of November 1, 1995 (the Note Agreement ) between the undersigned
Kentucky Electric Steel, Inc. (the Company ) and the respective purchasers
of $20,000,000 in the aggregate principal amount of the Company s 7.66%
Senior Notes due November 1, 2005 (the Notes ). The Company has requested
the Noteholders named on the signature pages attached hereto (the
Noteholders ) to agree to an amendment to the Note Agreement; and the
Noteholders have agreed to such amendment on the terms and conditions
hereinafter set forth. (Unless otherwise expressly provided herein,
capitalized terms used herein shall have the same respective meanings as
were assigned to each under the Note Agreement).
In consideration of the foregoing and of the mutual
covenants hereinafter set forth, the Company and the Noteholders agree as
follows:
1. Section 5.7 of the Note Agreement is amended to read in
its entirety as follows:
5.7 Consolidated Adjusted Net Worth. (i) At all times
prior to the earlier of December 26, 1998 and the date on which the
ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed
Charges for the immediately preceding period of four consecutive
fiscal quarters, calculated at the end of such fiscal quarter, is
greater than or equal to 2.0 to 1.0, the Company will keep and
maintain Consolidated Adjusted Net Worth at an amount not less than
$30,000,000; and (ii) at all other times, the Company will keep and
maintain Consolidated Adjusted Net Worth at an amount not less than
$25,000,000.
2. Section 5.9 of the Note Agreement is amended to read in
in its entirety as follows:
5.9 Fixed Charges Coverage Ratio. The Company will keep
and maintain the ratio of its Consolidated Cash Flow Available for
Fixed Charges to Fixed Charges at:
(i) not less than the amounts shown below for each period of
eight consecutive fiscal quarters, calculated as of the end
of each fiscal quarter shown below:
Fiscal Quarter End Ratio
December 28, 1996 2.0 to 1.0
March 29, 1997 1.5 to 1.0
June 28, 1997 1.2 to 1.0
September 27, 1997 1.0 to 1.0
December 27, 1997 1.0 to 1.0
March 29, 1998 1.0 to 1.0
June 27, 1998 1.0 to 1.0
September 26, 1998 1.2 to 1.0
(ii) not less than 2.0 to 1.0 for each period of four consecutive
fiscal quarters thereafter, calculated as of the end of each
such fiscal quarter.
3. Section 6.1(e) of the Note Agreement is amended to read in
its entirety as follows:
(e) (i) At all times prior to the earlier of
December 26, 1998 and the date on which the ratio of
Consolidated Cash Flow Available for Fixed Charges to Fixed
Charges for the immediately preceding period of four consecutive
fiscal quarters, calculated at the end of such fiscal quarter,
is greater than or equal to 2.0 to 1.0, default or the happening
of an event shall occur under any indenture, agreement or other
instrument under which any Debt in an aggregate principal amount
of $2,000,000 or more of the Company or any Subsidiary may be
issued, and, as a consequence of such default or event, such
Debt has become, or has been declared, or one or more Persons
are entitled to declare such Debt to be, due and payable before
its stated maturity or before its regularly scheduled dates of
payment; and (ii) at all other times, default or the happening
of any event shall occur under any indenture, agreement or other
instrument under which any Debt in an aggregate principal amount
of $2,000,000 or more of the Company or any Subsidiary may be
issued and such default or event shall result in the
acceleration of the maturity of any Debt of the Company or any
Subsidiary outstanding thereunder; or
4. The modifications set forth herein shall be effective as of
December 28, 1996 when holders of 66 2/3% in aggregate principal
amount of outstanding Notes shall have signed and returned to
the Company a copy of this First Amendment Agreement.
5. Except as specifically modified hereby, the Note Agreement
shall remain in full force and effect in accordance with the terms
thereof.
6. Each reference in the Note Agreement to the Note
Agreement, the Agreement, this Agreement, herein, hereof, or
other words of like import referring to the Note Agreement shall mean
the Note Agreement as amended by this First Amendment.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ William J. Jessie
Name: William J. Jessie
Title: Vice President
Agreed and Accepted:
Noteholders:
CONNECTICUT GENERAL
LIFE INSURANCE COMPANY
By: CIGNA Investments, Inc.
By: /s/ Richard B. McGauley
Name: Richard B. McGauley
Title: Managing Director
<PAGE>
CONNECTICUT GENERAL
LIFE INSURANCE COMPANY, on behalf of
one or more separate accounts
By: CIGNA Investments, Inc.
By: /s/ Richard B. McGauley
Name: Richard B. McGauley
Title: Managing Director
MODERN WOODMEN OF AMERICA
By: /s/ Nick S. Coin
Name: Nick S. Coin
Title: Supervisor, Securities Division
<PAGE>
AMENDMENT NO. 1
TO
AMENDED AND RESTATED LOAN AGREEMENT
THIS AMENDMENT NO. 1 to Amended and Restated Loan Agreement
( Amendment ) is made and entered into as of the 28th day of December, 1996
by and between KENTUCKY ELECTRIC STEEL, INC., a Delaware corporation with
principal office and place of business in Boyd County, Kentucky (the
Borrower ), and NATIONAL CITY BANK OF KENTUCKY, a national banking
association with principal office and place of business in Louisville,
Kentucky (the Bank ).
P R E L I M I N A R Y S T A T E M E N T :
A. Pursuant to that certain Amended and Restated Loan Agreement
dated as of November 1, 1995, between the Borrower and the Bank (as
amended, supplemented or otherwise modified from time to time, the Amended
and Restated Loan Agreement ), the Bank has established in favor of
Borrower a revolving line of credit in the amount of $23,000,000.
B. Pursuant to the terms of an Agreement to Extend Maturity
Date dated August 28, 1996, the Bank exercised its option (set forth in
Section 2.1B of the Amended and Restated Loan Agreement and in Paragraph 1
of the Amended and Restated Working Capital Line of Credit Note) to extend
the stated maturity date of the Working Capital Line of Credit for a one
(1) year period to and including January 31, 1998.
C. Pursuant to the terms of Section 2.4C of the Amended and
Restated Loan Agreement, the Borrower has elected to permanently reduce in
part the Working Capital Commitment from $23,000,000 to $16,000,000.
D. The Borrower has requested that the Bank agree to
modifications of certain covenants contained in the Amended and Restated
Loan Agreement, and the Bank is willing to do so on the terms and
conditions hereafter set forth.
NOW, THEREFORE, in consideration of the premises and the mutual
covenants and agreements set forth herein and for other good and valuable
consideration, the mutuality, receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
1. Definitions. All capitalized terms not otherwise defined herein
shall have the meanings given to such terms in the Amended and Restated
Loan Agreement.
2. Amendments to Amended and Restated Loan Agreement. The Amended
and Restated Loan Agreement is hereby amended as follows:
2.1. Section 6 of the Amended and Restated Loan Agreement is
amended to add the following Section 6.12:
6.12. Covenant to Secure Working Capital Line of Credit.
In the event the outstanding balance of Working Capital Loans
exceeds $13,500,000 (exclusive of outstanding Letters of
Credit), the Borrower shall take such steps as are reasonably
necessary to grant the Bank a security interest in substantially
all its assets, such that the Amended and Restated Working
Capital Line of Credit Note shall be, in accordance with the
terms of the Amended and Restated Loan Agreement and of the
Senior Note Agreement, secured equally and ratably with the
Senior Notes.
2.2. Section 7.8 of the Amended and Restated Loan Agreement
is hereby amended to read in its entirety as follows:
7.8 Fixed Charges Coverage Ratio. The Borrower will not permit,
as at each Fiscal Quarter end, the ratio of its Consolidated Cash Flow
Available for Fixed Charges to Fixed Charges to be less than:
(i) the amounts shown below for the eight-Fiscal Quarter
period ended on each respective Fiscal Quarter end listed below:
Fiscal Quarter End Ratio
December 28, 1996 2.0 to 1.0
March 29, 1997 1.5 to 1.0
June 28, 1997 1.2 to 1.0
September 27, 1997 1.0 to 1.0
December 27, 1997 1.0 to 1.0
March 29, 1998 1.0 to 1.0
June 27, 1998 1.0 to 1.0
September 26, 1998 1.2 to 1.0
(ii) 2.0 to 1.0 for the four-Fiscal Quarter period ended on
each Fiscal Quarter end thereafter.
2.3. Section 7.9 of the Amended and Restated Loan Agreement
is amended to read in its entirety as follows:
7.9. Minimum Consolidated Adjusted Net Worth. (i) at all times
prior to the earlier of December 26, 1998 and the date on which the
ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed
Charges for the immediately preceding period of four Fiscal Quarters,
calculated at the end of such Fiscal Quarter, is greater than or equal
to 2.0 to 1.0, the Borrower will not permit its Consolidated Adjusted
Net Worth to be less than $30,000,000; and (ii) at all other times,
the Borrower will not permit its Consolidated Adjusted Net Worth to be
less than $25,000,000.
3. Voluntary Reduction of Working Capital Commitment. Pursuant to
the provisions of Section 2.4C of the Amended and Restated Loan Agreement,
the Borrower hereby gives the Bank written notice of its intention to,
effective on February 7, 1997, permanently reduce in part the Working
Capital Commitment from $23,000,000 to $16,000,000.
4. Conditions to Effectiveness. This Amendment shall become
effective as of December 28, 1996, when and only when the Bank shall have
received this Amendment executed by the Borrower and shall have returned an
executed copy to the Borrower.
5. Effect on the Amended and Restated Loan Agreement.
(a) Upon the effectiveness of Section 2 hereof, each reference
in the Amended and Restated Loan Agreement to this Agreement,
hereunder, hereof, herein or words of like import shall mean and be a
reference to the Amended and Restated Loan Agreement as amended hereby.
(b) Except as specifically amended herein, the Amended and
Restated Loan Agreement and all other documents, instruments and agreements
executed and/or delivered in connection therewith, shall remain in full
force and effect, and are hereby ratified and confirmed.
(c) The Borrower and the Bank acknowledge and agree that,
subject to extension thereof as provided in Section 2.1B of the Amended and
Restated Loan Agreement, the Working Capital Line of Credit Termination
Date in effect as of the date of this Amendment is January 31, 1998.
6. Counterparts. This Amendment may be executed by the parties
hereto in one or more counterparts, each of which taken together shall be
deemed to constitute one and the same instrument.
<PAGE>
IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed
as of the day and year first written above.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ William J. Jessie
Name: William J. Jessie
Title: Vice President and Chief
Executive Officer
NATIONAL CITY BANK OF KENTUCKY
By: /s/ V. T. Larimore, Jr.
Name: V. T. Larimore, Jr.
Title: Vice President
<PAGE>
FIRST ADDENDUM TO AGREEMENT
THIS FIRST ADDENDUM TO AGREEMENT, made and entered into this 23rd
day of December, 1996, by and between KENTUCKY ELECTRIC STEEL, INC.
( KES ) and MORGAN POMINI COMPANY ( MPC ).
W I T N E S S E T H :
WHEREAS, on the 14th day of March, 1994, KES and MPC entered into that
certain Agreement (the Agreement ; capitalized terms used herein and not
defined herein shall have the meanings assigned to such terms in the
Agreement), to modify KES s Manufacturing Facility to achieve KES s
Requirements; and
WHEREAS, KES and MPC have agreed to amend the Agreement to relieve
MPC of MPC s obligation to achieve KES s Requirements for narrow products
of less than .291" in thickness ; and
WHEREAS, KES has requested: (i) the extension of that certain
Guaranty Agreement of Morgan Construction Company, Inc. and Pomini S.p.A.
from December 31, 1996 through December 31, 1999; and (ii) the assumption
by Morgan Construction Company of the service obligations set forth in
Article 8.5 of the Agreement; and
WHEREAS, the parties desire to amend and supplement the Agreement in
furtherance of the above;
NOW, THEREFORE, in consideration of the mutual covenants and
obligations set forth herein and in the Agreement and other good and
valuable consideration, the receipt and sufficiency of which is hereby
acknowledged, it is agreed by and between KES and MPC as follows:
1. The Preamble provisions set forth above are made a part of this
Addendum.
2. KES s Requirements are hereby amended by amending and restating
the third paragraph of the Preamble in the Agreement as follows:
WHEREAS, KES has sought proposals to modify and improve the
rolling and finishing end of KES's Manufacturing Facility to meet
KES's requirement that upon completion of said modifications and
improvements, KES's Manufacturing Facility will be capable of
producing prime bar flats and squares, with square and round
edges in widths 2" through 12" and in thicknesses .236" through
3" in grades described in Exhibit 1 and pass schedules for new
sizes described in Exhibit 2 at production rates of greater of
(i) one hundred (100) tons per hour for sizes above 0.660.73
square inches in cross sectional area, or (ii) the cycle times
and capacity in MPC's proposal--"Quotation for Finishing End
Modernization Contract Scope Document, No. MPC93-424-001" dated
January 18, 1994, and such that a 5160 grade material .236" in
thickness and 2" in width will be delivered to the first notch of
the cooling bed above the transitional temperature with
sufficient temperature that the bar will remain above the
transitional temperature until the following bar packs (the
aforementioned size ranges in the grades and pass schedules
described together with the aforementioned production rates and
transitional temperature requirements are sometimes referred to
herein collectively as "KES's Requirements"); and
3. As reflected in the approved Change Orders, the Contract Sum
shall be Six Million Nine Hundred Eighty-Three Thousand Two Hundred Thirty-
Three and 89/100 (US $6,983,233.89) -- $7,307,050.00 - $323,816.11 =
$6,983,233.89. MPC shall reimburse KES or the Contract Sum shall be
further reduced to reimburse KES for: (i) the cost of replacing welded
strips on the cooling bed chill sections ( Chill Sections ) (see also,
Change Order No. 0596-018B); and (ii) repairing existing Chill Sections as
may be required until all the Chill Sections are supplied by MPC as
required by paragraph 4 below.
4. Pursuant to Section 8.3 of the Agreement, at no cost to KES
(except for removal and installation of the Chill Sections), MPC shall
design modifications to and deliver replacements for the Chill Sections to
eliminate the breakage that is occurring on the first notch of the Chill
Sections. If MPC s new design requires a change in the cooling beds or
the cooling beds drop wall, such changes shall be at MPC s cost and
expense. On or before January 15, 1997, MPC shall submit to KES MPC s
design of the modifications to the Chill Sections which shall be a seven
(7) notch Chill Section of approximately the same dimensions or other
design acceptable to KES. Said replacements shall be scheduled for
delivery in up to three (3) increments so as to afford MPC and KES an
opportunity during the subsequent rolling cycle to evaluate the performance
of the first increment of the replaced Chill Sections prior to delivery of
additional Chill Sections. Within nine (9) months from the execution of
this Addendum, MPC agrees to deliver replacements of the first increment
which shall consist of at least forty (40) Chill Sections. Should MPC be
unable to complete delivery of the first increment of Chill Sections within
nine (9) months as required herein due to any failure of a foundry to
timely fabricate the Chill Sections, MPC shall promptly provide notice to
KES. All the Chill Sections shall be delivered within twenty-four (24)
months from the execution of this Addendum. Any review by KES of MPC s
design of modifications to the Chill Sections shall not be deemed a waiver
of KES s rights, and shall not relieve MPC of its obligations, with respect
to the replacement Chill Sections. If the new Chill Sections alter KES s
products in such a manner as the Project will not continue to achieve KES s
Requirements, MPC will correct the problem to achieve KES s Requirements by
further modification and/or the supply of replacement castings to the Chill
Sections. As soon as practicable (on a down-day basis), KES shall be
responsible for the removal and installation of the Chill Sections and
replacements to the Chill Sections, through its own forces or by contract
with others. All Chill Sections removed shall remain the property of KES.
5. The Warranty Period for all the Chill Sections shall be extended
one (1) year from the date on which the final delivery of the replacement
Chill Sections is made. Any breakage of castings under normal operating
conditions and without misuse, abuse or alteration, will be deemed to be a
defect in material and workmanship.
6. The modified two piece drop table and clevis designed to air
cushion the roll during shearing and correct the east end roll breakage at
the shear entry will be installed at no cost to KES by March 10, 1997. KES
will provide a PLC programmer for any control changes required for
operation of the table, hold down roll and roll line sequencing as directed
by MPC providing that those changes will not slow down production.
7. The pins and bearings for the stacker that have been delivered
to KES will be installed by MPC at no cost to KES by March 10, 1997.
8. The Equipment for the modifications to the top and bottom shear
knife locking wedges and brass liners will be installed at no cost to
KES. This installation will be completed by March 10, 1997, subject to KES
making the Equipment available to MPC for two (2) outages (not to exceed
three (3) days for the bottom wedges and four (4) days for the top wedges),
and KES agrees to make the Equipment available for such outages as soon as
practicable. If on or before March 10, 1997, the bottom wedges have been
installed so as to allow the blades to be changed without having to cut a
bar or bump the blade and KES has not made the equipment available for
installation of the top wedges, KES shall not withhold the retention of
Three Hundred Twenty-Five Thousand Nine Hundred Eighty Dollars (US
$325,980.00) under paragraph 14 by reason of the work required under this
paragraph 8. The Warranty Period shall be extended three (3) years from
the Effective Date hereof for the Equipment described in the Agreement as
Group 4.00 - Cold Shear and Equipment. In addition to the warranty
provided by Article 8, MPC warrants that under normal operating conditions
and with proper maintenance, care, and lubrication, the shear s brass ways
will not need to be replaced within the extended Warranty Period and that
the modifications will allow the blades to be changed without having to cut
a bar or bump the blade. MPC further warrants that, under normal operating
conditions and with proper maintenance, care, and lubrication, at the end
of the extended Warranty Period, there will be no wear on the casting
surface that interfaces with the wedges.
9. The twelve (12) month Warranty Period for Groups 1 and 3 under
the Agreement -- the Vertical Stand and Cooling Bed (excluding the Chill
Sections described in paragraph 4 above) shall be deemed to have commenced
on November 28, 1995, and has expired.
10. The twelve (12) month Warranty Period for Group 2 under the
Agreement -- the Replacement Run-In Table shall be deemed to have commenced
on April 1, 1995, and has expired.
11. The twelve (12) month Warranty Period for Group 7 under the
Agreement -- the Banding Machine shall be deemed to have commenced on
August 1, 1995, and has expired.
12. The twelve (12) month Warranty Period for Group 6 under the
Agreement -- the Flat Stacker System shall be deemed to have commenced on
September 26, 1996, but the sprockets, chains, forks, and other wear parts
are excluded from the warranty.
13. The twelve (12) month Warranty Period for Group 5:00--Shear
Gauge Beam with Two Traveling Heads and Back Sear Table with Reject System
shall be deemed to expire when the modifications required by paragraph 8
will allow the blades to be changed without having to cut a bar or bump the
blade.
14. KES shall withhold payment of the lesser of Five Hundred
Thousand Dollars (US $500,000.00) or the delivered F.O.B. cost of the
replacement Chill Sections, until the Work required by paragraph 4 is
completed. Within ten (10) days after MPC presents to KES the amount of
its committed reasonable costs for the replacement Chill Sections, along
with reasonably estimated delivery and transportation charges, KES shall
release to MPC (a) the amount by which the withheld payment of Five Hundred
Thousand Dollars (US $500,000.00) exceeds the amount of such costs and
charges, and (b) a prorata amount of the remaining withheld payment
attributable to the first increment of Chill Sections. KES shall withhold
payment of Three Hundred Twenty-Five Thousand Nine Hundred Eighty Dollars
(US $325,980.00) until the Work required by paragraphs 6 and 8 is
completed. [$846,000 (Group 4.00) + $783,900 (Group 5.00) = $1,629,900 x
20% = $325,980]. Within ten (10) days after MPC completes the Work
required by paragraphs 6 and 8, KES shall release to MPC the withheld
payment of Three Hundred Twenty Five Thousand Nine Hundred Eighty Dollars
(US $325,980.00). On the Effective Date of this Addendum, KES shall pay to
MPC the sum of Three Hundred Eleven Thousand Six Hundred Thirteen Dollars
and 90/100 (US $311,613.90) representing the balance of the Contract Sum
as set forth in paragraph 3 of this Addendum, less the amounts to be
withheld pursuant to this paragraph 14 of this Addendum.
15. The obligations of MPC set forth in Article 8.5 of the Agreement
shall be assumed by the Morgan Construction Company, Inc. by execution and
delivery of the Assumption Agreement attached hereto as Exhibit A.
16. The term of the April 4, 1995 Guaranty of the Agreement by
Morgan Construction Company, Inc. and Pomini S.p.A. shall be extended
through December 31, 1999 by execution and delivery of the First Amendment
to Guaranty Agreement attached hereto as Exhibit B, subject to the terms
thereof.
17. The effective date ( Effective Date ) of this Addendum shall be
the date on which this Addendum, the Assumption Agreement, and First
Amendment to Guaranty Agreement are properly executed and delivered to KES.
KES shall have the option of declaring this Addendum null and void if the
Assumption Agreement and First Amendment to Guaranty Agreement are not
executed and delivered to KES prior to December 27, 1996.
18. Except as set forth in paragraph 2 above, KES s Requirements are
not modified by this Addendum and all provisions of the Agreement as
amended or supplemented by this Addendum shall remain in full force and
effect. Article 16.9 shall apply during the Warranty Period as extended
herein in the event that MPC fails to perform in accordance with the terms
of this Addendum, but the amount of any requested letter of credit shall
not exceed Two Million Dollars (US $2,000,000.00), less amounts, if any,
then withheld by KES.
IN WITNESS WHEREOF, the parties have hereunto executed this First
Addendum to Agreement in Boyd County, Kentucky, this 23rd day of
December, 1996.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
Its: President
MORGAN POMINI COMPANY
By: /s/ R. L. Brannaman
Its: President
<PAGE>
EXHIBIT A
ASSUMPTION AGREEMENT
THIS AGREEMENT, by and between KENTUCKY ELECTRIC STEEL, INC. ( KES ),
MORGAN POMINI COMPANY ( MPC ) and MORGAN CONSTRUCTION COMPANY ( Morgan ).
W I T N E S S E T H :
WHEREAS, MPC has entered into an Agreement to modify KES s facility in
Boyd County, Kentucky (the Contract ) dated as of March 14, 1994; and
WHEREAS, Morgan is a stockholder in MPC; and
WHEREAS, Morgan desires for KES to enter into that certain First
Addendum to the Contract; and
WHEREAS, KES would not enter into the First Addendum unless Morgan
assumed the service obligations of MPC set forth Article 8.5 of the
Contract; and
WHEREAS, Morgan is willing to assume the service obligations set forth
in Article 8.5 of the Contract;
NOW, THEREFORE, in consideration thereof, the parties agree as
follows:
1. Morgan hereby assumes the obligations of MPC arising from
Article 8.5 of the Contract.
2. MPC and Morgan shall not destroy or dispose of any equipment or
parts patterns developed for the Project (as this term is defined in the
Contract) without providing KES with notice and the opportunity of securing
such patterns upon payment by KES of reasonable handling and transportation
charges.
3. The service obligations assumed by Morgan hereunder shall be
deemed personal and may not be further assigned except with the express
written consent of KES.
IN WITNESS WHEREOF, the parties have executed this Assumption
Agreement in Boyd County, Kentucky this 23rd day of December, 1996.
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth 12/28/96
Its: President
MORGAN POMINI COMPANY
By: /s/ R. L. Brannaman
Its: President
MORGAN CONSTRUCTION COMPANY
By: /s/ Philip R. Morgan
Its: President
PAGE
<PAGE>
EXHIBIT B
FIRST AMENDMENT TO GUARANTY AGREEMENT
THIS FIRST AMENDMENT TO GUARANTY AGREEMENT, made as of and effective
the 23rd day of December, 1996, by and between MORGAN CONSTRUCTION
COMPANY ( Morgan ), a Massachusetts corporation, having its principal place
of business in Worcester, Massachusetts, and by POMINI S.p.A. ("Pomini"),
an Italian corporation, having its principal place of business in
Castellanza, Italy (each of Morgan and Pomini a "Guarantor" and
collectively, the "Guarantors") to and for the benefit of KENTUCKY ELECTRIC
STEEL, INC. ("KES"), a Delaware corporation, having its principal place of
business in Ashland, Kentucky.
W I T N E S S E T H:
WHEREAS, Morgan-Pomini Company, a Pennsylvania corporation (the
"Company") has entered into an agreement to modify a facility in Boyd
County, Kentucky (the "Contract") with KES dated March 14, 1994; and
WHEREAS, the Guarantors entered into that certain Guaranty Agreement
made as of April 4, 1995, but effective as of March 14, 1994 ( Guaranty
Agreement ) to guarantee the performance of the Company under the Contract;
and
WHEREAS, the Company desires for KES to enter into that certain First
Addendum (the First Addendum ) to the Contract; and
WHEREAS, KES will not enter into the First Addendum unless the
Guarantors agree to extend the termination date of the Guaranty Agreement
from December 31, 1996, to and including December 31, 1999; and
WHEREAS, the Guarantors are willing to extend the termination date of
the Guaranty Agreement as aforestated;
NOW, THEREFORE, as an inducement to KES to enter into the First
Addendum to the Contract, Guarantors and KES agree as follows:
1. Paragraph 1 of the Guaranty Agreement is hereby amended as
follows:
The Guarantors hereby guarantee performance of all of the
obligations of the Company under the Contract, as amended and
supplemented by the First Addendum and all change orders in
accordance with the terms and conditions therein. In the event
of breach of any such obligations of the Company or default in
performance, the Guarantors shall undertake performance of the
obligations of the Company to KES at such time and in such manner
as specified in the Contract, as amended and supplemented by the
First Addendum and all change orders. Notwithstanding the
foregoing, the maximum aggregate amount which Morgan will be
obligated to expend or be liable for pursuant to this Guaranty
shall in no event exceed 58 percent of the Contract Price or
$4,118,000.00 $1,160,000.00 and the maximum aggregate amount
which Pomini will be obligated to expend or be liable for
pursuant to this Guaranty shall in no event exceed 42 percent of
the Contract Priceor $2,982,000.00 $840,000.00. The Guarantors
further agree that this is a continuing guarantee and shall not
terminate until December 31, 1996 December 31, 1999.
2. The Guaranty Agreement, as amended and supplemented hereby,
remains in full force and effect and subject to its terms and conditions.
3. This First Amendment to Guaranty agreement may be executed in
counterparts, each of which shall constitute an original, but such
counterparts when taken together shall constitute but one agreement.
IN WITNESS WHEREOF, the parties have executed this instrument on the
day and date first above written by and through their duly authorized
officers.
MORGAN CONSTRUCTION COMPANY
By: /s/ Philip R. Morgan
Its: President
POMINI S.p.A.
By: /s/ Ben Cattaneo
Division Director
Its: Rolling Mill Division
December 23, 1996
KENTUCKY ELECTRIC STEEL, INC.
By: /s/ Charles C. Hanebuth
Its: President
