<PAGE>
AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON JANUARY 9, 1998
REGISTRATION NO. 333-
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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
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FORM S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
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SHEFFIELD STEEL CORPORATION
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
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<TABLE>
<S> <C> <C>
DELAWARE 3312 74-2191557
(STATE OR OTHER JURISDICTION OF (PRIMARY STANDARD INDUSTRIAL (I.R.S. EMPLOYER
INCORPORATION OR ORGANIZATION) CLASSIFICATION CODE NUMBER) IDENTIFICATION NO.)
</TABLE>
220 NORTH JEFFERSON
SAND SPRINGS, OKLAHOMA 74063
(918) 245-1335
(ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF REGISTRANT'S PRINCIPAL EXECUTIVE OFFICES)
ROBERT W. ACKERMAN
PRESIDENT AND CHIEF EXECUTIVE OFFICER
SHEFFIELD STEEL CORPORATION
220 NORTH JEFFERSON
SAND SPRINGS, OKLAHOMA 74063
(918) 245-1335
(NAME, ADDRESS, INCLUDING ZIP CODE, AND TELEPHONE NUMBER, INCLUDING AREA CODE,
OF AGENT FOR SERVICE)
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COPY TO:
LEWIS J. GEFFEN, ESQUIRE
MINTZ, LEVIN, COHN, FERRIS, GLOVSKY AND POPEO, P.C
ONE FINANCIAL CENTER
BOSTON, MASSACHUSETTS 02111
(617) 542-6000
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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: As soon as
practicable after the Registration Statement becomes effective.
If any of the securities being registered on this Form are to be offered on
a delayed or continuous basis pursuant to Rule 415 under the Securities Act of
1933, check the following box. [X]
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, please check the following
box and list the Securities Act registration statement number of the earlier
effective registration statement for the same offering. [_]
If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [_]
If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [_]
CALCULATION OF REGISTRATION FEE
<TABLE>
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<CAPTION>
PROPOSED PROPOSED
MAXIMUM MAXIMUM AMOUNT OF
TITLE OF EACH CLASS AMOUNT TO OFFERING PRICE AGGREGATE REGISTRATION
OF SECURITIES TO BE REGISTERED BE REGISTERED PER BONDS OFFERING PRICE FEE
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<S> <C> <C> <C> <C>
11 1/2% Series B First Mortgage Notes due
2005..................................... $110,000,000 100% $110,000,000 $32,450
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</TABLE>
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THE REGISTRANT HEREBY AMENDS THIS REGISTRATION STATEMENT ON SUCH DATE OR
DATES AS MAY BE NECESSARY TO DELAY ITS EFFECTIVE DATE UNTIL THE REGISTRANT
SHALL FILE A FURTHER AMENDMENT WHICH SPECIFICALLY STATES THAT THIS
REGISTRATION STATEMENT SHALL THEREAFTER BECOME EFFECTIVE IN ACCORDANCE WITH
SECTION 8(A) OF THE SECURITIES ACT OF 1933 OR UNTIL THE REGISTRATION STATEMENT
SHALL BECOME EFFECTIVE ON SUCH DATE AS THE SECURITIES AND EXCHANGE COMMISSION,
ACTING PURSUANT TO SAID SECTION 8(A), MAY DETERMINE.
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<PAGE>
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
+THIS PROSPECTUS AND THE INFORMATION CONTAINED HEREIN ARE SUBJECT TO CHANGE +
+COMPLETION OR AMENDMENT WITHOUT NOTICE. A REGISTRATION STATEMENT RELATING TO +
+THESE SECURITIES HAS BEEN FILED WITH THE SECURITIES AND EXCHANGE COMMISSION. +
+THESE SECURITIES MAY NOT BE SOLD NOR MAY AN OFFER TO BUY BE ACCEPTED PRIOR TO +
+THE TIME THE REGISTRATION STATEMENT IS DECLARED EFFECTIVE. UNDER NO +
+CIRCUMSTANCES SHALL THIS PROSPECTUS CONSTITUTE AN OFFER TO SELL OR TO +
+SOLICITATION OF AN OFFER TO BUY NOR SHALL THERE BE ANY SALE OF THESE +
+SECURITIES IN ANY JURISDICTION IN WHICH SUCH OFFER SOLICITATION OR SALE WOULD +
+BE UNLAWFUL PRIOR TO REGISTRATION OR QUALIFICATION UNDER THE SECURITIES LAWS +
+OF ANY SUCH JURISDICTION. +
++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++++
SUBJECT TO COMPLETION, DATED JANUARY 9, 1998
PROSPECTUS
SHEFFIELD STEEL CORPORATION
OFFER TO EXCHANGE UP TO $110,000,000 OF ITS
11 1/2% SERIES B FIRST MORTGAGE NOTES DUE 2005
FOR ANY AND ALL OF ITS OUTSTANDING
11 1/2% SERIES A FIRST MORTGAGE NOTES DUE 2005
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME, ON [ ],
1998 UNLESS EXTENDED.
Sheffield Steel Corporation (the "Company"), hereby offers, upon the terms
and subject to the conditions set forth in this Prospectus and the accompanying
Letter of Transmittal (which together constitute the "Exchange Offer"), to
exchange $1,000 face amount of 11 1/2% Series B First Mortgage Notes due 2005
(the "New First Mortgage Notes") of the Company for each $1,000 face amount of
the issued and outstanding 11 1/2% Series A First Mortgage Notes due 2005 (the
"Old First Mortgage Notes" and, together with the New First Mortgage Notes, the
"First Mortgage Notes") of the Company from the holders (the "Holders")
thereof. As of the date of this Prospectus, there was $110,000,000 aggregate
face amount of the Old First Mortgage Notes outstanding. The terms of the New
First Mortgage Notes are identical in all material respects to the Old First
Mortgage Notes, except that the New First Mortgage Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and,
therefore, will not bear legends restricting their transfer and will not
contain certain provisions relating to an increase in the interest rate which
were included in the Old First Mortgage Notes under certain circumstances
relating to the timing of the Exchange Offer.
The New First Mortgage Notes will be senior obligations of the Company,
secured by a first priority lien on substantially all existing and future
property, plant and equipment owned or leased by the Company. The New First
Mortgage Notes will rank pari passu in right of payment with all existing and
future unsubordinated indebtedness of the Company, if any, and senior in right
of payment to all existing and future subordinated indebtedness. The Company
and its subsidiaries are permitted to incur additional secured and unsecured
indebtedness under the indenture governing the First Mortgage Notes (including
indebtedness under the Revolving Credit Facility).
The New First Mortgage Notes are being offered hereunder in order to satisfy
certain obligations of the Company contained in the Registration Rights
Agreement (as defined). Based on interpretations by the staff of the Securities
and Exchange Commission (the "Commission") set forth in no-action letters
issued to third parties, the Company believes that the New First Mortgage Notes
issued pursuant to the Exchange Offer in exchange for Old First Mortgage Notes
may be offered for resale, resold and otherwise transferred by any Holder
thereof (other than any such Holder which is an "affiliate" of the Company
within the meaning of Rule 405 under the Securities Act), without compliance
with the registration and prospectus delivery provisions of the Securities Act,
provided that such New First Mortgage Notes are acquired in the ordinary course
of such Holder's business and such Holder has no arrangement with any person to
participate in the distribution of such New First Mortgage Notes.
(cover page continued on next page)
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SEE "RISK FACTORS," BEGINNING ON PAGE 10, FOR A DISCUSSION OF CERTAIN FACTORS
THAT SHOULD BE CONSIDERED BY HOLDERS PRIOR TO TENDERING THEIR OLD FIRST
MORTGAGE NOTES IN
THE EXCHANGE OFFER.
-----------
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
COMMISSION OR ANY STATE SECURITES COMMISSION PASSED UPON THE ACCURACY OR
ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
THE DATE OF THIS PROSPECTUS IS [ ], 1998
<PAGE>
Each Holder will be required to acknowledge in the Letter of Transmittal
that it is not, and does not intend to engage in, a distribution of the New
First Mortgage Notes. Notwithstanding the foregoing, each broker-dealer that
receives New First Mortgage Notes for its own account pursuant to the Exchange
Offer will also be required to acknowledge in the Letter of Transmittal that
(i) Old First Mortgage Notes tendered by it in the Exchange Offer were
acquired in the ordinary course of its business as a result of market-making
or other trading activities and (ii) it will deliver a prospectus in
connection with any resale of New First Mortgage Notes received in the
Exchange Offer. The Letter of Transmittal will also state that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an "underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by such broker-dealer in connection with any resale
of the New First Mortgage Notes received in exchange for Old First Mortgage
Notes where such Old First Mortgage Notes were acquired by such broker-dealer
as a result of market-making or other trading activities (other than Old First
Mortgage Notes acquired directly from the Company). The Company has agreed
that, for a period of 180 days after the Expiration Date (as defined), it will
make this Prospectus available to any broker-dealer for use in connection with
any such resale. See "Plan of Distribution." Based on the above-mentioned
interpretations by the staff of the Commission, the Company believes that
broker-dealers who acquired the Old First Mortgage Notes directly from the
Company and not as a result of market-making activities or other trading
activities cannot rely on such interpretations by the staff of the Commission
and must, in the absence of an exemption, comply with the registration and
prospectus delivery requirements of the Securities Act in connection with
secondary resales of the New First Mortgage Notes. Such broker-dealers may not
use this Prospectus, as it may be amended or supplemented from time to time,
in connection with any resales of the New First Mortgage Notes.
The Company will not receive any proceeds from the Exchange Offer. The
Company will pay all the costs incident to the Exchange Offer (which shall not
include the costs of any Holder in connection with resales of the New First
Mortgage Notes). Tenders of Old First Mortgage Notes pursuant to the Exchange
Offer may be withdrawn at any time prior to the Expiration Date. The Exchange
Offer is subject to certain customary conditions. In the event the Company
terminates the Exchange Offer and does not accept for exchange any Old First
Mortgage Notes, the Company will promptly return the Old First Mortgage Notes
to the Holders thereof. The Company will give oral or written notice of any
extension, amendment, non-acceptance or termination of the Exchange Offer to
the Holders of the Old First Mortgage Notes as promptly as practicable, such
notice in the case of any extension to be issued by means of a press release
or other public announcement no later than 9:00 a.m., New York City time, on
the next business day after the previously scheduled Expiration Date. The
Company can, in its sole discretion, extend the Exchange Offer indefinitely,
subject to the Company's obligation to pay liquidated damages as described
herein if the Exchange Offer is not consummated by June 3, 1998 and, under
certain circumstances, file a shelf registration statement with respect to the
Old First Mortgage Notes. See "The Exchange Offer."
Prior to the Exchange Offer, there has been no public market for the Old
First Mortgage Notes. The Old First Mortgage Notes are eligible for trading in
the Private Offerings, Resales and Trading through Automation Linkages
("PORTAL") Market. There can be no assurance as to the development or
liquidity of any public market for the New First Mortgage Notes.
<PAGE>
ADDITIONAL INFORMATION
Although the Company is not subject to the reporting and other informational
requirements of the Securities and Exchange Act of 1934, as amended (the
"Exchange Act"), the Company has filed and will continue to file reports
pursuant to such requirements. In addition, the Company intends to furnish to
its securityholders annual reports containing consolidated financial
statements audited by an independent accounting firm and quarterly reports
containing unaudited consolidated financial information for the first three
quarters of each fiscal year.
CAUTIONARY STATEMENT REGARDING FORWARD LOOKING STATEMENTS
This Prospectus may contain forward-looking statements as that term is
defined in the Private Securities Litigation Reform Act of 1995. Such
statements are based on management's current expectations and are subject to a
number of factors and uncertainties which could cause results to differ
materially from those described in the forward-looking statements. There can
be no assurance that actual results or business conditions will not differ
materially from those anticipated or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the size and timing of significant orders, as well as deferral of
orders, over which the Company has no control; the variation in the Company's
sales cycles from customer to customer; increased competition posed by other
mini-mill producers; changes in pricing policies by the Company and its
competitors; the Company's success in expanding its sales programs and its
ability to gain increased market acceptance for its existing product lines;
the ability to scale up and successfully produce its products; the potential
for significant quarterly variations in the mix of sales among the Company's
products; the gain or loss of significant customers; shortages in the
availability of raw materials from the Company's suppliers; fluctuations in
energy costs; the costs of environmental compliance and the impact of
government regulations; the Company's relationship with its work force; the
restrictive covenants and tests contained in the Company's debt instruments,
which could limit the Company's operating and financial flexibility; and
general economic conditions.
i
<PAGE>
PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information and consolidated financial statements and notes thereto appearing
elsewhere in this Prospectus. Except where otherwise indicated in this
Prospectus (i) all references to a fiscal year refer to the fiscal year of the
Company which ends on April 30 (for example, references to "fiscal 1997" mean
the fiscal year ended April 30, 1997) and (ii) all references to the "Company"
refer to Sheffield Steel Corporation and its subsidiaries and all references to
"Sheffield" refer to Sheffield Steel Corporation.
THE COMPANY
The Company is a leading regional mini-mill producer of hot rolled steel bar
products ("hot rolled bar"), concrete reinforcing bar ("rebar"), fabricated
products, including fabricated and epoxy-coated rebar and steel fence posts,
and various types of semi-finished steel ("billets"). The Company and its
predecessors have been in the steelmaking business for over 68 years. The
Company believes that it is among the lowest cost producers of billets in the
United States as a result of its modern melt and cast operations, high labor
productivity levels, low energy costs and competitive steel scrap costs. The
Company's low cost billets serve as the feedstock for its downstream bar mill
operations and finished products. The Company shipped approximately 470,000
tons of steel in the 12-month period ended October 31, 1997, resulting in sales
of $175.1 million and EBITDA (as defined) of $20.7 million.
The Company's primary manufacturing facility is located in Sand Springs,
Oklahoma (the "Sand Springs Facility"), where it conducts a full range of
steelmaking activities, including the melting and casting of billets and the
processing of billets into rebar, steel fence posts and a range of hot rolled
bar products. The Company currently has 600,000 tons of steelmaking capacity.
The Company has recently completed construction, installation and final
commissioning of a new $22 million rolling mill (the "New Rolling Mill") at the
Sand Springs Facility which has increased productivity and efficiency in the
manufacturing of rebar and has enabled the Company to produce certain higher
quality hot rolled bar products that it was previously unable to produce. From
the Sand Springs Facility, the Company also transfers billets to its two
rolling mills in Joliet, Illinois (the "Joliet Facility"), where it produces
high-end specialty hot rolled bar products. The Company also operates a rebar
fabrication plant in Kansas City, Missouri (the "Kansas City Plant") and a
short line railroad (the "Railway Company"). The Sand Springs Facility and the
Joliet Facility received ISO 9002 quality certification in November 1995 and
June 1996, respectively.
Hot Rolled Bar. The Company sells a variety of specialty hot rolled bar
products, including flats, squares, rounds and channels for end use
applications that include farm equipment, auto parts, conveyor assemblies, pole
line hardware, wrench handles and construction machinery. The Company sells its
hot rolled bar products to original equipment manufacturers, cold drawn bar
finishers and, to a lesser extent, steel service centers. In the hot rolled bar
market, the Company differentiates itself from its competitors through the
Joliet Facility's focus on specialty products and by targeting customers with
special requirements as to bar shape, size and chemical composition and, in
many cases, small volume needs. The Company believes that its targeted customer
focus often allows it to act as the sole supplier of particular shapes, sizes
or steel chemistries to many customers. The Company believes that these niche
markets are unattractive to larger volume producers of hot rolled bar products.
The Company's Sand Springs Facility provides it with a competitive geographical
advantage in the south-central United States hot rolled bar market and enables
the Company's customers to benefit from lower freight costs, shorter lead times
and more timely deliveries. As a result of these competitive advantages and its
strong reputation for quality and service, the Company has built a number of
strong relationships with its hot rolled bar product customers. After the
completion of the Shear Line Project (as defined), the Company expects to
increase hot rolled bar product sales from its Sand Springs Facility as part of
its business strategy to improve finished product mix. See "--Business
Strategy--Improve Finished Goods Product Mix." For fiscal 1997, sales of hot
rolled bar products accounted for approximately 44% of the Company's total
sales.
1
<PAGE>
Rebar. The Company sells rebar to leading independent fabricators for end use
applications in the commercial construction and public infrastructure markets.
The Company has worked successfully to build and maintain long-term
relationships with fabricators located in the south-central United States by
providing them with competitive pricing, assured product availability and
reliable, prompt delivery and service. The Company believes that it is the
primary and, in most cases, the sole rebar supplier to its largest rebar
customers. Although rebar demand is driven by trends in commercial and
industrial construction and infrastructure investment, the levels of public and
private sector investment in buildings, plants, facilities and infrastructure
in the south-central United States market has helped the Company maintain
relatively stable rebar sales volume during periods of overall reduced steel
industry demand. For fiscal 1997, sales of rebar accounted for approximately
32% of the Company's total sales.
Fabricated Products. The Company manufactures and sells two fabricated steel
products: fence post and fabricated rebar, including epoxy-coated rebar. Fence
post sales are concentrated in the Oklahoma, Kansas, Missouri, Texas and
Arkansas market area. The Company believes that it is the primary supplier of
fence posts in this market area, with more than half of the market share. The
Company operates a rebar fabrication facility in Kansas City, the largest
facility in the market area, where it shears and bends rebar to meet
engineering or architectural specifications for construction projects. See
"Business--Recent Developments." For fiscal 1997, sales of fabricated products
accounted for approximately 14% of the Company's total sales.
Sales of billets to third parties and Railway Company sales accounted for the
remaining 10% of the Company's total sales for fiscal 1997.
BUSINESS STRATEGY
The Company has formulated an operating strategy to strengthen its market
position and maximize profitability which has four major components: (i)
improve finished goods product mix; (ii) continue to focus on and extend strong
customer relationships; (iii) modernize melt shop operations; and (iv)
streamline and strengthen organizational structure.
Improve Finished Goods Product Mix. With the addition of the New Rolling Mill
at the Sand Springs Facility, the Company has substantially increased its hot
rolled bar production capacity. Accordingly, shipments of finished products
have increased significantly as less profitable third party billet sales have
been intentionally reduced. Billet sales, which accounted for 23.6% of tons
shipped in fiscal 1994, accounted for only 7.3% of tons shipped for the 12-
month period ended October 31, 1997. Shifting away from third party billet
sales by increasing hot rolled bar production has also increased margins and
reduced sales volatility for the Company, since hot rolled bar products are
significantly more profitable than third party billet sales and demand is more
stable. As part of its strategy to further improve product mix, the Company
intends to remove a bottleneck at the Sand Springs Facility by improving the
efficiency of the cooling bed and increasing the capacity of the shear line
(the "Shear Line Project"). The completion of the Shear Line Project, scheduled
for the end of fiscal 1998, is expected to (i) increase hot rolled bar
production capacity by more than 100,000 tons per year; (ii) enable the Company
to more fully utilize its existing 600,000 tons of steelmaking capacity; (iii)
improve the quality of all mill products, especially hot rolled bar; and (iv)
improve product mix by further reducing billet sales to third parties. The
Shear Line Project is expected to have an aggregate capital cost of
approximately $4.5 million and, upon completion and achievement of full
operating capacity, is expected to result in an annual EBITDA (as defined)
increase of approximately $9 million.
Extend Strong Customer Relationships. The Company benefits from having a
number of long-standing customer relationships in each of its product markets.
The Company has built a reputation for providing consistent product quality,
reliable, prompt product delivery and service, product availability and
flexible scheduling to meet customer needs and a high level of follow up
technical assistance and service. The ISO 9002
2
<PAGE>
certification at both the Sand Springs Facility and the Joliet Facility is an
indication of the Company's commitment to producing quality products. The
Company believes that its business strategy to improve its finished product mix
will strengthen its existing customer relationships and will aid it in
developing new customer relationships.
Modernize Melt Shop. The Company believes that it is among the lowest cost
producers of billets in the United States as a result of its modern melt and
cast operations, high labor productivity levels, low energy costs and
competitive steel scrap costs. With the addition of the New Rolling Mill, which
can utilize a larger billet, together with improvements in general operating
practices, yields have improved, costs have been reduced and annual billet
production capacity has increased from 525,000 tons to 600,000 tons per year.
Through incremental capital investments, the Company intends to pursue
additional modernization measures, such as the installation of a ladle arc
furnace in the melt shop, which will further enhance production capability,
increase production capacity, reduce manufacturing costs and improve the
quality of finished products.
Streamline and Strengthen Organizational Structure. The Company has improved
strategic planning, strengthened financial reporting systems and aligned
organizational structure and management incentives with the Company's business
strategies and objectives. In accordance with the collective bargaining
agreement reached in February 1997 that resulted in a 15% workforce reduction
at the Sand Springs Facility, the Company has been able to implement multi-
craft training and use greater flexibility in job assignments. Additional
initiatives to streamline operations include the elimination of a centralized
maintenance structure and close coordination of the melt shop, casting and
rolling mill operations which have resulted in significant reductions in both
billet and finished goods inventory. The Company has also put in place a new
management team to manage the Sand Springs Facility manufacturing operations.
These initiatives have resulted in improving the organizational structure of
the Company, making it flexible and more responsive to customer needs and
positioning it to implement its business strategy of improving finished product
mix.
The Company's principal executive offices are located at 220 North Jefferson,
Sand Springs, Oklahoma 74063 and its telephone number is (918) 245-1335.
THE EXCHANGE OFFER
Registration Rights The Old First Mortgage Notes were sold by the
Agreement.................. Company on December 5, 1997 to BT Alex Brown (the
"Initial Purchaser"), who placed the Old First
Mortgage Notes with institutional investors. In
connection therewith, the Company executed and
delivered for the benefit of the Holders of the
Old First Mortgage Notes a registration rights
agreement (the "Registration Rights Agreement")
providing, among other things, for the Exchange
Offer.
The Exchange Offer.......... The New First Mortgage Notes are being offered in
exchange for a like face amount of Old First
Mortgage Notes. As of the date hereof,
$110,000,000 aggregate face amount of Old First
Mortgage Notes are outstanding. The Company will
issue the New First Mortgage Notes to Holders
promptly following the Expiration Date. See "Risk
Factors Consequences of Failure to Exchange."
Expiration Date............. 5:00 p.m., New York City time, on [ ], 1998,
unless the Exchange Offer is extended, in which
case the term "Expiration Date" means the latest
date and time to which the Exchange Offer is
extended.
3
<PAGE>
Accrued Interest on the New
First Mortgage Notes and
the Old First Mortgage
Notes......................
Each New First Mortgagee Note will bear interest
from its issuance date. Holders of Old First
Mortgage Notes that are accepted for exchange
will receive, in cash, accrued interest thereon
to, but not including, the issuance date of the
New First Mortgage Notes. Such interest will be
paid with the first interest payment on the New
First Mortgage Notes. Interest on the Old First
Mortgage Notes accepted for exchange will cease
to accrue upon issuance of the New First Mortgage
Notes.
Conditions to the Exchange The Exchange Offer is subject to certain
Offer...................... customary conditions, which may be waived by the
Company. See "The Exchange Offer--Conditions."
Procedures for Tendering
Old First Mortgage Notes...
Each Holder of Old First Mortgage Notes wishing
to accept the Exchange Offer must complete, sign
and date the Letter of Transmittal, or a
facsimile thereof, in accordance with the
instructions contained herein and therein, and
mail or otherwise deliver such Letter of
Transmittal, or such facsimile, together with the
Old First Mortgage Notes and any other required
documentation to the exchange agent (the
"Exchange Agent") at the address set forth
herein. By executing the Letter of Transmittal,
each Holder will represent to the Company, among
other things, that (i) the New First Mortgage
Notes acquired pursuant to the Exchange Offer by
the Holder and any beneficial owners of Old First
Mortgage Notes are being obtained in the ordinary
course of business of the person receiving such
New First Mortgage Notes, (ii) neither the Holder
nor such beneficial owner is participating in,
intends to participate in or has an arrangement
or understanding with any person to participate
in the distribution of such New First Mortgage
Notes and (iii) neither the Holder nor such
beneficial owner is an "affiliate," as defined
under Rule 405 of the Securities Act, of the
Company. Each broker-dealer that receives New
First Mortgage Notes for its own account in
exchange for Old First Mortgage Notes, where such
Old First Mortgage Notes were acquired by such
broker or dealer as a result of market-making
activities or other trading activities (other
than Old First Mortgage Notes acquired directly
from the Company), may participate in the
Exchange Offer but may be deemed an "underwriter"
under the Securities Act and, therefore, must
acknowledge in the Letter of Transmittal that it
will deliver a prospectus in connection with any
resale of such New First Mortgage Notes. The
Letter of Transmittal states that by so
acknowledging and by delivering a prospectus, a
broker or dealer will not be deemed to admit that
it is an "underwriter" within the meaning of the
Securities Act. See "The Exchange Offer--
Procedures for Tendering" and "Plan of
Distribution."
4
<PAGE>
Special Procedures for
Beneficial Owners..........
Any beneficial owner whose Old First Mortgage
Notes are registered in the name of a broker,
dealer, commercial bank, trust company or other
nominee and who wishes to tender should contact
such registered Holder promptly and instruct such
registered Holder to tender on such beneficial
owner's behalf. If such beneficial owner wishes
to tender on such owner's own behalf, such owner
must, prior to completing and executing the
Letter of Transmittal and delivering his Old
First Mortgage Notes, either make appropriate
arrangements to register ownership of the Old
First Mortgage Notes in such owner's name or
obtain a properly completed bond power from the
registered Holder. The transfer of registered
ownership may take considerable time. See "The
Exchange Offer--Procedures for Tendering."
Guaranteed Delivery Holders of Old First Mortgage Notes who wish to
Procedures................. tender their Old First Mortgage Notes and whose
Old First Mortgage Notes are not immediately
available or who cannot deliver their Old First
Mortgage Notes, the Letter of Transmittal or any
other documents required by the Letter of
Transmittal to the Exchange Agent prior to the
Expiration Date must tender their Old First
Mortgage Notes according to the guaranteed
delivery procedures set forth in "The Exchange
Offer--Guaranteed Delivery Procedures."
Withdrawal Rights........... Tenders may be withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration
Date. See "The Exchange Offer--Withdrawal of
Tenders."
Acceptance of Old First
Mortgage Notes and
Delivery of New First
Mortgage Notes.............
The Company will accept for exchange any and all
Old First Mortgage Notes which are properly
tendered in the Exchange Offer prior to 5:00
p.m., New York City time, on the Expiration Date.
The New First Mortgage Notes issued pursuant to
the Exchange Offer will be delivered promptly
following the Expiration Date. See "The Exchange
Offer--Terms of the Exchange Offer."
Exchange Agent.............. State Street Bank and Trust Company is serving as
Exchange Agent in connection with the Exchange
Offer. See "The Exchange Offer--Exchange Agent."
5
<PAGE>
SUMMARY DESCRIPTION OF THE NEW FIRST MORTGAGE NOTES
The Exchange Offer applies to $110,000,000 aggregate face amount of Old First
Mortgage Notes. The terms of the New First Mortgage Notes are identical in all
material respects to the Old First Mortgage Notes, except that the New First
Mortgage Notes have been registered under the Securities Act and, therefore,
will not bear legends restricting their transfer and will not contain certain
provisions providing for an increase in the interest rate on the Old First
Mortgage Notes under certain circumstances relating to the timing of the
Exchange Offer, which rights will terminate when the Exchange Offer is
consummated. The New First Mortgage Notes will evidence the same debt as the
Old First Mortgage Notes and will be entitled to the benefits of the Indenture,
under which both the Old First Mortgage Notes were, and the New First Mortgage
Notes will be, issued. See "Description of the First Mortgage Notes."
The New First Mortgage $110,000,000 aggregate principal amount of 11
Notes...................... 1/2% Series B First Mortgage Notes due 2005.
Maturity Date............... December 1, 2005.
Interest Payment Dates...... Interest on the New First Mortgage Notes will
accrue from the Issue Date and will be payable
semi-annually in arrears on each June 1 and
December 1, commencing [ ].
Ranking..................... The New First Mortgage Notes will be senior
obligations of the Company and will rank pari
passu in right of payment with all existing and
future unsubordinated indebtedness of Sheffield,
including any indebtedness outstanding under the
Revolving Credit Facility, and senior in right of
payment to all existing and future subordinated
indebtedness of Sheffield.
Security.................... All of the obligations of the Company under the
New First Mortgage Notes will be secured by a
first priority lien on substantially all of the
existing and future property, including fee
interests in real property and improvements
constructed thereon, together with equipment,
intellectual property and related intangibles, of
the Company, subject to Permitted Liens (as
defined). See "Description of First Mortgage
Notes--Security."
Optional Redemption......... The New First Mortgage Notes will be redeemable
in whole or in part, at the option of the Company
on or after December 1, 2001, at the redemption
prices set forth herein plus interest to the date
of redemption. In addition, at any time on or
prior to December 1, 2000, the Company may, at
its option, redeem up to 35% of the aggregate
principal amount of the First Mortgage Notes
originally issued with the net cash proceeds of
one or more Public Equity Offerings, at a
redemption price equal to 111.5% of the aggregate
principal amount of the First Mortgage Notes to
be redeemed plus accrued interest to the date of
redemption; provided, however, that after giving
effect to any such redemption at least 65% of the
aggregate principal amount of the First Mortgage
Notes originally issued remains outstanding. See
"Description of First Mortgage Notes--Optional
Redemption."
Change of Control........... Upon a Change of Control, the Company will be
required to make an offer to repurchase the First
Mortgage Notes at a price equal to 101% of the
principal amount thereof, plus accrued interest,
to the
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<PAGE>
date of repurchase. See "Description of First
Mortgage Notes--Change of Control."
Certain Covenants........... The Indenture governing the First Mortgage Notes
(the "Indenture") contains certain covenants that
limit the ability of the Company and its
restricted subsidiaries to, among other things,
incur additional indebtedness, pay dividends or
make certain other restricted payments,
consummate certain asset sales, enter into
certain transactions with affiliates, incur
liens, impose restrictions on the ability of a
restricted subsidiary to pay dividends or make
certain payments to the Company and its
restricted subsidiaries, merge or consolidate
with any other person or sell, assign, transfer,
lease, convey or otherwise dispose of all or
substantially all of the assets of the Company.
In addition, under certain circumstances, the
Company will be required to offer to repurchase
the New First Mortgage Notes, in whole or in
part, at a purchase price equal to 100% of the
principal amount thereof plus accrued interest to
the date of repurchase, with the proceeds of
certain Asset Sales. See "Description of First
Mortgage Notes--Certain Covenants."
For additional information regarding the New First Mortgage Notes, see
"Description of First Mortgage Notes."
RISK FACTORS
See "Risk Factors" for a discussion of certain factors that should be
considered by Holders prior to tendering their Old First Mortgage Notes in the
Exchange Offer.
GLOSSARY
A glossary of certain technical terms used herein follows:
"mini-mill"................. A mini-mill steel producer uses an electric arc
furnace to melt steel scrap and to cast the
molten steel into long strands of various shapes
in a continuous casting process, in contrast to
an integrated steel producer, which produces
steel from coke and iron ore through the use of
blast furnaces and basic oxygen furnaces.
Although the definition of what constitutes a
mini-mill has evolved coincident with the
competitive position of mini-mills within the
steel industry, two constant factors apply to the
mini-mill industry: the minimization of costs and
a flexible approach to available technology.
"billets"................... Billets are long, square or rectangular strands
of steel that mini-mills cast from molten steel
in a continuous casting process. Billets are an
intermediate product of a type commonly referred
to as semi-finished steel.
"hot rolled bar"............ Hot rolled bars are bars of rolled steel of
varying shapes and size that are used in the
manufacturing processes of a broad cross section
of U.S. industry. Historically, a distinction has
been made in the hot
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<PAGE>
rolled bar market between merchant bar quality
(MBQ) products, which is comprised of a group of
commodity steel shapes that consist of rounds,
squares, flats and channels that fabricators,
steel service centers and manufacturers cut, bend
and shape into products; and special bar quality
(SBQ) products, with SBQ products calling for
closer size tolerances, special shapes and/or
special chemical compositions.
"reinforcing bar" or Reinforcing bar is typically used in the
"rebar".................... construction process to reinforce concrete and
other aggregate and cementing materials.
"fabricated rebar".......... Fabricated rebar is reinforcing bar that has been
sheared, bent and/or epoxy-coated to meet
engineering or architectural specifications for
use in all types of construction projects.
"fabricated products"....... Fabricated products are those products, including
fabricated rebar and steel fence posts, which the
Company fabricates from reinforcing bar or hot
rolled bars.
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SUMMARY FINANCIAL DATA
The information in the following table should be read in conjunction with
"Management's Discussion and Analysis of Financial Condition and Results of
Operations", "Selected Historical Financial Data" and the Consolidated
Financial Statements of the Company and the notes thereto, included elsewhere
in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED OCTOBER 31
-------------------------------------- ------------------
1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $165,920 $175,753 $172,317 $170,865 $ 89,925 $ 94,181
Gross profit............ 24,705 31,368 29,196 30,631 15,587 18,799
Operating income........ 4,834 10,129 8,116 8,260 4,188 7,335
Interest expense........ 7,147 8,049 11,733 11,769 5,854 5,768
Net income (loss)....... (5,370) 1,825 (3,091) (3,509) (1,666) 1,567
OTHER DATA:
EBITDA(1)............... $ 13,327 $ 18,582 $ 16,430 $ 17,627 $ 8,617 $ 11,671
Capital expenditures.... 11,667 24,220 4,978 3,695 1,762 1,849
Depreciation and
amortization........... 4,941 5,930 6,567 6,775 3,427 3,460
Non-cash post-retirement
expense charges........ 3,552 2,523 1,747 1,272 1,002 876
Ratio of earnings to
fixed charges(2)....... -- 1.2x -- -- -- 1.3x
Finished products tons
shipped................ 396,363 367,133 383,448 413,243 211,275 233,861
Billet tons shipped..... 122,680 133,017 93,557 60,512 47,120 20,795
-------- -------- -------- -------- -------- --------
Total tons shipped...... 519,043 500,150 477,005 473,755 258,395 254,656
Average price per ton
shipped................ $ 320 $ 351 $ 361 $ 361 $ 348 $ 370
Average production cost
per ton shipped........ 272 289 300 296 288 296
Employees at end of
period................. 708 718 705 670 674 614
PRO FORMA DATA:(3)
Interest expense........ $ 6,492
Ratio of EBITDA to
interest expense....... 1.8x
</TABLE>
<TABLE>
<CAPTION>
AS OF OCTOBER 31,
1997
---------------------
ACTUAL PRO FORMA(3)
-------- ------------
<S> <C> <C>
BALANCE SHEET DATA:
Total assets.............................................. $132,788 $136,629
Long-term debt (including current portion)................ 91,191 114,540
Stockholders' equity...................................... 4,665 (13,408)
</TABLE>
- --------
(1) EBITDA is defined as operating income plus depreciation, amortization, non-
cash portion of post-retirement benefit expense, and the restructuring
charge related to the early retirement incentives in fiscal 1997. The
Company believes that EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow will
be sufficient for cash requirements.
(2) Ratio of earnings to fixed charges is defined as income before income taxes
and extraordinary item plus amortization of debt issuance cost and interest
expense divided by the sum of amortization of debt issuance costs plus
interest expense. Earnings were insufficient to cover fixed charges in
fiscal 1994, 1996, 1997 and the six months ended October 31, 1996 by
approximately $2,353, $3,091, $3,509 and $1,666 (unaudited), respectively.
(3) Pro forma data gives effect to the use of proceeds from the issuance of the
Old First Mortgage Notes with an interest rate of 11.5%.
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<PAGE>
RISK FACTORS
In addition to the other information set forth in this Prospectus,
prospective investors should consider carefully the information set forth
below before making a decision to tender their Old First Mortgage Notes in the
Exchange Offer.
CONSEQUENCES OF FAILURE TO EXCHANGE
Holders of Old First Mortgage Notes who do not exchange their Old First
Mortgage Notes for New First Mortgage Notes pursuant to the Exchange Offer
will continue to be subject to the restrictions on transfer of such Old First
Mortgage Notes as set forth in the legend thereon as a consequence of the
issuance of the Old First Mortgage Notes pursuant to exemptions from, or in
transactions not subject to, the registration requirements of the Securities
Act and applicable state securities laws. In general, the Old First Mortgage
Notes may not be offered or sold, unless registered under the Securities Act,
except pursuant to an exemption from, or in a transaction not subject to, the
Securities Act and applicable state securities laws. The Company does not
currently anticipate that it will register the Old First Mortgage Notes under
the Securities Act. Based on interpretations by the staff of the Commission
set forth in no-action letters issued to third parties, the Company believes
that the New First Mortgage Notes issued pursuant to the Exchange Offer in
exchange for Old First Mortgage Notes may be offered for resale, resold or
otherwise transferred by any Holder thereof (other than any such Holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act provided that such New First
Mortgage Notes are acquired in the ordinary course of such Holder's business
and such Holder has no arrangement with any person to participate in the
distribution of such New First Mortgage Notes. Notwithstanding the foregoing,
each broker-dealer that receives New First Mortgage Notes for its own account
pursuant to the Exchange Offer must acknowledge that it will deliver a
prospectus in connection with any resale of such New First Mortgage Notes. The
Letter of Transmittal states that by so acknowledging and by delivering a
prospectus, a broker-dealer will not be deemed to admit that it is an
"underwriter" within the meaning of the Securities Act. This Prospectus, as it
may be amended or supplemented from time to time, may be used by a broker-
dealer in connection with any resale of New First Mortgage Notes received in
exchange for Old First Mortgage Notes where such Old First Mortgage Notes were
acquired by such broker-dealer as a result of market-making activities or
other trading activities (other than Old First Mortgage Notes acquired
directly from the Company). The Company has agreed that, for a period of 180
days from the Expiration Date, it will make this Prospectus available to any
broker-dealer for use in connection with any such resale. See "Plan of
Distribution." However, the ability of any Holder to resell the New First
Mortgage Notes is subject to applicable state securities laws as described in
"Blue Sky Restrictions on Resale of New First Mortgage Notes" below.
COMPLIANCE WITH EXCHANGE OFFER PROCEDURES
To participate in the Exchange Offer and avoid the restrictions on transfer
of the Old First Mortgage Notes, Holders of Old First Mortgage Notes must
transmit a properly completed Letter of Transmittal, including all other
documents required by such Letter of Transmittal, to the Exchange Agent at one
of the addresses set forth below under "The Exchange Offer--Exchange Agent" on
or prior to the Expiration Date. In addition, either (i) certificates for such
Old First Mortgage Notes must be received by the Exchange Agent along with the
Letter of Transmittal or (ii) a timely confirmation of a book-entry transfer
of such Old First Mortgage Notes, if such procedure is available, into the
Exchange Agent's account at The Depository Trust Company pursuant to the
procedure for book-entry transfer described herein, must be received by the
Exchange Agent prior to the Expiration Date, or (iii) the Holder must comply
with the guaranteed delivery procedures described herein. See "The Exchange
Offer."
BLUE SKY RESTRICTIONS ON RESALE OF NEW FIRST MORTGAGE NOTES
In order to comply with the securities laws of certain jurisdictions, the
New First Mortgage Notes may not be offered or resold by any Holder unless
they have been registered or qualified for sale in such jurisdictions or
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<PAGE>
an exemption from registration or qualification is available and the
requirements of such exemption have been satisfied. The Company does not
currently intend to register or qualify the resale of the New First Mortgage
Notes in any such jurisdictions. However, an exemption is generally available
for sales to registered broker-dealers and certain institutional buyers. Other
exemptions under applicable state securities laws may also be available.
LEVERAGE AND CERTAIN RESTRICTIONS
The Company currently has significant amounts of outstanding indebtedness in
relation to its stockholders' equity. As of October 31, 1997, the Company had
approximately $114.5 million of indebtedness outstanding. The indebtedness of
the Company and the restrictive covenants and tests contained in its debt
instruments, including the Revolving Credit Facility and the Indenture
relating to the First Mortgage Notes, could significantly limit the Company's
operating and financial flexibility. These factors could also significantly
restrict the Company's ability to withstand competitive pressures or adverse
economic consequences, including its ability to obtain additional financing in
the future for working capital, acquisitions or general corporate or other
purposes, and may place the Company at a competitive disadvantage with respect
to less leveraged providers of similar steel products.
The Company's ability to borrow under the Revolving Credit Facility requires
continued compliance with covenants and tests which, if breached, could result
in termination of such ability to borrow or cause a default. Consequently,
under such circumstances, the Company's access to necessary operating and
capital funds would be restricted. The Company has from time to time entered
into amendments or obtained waivers relaxing certain of the covenants and
tests in the Revolving Credit Facility, and may be required to seek additional
amendments or waivers in the future. The Revolving Credit Facility is a
floating rate obligation and, therefore, is subject to changes in prevailing
interest rates.
The New First Mortgage Notes will rank pari passu in right of payment with
all future senior indebtedness of Sheffield. Borrowings under the Revolving
Credit Facility (or any successor facility) will be secured by a first
priority lien on the inventory and accounts receivable and proceeds thereof of
Sheffield. Borrowings under the revolving loan agreement (the "Railway
Revolving Credit Facility") and the term loan agreement (the "Railway Term
Loan") (the Railway Revolving Credit Facility and the Railway Term Loan
together, the "Railway Credit Facility") are secured by a first priority lien
on substantially all of the assets of Sheffield's subsidiary, the Sand Springs
Railway Company (the "Railway Company"), and by a pledge of the stock of the
Railway Company. The First Mortgage Notes will be effectively subordinated to
future borrowings by the Railway Company under the Railway Credit Facility.
The Revolving Credit Facility provides the Company with a revolving credit
commitment of $40 million, subject to levels of borrowing availability. The
Railway Revolving Credit Facility provides the Railway Company with a
revolving credit commitment of $1.5 million, subject to borrowing
restrictions, and the Railway Term Loan has an outstanding balance of $1.5
million.
SECURITY FOR THE NEW FIRST MORTGAGE NOTES
The New First Mortgage Notes will be secured by a first priority lien on
substantially all existing and future real property, equipment, intellectual
property and related intangible assets of Sheffield and the proceeds thereof,
but excluding inventory, accounts receivable, capital stock of the Railway
Company, Waddell (as defined) and Sheffield-Oklahoma City, certain non-
material leasehold interests, and property and equipment acquired by Sheffield
with the proceeds of purchase money indebtedness permitted to be incurred
under the Indenture (the "Collateral"). The Revolving Credit Facility is
secured by a first priority lien on inventory, accounts receivable, certain
related intangible assets and proceeds thereof, subject in each case to
certain permitted liens. No appraisals of the Collateral have been prepared by
or on behalf of the Company. At October 31, 1997, the net book value of the
Collateral was approximately $53 million. There can be no assurance that the
proceeds of any sale of the Collateral pursuant to the Indenture and the
related collateral documents following an acceleration after an Event of
Default (as defined) under the Indenture would not be substantially less than
that which would be required to satisfy payments due on the New First Mortgage
Notes. By its nature, some or all of the Collateral
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<PAGE>
will be illiquid and may have no readily ascertainable market value.
Accordingly, there can be no assurance that the Collateral will be able to be
sold in a short period of time, if saleable.
The right of the Trustee under the Indenture (as the secured party under the
various collateral documents) to foreclose upon and sell the Collateral upon
an acceleration after an Event of Default is likely to be significantly
impaired by applicable bankruptcy laws if a bankruptcy proceeding were to be
commenced by or against the Company. Under applicable federal bankruptcy laws,
secured creditors are prohibited from foreclosing upon collateral held by a
debtor in a bankruptcy case, or from disposing of collateral repossessed from
such a debtor, without bankruptcy court approval. Moreover, applicable federal
bankruptcy laws generally permit a debtor to continue to retain and to use
collateral, including cash collateral, even if the debtor is in default under
the applicable debt instruments, provided that the secured creditor is given
"adequate protection". The interpretation of the term "adequate protection"
may vary according to the circumstances, but it is intended in general to
protect the value of the secured creditor's interest in collateral. Because
the term "adequate protection" is subject to varying interpretation and
because of the broad discretionary powers of a bankruptcy court, it is
impossible to predict (i) if payments under the New First Mortgage Notes would
be made following commencement of and during a bankruptcy case, (ii) whether
or when the Trustee could foreclose upon or sell the Collateral or (iii)
whether or to what extent holders of any New First Mortgage Notes would be
compensated for any delay in payment or loss of value of Collateral securing
the New First Mortgage Notes under the doctrine of "adequate protection".
Furthermore, in the event a bankruptcy court were to determine that the value
of the Collateral securing the New First Mortgage Notes is not sufficient to
repay all amounts due on the New First Mortgage Notes, the holders of the New
First Mortgage Notes would become holders of "undersecured claims". Applicable
federal bankruptcy laws do not permit the payment and/or accrual of interest,
costs and attorney's fees for "undersecured claims" during a debtor's
bankruptcy case.
RECENT LOSSES
In fiscal 1997, the Company reported net losses due primarily to (i) bad
weather in the Company's shipping region which hindered construction in that
region; (ii) a restructuring charge of $1.3 million in connection with
employee reductions; and (iii) the failure of the transformer and back-up
transformer supporting one of the two electric arc furnaces at the Sand
Springs Facility. In fiscal 1996, the Company reported a net loss due
primarily to reduced profitability of billet sales caused by weaker market
conditions and start up costs associated with the New Rolling Mill. Although
the Company did not sustain a net loss in fiscal 1995, the Company reported
losses in fiscal 1994 and 1993 due primarily to recessionary declines in steel
bar prices, and in fiscal 1993 due primarily to continuing losses from
operations at the Company's former rolling mill in Oklahoma City, Oklahoma
caused by poor yields, unreliable equipment and high costs. There can be no
assurances as to when the Company will be able to achieve sustained
profitability. See "Management's Discussion and Analysis of Financial
Condition and Results of Operations."
CYCLICAL INDUSTRY AND ECONOMIC CONDITIONS
Demand for most of the Company's products is cyclical in nature and
sensitive to general economic conditions. The hot rolled bar product market is
influenced by trends primarily in the fabricated metal products, machinery and
construction and transportation equipment industries. The rebar market is
driven by trends in commercial and residential construction, industrial
investment in new plants and facilities, and government spending on
infrastructure projects and public sector buildings. The steel industry is
affected by economic conditions generally and future economic downturns may
adversely affect the Company.
COMPETITION
The Company competes with a number of domestic mini-mills in each of its
market segments. The domestic mini-mill steel industry is characterized by
vigorous competition with respect to price, quality and service. In addition,
the domestic mini-mill steel industry has from time to time experienced excess
production capacity, which reinforces competitive product pricing and results
in continued pressures on industry profit margins. The
12
<PAGE>
high fixed costs of operating a steel mini-mill encourage mini-mill operators
to maintain high levels of output, regardless of levels of demand, which
exacerbates the pressures on industry profit margins. Technological
advancements are also a feature of competition in the domestic mini-mill steel
industry, as mini-mills continuously strive to produce higher quality products
and to lower production costs by increasing the efficiency and productivity of
their plants and labor force. Several domestic mini-mills which are
competitors of the Company have financial resources substantially greater than
those available to the Company.
The U.S. steel industry has also historically faced competition from foreign
steel producers. Although domestic mini-mills have experienced little
competition from foreign producers in recent years due to declines in domestic
steel prices, there can be no assurance that foreign competition will not
increase in the future, which could adversely affect the Company's operating
results. See "Business--Competition."
FLUCTUATIONS IN RAW MATERIAL AND ENERGY COSTS
The market for steel scrap, the principal raw material used in the Company's
operations, is highly competitive and its price volatility is influenced by
periodic shortages, freight costs, speculation by scrap brokers and other
market conditions largely beyond the Company's control. Within the domestic
mini-mill industry, fluctuations in scrap costs influence the selling prices
of finished goods as operators seek to maintain profit margins. Generally,
increases in steel prices lag behind increases in steel scrap prices, and
competition has sometimes restricted the ability of mini-mill producers to
raise prices to recover higher raw material costs. Although the Company
purchases outside steel scrap requirements from a number of dealers and
sources in different markets and is not dependent on any single supplier, the
Company's profitability would be adversely affected to the extent it is unable
to pass on higher raw material costs to its customers. See "Business--Raw
Materials."
The Company's manufacturing process also consumes large amounts of
electricity and natural gas. A significant increase in the Company's
electricity costs or in the price of natural gas would have an adverse impact
on the Company's cost structure, and the Company's profitability would be
adversely affected to the extent it is unable to pass such higher energy costs
on to its customers. See "Business--Energy."
ENVIRONMENTAL COMPLIANCE AND ASSOCIATED COSTS
The Company is subject to Federal, state and local laws and regulations
governing the remediation of environmental contamination associated with
releases of hazardous materials and to Federal, state and local laws and
regulations governing discharges to the air and water as well as the handling
and disposal of wastes and employee health and safety (collectively,
"Environmental Laws"). Governmental authorities have the power to enforce
compliance with these requirements, and violators may be subject to civil or
criminal penalties, injunctions or both. Third parties also may have the right
to sue for damages to enforce compliance.
The electric arc furnace melting process used at the Company's Sand Springs
Facility generates dust that contains lead, cadmium and other heavy metals.
Classified as a hazardous waste ("K061") under the Resource Conservation and
Recovery Act of 1976, as amended ("RCRA"), this dust is captured in baghouses
and subsequently transported to a High Temperature Metals Recovery processor,
Zinc Nacional, S.A., located in Monterrey, Mexico ("Zinc Nacional"). The
Company recently negotiated a three year contract with Zinc Nacional which
will expire in the year 2000. Although current law permits the export of K061,
there can be no assurance that new United States legislation prohibiting the
export of hazardous waste materials or new Mexican legislation prohibiting the
import of such materials, including K061, will not be enacted in the future.
In that event, the Company would have to find an alternative means of
treatment or disposal of the K061. The Company believes that it could properly
dispose of the K061 generated at the Sand Springs Facility by constructing an
on-site metals recovery or chemical stabilization process or by shipping the
K061 to a licensed domestic treatment facility. However, there can be no
assurance as to the availability of such alternatives or that their
construction and/or use would not result in significant cost increases.
13
<PAGE>
Moreover, Environmental Laws have been enacted, and may in the future be
enacted, to create liability for past actions that were lawful at the time
taken, but that have been found to affect the environment and to create rights
of action for environmental conditions and activities. Under some of these
Environmental Laws, a company that has sent waste to a third party disposal
site could be held liable for the entire cost of remediating such site
regardless of fault or the lawfulness of the original disposal activity and
also for related damages to natural resources.
There is currently no significant remediation activity at Company owned or
operated sites. Three former K061 landfill sites at the Company's Sand Springs
Facility were closed prior to 1980 before the Company's acquisition of the
Sand Springs Facility. Additionally, a K061 concrete storage tank was closed
by the Company prior to 1990, with a final certification of this closure being
issued by the State of Oklahoma in 1990. All underground storage tanks without
containment systems, cathodic protection or leak detection were excavated and
removed from the Sand Springs Facility with regulatory approval in 1997. In
April 1997, the Environmental Protection Agency ("EPA") Region VI conducted a
Compliance Evaluation Inspection pursuant to RCRA relating to hazardous and
solid waste management at the Sand Springs Facility and then submitted a
follow-up information request to the Company in August 1997. The Company
believes that it has provided all the information requested by EPA. It is
possible that EPA may, pursuant to its RCRA authority, seek corrective action
relating to Solid Waste Management Units identified at the Sand Springs
Facility and/or penalties for alleged violations of RCRA requirements
applicable to the Sand Springs Facility. If EPA does seek such corrective
action, it is possible that it may affect one or more of the three previously
closed K061 landfill sites at the Sand Springs Facility, and the costs
associated with such remedial activity cannot currently be predicted.
Moreover, there can be no assurance that all material environmental matters
involving remediation at either Company owned or operated sites or at sites
owned or operated by third parties which affect the Company have been
identified or that new enforcement policies or legal requirements will not
result in future material expenditures for environmental matters by the
Company.
Apart from the possibility that EPA may identify violations of RCRA
requirements as a result of the Compliance Evaluation Inspection conducted at
the Sand Springs Facility in April 1997, the Company believes that it is
currently in material compliance with all Environmental Laws. However, there
can be no assurance that material environmental liabilities will not be
incurred by the Company in the future or that future compliance with
Environmental Laws (whether those currently in effect or enacted in the
future) will not require additional expenditures by the Company or require
changes to the Company's current operations, any of which could have a
material adverse effect on the Company's results of operations and financial
condition. See "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and "Business--Environmental Compliance."
UNIONIZED LABOR FORCE
The United Steelworkers of America represents approximately 68% of the
Company's employees as of October 31, 1997. Approximately 250 employees at the
Sand Springs Facility, and approximately 148 employees at the Joliet Facility,
are covered under collective bargaining agreements with the USWA that expire
on March 1, 2000 and March 1, 1999, respectively. The collective bargaining
agreement covering approximately 250 hourly-paid production and maintenance
employees at the Sand Springs Facility contains performance-based plans which
may result in higher labor costs during very profitable periods. A collective
bargaining agreement with the USWA covering approximately 20 employees at the
Kansas City Plant expires on October 31, 1999. The Railway Company also
employs approximately 19 people represented by various railway or
transportation unions. There can be no assurance that any future collective
bargaining agreements with any labor unions will contain terms comparable to
the terms contained in the existing collective bargaining agreements.
Since the last national, industry-wide strike of steelworkers in 1959, the
Company experienced a 5-day strike at the Sand Springs Facility in May 1988
and a work stoppage at the Kansas City Plant following the expiration of the
collective bargaining agreement in September 1991. There can be no assurance
that work
14
<PAGE>
stoppages will not occur in the future, in connection with labor negotiations
or otherwise. See "Business--Employees."
VOTING CONTROL OF THE COMPANY
Approximately ninety percent of the outstanding shares of the common stock,
$.01 par value (the "Common Stock"), is currently owned by HMK Enterprises,
Inc. ("HMK"), an affiliate of Watermill Ventures Ltd. HMK is a privately-held
holding company that is engaged in manufacturing and distribution businesses
and that has owned substantially all of the Common Stock since 1981. The
voting capital stock of HMK is 100% owned by members of the Karol family.
Consequently, certain members of the Karol family together beneficially own
substantially all of the outstanding shares of the Common Stock, have the
power to direct the affairs of the Company and are able to determine the
outcome of all matters required to be submitted to stockholders for approval,
including the election of directors and amendment of the Company's Certificate
of Incorporation. HMK is, and certain of the Company's officers, directors and
members of the Karol family are, party to various transactions and agreements
with the Company, including a Management Consulting Services Agreement and an
Income Tax Expense Allocation Policy and Tax Sharing Agreement. Risk
Management Solutions, Inc., a wholly-owned subsidiary of HMK, is a party to an
Insurance Services Agreement with the Company. See "Management--Executive
Officers and Directors", "Security Ownership of Certain Beneficial Owners and
Management" and "Certain Relationships and Related Transactions."
ABSENCE OF PUBLIC MARKET AND TRANSFER RESTRICTIONS
The Old First Mortgage Notes are eligible for trading in the Private
Offerings, Resale and Trading through Automated Linkages ("PORTAL") Market by
Qualified Institutional Buyers ("QIBs"). The New First Mortgage Notes will be
new securities for which there currently is no market. There can be no
assurance as to the liquidity of any markets that may develop for the New
First Mortgage Notes, the ability of holders of the New Firs Mortgage Notes to
sell their New First Mortgage Notes, or the price at which Holders would be
able to sell their New First Mortgage Notes. Future trading prices of the New
First Mortgage Notes will depend on many factors, including, among other
things, prevailing interest rates, the Company's operating results and the
market for similar securities. The Initial Purchaser has advised the Company
that it currently intends to make a market in the New First Mortgage Notes.
However, the Initial Purchaser is not obligated to do so and any market making
may be discontinued at any time without notice. Therefore, there can be no
assurance that any active market for the New First Mortgage Notes will
develop. The Company does not intend to apply for listing of the New First
Mortgage Notes on any securities exchange or for quotation through the
National Association of Securities Dealers Automated Quotation System.
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THE EXCHANGE OFFER
PURPOSE AND EFFECT OF THE EXCHANGE OFFER
The Old First Mortgage Notes were sold by the Company on December 5, 1997 to
the Initial Purchaser, who placed the Old First Mortgage Notes with
institutional investors. In connection therewith, the Company and the Initial
Purchaser entered into the Registration Rights Agreement, pursuant to which
the Company agreed, for the benefit of the holders of the Old First Mortgage
Notes, that the Company would, at its sole cost, (i) within 45 days following
the original issuance of the Old First Mortgage Notes, file with the
Commission the Exchange Offer Registration Statement (of which this Prospectus
is a part) under the Securities Act with respect to an issue of a series of
new notes of the Company identical in all material respects to the series of
Old First Mortgage Notes, (ii) use its best efforts to cause such Exchange
Offer Registration Statement to become effective under the Securities Act
within 150 days following the original issuance of the Old First Mortgage
Notes and (iii) use its best efforts to consummate the Exchange Offer within
180 days following the original issuance of the Old First Mortgage Notes. Upon
the effectiveness of the Exchange Offer Registration Statement, the Company
will offer to the holders of the Old First Mortgage Notes the opportunity to
exchange their Old First Mortgage Notes for a like principal amount of New
First Mortgage Notes, to be issued without a restrictive legend and which
might be reoffered and resold by the holder without restrictions or
limitations under the Securities Act. The term "Holder" with respect to the
Exchange Offer means any person in whose name Old First Mortgage Notes are
registered on the books of the Company or any other person who has obtained a
properly completed bond power from the registered holder.
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that New First
Mortgage Notes issued pursuant to the Exchange Offer in exchange for Old First
Mortgage Notes may be offered for resale, resold and otherwise transferred by
any holder of such New First Mortgage Notes (other than any such holder which
is an "affiliate" of the Company within the meaning of Rule 405 under the
Securities Act) without compliance with the registration and prospectus
delivery provisions of the Securities Act, provided that such New First
Mortgage Notes are acquired in the ordinary course of such holder's business
and such holder has no arrangement or understanding with any person to
participate in the distribution of such New First Mortgage Notes. Each Holder
will be required to acknowledge in the Letter of Transmittal that it is not
engaged in, and does not intend to engage in, a distribution of the New First
Mortgage Notes. Any Holder who tenders in the Exchange Offer for the purpose
of participating in a distribution of the New First Mortgage Notes must comply
with the registration and prospectus delivery requirements of the Securities
Act in connection with a secondary resale transaction.
Each broker-dealer that receives New First Mortgage Notes for its own
account pursuant to the Exchange Offer will also be required to acknowledge
that (i) Old First Mortgage Notes tendered by it in the Exchange Offer were
acquired in the ordinary course of its business as a result of market-making
or other trading activities and (ii) it will deliver a prospectus in
connection with any resale of New First Mortgage Notes received in the
Exchange Offer. The Letter of Transmittal will also state that by so
acknowledging and by delivering a prospectus, a broker-dealer will not be
deemed to admit that it is an 'underwriter" within the meaning of the
Securities Act. This Prospectus, as it may be amended or supplemented from
time to time, may be used by a broker-dealer in connection with resales of New
First Mortgage Notes received in exchange for Old First Mortgage Notes where
such Old First Mortgage Notes were acquired by such broker-dealer as a result
of market-making activities or other trading activities (other than Old First
Mortgage Notes acquired directly from the Company). The Company has agreed
that, for a period of 180 days after the Expiration Date, it will make this
Prospectus available to any broker-dealer for use in connection with any such
resale. See "Plan of Distribution." Notwithstanding the foregoing, based on
the above-mentioned interpretations by the staff of the Commission, the
Company believes that broker-dealers who acquired the Old First Mortgage Notes
directly from the Company and not as a result of market-making activities or
other trading activities cannot rely on such interpretations by the staff of
the Commission and must, in the absence of an exemption, comply with the
registration and prospectus delivery requirements of the Securities Act in
connection with secondary resales of the New First
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Mortgage Notes. Such broker-dealers may not use this Prospectus, as it may be
amended or supplemented from time to time, in connection with any such resales
of the New First Mortgage Notes.
In the event that applicable interpretations of the staff of the Commission
do not permit the Company to effect such an Exchange Offer, or if for any
other reason the Exchange Offer is not consummated within 180 days of the date
of original issue of the Old First Mortgage Notes, or if the Initial Purchaser
so requests with respect to Old First Mortgage Notes not eligible to be
exchanged for New First Mortgage Notes in the Exchange Offer, or if any holder
of Old First Mortgage Notes is not eligible to participate in the Exchange
Offer or does not receive freely tradeable New First Mortgage Notes in the
Exchange Offer, then in each case, the Company will at its sole expense, (a)
as promptly as practicable, file a shelf registration statement covering
resales of the Old First Mortgage Notes or the New First Mortgage Notes, as
the case may be (the "Shelf Registration Statement"), (b) use its reasonable
efforts to cause the Shelf Registration Statement to be declared effective
under the Securities Act and (c) use its reasonable efforts to keep effective
the Shelf Registration Statement until the earlier of two years after its
effective or such time as all of the applicable First Mortgage Notes have been
sold thereunder. The Company will, in the event that a Shelf Registration
Statement is filed, provide to each Holder copies of the Prospectus that is a
part of the Shelf Registration Statement, notify each such Holder when the
Shelf Registration Statement for the First Mortgage Notes has become effective
and take certain other actions as are required to permit unrestricted resales
of the First Mortgage Notes. A Holder that sells such First Mortgage Notes
pursuant to the Shelf Registration Statement will be required to be named as a
selling security holder in the related prospectus and to deliver a prospectus
to purchasers, will be subject to certain of the civil liability provisions
under the Securities Act in connection with such sales and will be bound by
the provisions of the Registration Rights Agreements that are applicable to
such a Holder (including certain indemnification rights and obligations).
If the Company fails to comply with the above provision or if the Exchange
Offer Registration Statement or the Shelf Registration Statement fails to
become effective, then, as liquidated damages, additional interest (the
"Additional Interest") shall become payable in respect of the Old First
Mortgage Notes as follows:
(1) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is filed with the Commission on or prior to the
applicable filing date or (B) notwithstanding that the Company has
consummated or will consummate an Exchange Offer, the Company is required
to file a Shelf Registration Statement and such Shelf Registration
Statement is not filed on or prior to the date required by the Registration
Rights Agreement, then commencing on the day after either such required
filing date, Additional Interest shall accrue on the principal amount of
the Old First Mortgage Notes at a rate of 0.50% per annum for the first 90
days immediately following each such filing date, such Additional Interest
rate increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(2) if (A) neither the Exchange Offer Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 150 days after the Issue Date or (B) notwithstanding that the Company
has consummated or will consummate an Exchange Offer, the Company is
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
180th day following the date such Shelf Registration Statement was filed,
then, commencing on the day after either such required date of
effectiveness, Additional Interest shall accrue on the principal amount of
the Old First Mortgage Notes at a rate of 0.50% per annum for the first 90
days immediately following such date, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period; or
(3) if (A) the Company has not exchanged New First Mortgage Notes for all
Old First Mortgage Notes validly tendered in accordance with the terms of
the Exchange Offer on or prior to the 180th day after the date of original
issue of the Old First Mortgage Notes or (B) if applicable, the Shelf
Registration Statement has been declared effective and such Shelf
Registration Statement ceases to be effective at any time prior to the
second anniversary of its effective date (other than after such time as all
Old First Mortgage Notes have been disposed of thereunder), then Additional
Interest shall accrue on the principal amount of the Old First Mortgage
Notes at a rate of 0.50% per annum for the first 90 days commencing on (x)
the 180th day after
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the date of the original issuance of the Old First Mortgage Notes, in the
case of (A) above, or (y) the day such Shelf Registration Statement ceases
to be effective in the case of (B) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
provided, however, that the Additional Interest rate on the Old First Mortgage
Notes may not exceed in the aggregate 1.0% per annum; provided, further,
however, that (1) upon the filing of the Exchange Offer Registration Statement
or a Shelf Registration Statement (in the case of clause (i) above), (2) upon
the effectiveness of the Exchange Offer Registration Statement or a Shelf
Registration Statement (in the case of clause (ii) above), or (3) upon the
exchange of New First Mortgage Notes for all Old First Mortgage Notes tendered
(in the case of clause (iii)(A) above), or upon the effectiveness of the Shelf
Registration Statement which had ceased to remain effective (in the case of
clause (iii)(B) above), Additional Interest on the Old First Mortgage Notes as
a result of such clause (or relevant subclause thereof), as the case may be,
shall cease to accrue.
Any amounts of Additional Interest due pursuant to clause (i), (ii) or (iii)
above will be payable in cash on June 1 and December 1 of each year to the
Holders of record on the preceding May 15 or November 15, respectively.
The summary herein of certain provisions of the Registration Rights
Agreement does not purport to be complete and is subject to, and is qualified
in its entirety by, all the provisions of the Registration Rights Agreement, a
copy of which has been filed as an exhibit to the Exchange Offer Registration
Statement of which this Prospectus forms a part.
The Old First Mortgage Notes were placed with a small number of
institutional investors on December 5, 1997 and there is no public market for
them at present. To the extent Old First Mortgage Notes are tendered and
accepted in the exchange, the principal amount of outstanding Old First
Mortgage Notes will decrease with a resulting decrease in the liquidity in the
market therefor. Following the consummation of the Exchange Offer, Holders of
Old First Mortgage Notes who were eligible to participate in the Exchange
Offer but who did not tender their Old First Mortgage Notes will not have any
further registration rights and such Old First Mortgage Notes will continue to
be subject to certain restrictions on transfer. Accordingly, the liquidity of
the market for the Old First mortgage Notes could be adversely affected.
TERMS OF THE EXCHANGE OFFER
Upon the terms and subject to the conditions set forth in this Prospectus
and in the Letter of Transmittal, the Company will accept any and all Old
First Mortgage Notes validly tendered and not withdrawn prior to 5:00 p.m.,
New York City time, on the Expiration Date. The Company will issue $1,000 face
amount of New First Mortgage Notes in exchange for each $1,000 face amount of
outstanding Old First Mortgage Notes accepted in the Exchange Offer. Holders
may tender some or all of their Old First Mortgage Notes pursuant to the
Exchange Offer. However, Old First Mortgage Notes may be tendered only in
integral multiples of $1,000.
The form and terms of the New First Mortgage Notes will be identical in all
material respects to the form and terms of the Old First Mortgage Notes,
except that (i) the New First Mortgage Notes will have been registered under
the Securities Act and hence will not bear legends restricting the transfer
thereof and (ii) the holders of the New First Mortgage Notes will not be
entitled to certain rights under the Registration Rights Agreement, including
the provisions providing for an increase in the interest rate on the Old First
Mortgage Notes under certain circumstances relating to the timing of the
Exchange Offer, all of which rights will terminate when the Exchange Offer is
terminated. The New First Mortgage Notes will evidence the same debt as the
Old First Mortgage Notes and will be entitled to the benefits of the Indenture
under which the Old First Mortgage Notes were, and the New First Mortgage
Notes will be, issued.
As of the date of this Prospectus, $110,000,000 aggregate face amount of the
Old First Mortgage Notes were outstanding. The Company has fixed the close of
business on [ ], 1998 as the record date for the
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Exchange Offer for purposes of determining the persons to whom this
Prospectus, together with the Letter of Transmittal, will initially be sent.
As of such date there was one registered Holder of the Old First Mortgage
Notes.
Holders of Old First Mortgage Notes do not have any appraisal or dissenters'
rights under the Delaware General Corporation Law or the Indenture in
connection with the Exchange Offer. The Company intends to conduct the
Exchange Offer in accordance with the applicable requirements of the Exchange
Act and the rules and regulations of the Commission thereunder.
The Company shall be deemed to have accepted validly tendered Old First
Mortgage Notes when, as and if the Company has given oral or written notice
thereof to the Exchange Agent. The Exchange Agent will act as agent for the
tendering Holders for the purpose of receiving the New First Mortgage Notes
from the Company.
If any tendered Old First Mortgage Notes are not accepted for exchange
because of an invalid tender, the occurrence of certain other events set forth
herein or otherwise, certificates for any such unaccepted Old First Mortgage
Notes will be returned, without expense, to the tendering Holder thereof as
promptly as practicable after the Expiration Date.
Holders who tender Old First Mortgage Notes in the Exchange Offer will not
be required to pay brokerage commissions or fees or, subject to the
instructions in the Letter of Transmittal, transfer taxes with respect to the
exchange of Old First Mortgage Notes pursuant to the Exchange Offer. The
Company will pay all charges and expenses, other than certain applicable
taxes, in connection with the Exchange Offer. See "--Fees and Expenses."
EXPIRATION DATE; EXTENSIONS; AMENDMENTS
The term "Expiration Date" shall mean 5:00 p.m., New York City time, on
[ ], 1998, unless the Company, in its sole discretion, extends the
Exchange Offer, in which case the term "Expiration Date" shall mean the latest
date and time to which the Exchange Offer is extended.
In order to extend the Exchange Offer, the Company will notify the Exchange
Agent of any extension by oral or written notice and will make a public
announcement thereof prior to 9:00 a.m., New York City time, on the next
business day after each previously scheduled expiration date.
The Company reserves the right, in its sole discretion, (i) to delay
accepting any Old First Mortgage Notes, to extend the Exchange Offer or, if
any of the conditions set forth below under "--Conditions" shall not have been
satisfied, to terminate the Exchange Offer, by giving oral or written notice
of such delay, extension or termination to the Exchange Agent, or (ii) to
amend the terms of the Exchange Offer in any manner. Any such delay in
acceptance, extension, termination or amendment will be followed as promptly
as practicable by a public announcement thereof. If the Exchange Offer is
amended in a manner determined by the Company to constitute a material change,
the Company will promptly disclose such amendment by means of a prospectus
supplement that will be distributed to the registered Holders, and the Company
will extend the Exchange Offer for a period of five to 10 business days,
depending upon the significance of the amendment and the manner of disclosure
to the registered Holders, if the Exchange Offer would otherwise expire during
such five to 10 business day period.
Without limiting the manner in which the Company may choose to make public
announcement of any delay, extension, termination or amendment of the Exchange
Offer, the Company shall have no obligation to publish, advertise, or
otherwise communicate any such public announcement, other than by making a
timely release to the Dow Jones News Service.
INTEREST ON THE NEW FIRST MORTGAGE NOTES
The New First Mortgage Notes will bear interest from their date of issuance.
Holders of Old First Mortgage Notes that are accepted for exchange will
receive, in cash, accrued interest thereon to, but not including, the date
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of issuance of the New First Mortgage Notes. Such interest will be paid with
the first interest payment on the New First Mortgage Notes on [ ] 1,
1998. Interest on the Old First Mortgage Notes accepted for exchange will
cease to accrue upon issuance of the New First Mortgage Notes.
PROCEDURES FOR TENDERING
Only a Holder of Old First Mortgage Notes may tender such Old First Mortgage
Notes in the Exchange Offer. A Holder who wishes to tender Old First Mortgage
Notes for exchange pursuant to the Exchange Offer must transmit a properly
completed and duly executed Letter of Transmittal, or a facsimile thereof,
including any other required documents, to the Exchange Agent prior to 5:00
p.m., New York City time, on the Expiration Date. In addition, either (i)
certificates for such Old First Mortgage Notes must be received by the
Exchange Agent along with the Letter of Transmittal or (ii) the Holder must
comply with the guaranteed delivery procedures described below. To be tendered
effectively, the Old First Mortgage Notes, Letter of Transmittal and other
required documents must be received by the Exchange Agent at the address set
forth below under "Exchange Agent" prior to 5:00 p.m., New York City time, on
the Expiration Date.
The tender by a Holder will constitute an agreement between such Holder and
the Company in accordance with the terms and subject to the conditions set
forth herein and in the Letter of Transmittal.
The method of delivery of Old First Mortgage Notes and the Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder. Instead of delivery by mail, it is
recommended that Holders use an overnight or hand delivery service. In all
cases, sufficient time should be allowed to assure delivery to the Exchange
Agent before the Expiration Date. No Letter of Transmittal or Old First
Mortgage Notes should be sent to the Company. Holders may request their
respective brokers, dealers, commercial banks, trust companies or nominees to
effect the above transactions for such Holders.
Any beneficial owner whose Old First Mortgage Notes are registered in the
name of a broker, dealer, commercial bank, trust company or other nominee and
who wishes to tender should contact the registered Holder promptly and
instruct such registered Holder to tender on such beneficial owner's behalf.
If such beneficial owner wishes to tender on such owner's own behalf, such
owner must, prior to completing and executing the Letter of Transmittal and
delivering such owner's Old First Mortgage Notes, either make appropriate
arrangements to register ownership of the Old First Mortgage Notes in such
owner's name or obtain a properly completed bond power from the registered
Holder. The transfer of registered ownership may take considerable time.
Signatures on a Letter of Transmittal or a notice of withdrawal, as the case
may be, must be guaranteed by an Eligible Institution (as defined below)
unless the Old First Mortgage Notes tendered pursuant thereto are tendered (i)
by a registered Holder who has not completed the box entitled "Special
Registration Instructions" or "Special Delivery Instructions" on the Letter of
Transmittal or (ii) for the account of an Eligible Institution. In the event
that signatures on a Letter of Transmittal or a notice of withdrawal, as the
case may be, are required to be guaranteed, such guarantee must be by a member
firm of a registered national securities exchange or of the National
Association of Securities Dealers, Inc., a commercial bank or trust company
having an office or correspondent in the United States or an "eligible
guarantor institution" within the meaning of Rule 17Ad-15 under the Exchange
Act (an "Eligible Institution").
If the Letter of Transmittal is signed by a person other than the registered
Holder of any Old First Mortgage Notes listed therein, such Old First Mortgage
Notes must be endorsed or accompanied by a properly completed bond power,
signed by such registered Holder as such registered Holder's name appears on
such Old First Mortgage Notes.
If the Letter of Transmittal or any Old First Mortgage Notes or bond powers
are signed by trustees, executors, administrators, guardians, attorneys-in-
fact, officers of corporations or others acting in a fiduciary or
representative capacity, such persons should so indicate when signing, and
unless waived by the Company, evidence satisfactory to the Company of their
authority to so act must be submitted with the Letter of Transmittal.
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All questions as to the validity, form, eligibility (including time of
receipt), acceptance and withdrawal of tendered Old First Mortgage Notes will
be determined by the Company in its sole discretion, which determination will
be final and binding. The Company reserves the absolute right to reject any
and all Old First Mortgage Notes not properly tendered or any Old First
Mortgage Notes the Company's acceptance of which would, in the opinion of
counsel for the Company, be unlawful. The Company also reserves the right to
waive any defects, irregularities or conditions of tender as to particular Old
First Mortgage Notes. The Company's interpretation of the terms and conditions
of the Exchange Offer (including the instructions in the Letter of
Transmittal) will be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old First Mortgage
Notes must be cured within such time as the Company shall determine. Although
the Company intends to notify Holders of defects or irregularities with
respect to tenders of Old First Mortgage Notes, neither the Company, the
Exchange Agent nor any other person shall incur any liability for failure to
give such notification. Tenders of Old First Mortgage Notes will not be deemed
to have been made until such defects or irregularities have been cured or
waived. Any Old First Mortgage Notes received by the Exchange Agent that are
not properly tendered and as to which the defects or irregularities have not
been cured or waived will be returned by the Exchange Agent to the tendering
Holders, unless otherwise provided in the Letter of Transmittal, as soon as
practicable following the Expiration Date.
By tendering, each Holder will represent to the Company, among other things,
that (i) the New First Mortgage Notes to be acquired by the Holder and any
beneficial owners of Old First Mortgage Notes pursuant to the Exchange Offer
are being obtained in the ordinary course of business of the person receiving
such New First Mortgage Notes, (ii) the Holder and each such beneficial owner
are not participating, do not intend to participate and have no arrangement or
understanding with any person to participate in the distribution of such New
First Mortgage Notes and (iii) neither the Holder nor any such other person is
an "affiliate," as defined under Rule 405 of the Securities Act, of the
Company. Each broker or dealer that receives New First Mortgage Notes for its
own account in exchange for Old First Mortgage Notes, where such Old First
Mortgage Notes were acquired by such broker or dealer as a result of market-
making activities or other trading activities (other than Old First Mortgage
Notes acquired directly from the Company), must acknowledge that it will
deliver a prospectus in connection with any resale of such New First Mortgage
Notes. See "Plan of Distribution."
GUARANTEED DELIVERY PROCEDURES
Holders who wish to tender their Old First Mortgage Notes and (i) whose Old
First Mortgage Notes are not immediately available or (ii) who cannot deliver
their Old First Mortgage Notes, the Letter of Transmittal or any other
required documents to the Exchange Agent prior to the Expiration Date, may
effect a tender if:
(a) the tender is made through an Eligible Institution;
(b) prior to the Expiration Date, the Exchange Agent receives from such
Eligible Institution a properly completed and duly executed Notice of
Guaranteed Delivery (by facsimile transmission, mail or hand delivery)
setting forth the name and address of the Holder, the certificate number(s)
of such Old First Mortgage Notes and the principal amount of Old First
Mortgage Notes tendered, stating that the tender is being made thereby and
guaranteeing that, within five New York Stock Exchange trading days after
the Expiration Date, the Letter of Transmittal (or facsimile thereof)
together with the certificate(s) representing the Old First Mortgage Notes
and any other documents required by the Letter of Transmittal will be
deposited by the Eligible Institution with the Exchange Agent; and
(c) such properly completed and executed Letter of Transmittal (or
facsimile thereof), as well as the certificate(s) representing all tendered
Old First Mortgage Notes in proper form for transfer and all other
documents required by the Letter of Transmittal are received by the
Exchange Agent within five New York Stock Exchange trading days after the
Expiration Date.
Upon request to the Exchange Agent, a Notice of Guaranteed Delivery will be
sent to Holders who wish to tender their Old First Mortgage Notes according to
the guaranteed delivery procedures set forth above.
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WITHDRAWAL OF TENDERS
Except as otherwise provided herein, tenders of Old First Mortgage Notes may
be withdrawn at any time prior to 5:00 p.m., New York City time, on the
Expiration Date.
To withdraw a tender of Old First Mortgage Notes in the Exchange Offer, a
written or facsimile transmission notice of withdrawal must be received by the
Exchange Agent at its address set forth herein prior to 5:00 p.m., New York
City time, on the Expiration Date. Any such notice of withdrawal must (i)
specify the name of the person having deposited the Old First Mortgage Notes
to be withdrawn (the "Depositor"), (ii) identify the Old First Mortgage Notes
to be withdrawn (including the certificate number or numbers and principal
amount of such Old First Mortgage Notes), (iii) be signed by the Holder in the
same manner as the original signature on the Letter of Transmittal by which
such Old First Mortgage Notes were tendered (including any required signature
guarantees) or be accompanied by documents of transfer sufficient to have the
Trustee with respect to the Old First Mortgage Notes register the transfer of
such Old First Mortgage Notes into the name of the person withdrawing the
tender and (iv) specify the name in which any such Old First Mortgage Notes
are to be registered, if different from that of the Depositor. If certificates
for Old First Mortgage Notes have been delivered or otherwise identified to
the Exchange Agent, then, prior to the release of such certificates, the
withdrawing Holder must also submit the serial numbers of the particular
certificates to be withdrawn and a signed notice of withdrawal with signatures
guaranteed by an Eligible Institution unless such Holder is an Eligible
Institution. All questions as to the validity, form and eligibility (including
time of receipt) of such notices will be determined by the Company in its sole
discretion, which determination shall be final and binding on all parties. Any
Old First Mortgage Notes so withdrawn will be deemed not to have been validly
tendered for purposes of the Exchange Offer and no New First Mortgage Notes
will be issued with respect thereto unless the Old First Mortgage Notes so
withdrawn are validly retendered. Properly withdrawn Old First Mortgage Notes
may be retendered by following one of the procedures described above under "--
Procedures for Tendering" at any time prior to the Expiration Date.
Any Old First Mortgage Notes which have been tendered but which are not
accepted for payment due to withdrawal, rejection of tender or termination of
the Exchange Offer will be returned as soon as practicable to the Holder
thereof without cost to such Holder.
CONDITIONS
Notwithstanding any other term of the Exchange Offer, the Company shall not
be required to accept for exchange, or exchange New First Mortgage Notes for,
any Old First Mortgage Notes, and may terminate the Exchange Offer as provided
herein before the acceptance of such Old First Mortgage Notes, if:
(a) any action or proceeding is instituted or threatened in any court or by
or before any governmental agency with respect to the Exchange Offer which, in
the reasonable judgment of the Company, might materially impair the ability of
the Company to proceed with the Exchange Offer or materially impair the
contemplated benefits of the Exchange Offer to the Company, or any material
adverse development has occurred in any existing action or proceeding with
respect to the Company or any of its subsidiaries; or
(b) any change, or any development involving a prospective change, in the
business or financial affairs of the Company or any of its subsidiaries has
occurred which, in the reasonable judgment of the Company, might materially
impair the ability of the Company to proceed with the Exchange Offer or
materially impair the contemplated benefits of the Exchange Offer to the
Company; or
(c) any law, statute, rule or regulation is proposed, adopted or enacted,
which, in the reasonable judgment of the Company, might materially impair the
ability of the Company to proceed with the Exchange Offer or materially impair
the contemplated benefits of the Exchange Offer to the Company; or
(d) any governmental approval has not been obtained, which approval the
Company shall, in its reasonable judgement, deem necessary for the
consummation of the Exchange Offer as contemplated hereby.
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If the Company determines in its reasonable judgement that any of the
conditions are not satisfied, the Company may (i) refuse to accept any Old
First Mortgage Notes and return all tendered Old First Mortgage Notes to the
tendering Holders, (ii) extend the Exchange Offer and retain all Old First
Mortgage Notes tendered prior to the expiration of the Exchange Offer,
subject, however, to the rights of Holders to withdraw such Old First Mortgage
Notes (see 'Withdrawal of Tenders" above) or (iii) waive such unsatisfied
conditions with respect to the Exchange Offer and accept all properly tendered
Old First Mortgage Notes which have not been withdrawn. If such waiver
constitutes a material change to the Exchange Offer, the Company will promptly
disclose such waiver by means of a prospectus supplement that will be
distributed to the registered Holders, and the Company will extend the
Exchange Offer for a period of five to 10 business days, depending upon the
significance of the waiver and the manner of disclosure to the registered
Holders, if the Exchange Offer would otherwise expire during such five to 10
business day period.
EXCHANGE AGENT
State Street Bank and Trust Company has been appointed as Exchange Agent for
the Exchange Offer. Questions and requests for assistance, requests for
additional copies of this Prospectus or of the Letter of Transmittal and
requests for Notices of Guaranteed Delivery should be directed to the Exchange
Agent addressed as follows:
By Registered or Certified Mail: By Overnight Courier or by Hand:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Operations Corporate Trust Operations
Goodwin Square Goodwin Square
225 Asylum Street, 23rd Floor 225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103 Hartford, Connecticut 06103
Attn: Elizabeth Hammer Attn: Elizabeth Hammer
By Facsimile:
860-244-1889
Confirm by telephone:
860-244-1817
Attn: Elizabeth Hammer
FEES AND EXPENSES
The expenses of soliciting tenders will be borne by the Company. The
principal solicitation is being made by mail; however, additional solicitation
may be made by telegraphy, telephone or in person by officers and regular
employees of the Company and its affiliates.
The Company has not retained any dealer-manager in connection with the
Exchange Offer and will not make any payments to brokers, dealers or others
soliciting acceptances of the Exchange Offer. The Company, however, will pay
the Exchange Agent reasonable and customary fees for its services and will
reimburse it for its reasonable out-of-pocket expenses in connection
therewith.
The cash expenses to be incurred in connection with the Exchange Offer will
be paid by the Company. Such expenses include fees and expenses of the
Exchange Agent and Trustee, accounting and legal fees and printing costs,
among others.
The Company will pay all transfer taxes, if any, applicable to the exchange
of Old First Mortgage Notes pursuant to the Exchange Offer. If, however,
certificates representing New First Mortgage Notes or Old First Mortgage Notes
for principal amounts not tendered or accepted for exchange are to be
delivered to, or are to be issued in the name of, any person other than the
registered Holder of the Old First Mortgage Notes tendered, or if tendered Old
First Mortgage Notes are registered in the name of any person other than the
person signing the
23
<PAGE>
Letter of Transmittal, or if a transfer tax is imposed for any reason other
than the exchange of Old First Mortgage Notes pursuant to the Exchange Offer,
then the amount of any such transfer taxes (whether imposed on the registered
Holder or any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with the Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
ACCOUNTING TREATMENT
The New First Mortgage Notes will be recorded at the same carrying value as
the Old First Mortgage Notes, which is face value, as reflected in the
Company's accounting records on the date of the exchange. Accordingly, no gain
or loss for accounting purposes will be recognized. The costs of the Exchange
Offer and the unamortized costs related to the issuance of the Old First
Mortgage Notes will be amortized over the term of the New First Mortgage
Notes.
24
<PAGE>
USE OF PROCEEDS
The Exchange Offer is intended to satisfy certain of the Company's
obligations under the Registration Rights Agreement. The Company will not
receive any cash proceeds from the issuance of the New First Mortgage Notes in
the Exchange Offer. The net proceeds received by the Company from the issuance
of the Old First Mortgage Notes were applied as follows: (i) $80.9 million to
redeem, at a redemption price of 106%, the Company's First Mortgage Notes due
2001 (the "2001 Notes"); (ii) $15.9 million to repay amounts under the
Company's credit facilities; (iii) $10 million to pay dividends to the
Company's shareholders; and (iv) the remainder for general corporate purposes.
25
<PAGE>
CAPITALIZATION
The following table sets forth the consolidated capitalization of the
Company as of October 31, 1997, and as adjusted to reflect the application of
the net proceeds of the issuance of the Old First Mortgage Notes on December
5, 1997 as described in "Use of Proceeds." This table should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
OCTOBER 31, 1997
-------------------
ACTUAL AS ADJUSTED
------- -----------
(DOLLARS IN
THOUSANDS)
<S> <C> <C>
Cash.................................................... $ 741 $ 2,393
Long-term debt (including current portion):
2001 Notes............................................ 73,437 0
Old First Mortgage Notes.............................. -- 110,000
Revolving Credit Facility(1).......................... 11,614 0
Railway Credit Facility(1)............................ 2,630 1,030
Equipment notes....................................... 1,399 1,399
Notes payable......................................... 2,111 2,111
------- --------
Total long-term debt................................ 91,191 114,540
Stockholders' equity:
Common stock, par value $.01 per share, authorized
10,000,000 shares; issued 3,375,000 shares........... 34 34
Additional paid-in capital............................ 2,536 2,536
Retained earnings(2).................................. 2,095 (15,978)
------- --------
Total stockholders' equity.......................... 4,665 (13,408)
Less loans to stockholders.............................. 966 966
======= ========
3,699 (14,374)
------- --------
Total capitalization................................ $94,890 $100,166
======= ========
</TABLE>
- --------
(1) The Revolving Credit Facility provides a revolving credit commitment in
the amount of $40 million, with $26.5 million available as of October 31,
1997 ($35.3 million available as of October 31, 1997 on an as adjusted
basis). The exact amount which may be borrowed from time to time is
determined by a borrowing base formula. See "Description of Revolving
Credit Facility." The Railway Revolving Credit Facility provides a
revolving credit commitment in the amount of $1.5 million, with $0.4
million available as of October 31, 1997. The Railway Term Loan is for
$2.0 million (balance of $1.5 million as of October 31, 1997) and is
reduced by $0.5 million annually on July 31.
(2) The change in retained earnings reflects the redemption premium associated
with redemption of the 2001 Notes of approximately $4.5 million, the
write-off of the unamortized discount of approximately $1.6 million and
the unamortized debt issue costs related thereto of approximately $1.5
million, estimated interest expense paid during the period between the
issuance of the Old First Mortgage Notes and the call date on the 2001
Notes of approximately $0.5 million, and the payment of $10 million in
dividends to the Company's stockholders.
26
<PAGE>
SELECTED HISTORICAL FINANCIAL DATA
The following table sets forth selected historical consolidated financial
data and operating data for the Company for the periods indicated. The
Company's selected historical consolidated financial data for, and as of the
end of, each of the years in the five year period ended April 30, 1997 were
derived from the consolidated financial statements of the Company, which have
been audited by KPMG Peat Marwick LLP, independent public accountants. The
selected historical consolidated financial data for, and as of the end of, the
six months ended October 31, 1996 and 1997 were derived from unaudited
financial statements of the Company which, in the opinion of management,
reflect all adjustments which are of a normal recurring nature necessary for a
fair presentation of the results of such periods. The results of operations
for the six months ended October 31, 1997 are not necessarily indicative of
the results to be expected for the entire fiscal year 1998 or any other
interim period. The information set forth in this table should be read in
conjunction with "Management's Discussion and Analysis of Financial Condition
and Results of Operations" and the Consolidated Financial Statements of the
Company and the notes thereto, included elsewhere in this Prospectus.
<TABLE>
<CAPTION>
SIX MONTHS
FISCAL YEAR ENDED APRIL 30, ENDED OCTOBER 31,
-------------------------------------------------- ------------------
1993 1994 1995 1996 1997 1996 1997
-------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER TON DATA)
<S> <C> <C> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS
DATA:
Sales................... $144,026 $165,920 $175,753 $172,317 $170,865 $ 89,925 $ 94,181
Cost of sales........... 125,705 141,215 144,385 143,121 140,234 74,338 75,382
-------- -------- -------- -------- -------- -------- --------
Gross profit............ 18,321 24,705 31,368 29,196 30,631 15,587 18,799
Selling, general and
administrative expense. 10,536 10,682 12,156 11,737 11,923 6,495 6,631
Post-retirement benefit
expense other than
pensions............... -- 4,248 3,153 2,776 2,353 1,477 1,373
Restructuring charge.... 6,764(1) -- -- -- 1,320(2) -- --
Operating income (loss). (4,693) 4,834 10,129 8,116 8,260 4,188 7,335
Interest expense........ (5,707) (7,147) (8,049) (11,733) (11,769) (5,854) (5,768)
Other income (expense).. (103) (40) (58) 526 -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) before
income taxes and
extraordinary item..... (10,503) (2,353) 2,022 (3,091) (3,509) (1,666) 1,567
Income tax (expense)
benefit................ 2,975 949 (197) -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Income (loss) from
continuing operations.. (7,528) (1,404) 1,825 (3,091) (3,509) (1,666) 1,567
Extraordinary item-loss
on retirement of long-
term debt, net of
income tax benefit of
$1,346................. -- (3,966) -- -- -- -- --
-------- -------- -------- -------- -------- -------- --------
Net income (loss)....... $ (7,528) $ (5,370) $ 1,825 $ (3,091) $ (3,509) $ (1,666) $ 1,567
======== ======== ======== ======== ======== ======== ========
OTHER DATA:
EBITDA (3).............. $ 7,785 $ 13,327 $ 18,582 $ 16,430 $ 17,627 $ 8,617 $ 11,671
Capital expenditures.... 2,467 11,667 24,220 4,978 3,695 1,762 1,849
Depreciation and
amortization........... 5,714 4,941 5,930 6,567 6,775 3,427 3,460
Non-cash post-retirement
expense charges........ -- 3,552 2,523 1,747 1,272 1,002 876
Ratio of earnings to
fixed charges(4)....... -- -- 1.2x -- -- -- 1.3x
Finished products tons
shipped................ 398,783 396,363 367,133 383,448 413,243 211,275 233,861
Billet tons shipped..... 89,520 122,680 133,017 93,557 60,512 47,120 20,795
-------- -------- -------- -------- -------- -------- --------
Total tons shipped...... 488,303 519,043 500,150 477,005 473,755 258,395 254,656
Average price per ton
shipped................ $ 295 $ 320 $ 351 $ 361 $ 361 $ 348 $ 370
Average production cost
per ton shipped........ 257 272 289 300 296 288 296
Employees at end of
period................. 689 708 718 705 670 674 614
BALANCE SHEET DATA (AT
END OF PERIOD):
Total assets............ $ 94,643 $115,958 $146,459 $143,182 $136,574 $137,391 $132,788
Long-term debt
(including current
portion)............... 56,707 72,629 93,170 97,041 96,550 96,059 91,191
Stockholders' equity.... 15,098 11,683 12,596 7,662 3,098 4,941 4,665
</TABLE>
- -------
(1) In January 1993, the Company approved a restructuring plan which provided
for closure of the Oklahoma City Mill. In conjunction with this plan, the
Company recorded a nonrecurring charge aggregating $6,764. Of the total
charge, $6,330 relates to the estimated loss expected upon disposal of the
facility and plant protection, insurance and other expenses associated
with this plan. The remaining charge relates to operating losses incurred
from the date of approval through April 30, 1993.
(2) A restructuring charge of $1.3 million was recognized in fiscal 1997 as a
result of early retirement incentives included in a collective bargaining
agreement and salaried workforce reductions in Sand Springs.
27
<PAGE>
(3) EBITDA is defined as operating income (loss) plus depreciation,
amortization, non-cash portion of post-retirement benefit expense, non-
cash restructuring charges related to closure of the Oklahoma City Mill
(in fiscal 1993) and the restructuring charge related to the early
retirement incentives (in fiscal 1997). The Company believes that EBITDA
provides additional information for determining its ability to meet debt
service requirements. EBITDA does not represent and should not be
considered as an alternative to net income or cash flow from operations as
determined by generally accepted accounting principles, and EBITDA does
not necessarily indicate whether cash flow will be sufficient for cash
requirements.
(4) Ratio of earnings to fixed charges is defined as income before income
taxes and extraordinary item plus amortization of debt issuance cost and
interest expense divided by the sum of amortization of debt issuance costs
plus interest expense. Earnings were insufficient to cover fixed charges
in fiscal 1993, 1994, 1996, 1997 and the six months ended October 31, 1996
by approximately $10,503, $2,353, $3,091, $3,509 and $1,666 (unaudited),
respectively.
28
<PAGE>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion should be read in conjunction with the Consolidated
Condensed Financial Statements of the Company and the notes thereto included
elsewhere in this Prospectus.
GENERAL
The Company is a mini-mill producer of hot rolled steel bar products ("hot
rolled bar"), concrete reinforcing bar ("rebar"), fabricated products,
including fabricated and epoxy-coated rebar and steel fence posts, and various
types of semi-finished steel ("billets"). The Company and its predecessors
have been in the steelmaking business for over 68 years. The Company believes
that it is among the lowest cost producers of billets in the United States as
a result of its modern melt and cast operations, high labor productivity
levels, low energy costs and competitive steel scrap costs. The Company's low
cost billets serve as the feedstock for its downstream bar mill operations and
finished products. The Company shipped approximately 470,000 tons of steel in
the 12-month period ended October 31, 1997, resulting in sales of $175.1
million and EBITDA (as defined) of $20.7 million.
The Company's products are grouped into four categories: (i) hot rolled bar
products, which the Company produces in the form of flats, squares, rounds and
channels, typically to meet specified customer requirements; (ii) rebar, which
is principally sold to independent fabricators who shear and bend the rebar to
meet engineering or architectural specifications for construction projects;
(iii) fabricated products, consisting of fence post (sold principally to
distributors and farm cooperatives) and fabricated rebar, including epoxy-
coated rebar (typically sold to highway and construction contractors); and
(iv) billets, made by casting molten steel into square strands of various
lengths in a continuous casting process, which are either reheated, rolled and
sheared by the Company into various finished steel products described above or
sold to third parties. The Company's strategy is to improve its product mix by
utilizing billets internally to produce finished products instead of selling
billets to third parties. The Company's primary cost components are ferrous
scrap, energy and labor, the cost of warehousing and handling finished steel
products and freight costs. The following table gives summary operating data
for the Company by its principal product categories for the periods indicated:
<TABLE>
<CAPTION>
SIX MONTHS
ENDED OCTOBER
FISCAL YEAR ENDED APRIL 30, 31,
--------------------------------------- ---------------
1993 1994 1995 1996 1997 1996 1997
------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
TONS SHIPPED:
Hot Rolled Bars......... 155,555 154,362 157,610 159,688 174,290 80,736 93,828
Rebar................... 204,290 193,475 161,198 169,316 185,745 102,364 112,122
Fabricated Products..... 38,938 48,526 48,325 54,444 53,208 28,175 27,911
------- ------- ------- ------- ------- ------- -------
Total finished products. 398,783 396,363 367,133 383,448 413,243 211,275 233,861
Billets................. 89,520 122,680 133,017 93,557 60,512 47,120 20,795
------- ------- ------- ------- ------- ------- -------
Total tons shipped...... 488,303 519,043 500,150 477,005 473,755 258,395 254,656
======= ======= ======= ======= ======= ======= =======
PRICE PER TON:
Hot Rolled Bars......... $ 383 $ 424 $ 462 $ 461 $ 435 $ 441 $ 449
Rebar................... 244 263 290 293 292 291 296
Fabricated Products..... 408 407 447 461 460 458 456
Billets................. 188 218 236 225 214 215 227
Average price per ton
shipped................ 295 320 351 361 361 348 370
Average production cost
per ton................ 257 272 289 300 296 288 296
</TABLE>
On March 2, 1997, the Company completed negotiation of a collective
bargaining agreement with the United Steelworkers of America which covered
approximately 315 hourly-paid production and maintenance employees at the Sand
Springs Facility. The new contract is for a term of three years, expiring
March 1, 2000.
29
<PAGE>
This collective bargaining agreement included wage increases, certain benefit
increases and changes to local work rules allowing greater flexibility. The
contract also allowed the Company to reduce and reorganize its hourly
workforce by approximately 70 hourly positions, primarily maintenance related.
Of the 70 positions, 42 employees were eliminated through retirement offers
effective June 1, 1997 and the remaining positions have been eliminated
through attrition.
RESULTS OF OPERATIONS
SIX MONTHS ENDED OCTOBER 31, 1997 AS COMPARED TO SIX MONTHS ENDED OCTOBER 31,
1996
SALES. Sales for the Company for the six month period ended October 31, 1997
were approximately $94.2 million as compared to sales of approximately $89.9
million for the six month period ended October 31, 1996, an increase of
approximately $4.3 million or 4.7%. Shipping levels decreased 1.4% to 254,656
ton from 258,395 tons and the average price per ton shipped increased to $370
from $348. The decrease in tons shipped and the increase in average selling
price is primarily due to a change in product mix. The Company is implementing
its business strategy to produce and sell higher value added finished products
instead selling billets to third parties.
Hot Rolled Bar Products. Shipments for the six month period ended October
31, 1997 were 93,828 tons compared to 80,736 tons for the six month period
ended October 31, 1996, an increase of 13,092 tons or 16.2%. Shipments from
the Sand Springs Facility for the six month period ended October 31, 1997
increased 35.6% over the same period in the previous year due to continued
improvements in operations at the Sand springs Facility and implementation of
the Company's business strategy to improve finished goods product mix.
Shipments of hot rolled bar products from the Joliet Facility also increased
reflecting strong market conditions. The average price per ton of hot rolled
bar products for the six month period ended October 31, 1997 increased to $449
per ton compared to $441 per ton for the six month period ended October 31,
1996, reflecting improved selling prices at both the Sand Springs Facility and
the Joliet Facility.
Rebar. Rebar shipments for the six month period ended October 31, 1997 were
112,122 tons compared to 102,364 tons for the six month period ended October
31, 1996, an increase of 9,758 tons or 9.5%. This increase was primarily a
result of the continued improvements in operations at the Sand Springs
Facility and general market strength in the construction industry. The average
price per ton of rebar for the six month period ended October 31, 1997
increased to $296 from $291. The increase in average price per ton is
attributable to improved market conditions.
Fabricated Products. Shipments of fabricated products for the six month
period ended October 31, 1997 were 27,911 tons compared to 28,175 tons for the
six month period ended October 31, 1996, a decrease of 264 tons or .9%. The
average price per ton for fabricated products for the six months ended October
31, 1997 decreased to $456 from $458. The decrease in shipments and average
selling prices is attributable to production difficulties at the Sand Springs
fence post shop which have since been resolved.
Billets. Shipments of billets to third parties for the six month period
ended October 31, 1997 were 20,795 tons compared to 47,120 tons for the six
month period ended October 31, 1996, a decrease of 26,325 or 55.9%. This
decrease was due to the Company's implementation of its business strategy to
utilize more billets internally to produce higher value added finished
products instead of selling the billets to third parties. The average price
per ton for billets for the six month period ended October 31, 1997 increased
to $227 from $215. The increase in average price per ton is attributable to
improved product mix.
COST OF SALES. The cost of sales for the six month period ended October 31,
1997 were approximately $75.4 million as compared to approximately $74.3
million for the six month period ended October 31, 1996. On an average per ton
basis, cost of sales increased to $296 per ton for the six months ended
October 31, 1997 from $288 per ton for the six months ended October 31, 1996.
In the six month period ended October 31, 1997, billet shipments decreased and
rebar and hot rolled bar product increased resulting in the increase in
average cost per ton.
30
<PAGE>
GROSS PROFIT. Gross profit for the Company for the six month period ended
October 31, 1997 was approximately $18.8 million as compared to approximately
$15.6 million for the six month period ended October 31, 1996, an increase of
approximately $3.3 million or 21.0%. Gross profit for the Company as a
percentage of sales for the six month period ended October 31, 1997 was 20.0%
as compared to 17.3% for the six month period ended October 31, 1996. The
increase is a result of higher average selling prices due primarily to a more
favorable product mix.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for the Company for the six month period ended October
31, 1997 was approximately $6.6 million as compared to approximately $6.5
million for the six months ended October 31, 1996. The slight increase was
primarily due to additional selling expenses.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization remained
approximately the same for the six month period ended October 31, 1997, as
compared to the six month period ended October 31, 1996.
POST-RETIREMENT BENEFIT EXPENSE. Post-retirement benefit expense remained
approximately the same for the six month period ended October 31, 1997 as
compared to the six month period ended October 31, 1996.
OPERATING INCOME. Operating income for the Company for the six month period
ended October 31, 1997 was approximately $7.3 million as compared to
approximately $4.2 million for six month period ended October 31, 1996, an
increase of approximately $3.1 million or 75.1%. Operating income for the
Company as a percentage of sales for the six months ended October 31, 1997 was
7.8% as compared to 4.7% for the six months ended October 31, 1996. This
increase was primarily due to the increased gross profit as discussed above.
INTEREST EXPENSE. Interest expense remained approximately the same for the
six month period ended October 31, 1997 compared to the six month period ended
October 31, 1996.
LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company's long-term indebtedness was
approximately $91.2 million, after giving effect to an unamortized discount
attributable to detachable stock warrants of approximately $1.6 million. The
Company had approximately $21 million of borrowing availability at October 31,
1997 under its revolving credit agreements and approximately $4 million
available under the equipment financing agreement.
Cash flow provided by operations was approximately $10.5 million for the six
month period ended October 31, 1997, as compared with cash flow provided by
operations of approximately $3.2 million for the six month period ended
October 31, 1996. The increase in cash provided by operations was primarily
due to reducing accounts receivable and inventories as well as improved
operating results. Cash used in investing activities in the three months ended
October 31, 1997 was approximately $4.2 million, consisting of required
replacement of plant equipment and the purchase of Waddell. For the six month
period ended October 31, 1997, cash used for financing activities consisted
primarily of payments on the revolving credit facility.
The Company's cash flow from operations and borrowings under the Revolving
Credit Facility, the Railway Credit Facility, and equipment financing
agreements are expected to be sufficient to fund the budget for capital
improvements, and meet near-term working capital requirements.
On a longer term basis, the Company has significant future debt service
obligations. The Company's ability to satisfy these obligations is dependent
on its ability to generate adequate cash flow from operations. The Company
expects that its cash flow from operations and available borrowings under its
revolving credit facilities and equipment financing agreements will be
sufficient to fund the repayment of the long term debt and other investing
activities. The Company's future operating results are dependent on its
overall operating performance and are subject to general business, financial
and other factors affecting the Company and the domestic steel industry, as
well as prevailing economic conditions, certain of which are beyond the
control of the Company.
31
<PAGE>
CAPITAL EXPENDITURES
Capital expenditures for the six month period ended October 31, 1997 were
approximately $1.8 million. Primarily all of the expenditures consisted of
normal capital projects required or deemed economically feasible, throughout
the Company. The Company's cash flow from operations and borrowings under its
revolving credit facilities and equipment financing agreements are expected to
be sufficient to meet any near-term working capital requirements the Company
may have and to fund anticipated capital improvements. The Company expects to
incur capital expenditures of approximately $8.5 million if fiscal 1998, which
includes the shear line project in the Sand Springs rolling mill.
FISCAL 1997 AS COMPARED TO FISCAL 1996
SALES. Sales for the Company for fiscal 1997 were approximately $170.9
million as compared to sales of approximately $172.3 million for fiscal 1996,
a decrease of approximately $1.5 million or 0.8%. This decrease was primarily
the result of a decrease in the tons shipped from 477,005 to 473,755, as the
average price per ton shipped remained unchanged at $361 per ton. This
decrease in sales was primarily a result of decreased shipments of billets.
Hot Rolled Bar Products. Shipments in fiscal 1997 were 174,290 tons compared
to 159,688 tons in fiscal 1996, an increase of 14,602 tons or 9.1%. Shipments
of hot rolled bars produced at the Sand Springs Facility were up approximately
66% in fiscal 1997 over the previous year due to continued improvements in
operation of the New Rolling Mill and the Company's implementation of its
business strategy to improve finished product mix. This increase was partially
offset by decreased sales of hot rolled bar products from the Joliet Facility
which were primarily due to weak market conditions encountered during the
first fiscal quarter. The average price per ton for hot rolled bar products
decreased to $435 per ton in fiscal 1997 from $461 per ton in fiscal 1996. The
decrease in average price per ton is due to the increased proportion of the
Company's hot rolled bar products being produced at the New Rolling Mill at
the Sand Springs Facility which have a lower selling price than the more
specialized products produced at the Joliet Facility.
Rebar. Rebar shipments for fiscal 1997 were 185,745 tons as compared to
169,316 tons in fiscal 1996, an increase of 16,429 tons or 9.7%. The increase
in tons shipped was primarily due to increased production. Rebar shipments in
the previous year were limited because mill time was allocated to the
development of new hot rolled bar business in accordance with the Company's
business strategy to improve product mix. The average price per ton for rebar
decreased to $292 for fiscal 1997 from $293 per ton in fiscal 1996.
Fabricated Products. Shipments of fabricated products in fiscal 1997 were
53,208 tons, down from 54,444 tons in fiscal 1996. Shipments of fabricated
products from the Kansas City Plant decreased from the prior year, primarily
due to weak market demand in the fourth quarter. Shipments of fence posts were
consistent with the prior year. The average price per ton for fabricated
products decreased slightly to $460 per ton in fiscal 1997 from $461 per ton
in fiscal 1996.
Billets. Shipments of billets to third parties for fiscal 1997 were 60,512
tons as compared to 93,557 tons in fiscal 1996. The decrease of 33,045 tons or
35.3% was due to the Company's implementation of its business strategy to
utilize billets internally for the production of higher value added finished
products instead of selling billets to third parties. The average price per
ton for billets decreased to $214 per ton in fiscal year 1997 from $225 per
ton in fiscal 1996. The decrease in the average price per ton of billets was
partially due to weak market demand and partially due to selling a higher
proportion of commodity grade steel.
COST OF SALES. The cost of sales for fiscal year 1997 was approximately
$140.2 million as compared to approximately $143.1 million for the fiscal year
ended 1996. Cost of sales on an average per-ton basis decreased slightly from
the prior year to $296 from $300. The decrease in cost of sales per ton is due
to improved production rates and a decrease in scrap raw material costs from
the prior year. The decrease was partially offset by slightly higher
conversion costs per ton in both the melt shop and the New Rolling Mill due to
an electric furnace transformer failure and higher energy costs in comparison
to the prior year. Although the electric furnace
32
<PAGE>
transformer failure curtailed melt shop operations by approximately 40% for a
four month period, the Company purchased billets from third party suppliers
and met its finished product requirements. The Company's relationships with
its customers were not disrupted and the Company's insurance policy covered
its costs of purchasing billets and repairing the transformer.
GROSS PROFIT. Gross profit for fiscal 1997 was approximately $30.6 million
as compared to approximately $29.2 million for fiscal 1996, an increase of
approximately $1.4 million or 4.9%. Gross profit as a percentage of net sales
for fiscal 1997 was 17.9% as compared to 16.9% for fiscal 1996. The increase
in gross profit in fiscal 1997 is due to the decrease in cost of sales and the
increase in sales as discussed above.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for fiscal 1997 was approximately $11.9 million,
reflecting an increase of approximately $0.2 million from 1996 levels. This
increase is due to additional selling expenses related to the expanded sales
efforts for hot rolled bar products.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1997 was
approximately $6.8 million as compared to approximately $6.6 million for 1996,
an increase of approximately $0.2 million or 3.2%. The increase in
depreciation expense was primarily the result of depreciation on capital
expenditures made in both fiscal 1996 and 1997.
POST-RETIREMENT BENEFIT EXPENSE. Post-retirement benefit expense decreased
to approximately $2.4 million for fiscal 1997 from approximately $2.8 million
in 1996. The decrease is primarily due to a decrease in the health care cost
trend rates as determined by an independent actuary.
RESTRUCTURING EXPENSE. A restructuring charge of $1.3 million, $1.0 million
of which was non-cash, was recognized in fiscal 1997 as a result of early
retirement incentives included in a collective bargaining agreement and
salaried workforce reductions in Sand Springs.
OPERATING INCOME. Operating income was approximately $8.3 million for fiscal
1997 as compared to operating income of approximately $8.1 million for fiscal
1996, an increase of approximately $0.1 million or 1.8%. Operating income as a
percentage of sales for fiscal 1997 was 4.8% as compared to 4.7% for fiscal
1996. The slight increase is a result of higher gross profit as described
above, offset by higher administrative expenses and the restructuring charge
as explained above.
INTEREST EXPENSE. Interest expense for fiscal 1997 was approximately $11.8
million as compared to approximately $11.7 million for fiscal 1996.
FISCAL 1996 AS COMPARED TO FISCAL 1995
SALES. Sales for the Company for fiscal 1996 were approximately $172.3
million as compared to sales of approximately $175.8 million for fiscal 1995,
a decrease of approximately $3.4 million or 2.0%. This decrease was primarily
the result of a decrease in tons shipped from 500,150 tons to 477,005 tons and
was partially offset by an increase in the average price per ton shipped from
$351 to $361.
Hot Rolled Bar Products. Shipments in fiscal 1996 were 159,688 tons compared
to 157,610 tons in fiscal 1995, an increase of 2,078 tons or 1.3%. Hot rolled
bar product sales tons shipped from the Sand Springs Facility were up
approximately 74% in fiscal 1996 over the previous year due to continued
improvements in operation of the New Rolling Mill and the Company's
implementation of its business strategy to improve finished product mix.
Growth in hot rolled bar product shipments also were due to additional
production orders. Sales of hot rolled bar products from the Joliet Facility
decreased due primarily to weak market conditions encountered during the third
fiscal quarter. The average price per ton for hot rolled bar products remained
relatively constant at $461 per ton in fiscal 1996, as compared to $462 per
ton in fiscal 1995.
Rebar. Rebar shipments for fiscal 1996 were 169,316 tons as compared to
161,198 tons in fiscal 1995, an increase of 8,118 tons or 5.0%. The increase
in the tons shipped was related to additional tons being produced
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on the New Rolling Mill over the previous year. Rebar shipments were limited,
however, because during start up of the New Rolling Mill mill time was
allocated to the development of new hot rolled bar product business. The
average price per ton of rebar increased to $293 for fiscal 1996 from a fiscal
1995 price per ton of $290.
Fabricated Products. Shipments of fabricated products in fiscal 1996 were
54,444 tons, up from 48,325 tons in fiscal 1995, an increase of 6,119 tons or
12.7%. Shipments of fabricated products from the Kansas City Plant were
consistent with the prior year while shipments of fence post increased 5,786
tons. The average price per ton for fabricated products of $461 per ton in
fiscal 1996 was $14 per ton higher than the average price per ton of $447 in
fiscal 1995. This price per ton increase was due to improved market conditions
in both the fence post and the rebar fabrication businesses.
Billets. Shipments of billets to third parties for fiscal 1996 were 93,557
tons as compared to fiscal 1995 shipments of 133,017 tons. The decrease of
39,460 tons or 29.7% was primarily due to the Company's shift in emphasis to
the sale of finished products as well as decreased market demand for billets
industry-wide. Demand decreased during the summer of 1995 and did not return
to normal levels for six months. Average sales price per ton for billets
decreased from $236 per ton in fiscal year 1995 to $225 per ton in fiscal
1996. The decrease in the average price per ton of billets reflected the
weaker market encountered during the 1996 fiscal year.
COST OF SALES. The cost of sales for fiscal year 1996 was approximately
$143.1 million as compared to approximately $144.4 million for the fiscal year
ended 1995. Cost of sales on an average per-ton basis was consistent with the
prior year on a product by product comparison. The costs per ton in the
aggregate increased from $289 in fiscal year 1995 to $300 in fiscal 1996 due
to a higher percentage of finished steel product sales. In fiscal 1996 billet
shipments decreased by 39,460 tons and the decrease of these lower cost
products in the mix caused the average cost per ton to increase. Scrap prices
were fairly consistent between years.
GROSS PROFIT. Gross profit for fiscal 1996 was approximately $29.2 million
as compared to approximately $31.4 million for fiscal 1995, a decrease of
approximately $2.2 million or 6.9%. Gross profit as a percentage of net sales
for fiscal 1996 was 16.9% as compared to 17.8% for fiscal 1995. The decrease
in gross profit in fiscal 1996 was primarily due to reduced profitability of
billets compared to fiscal 1995 caused by weaker market conditions and start
up costs associated with the New Rolling Mill. While productivity and yields
improved over fiscal 1995, costs associated with the start up of the New
Rolling Mill reduced gross profit margins.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSE. Selling, general and
administrative expense for fiscal 1996 was approximately $11.7 million,
reflecting a decrease of approximately $0.4 million from 1995 levels. This
decrease is the direct result of the Company's efforts to control overhead
costs throughout the Company.
DEPRECIATION AND AMORTIZATION. Depreciation and amortization for 1996 was
approximately $6.6 million as compared to approximately $5.9 million for 1995,
an increase of approximately $0.6 million or 10.7%. The increase in
depreciation expense was primarily the result of capital expenditures related
to the New Rolling Mill.
OPERATING INCOME. Operating income was approximately $8.1 million for fiscal
1996 as compared to operating income of approximately $10.1 million for fiscal
1995, a decline of approximately $2.0 million. Operating income as a
percentage of sales for fiscal 1996 was 4.7% as compared to 5.8% for fiscal
1995. The decline was primarily due to expenses associated with the New
Rolling Mill start-up and the weaker market for billets.
INTEREST EXPENSE. Interest expense for fiscal 1996 was approximately $11.7
million as compared to approximately $8.0 million for fiscal 1995, an increase
of approximately $3.7 million or 45.8%. Interest expense in fiscal 1995
included $2.1 million interest capitalized in connection with the financing of
the New Rolling Mill construction. The remaining increase in financing costs
was primarily caused by a slightly higher lending rate in fiscal 1996 and the
build up of inventories to support the expanding hot rolled bar product
business.
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LIQUIDITY AND CAPITAL RESOURCES
As of October 31, 1997, the Company's long term indebtedness was $91.2
million, after giving effect to an unamortized discount attributable to common
stock warrants of approximately $1.6 million. After giving effect to the
issuance of the Old First Mortgage Notes and the application of the net
proceeds therefrom as of October 31, 1997, the Company's outstanding
indebtedness would have been approximately $114.5 million consisting of $110
million of Old First Mortgage Notes and $4.4 million of other indebtedness.
The Company will not be required to make any principal payments on the First
Mortgage Notes prior to maturity. See "Use of Proceeds" and "Capitalization."
The Revolving Credit Facility provides a revolving credit commitment in the
amount of $40 million. Pursuant to an amendment to the Revolving Credit
Facility dated as of the Issue Date, the exact amount the Company is eligible
to borrow on a revolving basis under the Revolving Credit Facility is based on
collateral availability consisting of 85% of eligible accounts receivable and
65% of eligible inventories. After giving effect to the issuance of the Old
First Mortgage Notes on an as adjusted basis as of October 31, 1997, $35.3
million would be available under the Revolving Credit Facility. Indebtedness
under the Revolving Credit Facility is secured by a first priority lien on
Sheffield's inventory and accounts receivable. The Revolving Credit Facility
matures on November 1, 2000. See "Description of Revolving Credit Facility."
Borrowings under the Revolving Credit Facility bear interest at a floating
rate. To the extent that such interest rate increases, and to the extent that
amounts outstanding under the Revolving Credit Facility increase, there will
be corresponding increases in the Company's interest obligations. The Company
intends to use a portion of the net proceeds of the issuance of the Old First
Mortgage Notes to repay amounts outstanding under the Company's credit
facilities, although it will retain these facilities for future borrowings.
See "Description of Revolving Credit Facility", "Use of Proceeds" and
"Capitalization."
In addition to borrowings under the Revolving Credit Facility, the Company
has historically used cash flow from operations and equipment financing
agreements to fund its investing activities, including capital expenditures.
The Company expects to incur capital expenditures of approximately $8.5
million in fiscal 1998, including $4.5 million for the Shear Line Project. The
Company estimates annual maintenance capital expenditures to be approximately
$3 million.
Cash flow from operating activities was $4.7 million in fiscal 1997,
compared with cash flow from operating activities of $3.1 million in fiscal
1996. Cash used in investing activities in fiscal 1997 was $3.7 million,
consisting principally of replacement and environmental expenditures and other
capital improvements. In fiscal 1997, approximately $1.1 million of cash flow
from operating activities was used in financing activities, principally to
repay long-term debt and make payments to retired executives of the Company in
respect of stock appreciation rights.
Cash flow from operating activities was $3.1 million in fiscal 1996,
compared with cash flow from operating activities of $0.5 million in fiscal
1995. This increase in cash flow resulted principally from decreases in
accounts receivable and billet inventory as compared with in fiscal 1995. Cash
used in investing activities in fiscal 1996 was $4.4 million, consisting
principally of normal capital expenditures. In fiscal 1996, approximately
$4.3 million of cash flow was generated from increases in long-term and
revolving credit facilities. Approximately $2.3 million was used for payments
in respect of stock appreciation rights, dividends and to repurchase common
stock warrants.
Cash flow from operating activities was $0.5 million in fiscal 1995. Cash
used in investing activities in fiscal 1995 was $24.2 million, consisting
principally of capital expenditures.
The Company's cash flow from operating activities and borrowings under the
Revolving Credit Facility are expected to be sufficient to fund the fiscal
1998 budget for capital improvements and meet any near-term working capital
requirements. On a longer term basis, the Company has significant future debt
service obligations. The
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Company's ability to satisfy these obligations and to secure adequate capital
resources in the future will be dependent on its ability to generate adequate
operating cash flow. The Company expects that its cash flow from operations
and borrowing availability under its revolving credit facilities will be
sufficient to fund the repayment of the First Mortgage Notes and other
investing activities. This will be dependent on its overall operating
performance and be subject to general business, financial and other factors
affecting the Company and the domestic steel industry, as well as prevailing
economic conditions, certain of which are beyond the control of the Company.
The leveraged position of the Company and the restrictive covenants contained
in the Indenture and the Revolving Credit Facility could significantly limit
the Company's ability to withstand competitive pressures or adverse economic
conditions.
The Company is subject to a broad range of federal, state and local
environmental regulations and requirements, including those governing air
emissions and discharges into water, and the handling and disposal of solid
and/or hazardous wastes. As part of its normal course of business, the Company
incurs expenses, primarily for the disposal of bag house dust, to comply with
these regulations and requirements. Expenses were approximately $2.1 million
in fiscal 1997, approximately $1.7 million in fiscal 1996, and approximately
$2.2 million in fiscal 1995. Capital expenditures incurred by the Company to
comply with these requirements were approximately $0.7 million in fiscal 1997
and approximately $0.4 million in fiscal 1996. In addition, in the event of a
release of a hazardous substance generated by the Company, the Company could
be responsible for the remediation of contamination associated with such a
release. The Company believes that it is currently in substantial compliance
with all known material and applicable environmental regulations.
The Company has not experienced any material adverse effects on operations
in recent years because of inflation, though margins can be affected by
inflationary conditions. The Company's primary cost components are ferrous
scrap, energy and labor, all of which are susceptible to domestic inflationary
pressures. Finished product prices, however, are influenced by general
economic conditions and competitive factors within the steel industry. While
the Company generally has been successful in passing on cost increases to its
customers through price adjustments, the effect of steel imports, severe
market price competition and under-utilized industry capacity has in the past,
and could in the future, limit the Company's ability to adjust pricing.
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BUSINESS
GENERAL
The Company is a leading regional mini-mill producer of hot rolled steel bar
products, concrete reinforcing bar, fabricated products, including fabricated
and epoxy-coated rebar and steel fence posts, and various types of billets.
The Company and its predecessors have been in the steelmaking business for
over 68 years. The Company believes that it is among the lowest cost producers
of billets in the United States as a result of its modern melt and cast
operations, high labor productivity levels, low energy costs and competitive
steel scrap costs. The Company's low cost billets serve as the feedstock for
its downstream bar mill operations and finished products. The Company shipped
approximately 470,000 tons of steel in the 12-month period ended October 31,
1997, resulting in sales of $175.1 million and EBITDA (as defined) of $20.7
million.
BUSINESS STRATEGY
The Company has formulated an operating strategy to strengthen its market
position and maximize profitability which has four major components: (i)
improve finished goods product mix; (ii) continue to focus on and extend
strong customer relationships; (iii) modernize melt shop operations; and (iv)
streamline and strengthen organizational structure.
Improve Finished Goods Product Mix. With the addition of the New Rolling
Mill at the Sand Springs Facility, the Company has substantially increased its
hot rolled bar production capacity. Accordingly, shipments of finished
products have increased significantly as less profitable third party billet
sales have been intentionally reduced. Billet sales, which accounted for 23.6%
of tons shipped in fiscal 1994, accounted for only 7.3% of tons shipped for
the 12-month period ended October 31, 1997. Shifting away from third party
billet sales by increasing hot rolled bar production has also increased
margins and reduced sales volatility for the Company, since hot rolled bar
products are significantly more profitable than third party billet sales and
demand is more stable. As part of its strategy to further improve product mix,
the Company intends to remove a bottleneck at the Sand Springs Facility by
improving the efficiency of the cooling bed and increasing the capacity of the
shear line (the "Shear Line Project"). The completion of the Shear Line
Project, scheduled for the end of fiscal 1998, is expected to (i) increase hot
rolled bar production capacity by more than 100,000 tons per year; (ii) enable
the Company to more fully utilize its existing 600,000 tons of steelmaking
capacity; (iii) improve the quality of all mill products, especially hot
rolled bar; and (iv) improve product mix by further reducing billet sales to
third parties. The Shear Line Project is expected to have an aggregate capital
cost of approximately $4.5 million and, upon completion and achieving full
operating capacity, is expected to result in an annual EBITDA (as defined)
increase of approximately $9 million.
Extend Strong Customer Relationships. The Company benefits from having a
number of long-standing customer relationships in each of its product markets.
The Company has built a reputation for providing consistent product quality,
reliable, prompt product delivery and service, product availability and
flexible scheduling to meet customer needs and a high level of follow up
technical assistance and service. The ISO 9002 certification at both the Sand
Springs Facility and the Joliet Facility is an indication of the Company's
commitment to producing quality products. The Company believes that its
business strategy to improve its finished product mix will strengthen its
existing customer relationships and will aid it in developing new customer
relationships.
Modernize Melt Shop. The Company believes that it is among the lowest cost
producers of billets in the United States as a result of its modern melt and
cast operations, high labor productivity levels, low energy costs and
competitive steel scrap costs. With the addition of the New Rolling Mill,
which can utilize a larger billet, together with improvements in general
operating practices, yields have improved, costs have been reduced and annual
billet production capacity has increased from 525,000 tons to 600,000 tons per
year. Through incremental capital investments, the Company intends to pursue
additional modernization measures, such as the installation of a ladle arc
furnace in the melt shop, which will further enhance production capability,
increase production capacity, reduce manufacturing costs and improve the
quality of finished products.
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Streamline and Strengthen Organizational Structure. The Company has improved
strategic planning, strengthened financial reporting systems and aligned
organizational structure and management incentives with the Company's business
strategies and objectives. In accordance with the collective bargaining
agreement reached in February 1997 that resulted in a 15% workforce reduction,
the Company has been able to implement multi-craft training and use greater
flexibility in job assignments. Additional initiatives to streamline
operations include the elimination of a centralized maintenance structure and
close coordination of the melt shop, casting and rolling mill operations which
have resulted in significant reductions in both billet and finished goods
inventory. The Company has also put in place a new management team to manage
the Sand Springs Facility manufacturing operations. These initiatives have
resulted in improving the organizational structure of the Company, making it
flexible and more responsive to customer needs and positioning it to implement
its business strategy of improving finished product mix.
PRODUCTS, CUSTOMERS AND MARKETS
Hot Rolled Bar. According to the American Iron and Steel Institute ("AISI"),
the size of the hot rolled bar product market in the United States was
approximately 7 million tons in 1996. The demand for consistent quality is
very significant in the hot rolled bar product market, where quality is
measured by the adherence to specifications related to chemical composition,
surface quality, product integrity and size tolerances. The Company sells a
variety of specialty hot rolled bar products, including flats, squares, rounds
and channels for end use applications that include farm equipment, auto parts,
conveyor assemblies, pole line hardware, wrench handles and construction
machinery. The majority of hot rolled bar products produced at the Joliet
Facility (approximately 81% in fiscal 1997) is sold directly to original
equipment manufacturers and cold drawn bar finishers, while the remainder
(approximately 19% in fiscal 1997) is sold to steel service centers. Hot
rolled bar products produced at the Sand Springs Facility are sold to both end
product manufacturers (approximately 62% in fiscal 1997) and steel service
centers (approximately 38% in fiscal 1997). For fiscal 1997, sales of hot
rolled bar products accounted for approximately 44% of the Company's total
revenues.
In the hot rolled bar market, the Company differentiates itself from its
competitors through the Joliet Facility's focus on specialty hot rolled bar
products and by targeting customers with special requirements as to bar shape,
size and chemical composition and, in many cases, small volume needs. The
Company believes that its targeted customer focus often allows it to act as
the sole supplier of particular shapes, sizes or steel chemistries to certain
customers, while in other cases it competes with a limited number of producers
of specialty hot rolled bar products. The Company believes that these niche
markets are unattractive to larger volume producers. The Company also believes
that there are significant opportunities to sell standard hot rolled bar
products to customers for whom the Joliet Facility currently satisfies
specialty hot rolled bar product requirements. The Company's Sand Springs
Facility provides it with a competitive geographical advantage in the south-
central United States hot rolled bar marked and enables the Company's
customers to benefit from lower freight costs, shorter lead times and more
timely deliveries. As a result of these competitive advantages and its strong
reputation for quality and service, the Company has developed a number of
strong relationships with the region's hot rolled bar product customers.
The Company also strives to provide its hot rolled bar product customers
with superior service. For fiscal 1997, the Company's largest specialty hot
rolled bar product customer accounted for approximately 11% of total hot
rolled bar product shipments, and the 10 largest specialty hot rolled bar
product customers accounted for approximately 41% of total hot rolled bar
product shipments. To permit a high level of service consistent with efficient
production scheduling, the Company carries a customer-designated finished
goods inventory of hot rolled bar products in excess of 10,000 tons at both
the Joliet and Sand Springs facilities. Both the Sand Springs Facility and the
Joliet Facility have implemented an internally developed bar-coded inventory
tracking system which permits quick and precise inventories to be taken at any
time. The Joliet Facility has also developed a customer query system which
provides agents and major customers with direct computer access to the status
of their production orders, the availability of inventory designated for them
and the Joliet Facility's production schedule for their products. See "--
Business Strategy--Extend Strong Customer Relationships."
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Rebar. According to the AISI, the size of the rebar market in the United
States was approximately 6.3 million tons in 1996. Rebar is a lower value,
higher volume commodity bar product for which price is often the customer's
decisive factor. Geographic proximity to customers, which in turn determines
both freight costs and delivery response time, is also an important factor in
the rebar market, where profit margins are particularly tight and independent
fabricators typically depend on quick mill response rather than their own
inventories to meet ever-changing construction schedules. The Company sells
rebar to leading independent fabricators located in the south-central United
States who then shear and bend the rebar to meet engineering or architectural
specifications for construction projects. The Company produces rebar at the
Sand Springs Facility rolling mill, where the bars are rolled in standard
diameters from #4 bar ( 1/2 inch or 13mm) to #18 bar (2 1/4 inches or 57mm)
and sheared to standard lengths from 20 feet to 60 feet. To provide rapid
response to customer needs, the Company usually maintains a finished goods
inventory of 25,000 to 35,000 tons of rebar. Sales of rebar constituted
approximately 32% of total Company revenues in fiscal 1997.
Rebar demand is driven by trends in commercial and industrial construction
and infrastructure investment. During periods of overall reduced steel
industry demand, the Company has maintained relatively stable rebar sales
volume due to the levels of public and private sector investment in buildings,
plants, facilities and infrastructure in the south-central United States. The
Company has worked successfully to build and maintain long-term relationships
with its customers by providing them with competitive pricing, assured product
availability and reliable, prompt delivery and service. This strategy permits
the fabricators to compete successfully in the construction and infrastructure
markets, thus reinforcing the Company's relationships with such fabricators.
The Company believes that it is the primary and, in most cases, the sole
supplier to substantially all of its customers. In fiscal 1997, the Company's
10 largest rebar customer accounts represented approximately 80% of total
rebar sales. Of the 10 largest rebar customers in fiscal 1997, eight were
among the Company's 10 largest rebar customer accounts for fiscal 1996, 1995,
1994 and 1993.
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Due to the importance of pricing, freight costs and delivery response time,
sales of rebar tend to be concentrated within close geographic proximity to a
rebar manufacturer's mini-mill. The following map depicts the Company's rebar
market in the geographic area surrounding the Sand Springs Facility.
[MAP OF SOUTH CENTRAL UNITED STATES SHOWING COMPANY'S REBAR MARKET BY A DOTTED
LINE FORMING A CIRCLE THROUGH THE STATES OF ARKANSAS, OKLAHOMA, TEXAS, KANSAS,
NEBRASKA AND MISSOURI]
In the Company's primary market area of Oklahoma, Kansas and portions of
Nebraska, Missouri, Arkansas and northern Texas, the Company enjoys a freight
advantage over its competitors and believes it has a market share in excess of
50%. Approximately half of the Company's rebar shipments are made in this
primary market area. The remaining rebar shipments are made in the adjacent
regions of Nebraska, Missouri, Arkansas and Texas and in Louisiana, New Mexico
and Colorado. Since pricing, freight costs and delivery response times are
important competitive factors in the rebar market, the Company believes that
efforts to penetrate more distant markets would be uneconomical or impractical.
Fabricated Products. The Company manufactures two fabricated steel products:
fence post and fabricated rebar, including epoxy-coated rebar, which are sold
to distributors and farm cooperatives. Fence post is produced
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in two weights (1.25 pounds per foot and 1.33 pounds per foot), in orange and
green colors and various lengths from 4 feet to 8 feet. The Company
manufactures approximately 24,000 tons of fence post annually on a five day,
one-shift basis at a post shop located adjacent to the New Rolling Mill. The
Company believes that its fence post is recognized as a quality leader in the
industry. Fabricated products sales constituted approximately 14% of total
Company revenues in fiscal 1997. The majority of the Company's fence post
sales are concentrated in the Oklahoma, Kansas, Missouri, Texas and Arkansas
market area, and the Company believes that it is the primary supplier of fence
post with more than half of the market in that area. The Company's 5 largest
customer accounts represented approximately 75% of total fence post shipments
in fiscal 1997.
Fabricated rebar is shipped from the Kansas City Plant to highway and
construction contractors in Missouri, Kansas, Nebraska and in contiguous
markets. In recent years, the Company has experienced increased demand from
contractors bidding on infrastructure projects for fabricated rebar which is
epoxy-coated prior to fabrication to protect against corrosion in the field.
This has provided the Kansas City Plant with a competitive advantage and
contributed to a growth in shipments. The Company believes that its epoxy
coating line, the only one located in the Kansas City, Missouri market,
provides a competitive advantage in securing contracts.
On October 28, 1997, the Company acquired (the "Acquisition") all of the
issued and outstanding capital stock of Waddell's Rebar Fabricators, Inc.
("Waddell"), pursuant to a Stock Purchase Agreement among the Company, Waddell
and the former stockholders of Waddell. The Acquisition purchase price
consisted of (i) $1,040,000 in cash, subject to post-closing adjustment based
upon the actual net worth of Waddell on the closing date, and (ii) secured,
subordinated promissory notes (the "Notes") in an aggregate principal amount
of $2,000,000, which Notes mature in four years and accrue interest at
NationsBank's prime rate minus 1/2 of one percent per annum. The Notes are
secured by the Company's pledge of the capital stock of Waddell. Waddell is a
rebar fabricator located in Independence, Missouri which specializes in
smaller volume, higher value added construction contracts. Although the
Company will maintain Waddell as a separate subsidiary for the foreseeable
future, the Company intends to integrate the management of Waddell with the
management of the Company's rebar fabrication plant in Kansas City, Missouri.
Billets. The Company sells billets to other steel mills or forgers for
conversion into finished products. Most sales are made to a single dedicated
account and a portion are sold in the "spot" market and later exported to
markets in Mexico, South America and the Caribbean. Sales volume potential and
pricing for billets, particularly in the spot market, is highly variable. The
dominant competitive factors are availability and price. To meet customer and
finished product specifications, the Company produced in excess of 100 grades
of billets during fiscal 1997. Billet sales to third parties are dependent on
the Company's own billet requirements and market conditions that vary widely.
In the past three fiscal years, billets sales to third parties have ranged
between 8% and 18% of the Company's total revenues. Billet sales constituted
approximately 8% of total Company revenues in fiscal 1997.
The Company's business strategy includes shifting away from selling billets
toward utilizing billets internally to produce higher value added finished
products. After completion of the Shear Line Project, the Company expects to
increase its production of hot rolled bar products which will increase its
need for billets and, accordingly, fewer billets will be available for sale to
third parties.
The Railway Company. The Railway Company operates approximately seven miles
of rail line between Sand Springs and Tulsa, Oklahoma, serving primarily the
operations of the Sand Springs Facility and, to a lesser extent, third
parties. The Railway Company's revenues from third parties constituted
approximately 2% of total Company revenues in fiscal 1997.
MANUFACTURING PROCESS
The Company's primary manufacturing facility is the Sand Springs Facility,
where it conducts a full range of steelmaking activities, including the
melting and casting of billets and the processing of billets into rebar, steel
fence posts and a range of hot rolled bar products. The Company has recently
completed construction,
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installation and final commissioning of the $22 million New Rolling Mill at
the Sand Springs Facility, which has increased productivity and efficiency in
the manufacturing of rebar and has enabled the Company to produce certain
higher quality hot rolled bar products that it was previously unable to
produce. From the Sand Springs Facility, the Company also transfers billets to
its two rolling mills at the Joliet Facility, where it produces high end
specialty hot rolled bar products. The Company also operates a rebar
fabrication plant in Kansas City, Missouri. The Sand Springs Facility and the
Joliet Facility received ISO 9002 quality certification in November 1995 and
June 1996, respectively.
At the Sand Springs Facility, steel scrap is conveyed by rail car from the
Company's scrap yard to the facility's melt shop, where the steel scrap is
melted with electricity in two 85-ton electric arc furnaces. During the scrap
melting process, impurities are removed from the molten steel. The molten
steel is then poured into a ladle, where metal alloys are added to obtain
desired chemical compositions. The molten steel is then conveyed to a six-
strand continuous caster which casts various types of billets. The continuous
caster is capable of forming billets up to 8 inches square and 50 feet long.
These billets are then reheated, rolled and shaped into various finished steel
products at the Sand Springs or Joliet rolling mills or, to a lesser extent
sold to third parties. The Sand Springs rolling mill produces rebar, "T"
sections which are further processed into fence posts and a range of hot
rolled bar products. The rolling mills at the Joliet Facility produce an
extensive range of hot rolled bar products.
The diagram below depicts the Company's steel manufacturing process as
currently conducted.
[CHART SHOWING STEPS OF MANUFACTURING PROCESS]
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SALES AND MARKETING
Hot rolled bar products produced at the Joliet Facility are sold regionally
by the Company's sales personnel and nationally through commissioned sales
representatives under exclusive agency agreements with the Company. Hot rolled
bar products produced at the Sand Springs Facility and rebar are sold through
the Company's own sales force and sales agencies which also service the Joliet
Facility. The Company markets fence post directly to farm cooperatives and to
fence post distributors. While some billets are sold through semi-finished
steel brokers on the "spot" market, most is sold through one dedicated
account. After completion of the Shear Line Project, the Company's internal
billet requirements will increase and the availability of billets for sale to
third parties will decrease accordingly. As a result of adverse weather
conditions which impact construction activities and a normal seasonal downturn
in manufacturing levels, the Company typically experiences lower sales volumes
in its third fiscal quarter.
RAW MATERIALS
The Company's primary raw material is steel scrap, which is generated
principally from industrial, automotive, demolition, railroad and other scrap
sources and is purchased by the Company in the open market through a limited
number of steel scrap brokers and dealers or by direct purchase. The cost of
steel scrap is subject to market forces, including demand by other steel
producers. The cost of steel scrap to the Company can vary significantly, and
product prices generally cannot be adjusted in the short-term to recover large
increases in steel scrap costs. Over longer periods of time, however, product
prices and steel scrap prices have tended to move in the same direction.
The long-term demand for steel scrap and its importance to the domestic
steel industry may be expected to increase as mini-mill producers continue to
expand steel scrap-based electric arc furnace capacity with additions to or
replacements of existing integrated facilities. For the foreseeable future,
however, the Company believes that supplies of steel scrap will continue to be
available in sufficient quantities. In addition, a number of technologies
exist for the processing of iron ore into forms which may be substituted for
steel scrap in electric arc furnace-based steelmaking. Such forms include
direct-reduced iron, iron carbide, hot-briquette iron and pig iron. A
sustained increase in the price of steel scrap could result in increased use
of these alternative materials. The Company has successfully employed scrap
substitutes in its manufacturing process to achieve quality characteristics
and expects to increase its usage of such substitutes in the future.
ENERGY
The Company's manufacturing process consumes large amounts of electricity.
The Company purchases its electrical needs at the Sand Springs Facility from
Public Service of Oklahoma ("PSO") under a real time pricing tariff which is
available only to PSO's largest customers. Under this tariff, the Company
purchases its base load at a contracted amount adjusted for fuel costs and
then purchases or sells power on an hour-by-hour basis at rates which
approximate PSO's incremental costs plus a small markup. Historically, the
Company has been adequately supplied with electricity and does not anticipate
any material curtailment in its operations resulting from energy shortages.
The Company believes that its utility rates are among the lowest in the
domestic mini-mill steel industry. As one of PSO's two largest customers, the
Company is able to obtain low rates from PSO. PSO is able to generate
electricity at relatively low rates, as its electric load is generated using
western coal and local natural gas as compared to the higher costs of electric
utilities that generate electric load using oil or nuclear power.
The Company also uses natural gas to reheat billets, but is not considered a
large natural gas user. Since deregulation of the natural gas industry,
natural gas requirements generally have been provided through negotiated
contract purchases of well-head gas with supplemental transportation through
local pipeline distribution networks. Although increases in the price of
natural gas might have an adverse impact on the Company's cost structure and
the Company's profitability, any such price increases would be likely to
similarly
43
<PAGE>
affect competitors using natural gas and/or electricity generated by natural
gas. The majority of the Company's natural gas needs (both to reheat billets
and as a consumer of the electricity generated by natural gas) are at the Sand
Springs Facility in Oklahoma, a state with excess natural gas supplies.
Historically, the Company has been adequately supplied with natural gas and an
adequate supply is expected to be available in the future.
COMPETITION
The Company competes with a number of domestic mini-mills in each of its
market segments. There are common competitive factors in the steel bar
business--price, proximity to market, quality and service, for example--
although their relative importance varies in the different market segments.
In the market for hot rolled bar products, the Joliet Facility occupies a
niche position at the specialty end of the product range. The Company believes
that it is the sole supplier of several particular shapes, sizes or steel
chemistries to certain customers. In other cases, the Company competes with a
limited number of other producers of specialty hot rolled bar products,
including Calumet Steel Company, Kentucky Electric Steel Co., Laclede Steel
Company and Northwestern Steel and Wire Company. From Sand Springs and to a
much lesser degree from Joliet, the Company competes with mini-mill producers
of standard hot rolled bar products, including Chaparral Steel Co., North Star
Steel Co. and Structural Metals, Inc. Competitors vary from customer to
customer depending on product specifications and requirements for order sizes
and inventory support.
Since pricing, freight costs and delivery times are the most important
competitive factors in the sale of rebar, sales tend to be concentrated within
about 350 miles of a mini-mill. In the south-central United States, the
Company believes it enjoys a competitive advantage as the closest mill serving
an area comprising Oklahoma, Kansas, western Missouri and Arkansas, and parts
of northern Texas. The majority of the Company's rebar tonnage was shipped to
this area in fiscal 1997, which the Company believes equated to in excess of
50% of the market share. In surrounding geographical areas, the Company
competes with a number of other mini-mills, principally Chaparral Steel Co.
and Structural Metals, Inc.
The Company is not in competition with foreign or integrated steel
producers. These mills have cost and freight disadvantages compared to the
Company and other domestic mini-mills which effectively preclude them from
competing in the relatively low priced hot rolled bar product and rebar
markets.
Competitive factors in fence post sales include product quality measured by
durability, price, appearance, workmanship, freight costs and delivery
response time. The Company believes that the high quality of its fence post
combined with a more aggressive sales effort has contributed to an increase in
market penetration in fiscal 1996 and fiscal 1997. Competitors include
Southern Post Co. and Chicago Heights Steel Co.
For fabricated rebar, primary competitors are independent fabrication shops
which are furnished with rebar from other mini-mills in the Midwest. In recent
years, the Company believes that increased demand for epoxy-coated product
from contractors bidding on infrastructure projects has provided the Kansas
City Plant with a competitive advantage and contributed to growth in
shipments. Other competitive factors include delivery performance, engineering
support, accurate fabrication and competitive pricing.
EMPLOYEES
As of October 31, 1997, there were approximately 614 employees of the
Company. Approximately 68% of the Company's employees are represented by one
of three bargaining units affiliated with the United Steelworkers of America.
The Company is party to a collective bargaining agreement covering
approximately 250 hourly-paid production and maintenance employees at the Sand
Springs Facility. This agreement, which was negotiated as of March 2, 1997, is
for a three year period expiring on March 1, 2000. The agreement included wage
increases, certain benefit increases and changes to local work rules. The
agreement also allowed the Company to reduce and reorganize its hourly
workforce by approximately 70 positions, primarily maintenance
44
<PAGE>
related. Of the 70 positions, 42 were eliminated through retirement offers
effective June 1, 1997 and the remaining positions have been eliminated
through attrition.
The Company is also party to a collective bargaining agreement covering
approximately 148 hourly-paid production and maintenance employees at the
Joliet Facility, which expires on March 1, 1999 and a collective bargaining
agreement covering approximately 20 employees at the Kansas City Plant which
expires on October 31, 1999. The Railway Company has approximately 19
employees who are represented by various labor unions. The Company believes
that it has maintained good relationships with its labor unions in the past,
but there can be no assurance that the terms of any future collective
bargaining agreements with any labor unions will contain terms comparable to
the terms contained in its existing collective bargaining agreements.
Since the last national, industry-wide strike of steelworkers in 1959, the
Company has experienced only a five-day strike at the Sand Springs Facility in
May 1988 and a work stoppage at the Kansas City Plant after the expiration of
its collective bargaining agreement in September 1991. The Company has not
experienced a protracted work stoppage at either the Sand Springs Facility or
the Joliet Facility, and believes that it has good relations with its
employees, but there can be no assurance that work stoppages will not occur in
the future, in connection with labor negotiations or otherwise.
ENVIRONMENTAL COMPLIANCE
The Company is subject to a broad range of Federal, state and local
environmental requirements, including those governing air emissions and
discharges into water, and the handling and disposal of wastes. The Company
has spent substantial amounts to comply with these requirements. In addition,
in the event of a release of hazardous materials generated by the Company, the
Company could potentially be responsible for the remediation of contamination
associated with such a release.
Primarily because the melting process at the Sand Springs Facility generates
emission dust that contains lead, cadmium and other heavy metals, the Company
is classified, in the same manner as other similar mini-mills in its industry,
as a generator of hazardous waste. The Resource Conservation and Recovery Act
of 1976, as amended ("RCRA"), regulates the management of emission control
sludge/dust from electric arc furnaces ("K061"), a waste stream generated in
significant quantities at the Sand Springs Facility. All of the K061 generated
at the Sand Springs Facility is shipped to Mexico, where a High Temperature
Metals Recovery processor, Zinc Nacional, S.A., recovers the zinc, lead and
cadmium and manufactures commercial and high purity zinc products. If a
release of K061 were to occur, the Company could be required to remediate such
release. Although current law permits the export of K061, there can be no
assurance that new United States legislation prohibiting the export of
hazardous waste materials or new Mexican legislation prohibiting the import of
such materials, including K061, will not be enacted. In that event, the
Company would have to find an alternative means of treatment or disposal of
the K061 in compliance with RCRA. The Company believes that it could properly
dispose of the K061 generated at the Sand Springs Facility by constructing an
on-site recovery or chemical stabilization process or by shipping the K061 to
a licensed domestic treatment facility. However, there can be no assurance as
to the availability of such alternatives or that their construction and/or use
would not result in significant cost increases.
In accordance with the Clean Air Act Amendments of 1990 ("CAAA") and
Oklahoma's State Implementation Plan, the Sand Springs Facility submitted a
Title V application for an operating permit in January 1997. Because this
application has been ruled administratively complete, the Company is
continuing to operate pending final approval, which it anticipates receiving
in calendar 1998. If approved, the CAAA operating permit would require neither
process modifications nor continuous emissions monitoring. Additional or new
air emission control regulations or requirements applicable to the Company's
operations may be promulgated under the Clean Air Act in the future. The
Company cannot at this time accurately estimate the costs, if any, of
compliance with such future Clean Air Act regulations or requirements.
45
<PAGE>
As discussed above under "Risk Factors--Environmental Compliance and
Associated Costs", it is possible that EPA may identify violations of RCRA
requirements as a result of the Compliance Evaluation Inspection conducted by
EPA at the Sand Springs Facility in April 1997, and that EPA may seek
penalties and/or corrective action relating to the Solid Waste Management
Units identified at the Sand Springs Facility, including the three previously
closed K061 landfills. While the Company believes that any such RCRA
violations that may be identified by EPA will not result in penalties which
will have a material adverse effect on the Company's results of operations or
financial condition, the costs of corrective action (if any is required)
cannot be predicted at this time and may be material. Apart from the issues
associated with the April 1997 RCRA inspection conducted by EPA, the Company
believes that it is currently in substantial compliance with applicable
environmental requirements and does not anticipate the need to make
substantial expenditures for environmental control or remediation measures
during the next three years. See "Risk Factors--Environmental Compliance and
Associated Costs."
PROPERTIES AND FACILITIES
The Company owns the properties comprising the Sand Springs Facility and the
Joliet Facility. The Sand Springs Facility is located on approximately 148
acres of land in Sand Springs, Oklahoma. The Joliet Facility is located on
approximately 30 acres of land in Joliet, Illinois. The Company leases 9 acres
of land adjacent to the Joliet Facility from the Metropolitan Water
Reclamation District of Greater Chicago under a long term lease expiring in
2053. The Company also leases the Kansas City Plant, containing approximately
77,100 square feet. In addition, the Company owns 4.5 acres of land in
Oklahoma City, Oklahoma that formerly comprised the Oklahoma City Mill.
The Sand Springs Facility comprises an aggregate of approximately 520,390
square feet of floor space and contains two 85-ton electric arc furnaces, a
six strand billet continuous caster, a rolling mill, two warehouses and a
fence post shop. The current total annual capacity of the Sand Springs
Facility is approximately 600,000 tons of billet, approximately 320,000 tons
of rebar and hot rolled bar and approximately 70,000 tons of fence post. After
completion of the Shear Line Project, the annual capacity of rebar and hot
rolled bar products is expected to increase to 450,000 tons.
The Joliet Facility comprises an aggregate of approximately 334,305 square
feet of floor space and contains a 12 inch merchant bar mill and a 10 inch
merchant bar mill. The total annual capacity of the Joliet Facility is
approximately 155,000 tons of hot rolled bar products.
The Railway Company provides freight service between Sand Springs and Tulsa
on seven miles of mainline track and 21 miles of spur line which connect
customer facilities with the main line. The Railway Company owns the mainline
track and three locomotives and operates a maintenance shop for normal repairs
and upkeep. The Railway Company also leases and operates a transload facility
and warehouse.
The Railway Company has granted a security interest in substantially all of
its assets to the Bank of Oklahoma as security for the Railway Company's
obligations under the Railway Revolving Credit Facility and the Railway Term
Loan.
The Company will grant a first priority lien on substantially all of
Sheffield's real property and equipment in favor of the Trustee for the
benefit of the holders of the First Mortgage Notes. See "Description of First
Mortgage Notes--Security" and "--Intercreditor Agreement."
LEGAL PROCEEDINGS
The Company is not a party to any significant pending legal proceedings
other than litigation incidental to its business which the Company believes
will not materially affect its financial position or results of operations.
Such claims against the Company are ordinarily covered by insurance. There can
be no assurance, however, that insurance will be available in the future at
reasonable rates.
46
<PAGE>
MANAGEMENT
EXECUTIVE OFFICERS AND DIRECTORS
The executive officers and directors of the Company, and their ages as of
December 15, 1997 are as follows:
<TABLE>
<CAPTION>
NAME AGE POSITION
---- --- --------
<S> <C> <C>
Robert W. Ackerman...... 59 President and Chief Executive Officer, Director
John F. Lovingfoss...... 60 Vice President--Sales and Marketing
Alton W. Davis.......... 49 Vice President--Operations
Dale S. Okonow.......... 41 Vice President and Secretary, Director
Stephen R. Johnson...... 46 Vice President, Chief Financial Officer and Assistant Secretary
Leslie L. Kelly......... 31 Controller
Steven E. Karol......... 43 Chairman of the Board, Director
Jane M. Karol........... 35 Director
Howard H. Stevenson..... 56 Director
John D. Lefler.......... 51 Director
</TABLE>
Robert W. Ackerman. Mr. Ackerman has been President and Chief Executive
Officer and a Director since 1992. From 1988 to 1992, Mr. Ackerman was the
President and Chief Executive Officer of Lincoln Pulp & Paper Co., Inc. From
1986 to 1988 Mr. Ackerman taught in the Advanced Management Program at the
Harvard University Graduate School of Business Administration. Mr. Ackerman
serves as a director of Gulf States Steel, Inc. of Alabama ("Gulf States") and
The Baupost Fund and Atlantic Investors, Inc.
John F. Lovingfoss. Mr. Lovingfoss has been Vice President-Sales and
Marketing since 1984. From 1958 to 1984, Mr. Lovingfoss held various positions
with the Company in sales, marketing and management.
Alton W. Davis. Mr. Davis has been Vice President-Operations since August
1996. From 1986 to 1996, he was Vice President and General Manager of
Ameristeel's Jacksonville, Florida location. Prior to that, he held various
management positions with both Bayou Steel and Chaparral Steel.
Dale S. Okonow. Mr. Okonow has been Vice President and Secretary since 1988
and a Director since 1990. Prior to 1988, Mr. Okonow was an associate with the
law firm of Proskauer Rose Goetz & Mendelsohn in New York City. Mr. Okonow was
Vice President and General Counsel of HMK Enterprises, Inc. ("HMK") from 1988
to 1990 and has been a Senior Vice President and Chief Financial Officer of
HMK since 1990. Mr. Okonow also serves as Vice President, Secretary and a
Director of Gulf States.
Stephen R. Johnson. Mr. Johnson has been Vice President-Chief Financial
Officer since 1995. From 1977 to 1995 Mr. Johnson held various other positions
with the Company, including the position of Vice President-Administration and
Treasurer and Vice President-MIS and Business Planning.
Leslie L. Kelly. Ms. Kelly has been Controller of the Company since 1996.
From 1993 to 1996, Ms. Kelly was the Assistant Controller of Integrity Music,
Inc. From 1988 to 1992, Ms. Kelly was employed by the accounting firm, KPMG
Peat Marwick LLP.
Steven E. Karol. Mr. Karol has been a Director of the Company since 1981 and
Chairman of the Board since 1983. Mr. Karol is also President and Chief
Executive Officer and Chairman of the Board of HMK. Mr. Karol also serves as
Chairman of the Board of Directors of Gulf States and is a Director of Stocker
and Yale. Mr. Karol is the brother of Jane M. Karol.
Jane M. Karol. Ms. Karol has been a Director since 1991. Ms. Karol is a
Director of HMK. Ms. Karol is also the sister of Steven E. Karol.
47
<PAGE>
Howard H. Stevenson. Dr. Stevenson has been a Director since 1993. Since
1982, Dr. Stevenson has been Sarofim-Rock Professor of Business Administration
at the Harvard University Graduate School of Business Administration. He is
also a Senior Associate Dean and Director of Financial and Information Systems
for Harvard Business School from 1991 to 1994. Dr. Stevenson also sits on the
boards of Harvard Business School Publishing Corporation, Camp Dresser &
McKee, Landmark Communications, Gulf States, The Baupost Group, Inc., The
Baupost Fund, Bessemer Securities Corporation, African Communications Group,
and Terry Hinge and Hardware.
John D. Lefler. Mr. Lefler has over 28 years of experience in the steel
industry and has been the President and Chief Executive Officer of Gulf States
since May 1993. Mr. Lefler has served Gulf States in various management
positions since 1986. Prior to joining Gulf States, he worked at USX for more
than 18 years in various management positions. Mr. Lefler serves as a Director
of Gulf States and First Alabama Bank.
BOARD COMMITTEES
Audit Committee. The Audit Committee, which met once during fiscal 1997, has
two members, Mr. Okonow and Mr. Ackerman. The Audit Committee reviews the
engagement of the Company's independent accountants, reviews annual financial
statements, considers matters relating to accounting policy and internal
controls and reviews the scope of annual audits. The findings of this
committee are reviewed by the Board of Directors.
Stock Compensation Committee. The Stock Compensation Committee has three
members, Mr. Karol, Mr. Okonow and Mr. Ackerman. The Stock Compensation
Committee did not meet during fiscal 1997. The Stock Compensation Committee
administers the Company's 1993 Employee, Director and Consultant Stock Option
Plan. See "--Stock Option Plan."
Compensation Committee. The Company does not have a standing Compensation
Committee. Recommendations concerning salaries and incentive compensation
(other than stock options) for employees of the Company (other than Mr.
Ackerman) are made by Mr. Ackerman and are reviewed by the Board of Directors.
Recommendations concerning Mr. Ackerman's salary and incentive compensation
(other than stock options) are made by Mr. Karol and are reviewed by the Board
of Directors.
ELECTION AND COMPENSATION OF DIRECTORS
Ninety percent of the outstanding shares of the Common Stock is currently
owned by HMK, an affiliate of Watermill Ventures Ltd., which is in turn 100%
owned by members of the Karol family. Consequently, certain members of the
Karol family together beneficially own substantially all of the outstanding
shares of the Company's common stock and are able to determine the outcome of
all matters required to be submitted to stockholders for approval, including
the election of directors. See "Security Ownership of Certain Beneficial
Owners and Management."
Dr. Stevenson and Mr. Lefler each receive an annual retainer of $4,000,
payable quarterly, and a meeting fee of $1,500 for each meeting of the Board
of Directors attended. The Company reimburses ordinary and necessary out-of-
pocket expenses incurred by any Director in connection with his or her
services. In addition, Directors of the Company are eligible to receive non-
qualified stock options under the Company's 1993 Employee, Director and
Consultant Stock Option Plan (the "Stock Option Plan"). As of October 31,
1997, no Director had been granted any stock options for services as a
Director of the Company. See "--Stock Option Plan."
48
<PAGE>
SUMMARY COMPENSATION TABLE
The following Summary Compensation Table includes, for the fiscal year ended
1997, individual compensation information for: (i) the Company's Chief
Executive Officer (the "CEO") and (ii) each of the other most highly
compensated persons who were serving as executive officers of the Company
(other than the CEO) at the end of fiscal 1997 whose salary and bonus earned
during fiscal 1997 exceeded $100,000 (collectively, the "named executive
officers").
SUMMARY COMPENSATION TABLE
<TABLE>
<CAPTION>
LONG-TERM
COMPENSATION
ANNUAL COMPENSATION AWARDS
FISCAL -------------------------- ------------
NAME AND PRINCIPAL POSITION YEAR(1) SALARY BONUS OTHER # OPTIONS
- --------------------------- ------- -------- ------- ------ ------------
<S> <C> <C> <C> <C> <C>
Steven E. Karol, Chairman of
the Board.................. 1997 $250,000 $70,000 $ -- --
Robert W. Ackerman,
President and
Chief Executive Officer.... 1997 275,000 10,000 -- 253,125.000
Dale S. Okonow, Vice
President and Secretary.... 1997 175,000 -- -- 56,953.125
Alton W. Davis, Vice
President--Operations...... 1997 127,000(2) 10,000 46,000(3) 25,000.000
John F. Lovingfoss, Vice
President--Sales........... 1997 150,000 10,000 -- 56,953.125
Stephen R. Johnson, Vice
President and
Chief Financial Officer.... 1997 150,000 10,000 -- 35,312.500
</TABLE>
- --------
(1) Pursuant to the Instructions to Item 402(b) of Regulation S-K, information
with respect to fiscal years prior to fiscal 1997 has not been included.
(2) Mr. Davis was hired on August 12, 1996.
(3) Represents moving and related expenses for Mr. Davis.
OPTION GRANTS IN LAST FISCAL YEAR
<TABLE>
<CAPTION>
PERCENT
OF TOTAL POTENTIAL REALIZABLE VALUE
NUMBER OF OPTIONS AT ASSUMED ANNUAL RATES OF
SECURITIES GRANTED TO STOCK PRICE APPRECIATION
UNDERLYING EMPLOYEES FOR OPTION TERM
OPTIONS IN FISCAL EXERCISE OR ---------------------------
NAME GRANTED(1) YEAR BASE PRICE 5% 10%
- ---- ---------- ---------- ----------- ------------ --------------
<S> <C> <C> <C> <C> <C>
Steven E. Karol......... -- -- % $ -- $ -- $ --
Robert W. Ackerman...... -- -- -- -- --
Dale S. Okonow.......... -- -- -- -- --
Alton W. Davis.......... 25,000 49 20.52 835,623 1,330,590
John F. Lovingfoss...... -- -- -- -- --
Stephen R. Johnson...... 10,000 20 20.52 334,239 532,236
</TABLE>
- --------
(1) All the options were granted under the Stock Option Plan. The options
granted to the named executive officers during 1997 are incentive and non-
qualified stock options and vest on April 30, 1999.
49
<PAGE>
OPTION EXERCISES IN LAST FISCAL YEAR AND FISCAL YEAR-END VALUES
During the fiscal year ended April 30, 1997, none of the named executive
officers exercised stock options. The following table provides information
regarding the number of exercisable stock options as of April 30, 1997 and the
value of "in-the-money" options, which values represent the positive spread
between the exercise price of any such option and the fiscal year-end value of
the Company's Common Stock.
<TABLE>
<CAPTION>
NUMBER OF SECURITIES UNDERLYING VALUE OF THE UNEXERCISED
UNEXERCISED OPTIONS AT IN-THE-MONEY OPTIONS AT
FISCAL YEAR END FISCAL YEAR END
----------------------------------- -------------------------------
NAME EXERCISABLE UNEXERCISABLE(2) EXERCISABLE(1) UNEXERCISABLE(2)
- ---- ---------------- ------------------ -------------- ----------------
<S> <C> <C> <C> <C>
Steven E. Karol......... -- -- $ -- --
Robert W. Ackerman...... 253,125.000 -- 3,133,502 --
Dale S. Okonow.......... 56,953.125 -- 705,114 --
Alton W. Davis.......... -- 25,000.000 -- --
John F. Lovingfoss...... 56,953.125 -- 705,114 --
Stephen R. Johnson...... 25,312.500 10,000.000 313,384 --
</TABLE>
- --------
(1) The value of unexercised in-the-money options at fiscal year end assumes a
fair market value for the Company's Common Stock of $19.788, as determined
by the performance-based formula prescribed in the non-qualified and
incentive agreements entered into pursuant to the Stock Option Plan.
(2) The exercise price of Messrs. Davis and Johnson's unexercisable options
was higher than the fair market value and thus none of such options were
"in-the-money" as of such date.
STOCK OPTION PLAN
On September 15, 1993, the Board of Directors adopted, and the stockholders
of the Company approved, the Company's Stock Option Plan. The Stock Option
Plan provides for the grant of incentive stock options to key employees of the
Company and non-qualified stock options to key employees, directors and
consultants of the Company. A total of 580,000 shares of Common Stock, which
would represent approximately 13.4% of the Company's Common Stock on a fully
diluted basis, have been reserved for issuance under the Stock Option Plan
upon the exercise of options. During the year ended April 30, 1997, 51,000
options were granted, leaving 456,000 options outstanding at April 30, 1997.
The options granted on December 15, 1993 to the named executive officers are
incentive stock options and non-qualified stock options and vested on April
30, 1996. The options granted during the year ended April 30, 1997 to the
named executive officer are non-qualified and vest on April 30, 1999. The
Stock Option Plan is administered by the Stock Compensation Committee of the
Board of Directors. There were no stock options exercised during fiscal 1997.
EXECUTIVE INCENTIVE PLAN
Each of the named executive officers, excluding Mesrs. Karol and Okonow, is
eligible to receive bonus compensation under the Company's Executive Bonus
Plan (the "Incentive Plan"). The Incentive Plan provides that (i) in the event
that actual pre-tax profit for any fiscal year equals or exceeds budgeted pre-
tax profit for such year, participants in the Incentive Plan will be paid a
bonus ranging from 30% to 50% of such participant's base salary and (ii) in
the event that actual pre-tax profit for any fiscal year does not meet
budgeted pre-tax profit for such year, by less than 20%, the Company's Board
of Directors may, at its discretion, (A) establish a bonus pool of up to 20%
of the total base pay of all participants in the Incentive Plan and (B) award
bonus payments from such bonus pool, if any, to participants in the Incentive
Plan. Such bonus payments, if any, are to be based upon (x) the individual
performance of such participant, (y) the performance of such participant's
department and (z) such participant's contribution to the Company's overall
performance. Bonuses, if any, are required to be paid within 90 days after the
Company's fiscal year end.
50
<PAGE>
PENSION PLAN
The Company maintains a retirement plan that is an Internal Revenue Code
(the "Code") qualified defined benefit pension plan (the "Pension Plan"). At
normal retirement date (age 65 or completion of 30 years of service), a
participant is paid a pension equal to the sum of: (a) the product of the
participant's years of plan service from September 1, 1981 through December
31, 1984 and 1.25% of his average monthly compensation (up to $12,500),
determined over the participant's highest five consecutive years; and (b) the
product of the participant's years of plan service after January 1, 1985 and
0.9% of his average monthly compensation (up to $12,500) as defined above. The
normal form of pension is a lifetime annuity with a 50% survivor pension for
any surviving spouse. Optional forms of payment are available and are
actuarially equivalent to a lifetime annuity without surviving spouse
benefits. The Pension Plan also provides for early retirement benefits on an
actuarially reduced basis for participants who reach age 55 with at least 10
years of service. Vested retirement benefits are available for participants
who are terminated with at least five years of plan service. Although the
pension is reduced to the extent of any profit sharing retirement annuity
provided by discretionary contributions under the Sheffield Steel Corporation
Thrift and Profit Sharing Plan (the "Profit Sharing Plan"), no such
discretionary contributions have been made to the Profit Sharing Plan.
Years of service for purposes of the Pension Plan with respect to the named
executive officers are as follows: Mr. Ackerman, 5 years; Mr. Lovingfoss, 37
years; Mr. Johnson, 20 years; and Mr. Davis, 1 year. Messrs. Karol and Okonow
are excluded from the Pension Plan.
The following table shows the projected annual pension benefits payable
under the current pension plan at the normal retirement age of 65:
ANNUAL NORMAL PENSION BENEFITS
FOR YEARS OF SERVICE SHOWN
<TABLE>
<CAPTION>
YEARS OF SERVICE
---------------------------------------
ANNUAL BASE SALARY 15 20 25 30 35
------------------ ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C>
$100,000........................... $13,500 $18,000 $22,500 $27,000 $31,500
125,000........................... 16,875 22,500 28,125 33,750 39,375
150,000 and above................. 20,250 27,000 33,750 40,500 47,250
</TABLE>
THRIFT AND PROFIT SHARING PLAN
The Company's Profit Sharing Plan is a Code-qualified defined contribution
plan which permits its employees to elect "after-tax" payroll deductions
between 4% and 14% of compensation. The Profit Sharing Plan also provides for
additional discretionary contributions by the Company, which would be
allocated according to compensation ratios and, to the extent permitted by the
Code, according to compensation in excess of the FICA taxable wage base.
Discretionary Company contributions are forfeited by terminated employees with
less than five years of service. Discretionary contributions would offset
pensions under the Pension Plan described above, but no discretionary Company
contributions have been made to the Profit Sharing Plan.
401(K) RETIREMENT PLAN
The Company also sponsors a plan which permits eligible employees of the
Company to defer compensation to the extent permitted by Section 401(k) of the
Code (the "Retirement Plan"). The Retirement Plan permits, but does not
require, discretionary Company contributions. The Company made contributions
of approximately $81,000 to the Joliet Facility's 401(k) plan for the year
ended April 30, 1997.
51
<PAGE>
SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
HMK currently owns 90% of the issued and outstanding shares of the Common
Stock. HMK is a Massachusetts-based privately-owned holding company engaged in
manufacturing and distribution businesses through two principal operating
groups.
The table below sets forth certain information regarding beneficial
ownership of the Common Stock as of December 15, 1997 by (i) each current
director of the Company, (ii) each of the named executive officers, (iii) all
current directors and officers of the Company as a group and (iv) each person
or group of persons known by the Company to beneficially own more than 5% of
the outstanding shares of Common Stock.
<TABLE>
<CAPTION>
BENEFICIAL
OWNERSHIP(A)(B)
--------------------
NUMBER OF
NAME AND ADDRESS** SHARES PERCENT
------------------ --------- -------
<S> <C> <C>
Steven E. Karol.................................. 1,614,397 40.62%(c)(e)
HMK Enterprises, Inc.
800 South Street
Waltham, MA 02154
Jane M. Karol.................................... 1,614,397 40.62%(d)(e)
HMK Enterprises, Inc.
800 South Street
Waltham, MA 02154
Robert W. Ackerman............................... 286,875(f) 7.22%
Sheffield Steel Corporation
220 N. Jefferson
Sand Springs, OK 74063
John F. Lovingfoss............................... 90,703(g) 2.28%
Dale S. Okonow................................... 74,078(h) 1.86%
Stephen R. Johnson............................... 25,313(i) *
Alton W. Davis................................... -- *
Howard H. Stevenson.............................. -- *
John D. Lefler................................... -- *
All current executive officers, directors and
nominees of the Company
as a group (9 persons).......................... 3,705,743(j) 93.24%
</TABLE>
- --------
* Represents beneficial ownership of less than 1% of the Company's
outstanding shares of Common Stock
** Addresses are given for beneficial owners of more than 5% of the
outstanding Common Stock only.
(a) The number of shares of Common Stock issued and outstanding on December
15, 1997 was 3,569,625. The calculation of percentage ownership of each
listed beneficial owner is based upon the number of shares of Common Stock
issued and outstanding at December 15, 1997, plus shares of Common Stock
subject to options or warrants held by such person at December 15, 1997
and exercisable within 60 days thereafter. The persons and entities named
in the table have sole voting and investment power with respect to all
shares shown as beneficially owned by them, except as otherwise noted.
(b) Beneficial ownership as reported in the table above has been determined in
accordance with Rule 13d-3 under the Exchange Act.
(c) Of the 1,614,397 shares of Common Stock beneficially owned by Mr. Karol,
11,272 shares, or .33%, are owned of record by him. Mr. Karol also owns
74.7634 shares of the Class A common stock, $1.00 par value, of HMK (the
"HMK Class A Common Stock"), which shares constitute 50% of the issued and
outstanding shares of HMK Class A Common Stock. Of the 1,614,397 shares of
Common Stock beneficially owned by Mr. Karol, 1,603,125 shares, or 47.5%,
are deemed to be beneficially owned by Mr. Karol by virtue of his
ownership of such shares of HMK Class A Common Stock.
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(d) Of the 1,614,364 shares of Common Stock beneficially owned by Ms. Karol,
11,239 shares, or .33%, are owned of record by her. Ms. Karol also owns
74.7634 shares of HMK Class A Common Stock, which shares constitute 50% of
the issued and outstanding shares of HMK Class A Common Stock. Of the
1,614,364 shares of Common Stock beneficially owned by Ms. Karol,
1,603,125 shares, or 47.5%, are deemed to be beneficially owned by Ms.
Karol by virtue of her ownership of such shares of HMK Class A Common
Stock.
(e) Each of Steven E. Karol and Jane M. Karol own 74.7634 shares of HMK Class
A Common Stock, constituting 50% of the issued and outstanding shares of
HMK Class A Common Stock and 100% of the issued and outstanding shares of
HMK Class A Common Stock in the aggregate. HMK Class A Common Stock is the
only class of voting stock of HMK issued and outstanding. For purposes of
determining beneficial ownership of Common Stock as reported in the table
above, ownership of any class of non-voting stock of HMK has not been
included.
(f) Includes 253,125 shares which Mr. Ackerman may acquire upon the exercise
of options within 60 days after December 15, 1997.
(g) Includes 56,953 shares which Mr. Lovingfoss may acquire upon exercise of
options within 60 days after December 15, 1997.
(h) Includes 56,953 shares which Mr. Okonow may acquire upon exercise of
options within 60 days after December 15, 1997.
(i) Includes 25,313 shares which Mr. Johnson may acquire upon the exercise of
options within 60 days after December 15, 1997.
(j) Includes an aggregate of 392,344 shares which may be acquired upon the
exercise of options within 60 days after December 15, 1997.
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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
CERTAIN BUSINESS RELATIONSHIPS
HMK Management Consulting Services Agreement
Sheffield has entered into a Management Consulting Services Agreement with
HMK (the "Management Agreement"). The Management Agreement is terminable by
either party thereto upon 180 days' prior written notice to the other party.
Pursuant to the Management Agreement, HMK provides management and business
consulting services to Sheffield and its subsidiaries as Sheffield may from
time to time reasonably request, including, without limitation: financial and
accounting management services; marketing services; executive personnel
services; analyses and recommendations with respect to data processing systems
and services; corporate development services; contract administration and
limited legal services; representation and assistance in the audit process and
coordination of accounting functions; negotiation and maintenance of insurance
programs; and consultation and assistance in creating and maintaining deferred
compensation, pension and profit sharing plans and other human resource
related programs.
As compensation for the management and business consulting services provided
to the Company by HMK, Sheffield is obligated to pay to HMK a fee equal to 1/2
of 1% of the Company's consolidated sales, payable on a monthly basis. As
additional compensation, Sheffield has agreed that all employees and directors
(and their immediate family members) of HMK and its wholly-owned insurance
services subsidiary will be covered under Sheffield's group health insurance
plan, and that Sheffield is responsible for adjusting and paying all claims by
such employees and directors (and their immediate family members) under
Sheffield's group health insurance plan, without any cost or charge-back to,
or any reimbursement from, HMK. In addition to the foregoing compensation,
Sheffield is obligated to reimburse HMK for the cost of all travel,
entertainment, telephone and other expenses incurred by HMK in performing its
services under the Management Agreement.
Management fees paid by the Company pursuant to previous agreements with HMK
during fiscal 1995, 1996 and 1997 and for the six months ended October 31,
1997 were $598,000, $573,000, $569,000 and $314,000, respectively.
Risk Management Solutions, Inc. Insurance Agreement
The Company has entered into an Insurance Services Agreement (the "Insurance
Agreement") with Risk Management Solutions, Inc. ("Risk Management"), a
wholly-owned subsidiary of HMK. The Insurance Agreement is terminable by
either party thereto upon 180 days' prior written notice to the other party.
Pursuant to the Insurance Agreement, Risk Management provides insurance
services to the Company and its subsidiaries, including, without limitation:
procuring and maintaining property and casualty insurance coverage;
maintaining accounting records for all administered insurance programs;
reviewing and recommending alternative financing methods for insurance
coverages; identifying and evaluating risk exposures; reviewing claims and
expenses; budgeting for insurance expenses; and preparing and filing proof of
loss statements for insured claims. As compensation for the insurance services
provided to the Company and its subsidiaries, the Company is obligated to pay
to Risk Management a fee equal to 15% of the total annual cost of the
Company's insurance program, payable monthly. In addition to the foregoing
compensation, the Company is obligated to reimburse Risk Management for the
cost of all travel, entertainment, telephone and other expenses incurred by
Risk Management in performing its services under the Insurance Agreement.
HMK Income Tax Expense Allocation Policy and Tax Sharing Agreement
HMK is the common parent of an "affiliated group" of corporations (as
defined in the Code), which includes Sheffield and its subsidiaries, as well
as other corporations controlled directly or indirectly by HMK. Pursuant to an
Income Tax Expense Allocation Policy and Tax Sharing Agreement effective May
1, 1991 among HMK and Sheffield and its subsidiaries (the "Tax Sharing
Agreement"), the determination/allocation of income
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tax expense (current and deferred) among members of the affiliated group or
subgroup shall, for purposes of the separate financial statements of the
affiliated group or subgroup (or any member of the affiliated group or
subgroup), be determined on a separate company basis as if the member computed
its tax expense on a separate basis and, since the affiliated group has
adopted the provisions of FASB Statement of Accounting Standards No. 109--
"Accounting for Income Taxes" (SFAS 109), (i) deferred taxes are
allocated/recognized on a separate company basis for all affiliated group
members that have temporary differences at the end of the relevant period,
(ii) income tax expense (current and deferred) is allocated/recognized on a
separate company basis for all affiliated group members irrespective of the
fact that the affiliated group has no current or deferred tax expense and
(iii) the determination/allocation of current and deferred income tax expense
on a separate company basis is determined based on the principles of SFAS 109.
Pursuant to the Tax Sharing Agreement, the affiliated group has elected to
allocate the consolidated federal income tax liability of the affiliated group
among the group's members pursuant to the consolidated return regulations of
the Code. Notwithstanding such election, Sheffield and its subsidiaries will
collectively pay to HMK, or the subsidiaries will each pay to Sheffield and
Sheffield will pay to HMK, the members' share of their separately computed
current tax expense as determined on a separate company basis, and the payment
of such current tax expense will be determined irrespective of the fact that
the affiliated group has no current tax expense, but after such income tax
expense (current and deferred) has been allocated/recognized on a separate
company basis for all affiliated group members irrespective of the fact that
the affiliated group has no current or deferred tax expense. In the event that
a temporary taxable difference originates within one member of the affiliated
group and, as a result of the available elections, the temporary taxable
difference will reverse within another member of the affiliated group, the
member with whom the temporary taxable difference originated will reimburse
the member with whom the temporary taxable difference will reverse, for the
tax consequences resulting from the reversal of such differences. Such
reimbursement will be given effect when the liability (current or deferred) is
recognized by the member with whom the reversal will occur.
INDEBTEDNESS OF MANAGEMENT AND RELATED PARTIES
As of the end of fiscal 1997, HMK owed an aggregate of $2.7 million to the
Company. Of that amount, $2.2 million was related to certain tax attributes
allocated to the Company pursuant to the Tax Sharing Agreement with HMK. Under
that agreement, the receivable will be realized by reducing the future income
taxes otherwise payable by the Company to HMK. The remaining $0.5 million
relates to the Company's advance of funds to HMK to secure a letter of credit
needed for the insurance program of the Company's Joliet facility.
In September 1992, certain of the Company's officers, directors and members
of the Karol family purchased an aggregate of 5% of the issued and outstanding
shares of the Common Stock in exchange for an aggregate of $250,000 cash and
$1,000,000 in non-recourse promissory notes secured by pledges of such stock.
The non-recourse promissory notes evidencing each such shareholders'
indebtedness bear interest at a rate of 7.61% and become due on February 1,
2007 or on such earlier date upon the occurrence of certain events as stated
in the notes. During the year ended April 30, 1997, the Company signed an
agreement to repurchase 50,625 shares of Common Stock from two former officers
of the Company. Certain payments, including those to reacquire the Common
Stock, are currently not permitted under the terms of the 2001 Notes and
revolving credit agreements. As a result of this transaction, $300,000 of the
promissory notes plus interest of $93,000 was satisfied and the Company
recorded a note payable in the amount of $662,000 to the former shareholders.
The note payable will accrue simple interest at 6.02% and will be repaid in
five annual installments beginning when, and only when, the purchase of the
shares is permitted under the Indenture and the Company's credit agreements.
On December 12, 1997, the Company made the first installment on the notes.
Each of Robert W. Ackerman, President and Chief Executive Officer and a
Director of the Company and John F. Lovingfoss, Vice President-Sales and
Marketing of the Company, purchased 1% of the issued and outstanding shares of
Common Stock in exchange for $50,000 in cash and a non-recourse promissory
note with an original principal balance of $200,000. The aggregate amount of
indebtedness owed to the Company by each
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of such individuals as of April 30, 1997 is $270,596 ($200,000 principal
amount and $70,596 of accrued interest). The largest amount of indebtedness
outstanding during fiscal 1997 for each of Messrs. Ackerman and Lovingfoss was
$270,596.
Dale S. Okonow, Vice President, Secretary and a Director of the Company
purchased 0.5% of the issued and outstanding shares of Common Stock in
exchange for $25,000 in cash and a non-recourse promissory note with an
original principal balance of $100,000. The aggregate amount of indebtedness
owed to the Company by Mr. Okonow as of April 30, 1997 is $135,298 ($100,000
principal amount and $35,298 of accrued interest). The largest amount of
indebtedness outstanding during fiscal 1997 for Mr. Okonow was $135,298.
Each of Jane M. Karol, a Director of the Company and Joan L. Karol, mother
of each of Jane M. Karol and Steven E. Karol, Directors of the Company,
purchased 0.333% of the issued and outstanding shares of Common Stock in
exchange for $16,665 in cash and a non-recourse promissory note with an
original principal balance of $66,660. The aggregate amount of indebtedness
owed to the Company by each of such individuals as of April 30, 1997 is
$90,190 ($66,660 principal amount and $23,530 of accrued interest). The
largest amount of indebtedness outstanding during fiscal 1997 for each of Jane
M. Karol and Joan L. Karol was $90,190.
Steven E. Karol, Chairman of the Board of Directors of the Company,
purchased 0.334% of the issued and outstanding shares of Common Stock in
exchange for $16,670 in cash and a non-recourse promissory note with an
original principal balance of $66,680. The aggregate amount of indebtedness
owed to the Company by Mr. Karol as of April 30, 1997 is $90,215 ($66,680
principal amount and $23,535 of accrued interest). The largest amount of
indebtedness outstanding during fiscal 1997 for Mr. Karol was $90,215.
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DESCRIPTION OF CAPITAL STOCK
The following summary description of the capital stock of the Company does
not purport to be complete and is qualified in its entirety by reference to
the Certificate of Incorporation and Bylaws of the Company and to the other
agreements referenced herein.
COMMON STOCK
As of December 15, 1997, there were 3,569,625 shares of Common Stock
outstanding and held of record by eight stockholders. All of such shares are
validly issued, fully-paid and nonassessable. The holders of Common Stock are
entitled to one vote for each share held of record on all matters submitted to
a vote of the stockholders and do not have cumulative voting rights.
Accordingly, holders of a majority of the shares of Common Stock entitled to
vote in any election of directors may elect all of the directors standing for
election. Holders of Common Stock are entitled to receive ratably such
dividends as are declared by the Board of Directors out of funds legally
available therefor. The instruments governing the Company's outstanding
indebtedness will require compliance with financial ratios and other related
covenants which may prohibit the Company from paying dividends. See
"Description of First Mortgage Notes." Holders of Common Stock have no
preemptive, subscription, redemption or conversion rights. In the event of a
liquidation, dissolution or winding up of the Company, holders of Common Stock
are entitled to share ratably in all assets remaining after payment of all
debts and liabilities.
WARRANTS
Warrants to purchase 375,000 shares of Common Stock (the "Warrants") were
issued under a Warrant Agreement (the "Warrant Agreement") between the Company
and Shawmut Bank Connecticut, N.A., as Warrant Agent (the "Warrant Agent") in
November 1993. As of December 15, 1997, Warrants to purchase 245,250 shares of
Common Stock had been exercised.
Each Warrant entitles the registered holder thereof (the "holder"), subject
to and upon compliance with the provisions thereof and of the Warrant
Agreement, at such holder's option, prior to 5:00 P.M., New York City time, on
November 1, 2001, to purchase from the Company one (or such other number as
may result from adjustments as provided in the Warrant Agreement) share of
Common Stock (each, a "Warrant Share") at a purchase price of $.01 per share
(the "Exercise Price"). The number of shares of Common Stock for which a
Warrant may be exercised is subject to adjustment as set forth in the Warrant
Agreement.
Holders of Warrants will not be entitled, by virtue of being such holders,
to receive dividends, vote, receive notice of any meetings of stockholders or
otherwise have any right of stockholders of the Company.
The number of Warrant Shares issuable upon exercise of a Warrant (the
"Exercise Rate") is subject to adjustment from time to time upon the
occurrence of certain events, including (a) dividends or distributions on
Common Stock payable in Common Stock or other capital stock; (b) subdivisions,
combinations or certain reclassifications of Common Stock; (c) distributions
to all holders of Common Stock of rights, warrants or options to purchase
Common Stock at a price per share less than the Current Market Value of the
Common Stock; (d) certain sales of Common Stock by the Company at a price per
share less than the Current Market Value; provided, that no such adjustment
will be made with respect to any such sale effected pursuant to the exercise
of a stock option issued under the Company's 1993 Employee, Director and
Consultant Stock Option Plan if, (i) at the time of such sale, the aggregate
number of shares of Common Stock that shall have been issued pursuant to the
exercise of such options does not exceed 580,000 shares of Common Stock
(approximately 13.4% of the Company's outstanding Common Stock on a fully
diluted basis, including, for this purpose, shares reserved for issuance under
said stock option plan) and (ii) at the time of the grant of such stock
option, such stock option was issued with an exercise price not less than the
then Current Market Value for the underlying Common Stock; and (e)
distributions to stockholders of certain types of assets, debt securities or
certain rights, warrants or options to purchase securities of the Company.
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For purposes of the preceding paragraph, the term "Current Market Value" per
share of Common Stock at any date means (i) if more than 30% of the then
outstanding shares of Common Stock shall have been distributed through
registered public offerings, the average of the "immediate market price" of
the Common Stock for fifteen consecutive trading days immediately preceding
the date in question or (ii) if 30% or less of the then outstanding shares of
Common Stock shall have been distributed through registered public offerings,
the fair market value of the Common Stock as determined by the Company's Board
of Directors in good faith and in reliance on a valuation by an Independent
Financial Advisor (as defined in the Warrant Agreement) which valuation shall
have been given not earlier than twelve months prior to the date at which the
"Current Market Value" is being determined. The "immediate market price" of
the Common Stock will be the closing sale price of the Common Stock on the
principal trading market for the Common Stock on each such trading day or, if
there is no such sale price, the average of the closing bid and asked prices
for the Common Stock on such trading day on the principal trading market for
the Common Stock or, if there is no ascertainable market price for the Common
Stock, as determined in good faith by the Company's Board of Directors.
The authorized capital stock of the Company consists of 10,000,000 shares of
Common Stock, par value $.01 per share.
DELAWARE LAW AND CERTAIN CHARTER AND BY-LAW PROVISIONS
The Company's By-Laws provide that the number of directors of the Company
shall not be more than five or less than one, as fixed from time to time by
the Board of Directors. The By-Laws provide that any action required or
permitted to be taken at any annual or special meeting of stockholders may be
taken without a meeting, without prior notice and without a vote, if a consent
in writing, setting forth the actions so taken, is executed by the holders of
outstanding stock having not less than the minimum number of votes that would
be necessary to authorize or take such action at a meeting at which all shares
entitled to vote thereon were present and voted. Special meetings of the
stockholders may be called by the Chairman, President, Secretary or a majority
of the Board of Directors.
The Company's Certificate of Incorporation limits the liability of Directors
to the maximum extent permitted by Delaware General Corporation Law. Delaware
law provides that the directors of a corporation will not be personally liable
to such corporation or its stockholders for monetary damages for breach of
their fiduciary duties as directors, except for liability (i) for any breach
of their duty of loyalty to the corporation or its stockholders; (ii) for acts
or omissions not in good faith or that involve intentional misconduct or a
knowing violation of law; (iii) for unlawful payments of dividends or unlawful
stock repurchases or redemptions as provided in Section 174 of the Delaware
General Corporation Law; or (iv) for any transaction from which the director
derives an improper personal benefit. The effect of this provision is to
eliminate the rights of the Company and its stockholders (through
stockholders' derivative suits on behalf of the Company) to recover monetary
damages against a director for breach of the fiduciary duty of care as a
director (including breaches resulting from negligent or grossly negligent
behavior) except in the situations described in clauses (i) through (iv)
above. This provision does not limit or eliminate the rights of the Company or
any stockholder to seek non-monetary relief such as an injunction or
rescission in the event of a breach of a director's duty of care. The Company
believes that these provisions will assist the Company in attracting and
retaining qualified individuals to serve as directors.
The Delaware General Corporation Law provides generally that the affirmative
vote of a majority of the shares entitled to vote on any matter is required to
amend a corporation's certificate of incorporation or by-laws, unless the
corporation's certificate of incorporation or by-laws, as the case may be,
requires a greater percentage. Neither the Company's Certificate of
Incorporation nor its By-Laws impose a greater percentage stockholder vote for
any amendment to or repeal of the Certificate of Incorporation or By-Laws. The
By-Laws may also be amended or repealed by a majority vote of the whole Board
of Directors.
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DESCRIPTION OF REVOLVING CREDIT FACILITY
Sheffield is party to the Revolving Credit Facility with NationsBank, N.A.
("NationsBank"), pursuant to which NationsBank provides Sheffield with a
revolving credit facility (the "Revolving Credit Facility") of $40 million,
subject to levels of borrowing availability. Pursuant to an amendment
effective as of the Issue Date, borrowing availability is limited to an amount
equal to the sum of 85% of the face value of eligible accounts receivable plus
65% of the lower of fair market value or cost of eligible inventory. The total
loans outstanding at any one time against eligible inventory may not exceed
$27 million. The obligations of Sheffield under the Revolving Credit Facility
are secured by a first priority lien on Sheffield's inventory, accounts
receivable and general intangibles. Borrowings under the Revolving Credit
Facility bear interest at a fluctuating annual rate equal to between 0 and 1%
in 1/4% increments based on the Company's interest coverage plus the prime
rate as announced by NationsBank, payable monthly. The Company intends to use
a portion of the net proceeds of the issuance of the Old First Mortgage Notes
to pay down amounts outstanding under the Revolving Credit Facility, but will
retain the Revolving Credit Facility for future borrowings. See "Use of
Proceeds" and "Capitalization."
Pursuant to an amendment that became effective upon consummation of the
issuance of the Old First Mortgage Notes, the Revolving Credit Facility
requires the Company to maintain (i) a minimum availability of $5.0 million on
a formula basis and (ii) a ratio of EDITDA to cash interest expense of 1.1 to
1.0.
The following (among other events) constitute events of default, the
occurrence and continuance of which would entitle NationsBank to terminate the
Revolving Credit Facility and to declare all amounts outstanding thereunder to
be immediately due and payable: (1) non-payment when due of any amount payable
under the Revolving Credit Facility; (2) the attachment of any involuntary
lien (other than as permitted by NationsBank), or entry of any fixed judgment,
upon Sheffield in an amount in excess of $250,000 which has not been released
within 60 days; (3) violation of any covenants, or the material untruth of any
representation or warranty made by Sheffield; (4) bankruptcy or other
insolvency proceedings are instituted against Sheffield which are not
dismissed or vacated within 60 days; (5) change of ownership, suspension of
business, disposition of certain assets, certain mergers or consolidations of
Sheffield; (6) seizure of the collateral by any third party; and (7) an event
of default of the obligations under the First Mortgage Notes. Any event of
default gives NationsBank the right to possess and sell the collateral
securing Sheffield's obligations.
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DESCRIPTION OF FIRST MORTGAGE NOTES
GENERAL
As used below in this "Description of First Mortgage Notes" section,
references to the "First Mortgage Notes" refer to the Old First Mortgage Notes
and the New First Mortgage Notes.
The Old First Mortgage Notes were and the New First Mortgage Notes will be
issued under an indenture (the "Indenture"), dated as of December 1, 1997, by
and among the Company and State Street Bank and Trust Company, as Trustee (the
"Trustee"). The following summary of certain provisions of the Indenture does
not purport to be complete and is subject to, and is qualified in its entirety
by reference to, the Trust Indenture Act of 1939, as amended (the "TIA"), and
to all of the provisions of the Indenture, including the definitions of
certain terms therein and those terms made a part of the Indenture by
reference to the TIA as in effect on the date of the Indenture. A copy of the
Indenture has been filed as an Exhibit to the Exchange Offer Registration
Statement of which this Prospectus is a part. As used in this "Description of
First Mortgage Notes" section, the "Company" means Sheffield Steel
Corporation. The definitions of certain capitalized terms used in the
following summary are set forth below under "--Certain Definitions."
The First Mortgage Notes will be issued in fully registered form only,
without coupons, in denominations of $1,000 and integral multiples thereof.
Initially, the Trustee will act as Paying Agent and Registrar for the Notes.
The First Mortgage Notes may be presented for registration of transfer and
exchange at the offices of the Registrar, which initially will be the
Trustee's corporate trust office. The Company may change any Paying Agent and
Registrar without notice to holders of the First Mortgage Notes (the
"Holders"). The Company will pay principal (and premium, if any) on the First
Mortgage Notes at the Trustee's corporate office in New York, New York. At the
Company's option, interest may be paid at the Trustee's corporate trust office
or by check mailed to the registered address of Holders. Any Old First
Mortgage Notes that remain outstanding after the completion of the Exchange
Offer, together with the New First Mortgage Notes issued in connection with
the Exchange Offer, will be treated as a single class of securities under the
Indenture.
The First Mortgage Notes are senior obligations of the Company, secured by a
first priority lien on substantially all existing and future real property,
plant and equipment owned or leased by the Company and will rank pari passu in
right of payment with all existing and future unsubordinated indebtedness of
the Company, if any (including borrowings under the Revolving Credit
Facility), and senior in right of payment to all existing and future
subordinated indebtedness. See "--Security" and "Description of Revolving
Credit Facility."
PRINCIPAL, MATURITY AND INTEREST
The First Mortgage Notes are secured senior obligations of the Company and
are limited in aggregate principal amount to $150,000,000, of which
$110,000,000 will be exchanged in the Exchange Offer. The First Mortgage Notes
will mature on December 1, 2005. Interest on the First Mortgage Notes will
accrue at the rate of 11% per annum and will be payable semiannually in cash
on each June 1 and December 1, commencing on June 1, 1998, to the persons who
are registered Holders at the close of business on May 15 and November 15
immediately preceding the applicable interest payment date. Interest on the
First Mortgage Notes will accrue from the most recent date to which interest
has been paid or, if no interest has been paid, from and including the date of
issuance.
The First Mortgage Notes are not entitled to the benefit of any mandatory
sinking fund.
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REDEMPTION
Optional Redemption. The First Mortgage Notes will be redeemable, at the
Company's option, in whole at any time or in part from time to time, on and
after December 1, 2001, upon not less than 30 nor more than 60 days' notice,
at the following redemption prices (expressed as percentages of the principal
amount thereof) if redeemed during the twelve-month period commencing on
December 1 of the year set forth below, plus, in each case, accrued and unpaid
interest thereon, if any, to the date of redemption:
<TABLE>
<CAPTION>
YEAR PERCENTAGE
---- ----------
<S> <C>
2001.......................................................... 105.750%
2002.......................................................... 102.875%
2003 and thereafter........................................... 100.000%
</TABLE>
Optional Redemption upon Public Equity Offerings. At any time, or from time
to time, on or prior to December 1, 2000, the Company may, at its option, use
the net cash proceeds of one or more Public Equity Offerings (as defined
below) to redeem up to 35% of the First Mortgage Notes at a redemption price
equal to 111.5% of the principal amount thereof plus accrued and unpaid
interest thereon, if any, to the date of redemption; provided that at least
65% of the principal amount of First Mortgage Notes originally issued remains
outstanding immediately after any such redemption. In order to effect the
foregoing redemption with the proceeds of any Public Equity Offering, the
Company shall make such redemption not more than 150 days after the
consummation of any such Public Equity Offering.
As used in the preceding paragraph, "Public Equity Offering" means an
underwritten public offering of Qualified Capital Stock of the Company
pursuant to a registration statement filed with the Commission in accordance
with the Securities Act.
SELECTION AND NOTICE OF REDEMPTION
In the event that less than all of the First Mortgage Notes are to be
redeemed at any time, selection of such First Mortgage Notes for redemption
will be made by the Trustee in compliance with the requirements of the
principal national securities exchange, if any, on which such First Mortgage
Notes are listed or, if such First Mortgage Notes are not then listed on a
national securities exchange, on a pro rata basis, by lot or by such method as
the Trustee shall deem fair and appropriate; provided, however, that no First
Mortgage Notes of a principal amount of $1,000 or less shall be redeemed in
part; provided, further, that if a partial redemption is made with the
proceeds of a Public Equity Offering, selection of the First Mortgage Notes or
portions thereof for redemption shall be made by the Trustee only on a pro
rata basis or on as nearly a pro rata basis as is practicable (subject to DTC
procedures), unless such method is otherwise prohibited. Notice of redemption
shall be mailed by first-class mail at least 30 but not more than 60 days
before the redemption date to each Holder of First Mortgage Notes to be
redeemed at its registered address. If any First Mortgage Note is to be
redeemed in part only, the notice of redemption that relates to such First
Mortgage Note shall state the portion of the principal amount thereof to be
redeemed. A new First Mortgage Note in a principal amount equal to the
unredeemed portion thereof will be issued in the name of the Holder thereof
upon cancellation of the original First Mortgage Note. On and after the
redemption date, interest will cease to accrue on First Mortgage Notes or
portions thereof called for redemption as long as the Company has deposited
with the Paying Agent funds in satisfaction of the applicable redemption price
pursuant to the Indenture.
SECURITY
The First Mortgage Notes will be secured by a first priority Lien on
substantially all existing and future real property, plant, equipment,
intellectual property and related intangibles of the Company, and the proceeds
thereof, but excluding inventory, accounts receivable, capital stock of the
Railway Company, Waddell and Sheffield-Oklahoma City, certain non-material
leasehold interests and property and equipment acquired by the Company with
the proceeds of purchase money Indebtedness permitted to be incurred under the
Indenture
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(collectively, the "Collateral"), subject to certain Permitted Liens, which
Permitted Liens, in the judgment of the Company, will not adversely affect the
value of the currently existing Collateral. Collateral consisting of real
property and fixtures will be mortgaged by the Company pursuant to mortgages
or deeds of trust (the "Mortgages"). Collateral constituting personal property
will be pledged by the Company pursuant to security agreements (the "Security
Agreements").
The collateral release provisions of the Indenture permit the release of
items of Collateral which are the subject of an Asset Sale (as defined below)
and in other circumstances upon compliance with certain conditions. See "--
Possession, Use and Release of Collateral." The Net Cash Proceeds (as defined
below) of any such Asset Disposition would be required to be applied to a Net
Cash Proceeds Offer (as defined in the Indenture) in the circumstances and
manner described under "--Certain Covenants--Limitation on Asset Sales." To
the extent a Net Cash Proceeds Offer is not subscribed to by Holders of First
Mortgage Notes or such Net Cash Proceeds are not required to be applied to
make a Net Cash Proceeds Offer pursuant to the penultimate sentence of the
first paragraph of the "Limitation on Asset Sales" covenant, the unutilized
Net Cash Proceeds may be retained by the Company, free and clear of the Lien
of the Indenture and the Security Documents. See "--Possession, Use and
Release of Collateral."
To the extent that Liens are granted to third parties pursuant to clauses
(xiv), (xv) or (xvi) of the definition of "Permitted Liens", such third
parties may have rights and remedies with respect to the Property subject to
such Lien that, if exercised, could adversely affect the value of the
Collateral.
No appraisals of the Collateral have been prepared by or on behalf of the
Company. At October 31, 1997, the net book value of the Collateral was
approximately $53 million. There can be no assurance that the proceeds of any
sale of the Collateral pursuant to the Indenture and the related collateral
documents following an acceleration after an Event of Default under the
Indenture would not be substantially less than that which would be required to
satisfy payments due on the First Mortgage Notes. By its nature, some or all
of the Collateral will be illiquid and may have no readily ascertainable
market value. Accordingly, there can be no assurance that the Collateral will
be able to be sold in a short period of time, if saleable.
For a discussion of certain risks associated with the ability of the Trustee
to foreclose upon and sell Collateral under applicable bankruptcy laws if a
bankruptcy proceeding were to be commenced by or against the Company, see
"Risk Factors--Security for the First Mortgage Notes."
INTERCREDITOR AGREEMENT
The Trustee, on behalf of the Holders of the First Mortgage Notes has
entered into an intercreditor agreement (the "Intercreditor Agreement") with
the Company, and NationsBank of Georgia, N.A., as the lender under the
Revolving Credit Facility (the "Revolver Lender"). The Intercreditor Agreement
provides, among other things, that (i) the Trustee and the Revolver Lender
will provide notices to each other with respect to the acceleration of the
First Mortgage Notes or the Indebtedness under the Revolving Credit Facility,
as the case may be, and the commencement of any action to enforce the rights
of the Holders of the First Mortgage Notes, the Trustee or the Revolver Lender
and (ii) for a period following the issuance of a notice of enforcement, the
Revolver Lender may enter upon all or any portion of the Company's premises,
use the Collateral to the extent necessary to complete the manufacture of
inventory, collect accounts and sell or otherwise dispose of the collateral
securing the Indebtedness under the Revolving Credit Facility.
CHANGE OF CONTROL
The Indenture provides that upon the occurrence of a Change of Control, each
Holder has the right to require that the Company purchase all or a portion of
such Holder's First Mortgage Notes pursuant to the offer described below (the
"Change of Control Offer"), at a purchase price equal to 101% of the principal
amount thereof plus accrued interest to the date of purchase.
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Within 30 days following the date upon which the Change of Control occurred,
the Company must send, by first class mail, a notice to each Holder, with a
copy to the Trustee, which notice shall govern the terms of the Change of
Control Offer. Such notice shall state, among other things, the purchase date,
which must be no earlier than 30 days nor later than 60 days from the date
such notice is mailed, other than as may be required by law (the "Change of
Control Payment Date"). Holders electing to have a First Mortgage Note
purchased pursuant to a Change of Control Offer will be required to surrender
the First Mortgage Note, with the form entitled "Option of Holder to Elect
Purchase" on the reverse of the First Mortgage Note completed, to the Paying
Agent at the address specified in the notice prior to the close of business on
the third business day prior to the Change of Control Payment Date.
If a Change of Control Offer is made, there can be no assurance that the
Company will have available funds sufficient to pay the Change of Control
purchase price for all the First Mortgage Notes that might be delivered by
Holders seeking to accept the Change of Control Offer. In the event the
Company is required to purchase outstanding First Mortgage Notes pursuant to a
Change of Control Offer, the Company expects that it would seek third party
financing to the extent it does not have available funds to meet its purchase
obligations. However, there can be no assurance that the Company would be able
to obtain such financing. Failure by the Company to purchase the First
Mortgage Notes when required upon a Change of Control will result in an Event
of Default with respect to the First Mortgage Notes.
Neither the Board of Directors of the Company nor the Trustee may waive the
covenant relating to a Holder's right to repurchase upon a Change of Control.
Restrictions in the Indenture described herein on the ability of the Company
and its Restricted Subsidiaries to incur additional Indebtedness, to grant
Liens on its property, to make Restricted Payments and to make Asset Sales may
also make more difficult or discourage a takeover of the Company, whether
favored or opposed by the management of the Company. Consummation of any such
transaction in certain circumstances may require redemption or repurchase of
the First Mortgage Notes, and there can be no assurance that the Company or
the acquiring party will have sufficient financial resources to effect such
redemption or repurchase. Such restrictions and the restrictions on
transactions with Affiliates may, in certain circumstances, make more
difficult or discourage any leveraged buyout of the Company or any of its
Subsidiaries by the management of the Company. While such restrictions cover a
wide variety of arrangements which have traditionally been used to effect
highly leveraged transactions, the Indenture may not afford the Holders of
First Mortgage Notes protection in all circumstances from the adverse aspects
of a highly leveraged transaction, reorganization, restructuring, merger or
similar transaction.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of First Mortgage Notes pursuant to a Change of Control Offer. To
the extent that the provisions of any securities laws or regulations conflict
with the "Change of Control" provisions of the Indenture, the Company shall
comply with the applicable securities laws and regulations and shall not be
deemed to have breached its obligations under the "Change of Control"
provisions of the Indenture by virtue thereof.
CERTAIN COVENANTS
The Indenture contains, among others, the following covenants:
Limitation on Incurrence of Additional Indebtedness. The Company will not,
and will not permit any of the Restricted Subsidiaries to, directly or
indirectly, create, incur, assume, guarantee, acquire, become liable,
contingently or otherwise, with respect to, or otherwise become responsible
for payment of (collectively, "incur") any Indebtedness (other than Permitted
Indebtedness); provided, however, that if no Default or Event of Default shall
have occurred and be continuing at the time of or as a consequence of the
incurrence of any such Indebtedness, the Company may incur Indebtedness
(including, without limitation, Acquired Indebtedness) if on the date of the
incurrence of such Indebtedness, after giving effect to the incurrence
thereof, the Consolidated Fixed Charge Coverage Ratio of the Company is
greater than 1.9 to 1.0 through October 31, 1999 and greater than 2.0 to 1.0
thereafter.
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The Company will not, directly or indirectly, in any event incur any
Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or by the terms of any
agreement governing such Indebtedness) made expressly subordinate to the First
Mortgage Notes to the same extent and in the same manner as such Indebtedness
is subordinated pursuant to subordination provisions that are most favorable
to the holders of any other Indebtedness of the Company.
Limitation on Restricted Payments. The Company will not, and will not cause
or permit any of the Restricted Subsidiaries to, directly or indirectly, (a)
declare or pay any dividend or make any distribution (other than dividends or
distributions payable in Qualified Capital Stock of the Company) on or in
respect of shares of the Company's Capital Stock to holders of such Capital
Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay or otherwise acquire or retire
for value, prior to any scheduled maturity, scheduled repayment or scheduled
sinking fund payment, any Indebtedness of the Company or its Subsidiaries that
is subordinate or junior in right of payment to the First Mortgage Notes, or
(d) make any Investment (other than Permitted Investments) (each of the
foregoing actions set forth in clauses (a), (b), (c) and (d) being referred to
as a "Restricted Payment"), if at the time of such Restricted Payment or
immediately after giving effect thereto, (i) a Default or an Event of Default
shall have occurred and be continuing or (ii) the Company is not able to incur
at least $1.00 of additional Indebtedness (other than Permitted Indebtedness)
in compliance with the covenant described under "--Limitation on Incurrence of
Additional Indebtedness" or (iii) the aggregate amount of Restricted Payments
(including such proposed Restricted Payment) made subsequent to the Issue Date
(the amount expended for such purposes, if other than in cash, being the fair
market value of such property as determined reasonably and in good faith by
the Board of Directors of the Company) shall exceed the sum of: (w) 50% of the
cumulative Consolidated Net Income (or if cumulative Consolidated Net Income
shall be a loss, minus 100% of such loss) of the Company from and including
the first full fiscal quarter of the Company commencing after the Issue Date
to the date the Restricted Payment occurs (the "Reference Date") (treating
such period as a single accounting period); plus (x) 100% of the aggregate net
cash proceeds received by the Company from any Person (other than a Subsidiary
of the Company) from the issuance and sale subsequent to the Issue Date and on
or prior to the Reference Date of Qualified Capital Stock of the Company; plus
(y) without duplication of any amounts included in clause (iii)(x) above, 100%
of the aggregate net cash proceeds of any equity contribution received by the
Company from a holder of the Company's Capital Stock (other than from a
Subsidiary of the Company).
Notwithstanding the foregoing, the provisions set forth in the immediately
preceding paragraph do not prohibit: (1) the payment of any dividend or
redemption payment within 60 days after the date of declaration of such
dividend if the dividend or redemption payment, as the case may be, would have
been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the repurchase, redemption,
retirement or acquisition of any shares of Capital Stock of the Company,
either (i) solely in exchange for shares of Qualified Capital Stock of the
Company or (ii) through the application of net proceeds of a substantially
concurrent sale for cash (other than to a Subsidiary of the Company) of shares
of Qualified Capital Stock of the Company; (3) if no Default or Event of
Default shall have occurred and be continuing, the repurchase, redemption,
retirement or acquisition of any Indebtedness of the Company or a Subsidiary
of the Company that is subordinate or junior in right of payment to the First
Mortgage Notes either (i) solely in exchange for shares of Qualified Capital
Stock of the Company, or (ii) through the application of net proceeds of a
substantially concurrent sale for cash (other than to a Subsidiary of the
Company) of (A) shares of Qualified Capital Stock of the Company or (B)
Refinancing Indebtedness; (4) so long as no Default or Event of Default shall
have occurred and be continuing, pursuant to and in accordance with the Stock
Option Plan, the purchase of capital stock or options from members of
management or directors of the Company upon the terms set forth in the Stock
Option Plan for consideration consisting of cash and/or Subordinated
Management Notes; (5) the making of Restricted Payments in an aggregate amount
not to exceed $2.5 million; (6) the payment of a dividend as described in this
Prospectus under "Use of Proceeds" within 90 days of the Issue Date in an
aggregate amount not to exceed $10 million; and (7) the purchase of an
aggregate 50,625 shares of Common Stock from two former
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employees of the Company, for an aggregate purchase price (exclusive of
interest) not to exceed $700,000, pursuant to those certain letter agreements
dated September 10, 1996. In determining the aggregate amount of Restricted
Payments made subsequent to the Issue Date in accordance with clause (iii) of
the immediately preceding paragraph, amounts expended pursuant to clauses (1),
(2)(ii), (3)(ii)(A) and (5) above and clause (vi) of the definition of
Permitted Investments shall be included in such calculation.
Not later than the date of making any Restricted Payment, the Company shall
deliver to the Trustee an officers' certificate stating that such Restricted
Payment complies with the Indenture and setting forth in reasonable detail the
basis upon which the required calculations were computed, which calculations
may be based upon the Company's latest available internal quarterly financial
statements.
Limitation on Asset Sales. The Company will not, and will not permit any of
the Restricted Subsidiaries to, consummate an Asset Sale unless (i) the
Company or the applicable Restricted Subsidiary, as the case may be, receives
consideration at the time of such Asset Sale at least equal to the fair market
value of the assets sold or otherwise disposed of (as determined in good faith
by the Company's Board of Directors), (ii) at least 75% of the consideration
received by the Company or the Restricted Subsidiary, as the case may be, from
such Asset Sale shall be in the form of cash and/or Cash Equivalents and is
received at the time of such disposition, and (iii) to the extent such Asset
Sale involves Collateral, it shall be in compliance with the provisions
described under "Possession, Use and Release of Collateral." Upon the
consummation of an Asset Sale, the Company may apply, or may cause such
Restricted Subsidiary to apply, the Net Cash Proceeds relating to such Asset
Sale within 180 days of receipt thereof to make an investment in properties
and assets that replace the properties and assets that were the subject of
such Asset Sale or in properties and assets that will be used in the business
of the Company and the Restricted Subsidiaries as existing on the Issue Date
or in businesses reasonably related thereto ("Replacement Assets"); provided
that, to the extent the Net Cash Proceeds relate to an Asset Sale of
Collateral, the Replacement Assets, if any, relating to such Net Cash Proceeds
shall be of a type constituting Collateral and shall be subject to a first
priority Lien in favor of the Trustee pursuant to the Security Documents and
shall constitute Collateral. On the 180th day after an Asset Sale or such
earlier date, if any, as the Board of Directors of the Company or of such
Restricted Subsidiary determines not to apply the Net Cash Proceeds relating
to such Asset Sale as set forth in the next preceding sentence (each, a "Net
Proceeds Offer Trigger Date"), such aggregate amount of Net Cash Proceeds
which have not been applied on or before such Net Proceeds Offer Trigger Date
as permitted in the next preceding sentence (each a "Net Proceeds Offer
Amount") shall be applied by the Company or such Restricted Subsidiary to make
an offer to purchase (the "Net Proceeds Offer") on a date (the "Net Proceeds
Offer Payment Date") not less than 30 nor more than 60 days following the
applicable Net Proceeds Offer Trigger Date, from all Holders on a pro rata
basis, that amount of First Mortgage Notes equal to the Net Proceeds Offer
Amount at a price equal to 100% of the principal amount of the First Mortgage
Notes to be purchased, plus accrued and unpaid interest thereon, if any, to
the date of purchase; provided, however, that if at any time any non-cash
consideration received by the Company or any Restricted Subsidiary, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to
any such non-cash consideration), then such conversion or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this covenant. The Company may defer the
Net Proceeds Offer until there is an aggregate unutilized Net Proceeds Offer
Amount equal to or in excess of $5 million resulting from one or more Asset
Sales (at which time, the entire unutilized Net Proceeds Offer Amount, not
just the amount in excess of $5 million, shall be applied as required pursuant
to this paragraph). All Net Cash Proceeds in excess of $5 million from Asset
Sales not immediately applied to purchase Replacement Assets, pending their
application in accordance with this covenant or the release thereof in
accordance with the release provisions described under "Possession, Use and
Release of Collateral," shall be deposited in a cash collateral account under
the Indenture.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under "--Merger, Consolidation
and Sale of Assets," the successor corporation shall be deemed to have sold
the properties and assets of the Company and the Restricted Subsidiaries not
so transferred for purposes of this covenant, and shall comply with
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the provisions of this covenant with respect to such deemed sale as if it were
an Asset Sale. In addition, the fair market value of such properties and
assets of the Company or the Restricted Subsidiaries deemed to be sold shall
be deemed to be Net Cash Proceeds for purposes of this covenant.
Each Net Proceeds Offer will be mailed to the record Holders as shown on the
register of Holders within 25 days following the Net Proceeds Offer Trigger
Date, with a copy to the Trustee, and shall comply with the procedures set
forth in the Indenture. Upon receiving notice of the Net Proceeds Offer,
Holders may elect to tender their First Mortgage Notes in whole or in part in
integral multiples of $1,000 in exchange for cash. To the extent Holders
properly tender First Mortgage Notes in an amount exceeding the Net Proceeds
Offer Amount, First Mortgage Notes of tendering Holders will be purchased on a
pro rata basis (based on amounts tendered). A Net Proceeds Offer shall remain
open for a period of 20 business days or such longer period as may be required
by law.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of First Mortgage Notes pursuant to a Net Proceeds Offer. To the
extent that the provisions of any securities laws or regulations conflict with
the "Asset Sale" provisions of the Indenture, the Company shall comply with
the applicable securities laws and regulations and shall not be deemed to have
breached its obligations under the "Asset Sale" provisions of the Indenture by
virtue thereof.
In the event that the Capital Stock of a Restricted Subsidiary of the
Company, which has entered into a supplemental indenture guaranteeing the
obligations of the Company under the First Mortgage Notes and the Indenture,
is sold or otherwise disposed of in a transaction with any Person that is not
an Affiliate of the Company, such Restricted Subsidiary shall be deemed
automatically and unconditionally released and discharged from any of its
obligations under the supplemental indenture without any further action on the
part of the Trustee or any holder of the First Mortgage Notes; provided that
the Net Cash Proceeds of such sale or other disposition are applied in
accordance with the applicable provisions of the Indenture.
Limitation on Dividend and Other Payment Restrictions Affecting
Subsidiaries. The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause
or permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidiary to (a) pay dividends or make any other
distributions on or in respect of its Capital Stock; (b) make loans or
advances or to pay any Indebtedness or other obligation owed to the Company or
any other Restricted Subsidiary; or (c) transfer any of its property or assets
to the Company or any other Restricted Subsidiary, except for such
encumbrances or restrictions existing under or by reason of: (1) applicable
law; (2) the Indenture and the Security Documents; (3) customary non-
assignment provisions of any contract or any lease governing a leasehold
interest of any Restricted Subsidiary; (4) any instrument governing Acquired
Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or
the properties or assets of the Person so acquired (including, but not limited
to, such Person's direct and indirect Subsidiaries); (5) agreements existing
on the Issue Date to the extent and in the manner such agreements are in
effect on the Issue Date; (6) Permitted Liens; or (7) an agreement governing
Indebtedness incurred to Refinance the Indebtedness issued, assumed or
incurred pursuant to an agreement referred to in clause (2), (4) or (5) above;
provided, however, that the provisions relating to such encumbrance or
restriction contained in any such Indebtedness are no less favorable to the
Company in any material respect as determined by the Board of Directors of the
Company in its reasonable and good faith judgment than the provisions relating
to such encumbrance or restriction contained in agreements referred to in such
clause (2), (4) or (5).
Limitation on Preferred Stock of Restricted Subsidiaries. The Company will
not permit any of the Restricted Subsidiaries to issue any Preferred Stock
(other than to the Company or to a Wholly Owned Subsidiary) or permit any
Person (other than the Company or a Wholly Owned Subsidiary) to own any
Preferred Stock of any Restricted Subsidiary.
Limitation on Liens. The Company will not, and will not cause or permit any
of the Restricted Subsidiaries to, directly or indirectly, create, incur,
assume or permit or suffer to exist any Liens upon any property or assets
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of the Company or any of the Restricted Subsidiaries whether owned on the
Issue Date or acquired after the Issue Date, or any proceeds therefrom, except
(i) in the case of Property not constituting Collateral, Permitted Liens, and
(ii) in the case of Property constituting Collateral, Liens permitted by the
Security Documents.
Merger, Consolidation and Sale of Assets. The Company will not, in a single
transaction or series of related transactions, consolidate or merge with or
into any Person, or sell, assign, transfer, lease, convey or otherwise dispose
of (or cause or permit any Restricted Subsidiary to sell, assign, transfer,
lease, convey or otherwise dispose of) all or substantially all of the
Company's assets (determined on a consolidated basis for the Company and the
Restricted Subsidiaries) whether as an entirety or substantially as an
entirety to any Person unless: (i) either (1) the Company shall be the
surviving or continuing corporation or (2) the Person (if other than the
Company) formed by such consolidation or into which the Company is merged or
the Person which acquires by sale, assignment, transfer, lease, conveyance or
other disposition the properties and assets of the Company and of the
Restricted Subsidiaries substantially as an entirety (the "Surviving Entity")
(x) shall be a corporation organized and validly existing under the laws of
the United States or any State thereof or the District of Columbia and (y)
shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due
and punctual payment of the principal of, and premium, if any, and interest on
all of the First Mortgage Notes and the performance of every covenant of the
First Mortgage Notes, the Indenture and the Registration Rights Agreement on
the part of the Company to be performed or observed; (ii) immediately after
giving effect to such transaction and the assumption contemplated by clause
(i)(2)(y) above (including giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred in connection with or in
respect of such transaction), the Company or such Surviving Entity, as the
case may be, (1) shall have a Consolidated Tangible Net Worth equal to or
greater than the Consolidated Tangible Net Worth of the Company immediately
prior to such transaction and (2) shall be able to incur at least $1.00 of
additional Indebtedness (other than Permitted Indebtedness) pursuant to the
covenant described under "--Limitation on Incurrence of Additional
Indebtedness"; (iii) immediately before and immediately after giving effect to
such transaction and the assumption contemplated by clause (i)(2)(y) above
(including, without limitation, giving effect to any Indebtedness and Acquired
Indebtedness incurred or anticipated to be incurred and any Lien granted in
connection with or in respect of the transaction), no Default or Event of
Default shall have occurred or be continuing; and (iv) the Company or the
Surviving Entity shall have delivered to the Trustee an officers' certificate
and an opinion of counsel, each stating that such consolidation, merger, sale,
assignment, transfer, lease, conveyance or other disposition and, if a
supplemental indenture is required in connection with such transaction, such
supplemental indenture comply with the applicable provisions of the Indenture
and that all conditions precedent in the Indenture relating to such
transaction have been satisfied.
For purposes of the foregoing, the transfer (by lease, assignment, sale or
otherwise, in a single transaction or series of transactions) of all or
substantially all of the properties or assets of one or more Restricted
Subsidiaries the Capital Stock of which constitutes all or substantially all
of the properties and assets of the Company, shall be deemed to be the
transfer of all or substantially all of the properties and assets of the
Company.
The Indenture will provide that upon any consolidation, combination or
merger or any transfer of all or substantially all of the assets of the
Company in accordance with the foregoing, in which the Company is not the
continuing corporation, the successor Person formed by such consolidation or
into which the Company is merged or to which such conveyance, lease or
transfer is made shall succeed to, and be substituted for, and may exercise
every right and power of, the Company under the Indenture and the First
Mortgage Notes with the same effect as if such surviving entity had been named
as such.
Limitations on Transactions with Affiliates. (a) The Company will not, and
will not permit any of the Restricted Subsidiaries to, directly or indirectly,
enter into or permit to exist any transaction or series of related
transactions (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with, or for the
benefit of, any of its Affiliates (each an "Affiliate Transaction"), other
than
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(x) Affiliate Transactions permitted under paragraph (b) below and (y)
Affiliate Transactions on terms that are no less favorable than those that
might reasonably have been obtained in a comparable transaction at such time
on an arm's-length basis from a Person that is not an Affiliate of the Company
or such Restricted Subsidiary. All Affiliate Transactions (and each series of
related Affiliate Transactions which are similar or part of a common plan)
involving aggregate payments or other property with a fair market value in
excess of $500,000 shall be approved by the Board of Directors of the Company
or such Restricted Subsidiary, as the case may be, such approval to be
evidenced by a Board Resolution stating that such Board of Directors has
determined that such transaction complies with the foregoing provisions. If
the Company or any Restricted Subsidiary enters into an Affiliate Transaction
(or a series of related Affiliate Transactions related to a common plan) that
involves an aggregate fair market value of more than $4 million, the Company
or such Restricted Subsidiary, as the case may be, shall, prior to the
consummation thereof, obtain an opinion stating that such transaction or
series of related transactions are fair to the Company or the relevant
Restricted Subsidiary, as the case may be, from a financial point of view,
from an Independent Financial Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors;
(ii) transactions exclusively between or among the Company and any of the
Restricted Subsidiaries or exclusively between or among such Restricted
Subsidiaries, provided such transactions are not otherwise prohibited by the
Indenture; (iii) Restricted Payments permitted by the Indenture; (iv) advances
and loans to employees and officers in the ordinary course of business; and
(v) payments to HMK and/or its Affiliates required pursuant to the Management
Agreement or the Intercompany Agreements.
Reports to Holders. The Company will deliver to the Trustee within 15 days
after the filing of the same with the Commission, copies of the quarterly and
annual reports and of the information, documents and other reports, if any,
which the Company is required to file with the Commission pursuant to Section
13 or 15(d) of the Exchange Act. The Indenture further provides that,
notwithstanding that the Company may not be subject to the reporting
requirements of Section 13 or 15(d) of the Exchange Act, the Company will file
with the Commission, to the extent permitted, and provide the Trustee and
Holders with such annual reports and such information, documents and other
reports specified in Sections 13 and 15(d) of the Exchange Act. The Company
will also comply with the other provisions of TIA (S)314(a).
Limitation on Designations of Unrestricted Subsidiaries. The Company may
designate any Subsidiary of the Company (other than a Subsidiary of the
Company which owns Capital Stock of a Restricted Subsidiary) as an
"Unrestricted Subsidiary" under the Indenture (a "Designation") only if:
(a) no Default shall have occurred and be continuing at the time of or
after giving effect to such Designation;
(b) the Company would be permitted under the Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(c) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to the covenant
described under "--Limitation on Incurrence of Additional Indebtedness" at
the time of Designation (assuming the effectiveness of such Designation).
In the event of any such Designation, the Company shall be deemed to have
made an Investment constituting a Restricted Payment pursuant to the covenant
described under "--Limitation on Restricted Payments" for all purposes of the
Indenture in the Designation Amount. The Indenture will further provide that
the Company shall not, and shall not permit any Restricted Subsidiary to, at
any time (x) provide direct or indirect credit support for or a guarantee of
any Indebtedness of any Unrestricted Subsidiary (including of any
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undertaking, agreement or instrument evidencing such Indebtedness), (y) be
directly or indirectly liable for any Indebtedness of any Unrestricted
Subsidiary or (z) be directly or indirectly liable for any Indebtedness which
provides that the holder thereof may (upon notice, lapse of time or both)
declare a default thereon or cause the payment thereof to be accelerated or
payable prior to its final scheduled maturity upon the occurrence of a default
with respect to any Indebtedness of any Unrestricted Subsidiary (including any
right to take enforcement action against such Unrestricted Subsidiary),
except, in the case of clause (x) or (y), to the extent permitted under the
covenant described under "--Limitation on Restricted Payments."
The Indenture further provides that the Company may revoke any Designation
of a Subsidiary as an Unrestricted Subsidiary (a "Revocation"), whereupon such
Subsidiary shall then constitute a Restricted Subsidiary, if:
(a) no Default shall have occurred and be continuing at the time of and
after giving effect to such Revocation; and
(b) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of the
Indenture.
All Designations and Revocations must be evidenced by Board Resolutions of
the Company delivered to the Trustee certifying compliance with the foregoing
provisions.
Limitations on Actions Affecting Security for the First Mortgage Notes. The
Company shall not, and shall not permit any Restricted Subsidiary of the
Company to, take or omit to take any action, which action or omission would
have the result of materially adversely affecting the security interests in
the Collateral in favor of the Collateral Agent for the benefit of the Trustee
and the holders of the First Mortgage Notes, nor shall the Company or any such
Subsidiary grant any interest whatsoever in the Collateral except as expressly
permitted by the Indenture and the Security Documents.
Limitation on Sale and Leaseback Transactions. The Company will not, and
will not permit any Restricted Subsidiary of the Company to, enter into any
Sale and Leaseback Transaction with respect to Property (whether now owned or
hereafter acquired) unless (i)(a) the Property that is the subject of the Sale
and Leaseback Transaction does not constitute Collateral or (b) the sale or
transfer of the Property to be leased complies with the requirements of the
"Limitation on Asset Sales" covenant and (ii) the Company or such Restricted
Subsidiary would be entitled under the "Limitation on Incurrence of Additional
Indebtedness" covenant to incur any Capitalized Lease Obligation in respect of
such Sale and Leaseback Transaction.
EVENTS OF DEFAULT
The following events are defined in the Indenture as "Events of Default":
(i) the failure to pay interest on any First Mortgage Notes when the same
becomes due and payable and the default continues for a period of 30 days;
(ii) the failure to pay the principal on any First Mortgage Notes, when
such principal becomes due and payable, at maturity, upon redemption or
otherwise;
(iii) a default in the observance or performance of any other covenant or
agreement contained in the Indenture which default continues for a period
of 30 days after the Company receives written notice specifying the default
(and demanding that such default be remedied) from the Trustee or the
Holders of at least 25% of the outstanding principal amount of the First
Mortgage Notes (except in the case of a default with respect to the
covenants described under "Change of Control" and "--Certain Covenants--
Merger, Consolidation and Sale of Assets," which will constitute an Event
of Default with such notice requirement but without such passage of time
requirement);
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(iv) the failure to pay at final maturity (giving effect to any
applicable grace periods and any extensions thereof) the principal amount
of any Indebtedness of the Company or any Restricted Subsidiary, or the
acceleration of the final stated maturity of any such Indebtedness, if the
aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$5 million or more at any time;
(v) one or more judgments in an aggregate amount in excess of $5 million
in the aggregate shall have been rendered against the Company or any of the
Restricted Subsidiaries and such judgments remain undischarged, unpaid or
unstayed for a period of 60 days after such judgment or judgments become
final and non-appealable; or
(vi) certain events of bankruptcy affecting the Company or any of its
Significant Subsidiaries.
If an Event of Default (other than an Event of Default specified in clause
(vi) above) shall occur and be continuing, the Trustee or the Holders of at
least 25% in principal amount of outstanding First Mortgage Notes may declare
the principal of and accrued interest on all the First Mortgage Notes to be
due and payable by notice in writing to the Company and the Trustee specifying
the respective Event of Default, and the same shall become immediately due and
payable. If an Event of Default specified in clause (vi) above relating to the
Company occurs and is continuing, then all unpaid principal of, and premium,
if any, and accrued and unpaid interest on all of the outstanding First
Mortgage Notes shall ipso facto become and be immediately due and payable
without any declaration or other act on the part of the Trustee or any Holder.
The Indenture provides that, at any time after a declaration of acceleration
with respect to the First Mortgage Notes as described in the preceding
paragraph, the Holders of a majority in principal amount of the First Mortgage
Notes may rescind and cancel such declaration and its consequences (i) if the
rescission would not conflict with any judgment or decree, (ii) if all
existing Events of Default have been cured or waived except nonpayment of
principal or interest that has become due solely because of the acceleration,
(iii) to the extent the payment of such interest is lawful, interest on
overdue installments of interest and overdue principal, which has become due
otherwise than by such declaration of acceleration, has been paid, (iv) if the
Company has paid the Trustee its reasonable compensation and reimbursed the
Trustee for its expenses, disbursements and advances and (v) in the event of
the cure or waiver of an Event of Default of the type described in clause (vi)
of the description above of Events of Default, the Trustee shall have received
an officers' certificate and an opinion of counsel that such Event of Default
has been cured or waived. No such rescission shall affect any subsequent
Default or impair any right consequent thereto.
The Holders of a majority in principal amount of the First Mortgage Notes
may waive any existing Default or Event of Default under the Indenture, and
its consequences, except a default in the payment of the principal of or
interest on any First Mortgage Notes.
Holders of the First Mortgage Notes may not enforce the Indenture or the
First Mortgage Notes except as provided in the Indenture and under the TIA.
Subject to the provisions of the Indenture relating to the duties of the
Trustee, the Trustee is under no obligation to exercise any of its rights or
powers under the Indenture at the request, order or direction of any of the
Holders, unless such Holders have offered to the Trustee reasonable indemnity.
Subject to all provisions of the Indenture and applicable law, the Holders of
a majority in aggregate principal amount of the then outstanding First
Mortgage Notes have the right to direct the time, method and place of
conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on the Trustee.
Under the Indenture, the Company is required to provide an officers'
certificate to the Trustee promptly upon any such officer obtaining knowledge
of any Default or Event of Default (provided that such officers shall provide
such certification at least annually whether or not they know of any Default
or Event of Default) that has occurred and, if applicable, describe such
Default or Event of Default and the status thereof.
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POSSESSION, USE AND RELEASE OF COLLATERAL
Unless an Event of Default shall have occurred and be continuing, the
Company has the right to remain in possession and retain exclusive control of
the Collateral, to operate the Collateral and to collect, invest and dispose
of any income thereon (subject to applicable limitations in the Indenture).
Upon compliance by the Company with the conditions set forth below in
respect of any Asset Sale, the Trustee will release the Released Interests (as
hereinafter defined) from the Lien of the Security Documents and reconvey the
Released Interests to the Company.
The Company has the right to obtain a release of items of Collateral (the
"Released Interests") subject to an Asset Sale upon compliance with the
condition that the Company deliver to the Trustee the following:
(a) A notice from the Company requesting the release of Released
Interests, (i) describing the proposed Released Interests, (ii) specifying
the value of such Released Interests on a date within 60 days of such
Company notice (the "Valuation Date"), (iii) stating that the purchase
price to be received is at least equal to the fair market value of the
Released Interests, (iv) stating that the release of such Released
Interests will not interfere with the Trustee's ability to realize the
value of the remaining Collateral and will not impair the maintenance and
operation of the remaining Collateral, (v) confirming the sale of, or an
agreement to sell, such Released Interests in a bona fide sale to a person
that is not an Affiliate of the Company or, in the event that such sale is
to a person that is an Affiliate, confirming that such sale is made in
compliance with the provisions set forth in the "Limitation on Transactions
with Affiliates" covenant, (vi) certifying that such Asset Sale complies
with the terms and conditions of the Indenture with respect thereto, and
(vii) in the event there is to be a substitution of Property for the
Collateral subject to the Asset Sale, specifying the Property intended to
be substituted for the Collateral to be disposed of,
(b) An officers' certificate of the Company stating that (i) such Asset
Sale covers only the Released Interests and complies with the terms and
conditions of the Indenture with respect to Asset Sale, (ii) all Net Cash
Proceeds from the sale of any of the Released Interests will be applied
pursuant to the provisions of the Indenture in respect of Asset Sale, (iii)
there is no Default or Event of Default in effect or continuing on the date
thereof, the Valuation Date or the date of such Asset Sale, (iv) the
release of the Collateral will not result in a Default or Event of Default
under the Indenture, and (v) all conditions precedent in the Indenture
relating to the release in question have been complied with, and
(c) All documentation required by the Trust Indenture Act, if any, prior
to the release of Collateral by the Trustee and, in the event there is to
be a substitution of Property for the Collateral subject to the Asset Sale,
all documentation necessary to effect the substitution of such new
Collateral.
Notwithstanding the provisions above, so long as no Event of Default shall
have occurred and be continuing, the Company may, without any release or
consent by the Trustee, do any number of ordinary course activities in respect
of the Collateral, in limited dollar amounts specified by the TIA, upon
satisfaction of certain conditions. For example, among other things, subject
to such dollar limitations and conditions, the Company would be permitted to
sell or otherwise dispose of any property subject to the Lien of the Indenture
and the Security Documents, which may have become worn out or obsolete;
abandon, terminate, cancel, release or make alterations in or substitutions of
any leases or contracts subject to the Lien of the Indenture or any of the
Security Documents; surrender or modify any franchise, license or permit
subject to the Lien of the Indenture or any of the Security Documents which it
may own or under which it may be operating; alter, repair, replace, change the
location or position of and add to its structures, machinery, systems,
equipment, fixtures and appurtenances; demolish, dismantle, tear down or scrap
any Collateral or abandon any thereof; and grant leases in respect of real
property under certain circumstances.
LEGAL DEFEASANCE AND COVENANT DEFEASANCE
The Company may, at its option and at any time, elect to have its
obligations discharged with respect to the outstanding First Mortgage Notes
("Legal Defeasance"). Such Legal Defeasance means that the Company shall
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be deemed to have paid and discharged the entire indebtedness represented by
the outstanding First Mortgage Notes, except for (i) the rights of Holders to
receive payments in respect of the principal of, premium, if any, and interest
on the First Mortgage Notes when such payments are due, (ii) the Company's
obligations with respect to the First Mortgage Notes concerning issuing
temporary First Mortgage Notes, registration of First Mortgage Notes,
mutilated, destroyed, lost or stolen First Mortgage Notes and the maintenance
of an office or agency for payments, (iii) the rights, powers, trust, duties
and immunities of the Trustee and the Company's obligations in connection
therewith and (iv) the Legal Defeasance provisions of the Indenture. In
addition, the Company may, at its option and at any time, elect to have the
obligations of the Company released with respect to certain covenants that are
described in the Indenture ("Covenant Defeasance") and thereafter any omission
to comply with such obligations shall not constitute a Default or Event of
Default with respect to the First Mortgage Notes. In the event Covenant
Defeasance occurs, certain events (not including non-payment, bankruptcy,
receivership, reorganization and insolvency events) described under "Events of
Default" will no longer constitute an Event of Default with respect to the
First Mortgage Notes.
In order to exercise either Legal Defeasance or Covenant Defeasance, (i) the
Company must irrevocably deposit with the Trustee, in trust, for the benefit
of the Holders cash in U.S. dollars, non-callable U.S. government obligations,
or a combination thereof, in such amounts as will be sufficient, in the
opinion of a nationally recognized firm of independent public accountants, to
pay the principal of, premium, if any, and interest on the First Mortgage
Notes on the stated date for payment thereof or on the applicable redemption
date, as the case may be; (ii) in the case of Legal Defeasance, the Company
shall have delivered to the Trustee an opinion of counsel in the United States
reasonably acceptable to the Trustee confirming that (A) the Company has
received from, or there has been published by, the Internal Revenue Service a
ruling or (B) since the date of the Indenture, there has been a change in the
applicable federal income tax law, in either case to the effect that, and
based thereon such opinion of counsel shall confirm that, the Holders will not
recognize income, gain or loss for federal income tax purposes as a result of
such Legal Defeasance and will be subject to federal income tax on the same
amounts, in the same manner and at the same times as would have been the case
if such Legal Defeasance had not occurred; (iii) in the case of Covenant
Defeasance, the Company shall have delivered to the Trustee an opinion of
counsel in the United States reasonably acceptable to the Trustee confirming
that the Holders will not recognize income, gain or loss for federal income
tax purposes as a result of such Covenant Defeasance and will be subject to
federal income tax on the same amounts, in the same manner and at the same
times as would have been the case if such Covenant Defeasance had not
occurred; (iv) no Default or Event of Default shall have occurred and be
continuing on the date of such deposit or insofar as Events of Default from
bankruptcy or insolvency events are concerned, at any time in the period
ending on the 91st day after the date of deposit; (v) such Legal Defeasance or
Covenant Defeasance shall not result in a breach or violation of, or
constitute a default under the Indenture or any other material agreement or
instrument to which the Company or any of its Subsidiaries is a party or by
which the Company or any of its Subsidiaries is bound; (vi) the Company shall
have delivered to the Trustee an officers' certificate stating that the
deposit was not made by the Company with the intent of preferring the Holders
over any other creditors of the Company or with the intent of defeating,
hindering, delaying or defrauding any other creditors of the Company or
others; (vii) the Company shall have delivered to the Trustee an officers'
certificate and an opinion of counsel, each stating that all conditions
precedent provided for or relating to the Legal Defeasance or the Covenant
Defeasance have been complied with; (viii) the Company shall have delivered to
the Trustee an opinion of counsel to the effect that after the 91st day
following the deposit, the trust funds will not be subject to the effect of
any applicable bankruptcy, insolvency, reorganization or similar laws
affecting creditors' rights generally; and (ix) certain other customary
conditions precedent are satisfied.
SATISFACTION AND DISCHARGE
The Indenture will be discharged and will cease to be of further effect
(except as to surviving rights or registration of transfer or exchange of the
First Mortgage Notes, as expressly provided for in the Indenture) as to all
outstanding First Mortgage Notes when (i) either (a) all the First Mortgage
Notes theretofore authenticated and delivered (except lost, stolen or
destroyed First Mortgage Notes which have been replaced or paid and First
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Mortgage Notes for whose payment money has theretofore been deposited in trust
or segregated and held in trust by the Company and thereafter repaid to the
Company or discharged from such trust) have been delivered to the Trustee for
cancellation or (b) all First Mortgage Notes not theretofore delivered to the
Trustee for cancellation have become due and payable or will become due and
payable within one year and the Company has irrevocably deposited or caused to
be deposited with the Trustee funds in an amount sufficient to pay and
discharge the entire Indebtedness on the First Mortgage Notes not theretofore
delivered to the Trustee for cancellation, for principal of, premium, if any,
and interest on the First Mortgage Notes to the date of deposit (in the case
of First Mortgage Notes that have become due and payable) or the maturity or
the redemption date (in the case of First Mortgage Notes that will so become
due and payable), together with irrevocable instructions from the Company
directing the Trustee to apply such funds to the payment thereof at maturity
or redemption, as the case may be; (ii) the Company has paid all other sums
payable under the Indenture by the Company; and (iii) the Company has
delivered to the Trustee an officers' certificate and an opinion of counsel
stating that all conditions precedent under the Indenture relating to the
satisfaction and discharge of the Indenture have been complied with.
MODIFICATION OF THE INDENTURE
From time to time, the Company and the Trustee, without the consent of the
Holders, may amend the Indenture for certain specified purposes, including
curing ambiguities, defects or inconsistencies, so long as such change does
not, in the opinion of the Trustee, adversely affect the rights of any of the
Holders in any material respect. Other modifications and amendments of the
Indenture may be made with the consent of the Holders of a majority in
principal amount of the then outstanding First Mortgage Notes issued under the
Indenture, except that, without the consent of each Holder affected thereby,
no amendment may: (i) reduce the amount of First Mortgage Notes whose Holders
must consent to an amendment; (ii) reduce the rate of or change or have the
effect of changing the time for payment of interest, including defaulted
interest, on any First Mortgage Notes; (iii) reduce the principal of or change
or have the effect of changing the fixed maturity of any First Mortgage Notes,
or change the date on which any First Mortgage Notes may be subject to
redemption or repurchase, or reduce the redemption or repurchase price
therefor; (iv) make any First Mortgage Notes payable in money other than that
stated in the First Mortgage Notes; (v) make any change in provisions of the
Indenture protecting the right of each Holder to receive payment of principal
of and interest on such Note on or after the due date thereof or to bring suit
to enforce such payment, or permitting Holders of a majority in principal
amount of First Mortgage Notes to waive Defaults or Events of Default; (vi)
amend, change or modify in any material respect the obligation of the Company
to make and consummate a Change of Control Offer in the event of a Change of
Control or make and consummate a Net Proceeds Offer with respect to any Asset
Sale that has been consummated or modify any of the provisions or definitions
with respect thereto; or (vii) modify or change any provision of the Indenture
or the related definitions affecting the ranking of the First Mortgage Notes
in a manner which adversely affects the Holders.
GOVERNING LAW
The Indenture provides that it and the First Mortgage Notes will be governed
by, and construed in accordance with, the laws of the State of New York but
without giving effect to applicable principles of conflicts of law to the
extent that the application of the law of another jurisdiction would be
required thereby.
THE TRUSTEE
The Indenture provides that, except during the continuance of an Event of
Default, the Trustee will perform only such duties as are specifically set
forth in the Indenture. During the existence of an Event of Default, the
Trustee will exercise such rights and powers vested in it by the Indenture,
and use the same degree of care and skill in its exercise as a prudent man
would exercise or use under the circumstances in the conduct of his own
affairs.
The Indenture and the provisions of the TIA contain certain limitations on
the rights of the Trustee, should it become a creditor of the Company or of a
Subsidiary of the Company, to obtain payments of claims in certain
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cases or to realize on certain property received in respect of any such claim
as security or otherwise. Subject to the TIA, the Trustee will be permitted to
engage in other transactions; provided that if the Trustee acquires any
conflicting interest as described in the TIA, it must eliminate such conflict
or resign.
CERTAIN DEFINITIONS
Set forth below is a summary of certain of the defined terms used in the
Indenture. Reference is made to the Indenture for the full definition of all
such terms, as well as any other terms used herein for which no definition is
provided.
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary
or at the time it merges or consolidates with the Company or any of the
Restricted Subsidiaries or assumed in connection with the acquisition of
assets from such Person and in each case not incurred by such Person in
connection with, or in anticipation or contemplation of, such Person becoming
a Restricted Subsidiary or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other Person
who directly or indirectly through one or more intermediaries controls, or is
controlled by, or is under common control with, such specified Person. The
term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Affiliate Transaction" has the meaning set forth under "--Certain
Covenants--Limitation on Transactions with Affiliates."
"Asset Acquisition" means (a) an Investment by the Company or any Restricted
Subsidiary in any other Person pursuant to which such Person shall become a
Restricted Subsidiary or shall be merged with or into the Company or any
Restricted Subsidiary, or (b) the acquisition by the Company or any Restricted
Subsidiary of the assets of any Person (other than a Restricted Subsidiary)
which constitute all or substantially all of the assets of such Person or
comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary
course of business), assignment or other transfer for value by the Company or
any of the Restricted Subsidiaries (including any Sale and Leaseback
Transaction) to any Person other than the Company or a Restricted Subsidiary
of (a) any Capital Stock of any Restricted Subsidiary; or (b) any other
property or assets of the Company or any Restricted Subsidiary other than in
the ordinary course of business; provided, however, that Asset Sales shall not
include (i) the sale, lease, conveyance, disposition or other transfer of all
or substantially all of the assets of the Company as permitted under "--
Certain Covenants--Merger, Consolidation and Sale of Assets," (ii) disposals
or replacements of obsolete equipment in the ordinary course of business,
(iii) the sale, lease, conveyance, disposition or other transfer by the
Company or any Restricted Subsidiary of assets or property to the Company or
one or more Restricted Subsidiaries; provided, that, if such sale, conveyance,
transfer, lease, assignment or other transfer is to a Restricted Subsidiary
and the fair market value of Property subject to such transfer is $1 million
or greater, such Restricted Subsidiary shall, in order for such transaction
not to be an Asset Sale, enter into a supplemental indenture wherein such
Restricted Subsidiary unconditionally guarantees all of the obligations of the
Company under the Indenture and the First Mortgage Notes and (iv) any
Restricted Payment.
"Board of Directors" means, as to any Person, the board of directors of such
Person or any duly authorized committee thereof.
"Board Resolution" means, with respect to any Person, a copy of a resolution
certified by the Secretary or an Assistant Secretary of such Person to have
been duly adopted by the Board of Directors of such Person and to be in full
force and effect on the date of such certification, and delivered to the
Trustee.
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"Capital Stock" means (i) with respect to any Person that is a corporation,
any and all shares, interests, participations or other equivalents (however
designated and whether or not voting) of corporate stock, including each class
of Common Stock and Preferred Stock of such Person and (ii) with respect to
any Person that is not a corporation, any and all partnership or other equity
interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the obligations of
such Person under a lease that are required to be classified and accounted for
as capital lease obligations under GAAP and, for purposes of this definition,
the amount of such obligations at any date shall be the capitalized amount of
such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by, or
unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States,
in each case maturing within one year from the date of acquisition thereof;
(ii) marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of
acquisition, having a rating of at least A-1 from S&P or at least P-1 from
Moody's; (iv) certificates of deposit or bankers' acceptances maturing within
one year from the date of acquisition thereof issued by any bank organized
under the laws of the United States of America or any state thereof or the
District of Columbia or any U.S. branch of a foreign bank having at the date
of acquisition thereof combined capital and surplus of not less than
$250,000,000; (v) repurchase obligations with a term of not more than seven
days for underlying securities of the types described in clause (i) above
entered into with any bank meeting the qualifications specified in clause (iv)
above; and (vi) investments in money market funds which invest substantially
all their assets in securities of the types described in clauses (i) through
(v) above.
"Change of Control" means the occurrence of one or more of the following
events: (i) any sale, lease, exchange or other transfer (in one transaction or
a series of related transactions) of all or substantially all of the assets of
the Company to any Person (other than a Restricted Subsidiary or any HMK
Affiliate) or group of related Persons (other than any Restricted Subsidiaries
or any HMK Affiliate) for purposes of Section 13(d) of the Exchange Act (a
"Group"), together with any Affiliates thereof (whether or not otherwise in
compliance with the provisions of the Indenture); (ii) the approval by the
holders of Capital Stock of the Company of any plan or proposal for the
liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of the Indenture); (iii) any Person or Group,
other than any HMK Affiliate or Affiliates, shall become the owner, directly
or indirectly, beneficially or of record, of shares representing (x) more than
50% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company or (y) if the Company shall then have
a class of Capital Stock registered under Section 12(b) or 12(g) of the
Exchange Act, more than 40% of the aggregate ordinary voting power represented
by the issued and outstanding Capital Stock of the Company; or (iv) the
replacement of a majority of the Board of Directors of the Company over a two-
year period from the directors who constituted the Board of Directors of the
Company at the beginning of such period, and such replacement shall not have
been approved by a vote of at least a majority of the Board of Directors of
the Company then still in office who either were members of any such Board of
Directors at the beginning of such period or whose election as a member of any
such Board of Directors was previously so approved.
"Change of Control Offer" has the meaning set forth under "--Change of
Control."
"Change of Control Payment Date" has the meaning set forth under "--Change
of Control."
"Collateral" means, collectively, all of the property and assets that are
from time to time subject to the Security Documents.
"Commodity Agreement" of any Person means any option or futures contract or
similar agreement or arrangement designed to protect such Person or any of its
Subsidiaries against fluctuations in commodity prices.
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"Common Stock" of any Person means any and all shares, interests or other
participations in, and other equivalents (however designated and whether
voting or non-voting) of such Persons common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation,
all series and classes of such common stock.
"Company" means Sheffield Steel Corporation, a Delaware corporation.
"Consolidated EBITDA" means, for any period, the sum (without duplication)
of (i) Consolidated Net Income and (ii) to the extent Consolidated Net Income
has been reduced thereby, (A) all income taxes of the Company and the
Restricted Subsidiaries paid or accrued in accordance with GAAP for such
period (other than income taxes attributable to extraordinary, unusual or
nonrecurring gains or losses or taxes attributable to sales or dispositions
outside the ordinary course of business), (B) Consolidated Interest Expense
and (C) Consolidated Non-cash Charges less any non-cash items increasing
Consolidated Net Income for such period, all as determined on a consolidated
basis for the Company and the Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of Consolidated
EBITDA during the four full fiscal quarters (the "Four Quarter Period") ending
on or prior to the date of the transaction giving rise to the need to
calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
Date") to Consolidated Fixed Charges for the Four Quarter Period. In addition
to and without limitation of the foregoing, for purposes of this definition,
"Consolidated EBITDA" and "Consolidated Fixed Charges" shall be calculated
after giving effect on a pro forma basis (including any pro forma expense and
cost reductions calculated on a basis consistent with Regulation S-X under the
Securities Act) for the period of such calculation to (i) the incurrence or
repayment of any Indebtedness of the Company or any of the Restricted
Subsidiaries (and the application of the proceeds thereof) giving rise to the
need to make such calculation and any incurrence or repayment of other
Indebtedness (and the application of the proceeds thereof), other than the
incurrence or repayment of Indebtedness in the ordinary course of business for
working capital purposes pursuant to working capital facilities, occurring
during the Four Quarter Period or at any time subsequent to the last day of
the Four Quarter Period and on or prior to the Transaction Date, as if such
incurrence or repayment, as the case may be (and the application of the
proceeds thereof), occurred on the first day of the Four Quarter Period and
(ii) any Asset Sales or Asset Acquisitions (including, without limitation, any
Asset Acquisition giving rise to the need to make such calculation as a result
of the Company or one of the Restricted Subsidiaries (including any Person who
becomes a Restricted Subsidiary as a result of the Asset Acquisition)
incurring, assuming or otherwise being liable for Acquired Indebtedness and
also including any Consolidated EBITDA attributable to the assets which are
the subject of the Asset Acquisition or Asset Sale during the Four Quarter
Period) occurring during the Four Quarter Period or at any time subsequent to
the last day of the Four Quarter Period and on or prior to the Transaction
Date, as if such Asset Sale or Asset Acquisition (including the incurrence,
assumption or liability for any such Acquired Indebtedness) occurred on the
first day of the Four Quarter Period. If the Company or any of the Restricted
Subsidiaries directly or indirectly guarantees Indebtedness of a third Person,
the preceding sentence shall give effect to the incurrence of such guaranteed
Indebtedness as if the Company or any such Restricted Subsidiary had directly
incurred or otherwise assumed such guaranteed Indebtedness. Furthermore, in
calculating "Consolidated Fixed Charges" for purposes of determining the
denominator (but not the numerator) of this "Consolidated Fixed Charge
Coverage Ratio," (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so
determined thereafter shall be deemed to have accrued at a fixed rate per
annum equal to the rate of interest on such Indebtedness in effect on the
Transaction Date; (2) if interest on any Indebtedness actually incurred on the
Transaction Date may optionally be determined at an interest rate based upon a
factor of a prime or similar rate, a eurocurrency interbank offered rate, or
other rates, then the interest rate in effect on the Transaction Date will be
deemed to have been in effect during the Four Quarter Period; and (3)
notwithstanding clause (1) above, interest on Indebtedness determined on a
fluctuating basis, to the extent such interest is covered by agreements
relating to Interest Swap Obligations, shall be deemed to accrue at the rate
per annum resulting after giving effect to the operation of such agreements.
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"Consolidated Fixed Charges" means, with respect to the Company for any
period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of the Company (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for any
period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the interest component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses,
(c) the net income (or loss) of any Person acquired in a "pooling of
interests" transaction accrued prior to the date it becomes a Restricted
Subsidiary or is merged or consolidated with the Company or any Restricted
Subsidiary, (d) the net income (but not loss) of any Restricted Subsidiary to
the extent that the declaration of dividends or similar distributions by that
Restricted Subsidiary of that income is restricted by a contract, operation of
law or otherwise, (e) the net income of any Person, other than a Restricted
Subsidiary, except to the extent of cash dividends or distributions paid to
the Company or to a Restricted Subsidiary by such Person, (f) income or loss
attributable to discontinued operations (including, without limitation,
operations disposed of during such period whether or not such operations were
classified as discontinued), (g) in the case of a successor to the Company by
consolidation or merger or as a transferee of the Company's assets, any net
income of the successor corporation prior to such consolidation, merger or
transfer of assets, (h) any non-cash charges incurred by the Company at any
time in connection with, and including at the time of, the adoption of
Statement of Financial Accounting Standards 106; and (i) any expenses related
to the refinancing of the 2001 Notes with the net proceeds from the issuance
and sale of the First Mortgage Notes including, without limitation, the
premium on redemption of the 2001 Notes, and the amortization of debt discount
and other debt issuance costs relating to the issuance of the First Mortgage
Notes.
"Consolidated Non-cash Charges" means, with respect to the Company, for any
period, the aggregate depreciation, amortization and other non-cash expenses
of the Company and the Restricted Subsidiaries reducing Consolidated Net
Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Consolidated Tangible Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person; less the book value of all
Intangible Assets reflected on the consolidated balance sheet of the Company
and its Restricted Subsidiaries as of such date.
"Covenant Defeasance" has the meaning set forth under "--Defeasance."
"Currency Agreement" means any foreign exchange contract, currency swap
agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
"Default" means an event or condition the occurrence of which is, or with
the lapse of time or the giving of notice or both would be, an Event of
Default.
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"Designation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Designation Amount" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Disqualified Capital Stock" means that portion of any Capital Stock which,
by its terms (or by the terms of any security into which it is convertible or
for which it is exchangeable), or upon the happening of any event, matures or
is mandatorily redeemable, pursuant to a sinking fund obligation or otherwise,
or is redeemable at the sole option of the holder thereof on or prior to the
final maturity date of the First Mortgage Notes.
"Exchange Act" means the Securities Exchange Act of 1934, as amended, or any
successor statute or statutes thereto.
"fair market value" means, with respect to any asset or property, the price
which could be negotiated in an arm's-length, free market transaction, for
cash, between a willing seller and a willing and able buyer, neither of whom
is under undue pressure or compulsion to complete the transaction. Fair market
value shall be determined by the Board of Directors of the Company acting
reasonably and in good faith and shall be evidenced by a Board Resolution of
the Board of Directors of the Company delivered to the Trustee.
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"HMK Affiliates" means Steven E. Karol, Jane M. Karol, Joan L. Karol,
William S. Karol and Thomas D. Karol, or any of them (each a "Karol Family
Member"), any spouse of a Karol Family Member, any lineal descendants of a
Karol Family Member, any trust, estate or family limited partnership or
limited liability company the sole beneficiaries of which are Karol Family
Members, spouses of Karol Family Members or any lineal descendants of Karol
Family Members, or any entity owned or controlled by any of the foregoing.
"incur" has the meaning set forth under "--Certain Covenants--Limitation on
Incurrence of Additional Indebtedness."
"Indebtedness" means with respect to any Person, without duplication, (i)
all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar
instruments, (iii) all Capitalized Lease Obligations of such Person, (iv) all
Obligations of such Person issued or assumed as the deferred purchase price of
property, all conditional sale obligations and all Obligations under any title
retention agreement (but excluding trade accounts payable and other accrued
liabilities arising in the ordinary course of business), (v) all Obligations
for the reimbursement of any obligor on any letter of credit, banker's
acceptance or similar credit transaction, (vi) guarantees and other contingent
obligations in respect of Indebtedness referred to in clauses (i) through (v)
above and clause (viii) below, (vii) all Obligations of any other Person of
the type referred to in clauses (i) through (vi) which are secured by any Lien
on any property or asset of such Person, the amount of such Obligation being
deemed to be the lesser of the fair market value of such property or asset or
the amount of the Obligation so secured, (viii) all Obligations under Currency
Agreements and all Interest Swap Obligations of such Person and (ix) all
Disqualified Capital Stock issued by such Person with the amount of
Indebtedness represented by such Disqualified Capital Stock being equal to the
greater of its voluntary or involuntary liquidation preference and its maximum
fixed repurchase price. For purposes hereof, the "maximum fixed repurchase
price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were
purchased on any date on which Indebtedness shall be required to be determined
pursuant to the Indenture, and if such price is based upon, or measured by,
the fair market value of such Disqualified Capital
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Stock, such fair market value shall be determined reasonably and in good faith
by the Board of Directors of the Company.
"Independent Financial Advisor" means a firm (i) which does not, and whose
directors, officers and employees or Affiliates do not, have a direct or
indirect financial interest in the Company and (ii) which, in the judgment of
the Board of Directors of the Company, is otherwise independent and qualified
to perform the task for which it is to be engaged.
"Initial Purchaser" means BT Alex. Brown Incorporated.
"Intangible Assets" of any Person means all unamortized debt discount and
expense, unamortized deferred charges, good will, patents, trademarks, service
marks, trade names, copyrights, write-ups of assets over their prior carrying
values (other than write-ups which occurred prior to the Issue Date and other
than, in connection with Asset Acquisitions, the write-up of the value of such
asset (within one year of its acquisition) to its fair market value in
accordance with GAAP), and all other items which would be treated as
intangibles on the consolidated balance sheet of the Company and its
Restricted Subsidiaries prepared in accordance with GAAP.
"Intercompany Agreements" means that certain letter agreement dated October
1, 1997 relating to insurance services between Risk Management Solutions, Inc.
and the Company and that certain Income Tax Expense Allocation Policy and Tax
Sharing Agreement effective May 1, 1991 among HMK, the Company and the
subsidiaries of the Company, in each case as in effect on the Issue Date with
such modifications subsequent thereto (other than modifications of fee and
expense reimbursement arrangements) which are not adverse to the interests of
Holders of the First Mortgage Notes.
"Intercreditor Agreement" means that certain intercreditor agreement, of
even date with the Indenture, by and between the Trustee on behalf of the
holders of First Mortgage Notes, on the one hand, and NationsBank, N.A. (and
any successor or successors thereto or assignee or assignees therefrom), on
the other hand.
"Interest Swap Obligations" means the obligations of any Person pursuant to
any arrangement with any other Person, whereby, directly or indirectly, such
Person is entitled to receive from time to time periodic payments calculated
by applying either a floating or a fixed rate of interest on a stated notional
amount in exchange for periodic payments made by such other Person calculated
by applying a fixed or a floating rate of interest on the same notional amount
and shall include, without limitation, interest rate swaps, caps, floors,
collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect loan
or other extension of credit (including, without limitation, a guarantee) or
capital contribution to (by means of any transfer of cash or other property to
others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude extensions of trade credit
by the Company and the Restricted Subsidiaries on commercially reasonable
terms in accordance with normal trade practices of the Company or such
Restricted Subsidiary, as the case may be. If the Company or any Restricted
Subsidiary sells or otherwise disposes of any Common Stock of any direct or
indirect Restricted Subsidiary such that, after giving effect to any such sale
or disposition, it ceases to be a Subsidiary of the Company, the Company shall
be deemed to have made an Investment on the date of any such sale or
disposition equal to the fair market value of the Common Stock of such
Restricted Subsidiary not sold or disposed of.
"Issue Date" means the date of original issuance of the First Mortgage
Notes.
"Legal Defeasance" has the meaning set forth under "--Defeasance."
"Lien" means any lien, mortgage, deed of trust, pledge, security interest,
charge or encumbrance of any kind (including any conditional sale or other
title retention agreement, any lease in the nature thereof and any agreement
to give any security interest).
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"Management Agreement" means that certain letter agreement dated the Issue
Date relating to management consulting services by and between HMK and the
Company, as in effect on the Issue Date with such modifications subsequent
thereto (other than modifications of fee and expense reimbursement
arrangements) which are not adverse to the interests of Holders of the First
Mortgage Notes.
"Net Cash Proceeds" means, with respect to any Asset Sale, the proceeds in
the form of cash or Cash Equivalents including payments in respect of deferred
payment obligations when received in the form of cash or Cash Equivalents
(other than the portion of any such deferred payment constituting interest)
received by the Company or any of the Restricted Subsidiaries from such Asset
Sale net of (a) reasonable out-of-pocket expenses and fees relating to such
Asset Sale (including, without limitation, legal, accounting and investment
banking fees and sales commissions), (b) taxes paid or payable after taking
into account any reduction in consolidated tax liability due to available tax
credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale,
including, without limitation, pension and other post-employment benefit
liabilities, liabilities related to environmental matters and liabilities
under any indemnification obligations associated with such Asset Sale.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other
liabilities payable under the documentation governing any Indebtedness.
"Permitted Indebtedness" means, without duplication, each of the following:
(i) Indebtedness under the First Mortgage Notes and the Indenture
incurred as of the Issue Date together with any guarantees of the First
Mortgage Notes by Restricted Subsidiaries of the Company required by the
terms of the Indenture;
(ii) Indebtedness incurred pursuant to the Revolving Credit Facility in
an aggregate principal amount at any time outstanding not to exceed the
greater of (a) $40 million or (b) the aggregate of 85% of the Company's
Eligible Accounts Receivable (as defined in the Revolving Credit Facility
or the equivalent term defined in any facility which replaces such
Revolving Credit Facility) and 65% of the Company's Eligible Inventory (as
defined in the Revolving Credit Facility or the equivalent term defined in
any facility which replaces such Revolving Credit Facility) calculated in
accordance with GAAP;
(iii) other Indebtedness (including Capitalized Lease Obligations) of the
Company and the Restricted Subsidiaries outstanding on the Issue Date after
giving effect to the application of the proceeds from the issuance of the
Old First Mortgage Notes in the manner set forth under "Use of Proceeds";
(iv) purchase money indebtedness, Capitalized Lease Obligations and any
other Indebtedness in an aggregate amount for all Indebtedness incurred
pursuant to this subclause (iv) not to exceed $15 million outstanding at
any one time; provided, however, that not more than $5 million in aggregate
principal amount of such Indebtedness outstanding at any one time may be
incurred by Restricted Subsidiaries of the Company;
(v) Interest Swap Obligations of the Company or a Restricted Subsidiary
covering Indebtedness of the Company or any of the Restricted Subsidiaries
and Interest Swap Obligations of any Restricted Subsidiary covering
Indebtedness of such Restricted Subsidiary; provided, however, that such
Interest Swap Obligations are entered into to protect the Company and the
Restricted Subsidiaries from fluctuations in interest rates on Indebtedness
incurred in accordance with the Indenture to the extent the notional
principal amount of such Interest Swap Obligation does not exceed the
principal amount of the Indebtedness to which such Interest Swap Obligation
relates;
(vi) Indebtedness under Currency Agreements and Commodity Agreements;
provided that in the case of Currency Agreements which relate to
Indebtedness, such Currency Agreements do not increase the
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Indebtedness of the Company and the Restricted Subsidiaries outstanding
other than as a result of fluctuations in foreign currency exchange rates
or by reason of fees, indemnities and compensation payable thereunder;
(vii) Indebtedness of a Restricted Subsidiary to the Company or to a
Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other than the Company or a Restricted Subsidiary; provided that
if as of any date any Person other than the Company or a Restricted
Subsidiary owns or holds any such Indebtedness or holds a Lien in respect
of such Indebtedness, such date shall be deemed the incurrence of
Indebtedness not constituting Permitted Indebtedness by the issuer of such
Indebtedness;
(viii) Indebtedness of the Company to a Restricted Subsidiary for so long
as such Indebtedness is held by a Restricted Subsidiary, in each case
subject to no Lien; provided that (a) any Indebtedness of the Company to
any Restricted Subsidiary is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under the Indenture and the
First Mortgage Notes and (b) if as of any date any Person other than a
Restricted Subsidiary owns or holds any such Indebtedness or any Person
holds a Lien in respect of such Indebtedness, such date shall be deemed the
incurrence of Indebtedness not constituting Permitted Indebtedness by the
Company;
(ix) Indebtedness arising under the Railway Credit Facility, or other
Indebtedness the primary obligor of which is the Railway Company
(including, without limitation, the related guarantee by the Company of
Indebtedness thereunder owed by the Railway Company), in an aggregate
principal amount not to exceed $5 million;
(x) Indebtedness of the Company or any of the Restricted Subsidiaries
represented by letters of credit for the account of the Company or such
Restricted Subsidiary, as the case may be, in order to provide security for
workers' compensation claims, payment obligations in connection with self-
insurance or similar requirements in the ordinary course of business;
(xi) Refinancing Indebtedness;
(xii) Indebtedness of the Company under the Subordinated Management
Notes; and
(xiii) additional Indebtedness of the Company in an aggregate principal
amount not to exceed $5 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such Investment a Restricted Subsidiary or that will merge or consolidate into
the Company or a Restricted Subsidiary; (ii) Investments in the Company by any
Restricted Subsidiary; provided that any Indebtedness incurred by the Company
evidencing such Investment by a Restricted Subsidiary is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the First Mortgage Notes and the Indenture; (iii) Investments in cash
and Cash Equivalents; (iv) loans and advances to employees and officers of the
Company and the Restricted Subsidiaries in the ordinary course of business;
(v) Currency Agreements and Interest Swap Obligations entered into in the
ordinary course of the Company's or a Restricted Subsidiary's businesses and
otherwise in compliance with the Indenture; (vi) other Investments, including
Investments in Unrestricted Subsidiaries not to exceed $2.5 million at any one
time outstanding; (vii) Investments in securities of trade creditors or
customers received pursuant to any plan of reorganization or similar
arrangement upon the bankruptcy or insolvency of such trade creditors or
customers; and (viii) Investments made by the Company or the Restricted
Subsidiaries as a result of consideration received in connection with an Asset
Sale made in compliance with the covenant described under "--Certain
Covenants--Limitation on Asset Sales."
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or claims either
(a) not delinquent or (b) contested in good faith by appropriate
proceedings and as to which the Company or the Restricted Subsidiaries
shall have set aside on its books such reserves as may be required pursuant
to GAAP;
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(ii) statutory Liens of landlords and Liens of carriers, warehousemen,
mechanics, suppliers, materialmen, repairmen and other Liens imposed by law
incurred in the ordinary course of business for sums not yet delinquent or
being contested in good faith, if such reserve or other appropriate
provision, if any, as shall be required by GAAP shall have been made in
respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of business
in connection with workers' compensation, unemployment insurance and other
types of social security, including any Lien securing letters of credit
issued in the ordinary course of business consistent with past practice in
connection therewith, or to secure the performance of tenders, statutory
obligations, surety and appeal bonds, bids, leases, government contracts,
performance and return-of-money bonds and other similar obligations
(exclusive of obligations for the payment of borrowed money);
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other similar
charges or encumbrances in respect of real property not interfering in any
material respect with the ordinary conduct of the business of the Company
or any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized Lease
Obligation; provided that such Liens do not extend to any property or
assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) Liens securing any Indebtedness incurred under the Revolving Credit
Facility or described in clause (ix) of the definition of "Permitted
Indebtedness"; provided that such Liens extend solely to the categories of
Property which were the subject of Liens securing the Revolving Credit
Facility and the Railway Credit Facility, as the case may be, as of the
Issue Date other than, in the case of Indebtedness described in clause (ix)
of the definition "Permitted Indebtedness", for additional security
consisting of a mortgage on the real property of the Railway Company owned
or leased on the Issue Date;
(viii) Liens upon specific items of inventory or other goods and proceeds
of any Person securing such Person's obligations in respect of bankers'
acceptances issued or created for the account of such Person to facilitate
the purchase, shipment or storage of such inventory or other goods;
(ix) Liens securing reimbursement obligations with respect to commercial
letters of credit which encumber documents and other property relating to
such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations arising from
statutory, regulatory, contractual, or warranty requirements of the Company
or any of the Restricted Subsidiaries, including rights of offset and set-
off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under the
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
(xiii) Liens securing Acquired Indebtedness incurred in accordance with
the covenant described under "--Certain Covenants--Limitation on Incurrence
of Additional Indebtedness"; provided that (A) such Liens secured such
Acquired Indebtedness at the time of and prior to the incurrence of such
Acquired Indebtedness by the Company or a Restricted Subsidiary and were
not granted in connection with, or in anticipation of, the incurrence of
such Acquired Indebtedness by the Company or a Restricted Subsidiary and
(B) such Liens do not extend to or cover any property or assets of the
Company or of any of the Restricted Subsidiaries other than the property or
assets that secured the Acquired Indebtedness prior to the time such
Indebtedness became Acquired Indebtedness of the Company or a Restricted
Subsidiary and are no more favorable to the lienholders than those securing
the Acquired Indebtedness prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary;
(xiv) Liens on Property of the Company or any of its Subsidiaries
acquired after the Issue Date in favor of governmental bodies to secure
progress or advance payments relating to such Property;
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(xv) Liens on Property of the Company or any of its Subsidiaries acquired
after the Issue Date securing industrial revenue or pollution control bonds
issued in connection with the acquisition or refinancing of such Property;
(xvi) Liens to secure certain Indebtedness that is otherwise permitted
under the Indenture and that is used to finance the cost of Property of the
Company or any of its Subsidiaries acquired after the Issue Date; provided
that (a) any such Lien is created solely for the purpose of securing
Indebtedness representing, or incurred to finance, refinance or refund, the
cost (including sales and excise taxes, installation and delivery charges
and other direct costs of, and other direct expenses paid or charged in
connection with, such purchase or construction) of such Property, (b) the
principal amount of the Indebtedness secured by such Lien does not exceed
100% of such cost, (c) the Indebtedness secured by such Lien is incurred by
the Company or its Subsidiary within 180 days of the acquisition of such
Property by the Company or its Subsidiary, as the case may be, and (d) such
Lien does not extend to or cover any Collateral or other Property other
than such item of Property and any improvements on such item;
(xvii) Liens existing on the Issue Date to the extent and in the manner
existing on the Issue Date;
(xviii) Liens on the property or assets of a Person that becomes a
Restricted Subsidiary after the Issue Date to the extent that such Liens
are existing at the time such Person became a Restricted Subsidiary of the
Company and were not granted as a result of, in connection with or in
anticipation of such Person becoming a Restricted Subsidiary of the
Company; provided that (A) the Indebtedness (if any) secured thereby is
incurred in accordance with the Indenture and (B) such Liens do not extend
to or cover any property or assets of the Company or of any of its
Restricted Subsidiaries other than the property or assets so acquired; and
(xix) Liens in respect of Indebtedness incurred to Refinance any of the
Indebtedness set forth in clauses (vi), (xiii), (xvi), (xvii) and (xviii)
above; provided that such Liens in respect of such Refinancing Indebtedness
(A) are no less favorable to the Holders and are not more favorable to the
lienholders with respect to such Liens than the Liens in respect of the
Indebtedness being Refinanced and (B) do not extend to or cover any
properties or assets of the Company or of any of the Company's
Subsidiaries, other than the property or assets that secured the
Indebtedness being Refinanced.
"Person" means an individual, partnership, corporation, limited liability
company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Preferred Stock" of any Person means any Capital Stock of such Person that
has preferential rights to any other Capital Stock of such Person with respect
to dividends or redemptions or upon liquidation.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Public Equity Offering" has the meaning set forth under "--Redemption--
Optional Redemption Upon Public Equity Offerings."
"Qualified Capital Stock" means any Capital Stock that is not Disqualified
Capital Stock.
"Railway Credit Facility" means the revolving loan agreement and the term
loan agreement, each dated as of July 31, 1997, between the Company and Bank
of Oklahoma, N.A., together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and
restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available
borrowings thereunder (provided that such increase in borrowings is permitted
under clause (ix) of the definition of "Permitted Indebtedness") all or any
portion of the Indebtedness under such agreement or any successor or
replacement agreement and whether by the same or any other lender or group of
lenders.
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<PAGE>
"Reference Date" has the meaning set forth under "--Certain Covenants--
Limitation on Restricted Payments."
"Refinance" means, in respect of any security or Indebtedness, to refinance,
extend, renew, refund, repay, prepay, redeem, defease or retire, or to issue a
security or Indebtedness in exchange or replacement for, such security or
Indebtedness in whole or in part. "Refinanced" and "Refinancing" shall have
correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with the covenant
described under "--Certain Covenants--Limitation on Incurrence of Additional
Indebtedness" (other than pursuant to clause (ii), (iv), (v), (vi), (vii),
(viii), (ix), (x) or (xii) of the definition of Permitted Indebtedness), in
each case that does not (1) result in an increase in the aggregate principal
amount of Indebtedness of such Person as of the date of such proposed
Refinancing (plus the amount of any premium required to be paid under the
terms of the instrument governing such Indebtedness and plus the amount of
reasonable expenses incurred by the Company or any Restricted Subsidiary in
connection with such Refinancing) or (2) create Indebtedness with (A) a
Weighted Average Life to Maturity that is less than the Weighted Average Life
to Maturity of the Indebtedness being Refinanced or (B) a final maturity
earlier than the final maturity of the Indebtedness being Refinanced; provided
that (x) if such Indebtedness being Refinanced is Indebtedness of the Company,
then such Refinancing Indebtedness shall be Indebtedness solely of the Company
and (y) if such Indebtedness being Refinanced is subordinate or junior to the
First Mortgage Notes, then such Refinancing Indebtedness shall be subordinate
to the First Mortgage Notes at least to the same extent and in the same manner
as the Indebtedness being Refinanced.
"Registration Rights Agreement" means the Registration Rights Agreement
dated as of the Issue Date between the Company and the Initial Purchaser.
"Replacement Assets" means assets of a kind used or usable in the business
of the Company and its Restricted Subsidiaries as conducted on the date of the
relevant Asset Sale.
"Restricted Subsidiary" means any Subsidiary of the Company that has not
been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with the covenant described under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries." Any such Designation
may be revoked by a Board Resolution of the Company delivered to the Trustee,
subject to the provisions of such covenant.
"Revocation" has the meaning set forth under "--Certain Covenants--
Limitation on Designations of Unrestricted Subsidiaries."
"Revolving Credit Facility" means the revolving credit facility under the
Credit Agreement dated as of January 16, 1992, as amended, between the Company
and NationsBank of Georgia N.A., as lender thereunder, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment and restatement thereof), supplemented or
otherwise modified from time to time, including any agreement extending the
maturity of, refinancing, replacing or otherwise restructuring (including
increasing the amount of available borrowings thereunder (provided that such
increase in borrowings is permitted under clause (ii) of the definition of
"Permitted Indebtedness") or adding Subsidiaries of the Company as additional
borrowers or guarantors thereunder) all or any portion of the Indebtedness
under such agreement or any successor or replacement agreement and whether by
the same or any other lender or group of lenders.
"Sale and Leaseback Transaction" means any direct or indirect arrangement
with any Person or to which any such Person is a party, providing for the
leasing to the Company or a Restricted Subsidiary of any property, whether
owned by the Company or any Restricted Subsidiary at the Issue Date or later
acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom
funds have been or are to be advanced by such Person on the security of such
Property.
84
<PAGE>
"Security Documents" means, collectively, the Security Agreements and
Mortgages described under "--Security" above and the Intercreditor Agreement.
"Significant Subsidiary" shall have the meaning set forth in Rule 1.02(v) of
Regulation S-X under the Securities Act.
"Stock Option Plan" means the Company's 1993 Employee, Director and
Consultant Stock Option Plan as adopted by the Company's Board of Directors
and stockholders on September 15, 1993, as in effect on the Issue Date, with
such modifications subsequent thereto which are not adverse to the interests
of Holders of the First Mortgage Notes; provided, however, that any increase
in the number of shares of Common Stock reserved for issuance under the Stock
Option Plan in excess of the number reserved on the Issue Date shall be deemed
adverse to the interests of the Holders.
"Subordinated Management Notes" means notes payable issued by the Company
upon the terms set forth in the Stock Option Plan in respect of options or
Capital Stock issued to such Persons under the Stock Option Plan; provided
that such notes provide by their terms that holders thereof shall not be
entitled to receive any payments thereon upon an Event of Default under the
Indenture, except that if such an Event of Default is one described in clauses
(iii)-(vi) of the term "Event of Default" and the First Mortgage Notes shall
not have been accelerated within 270 days after such Event of Default, holders
of Subordinated Management Notes shall be entitled to resume receiving
payments thereof; provided, further, that any payments made to holders thereof
in violation of the provisions described in the preceding proviso shall be
deemed to be held in trust for the benefit of the Trustee on behalf of the
holder of the First Mortgage Notes and shall be required to be promptly turned
over to the Trustee.
"Subsidiary", with respect to any Person, means (i) any corporation of which
the outstanding Capital Stock having at least a majority of the votes entitled
to be cast in the election of directors under ordinary circumstances shall at
the time be owned, directly or indirectly, by such Person or (ii) any other
Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" has the meaning set forth under "--Certain Covenants--
Merger, Consolidation and Sale of Assets."
"Unrestricted Subsidiary" means any Subsidiary of the Company designated as
such pursuant to and in compliance with the covenant described under "--
Certain Covenants--Limitation on Designations of Unrestricted Subsidiaries."
Any such designation may be revoked by a Board Resolution of the Company
delivered to the Trustee, subject to the provisions of such covenant.
"Weighted Average Life to Maturity" means, when applied to any Indebtedness
at any date, the number of years obtained by dividing (a) the then outstanding
aggregate principal amount of such Indebtedness into (b) the sum of the total
of the products obtained by multiplying (i) the amount of each then remaining
installment, sinking fund, serial maturity or other required payment of
principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Restricted Subsidiary of which all the
outstanding voting securities (other than in the case of a foreign Restricted
Subsidiary, directors' qualifying shares or an immaterial amount of shares
required to be owned by other Persons pursuant to applicable law) are owned by
the Company or another Wholly Owned Subsidiary.
85
<PAGE>
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following summary describes certain United States federal income tax
consequences of an exchange of Old First Mortgage Notes for New First Mortgage
Notes and the ownership of New First Mortgage Notes. Except where noted, it
deals only with Old First Mortgage Notes and New First Mortgage Notes held as
capital assets by initial purchasers of Old First Mortgage Notes that are
United States holders and does not deal with special situations, such as those
of foreign persons, dealers in securities, financial institutions, life
insurance companies or holders whose functional currency is not the U.S.
dollar. Furthermore, the discussion below is based upon the provisions of the
Code and regulations, rulings and judicial decisions thereunder as of the date
hereof, and such authorities may be repealed, revoked or modified so as to
result in federal income tax consequences different from those discussed
below. HOLDERS ARE URGED TO CONSULT THEIR TAX ADVISORS CONCERNING THE FEDERAL
TAX CONSIDERATIONS THAT MAY BE SPECIFIC TO THEM OF THE EXCHANGE OF OLD FIRST
MORTGAGE NOTES FOR NEW FIRST MORTGAGE NOTES AND THE OWNERSHIP OF NEW FIRST
MORTGAGE NOTES, AS WELL AS ANY TAX CONSEQUENCES ARISING UNDER THE LAWS OF ANY
OTHER TAXING JURISDICTION.
EXCHANGE OF FIRST MORTGAGE NOTES
There will be no federal income tax consequences to holders exchanging Old
First Mortgage Notes for New First Mortgage Notes pursuant to the Exchange
Offer, and each such holder will have the same adjusted tax basis and holding
period in the New First Mortgage Notes as it had in the Old First Mortgage
Notes immediately before the exchange.
PAYMENTS OF INTEREST
Holders of New First Mortgage Notes will be required to include payments of
stated interest thereon in taxable ordinary income in accordance with their
respective method of accounting. In addition, because the Old First Mortgage
Notes were not issued with original issue discount ("OID") for federal income
tax purposes, the New First Mortgage Notes will also not bear OID.
Market Discount. A holder of a New First Mortgage Note should be aware that
the resale of the New First Mortgage Notes (as well as the original purchase
of such notes) may be affected by the "market discount" provisions of the
Code. The market discount rules generally provide that if a holder of a debt
instrument purchases a debt instrument at a market discount, any gain
recognized upon the disposition of the debt instrument by such holder will be
taxable as ordinary interest income, rather than as capital gain, to the
extent such gain does not exceed the accrued market discount on such debt
instrument at the time of such disposition. "Market discount" generally means
the excess, if any, of a debt instrument's adjusted issue price over the price
paid by the holder therefor, subject to a de minimis exception. A holder of a
debt instrument who acquires the debt instrument at a market discount also may
be required to defer the deduction of a portion of the amount of interest that
the holder pays or accrues during the taxable year on indebtedness incurred or
maintained to purchase or carry such debt instrument.
A holder of a debt instrument acquired at a market discount may elect to
include market discount in gross income, for federal income tax purposes, as
such market discount accrues, on either a straight-line or a constant yield-
to-maturity basis. This current inclusion election, once made, applies to all
market discount obligations acquired on or after the first day of the first
taxable year in which the election applies, and may not be revoked without the
consent of the IRS. If a holder of a debt instrument makes such an election,
the foregoing rules with respect to the recognition of ordinary interest
income on dispositions of such debt instruments, and with respect to the
deferral of interest deductions on indebtedness incurred or maintained to
purchase or carry such debt instruments, will not apply.
Interest Election. A holder of a New First Mortgage Note, subject to certain
limitations, may elect to include all interest that accrues on a New First
Mortgage Note in gross income under the constant yield-to-
86
<PAGE>
maturity method. For this purpose, interest includes stated and unstated
interest, acquisition discount, de minimis OID and OID, de minimis market
discount and market discount, as adjusted by any acquisition premium. Such
election, if made in respect of a market discount obligation, will constitute
an election to include market discount in income currently on all market
discount obligations acquired by such holder on or after the first taxable
year to which the election applies. See "Market Discount" above.
High-Yield Discount Obligations. The New First Mortgage Notes would
constitute high yield discount obligations ("HYDOs") if (i) the yield-to-
maturity of such New First Mortgage Notes is equal to or greater than the sum
of the relevant applicable federal rate (the "AFR") plus five percentage
points and (ii) such New First Mortgage Notes have "significant original issue
discount." The relevant AFR for debt instruments issued in December 1997 is
5.93%. If the New First Mortgage Notes constitute HYDOs, the Company will not
be entitled to deduct any original issue discount that accrues with respect to
the New First Mortgage Notes until such interest is actually paid. In
addition, if the yield of the New First Mortgage Notes is more than six
percentage points above the relevant AFR, then (a) a portion of such interest
corresponding to the yield in excess of six percentage points above the AFR
will not be deductible by the Company at any time and (b) a corporate holder
may be entitled to treat the portion of the interest that is not deductible by
the Company as a dividend, which may then qualify for the dividends received
deduction provided for by the Code. In such event, corporate holders of New
First Mortgage Notes should consult with their tax advisors as to the
applicability of the dividends received deduction. The New First Mortgage
Notes should not be treated as having "significant original issue discount"
and therefore should not constitute HYDOs.
Amortizable Bond Premium. A holder that acquires a New First Mortgage Note
at an "amortizable bond premium" may elect to deduct a portion of such premium
with respect to the New First Mortgage Note in each taxable year in which he
holds the New First Mortgage Note. Amortizable bond premium is generally
defined as the excess of the holder's tax basis in a bond over thestated
redemption price at maturity of the bond. The election to amortize bond
premium applies to all taxable bonds held by the holder at the beginning of
the first taxable year to which the election applies and to all taxable bonds
that the holder acquires thereafter, and is binding for all subsequent taxable
years for all taxable bonds of the holder unless the IRS consents to a
revocation of the election. A holder who elects to amortize bond premium must
reduce his tax basis in the related obligation by the amount of the aggregate
deduction allowable for amortizable bond premium.
Effect of Change of Control. Upon a Change of Control, the Company is
required to offer to redeem all outstanding New First Mortgage Notes for a
price equal to 101% of the principal amount thereof plus accrued interest to
the date of purchase. Under applicable regulations, such Change of Control
redemption requirement will not affect the yield or maturity date of the New
First Mortgage Notes unless, based on all facts and circumstances as of the
issue date of the New First Mortgage Notes, it is more likely than not that a
Change of Control giving rise to the redemption will occur. The Company does
nto believe a change in control is more likely then not to occur, and thus
will not treat the Change of Control redemption provisions of the New First
Mortgage Notes as affecting the calculation of the yield or maturity of any
New First Mortgage Note.
Disposition of New First Mortgage Notes. A holder will generally recognize
gain or loss upon the sale, exchange, retirement or other disposition of a New
First Mortgage Note equal to the difference between the amount realized on the
disposition (except to the extent attributable to accrued interest) and the
holder's adjusted tax basis in such New First Mortgage Note. A holder's
adjusted tax basis in a New First Mortgage Note will generally be the cost of
the Old First Mortgage Note, increased by any OID or market discount
previously included in income by such holder with respect to the Old First
Mortgage Note and New First Mortgage Note. Subject to the market discount
rules discussed above, such gain or loss generally would be capital gain or
loss, and would be long-term if the New First Mortgage Notes were held more
than one year.
BACKUP WITHHOLDING
A holder of a First Mortgage Note may be subject to backup withholding at
the rate of 31% with respect to interest paid on a First Mortgage Note and
gross proceeds upon sale or retirement of a First Mortgage Note unless
87
<PAGE>
such holder (i) is a corporation or other exempt recipient and, when required,
demonstrates that fact or (ii) provides, when required, a correct taxpayer
identification number, certifies that backup withholding is not in effect and
otherwise complies with applicable requirements of the backup withholding
rules. Furthermore, a holder of a First Mortgage Note that does not provide
the Company with the holder's correct taxpayer identification number may be
subject to penalties imposed by the IRS. Backup withholding will be made when
cash payments are made with respect to the First Mortgage Notes. Backup
withholding is not an additional tax; any amounts so withheld are creditable
against the holder's federal income tax liability, if any.
88
<PAGE>
PLAN OF DISTRIBUTION
Based on interpretations by the staff of the Commission set forth in no-
action letters issued to third parties, the Company believes that the New
First Mortgage Notes issued pursuant to the Exchange Offer in exchange for Old
First Mortgage Notes may be offered for resale, resold and otherwise
transferred by any Holder thereof (other than any such Holder which is an
"affiliate" of the Company within the meaning of Rule 405 under the Securities
Act), without compliance with the registration and prospectus delivery
provisions of the Securities Act, provided that such New First Mortgage Notes
are acquired in the ordinary course of such Holder's business and such Holder
has no arrangement with any person to participate in the distribution of such
New First Mortgage Notes. Each Holder will be required to acknowledge in the
Letter of Transmittal that it is not engaged in, and does not intend to engage
in, a distribution of the New First Mortgage Notes. Accordingly, any Holder
using the Exchange Offer to participate in a distribution of the New First
Mortgage notes will not be able to rely on such no-action letters.
Notwithstanding the foregoing, each broker-dealer that receives New First
Mortgage Notes for its own account pursuant to the Exchange Offer will be
required to acknowledge in the Letter of Transmittal that it will deliver a
prospectus in connection with any resale of such New First Mortgage Notes.
This Prospectus, as it may be amended or supplemented from time to time, may
be used by a broker-dealer in connection with any resale of New First Mortgage
Notes received in exchange for Old First Mortgage Notes where such Old First
Mortgage Notes were acquired as a result of market-making activities or other
trading activities. The Company has agreed that for a period of 180 days from
the Expiration Date, it will make this Prospectus, as amended or supplemented,
available to any broker-dealer for use in connection with any such resale.
However, based on the above-mentioned interpretations by the staff of the
Commission, the Company believes that broker-dealers who acquired the Old
First Mortgage Notes directly from the Company and not as a result of market-
making activities or other trading activities cannot rely on such
interpretations by the staff of the Commission and must, in the absence of an
exemption, comply with the registration and prospectus delivery requirements
of the Securities Act in connection with secondary resales of the New First
Mortgage Notes. Such broker-dealers may not use this Prospectus, as it may be
amended or supplemented from time to time, in connection with any such resales
of the New First Mortgage Notes. In addition, until [ ], 1998 (90 days
from the date of this Prospectus), all dealers effecting transactions in the
New First Mortgage Notes may be required to deliver a prospectus.
The Company will not receive any proceeds from any sale of New First
Mortgage Notes by broker-dealers. New First Mortgagee Notes received by
broker-dealers for their own account pursuant to the Exchange Offer may be
sold from time to time in one or more transactions in the over-the-counter
market, in negotiated transactions, through the writing of options on the New
First Mortgage Notes or a combination of such methods of resale, at market
prices prevailing at the time of resale, at prices related to such prevailing
market prices or negotiated prices. Any such resale may be made directly to
purchasers or to or through brokers or dealers who may receive compensation in
the form of commissions or concessions from any such broker-dealer and/or the
purchasers of any such New First Mortgage Notes. Any broker-dealer that
resells New First Mortgage Notes that were received by it for its own account
pursuant to the Exchange Offer and any broker or dealer that participates in a
distribution of such New First Mortgage Notes may be deemed to be an
"underwriter" within the meaning of the Securities Act and any profit on any
such resale of New First Mortgage Notes and any commissions or concessions
received by any such persons may be deemed to be underwriting compensation
under the Securities Act. The Letter of Transmittal states by acknowledging
that it will deliver, and by delivering, a prospectus as required, a broker-
dealer will not be deemed to admit that it is an "underwriter" within the
meaning of the Securities Act.
For a period of 180 days from the Expiration Date the Company will send a
reasonable number of additional copies of this Prospectus and any amendment or
supplement to this Prospectus to any broker-dealer that requests such
documents in the Letter of Transmittal. The Company will pay all the expenses
incident to the Exchange Offer (which shall not include the expenses of any
Holder in connection with resales of the New First Mortgage Notes). The
Company has agreed to indemnify the Initial Purchaser and any broker-dealers
participating in the Exchange Offer against certain liabilities, including
liabilities under the Securities Act.
89
<PAGE>
LEGAL MATTERS
The legality the New First Mortgage Notes will be passed upon for the
Company by Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., One Financial
Center, Boston, Massachusetts 02111.
EXPERTS
The consolidated financial statements of the Company as of April 30, 1997
and 1996 and for each of the years in the three-year period ended April 30,
1997, have been included herein in reliance upon the report of KPMG Peat
Marwick LLP, independent certified public accountants, appearing elsewhere
herein, and upon the authority of said firm as experts in accounting and
auditing.
90
<PAGE>
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Independent Auditors' Report............................................. F-2
Consolidated Balance Sheets.............................................. F-3
Consolidated Statements of Operations.................................... F-4
Consolidated Statements of Stockholders' Equity.......................... F-5
Consolidated Statements of Cash Flows.................................... F-6
Notes to Consolidated Financial Statements............................... F-7-19
</TABLE>
F-1
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Stockholders
Sheffield Steel Corporation:
We have audited the accompanying consolidated balance sheets of Sheffield
Steel Corporation and subsidiaries as of April 30, 1996 and 1997, and the
related consolidated statements of operations, stockholders' equity, and cash
flows for each of the years in the three-year period ended April 30, 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 Sheffield
Steel Corporation and subsidiaries at April 30, 1996 and 1997, and the results
of their operations and their cash flows for each of the years in the three-
year period ended April 30, 1997, in conformity with generally accepted
accounting principles.
KPMG Peat Marwick LLP
Tulsa, Oklahoma
June 27, 1997
F-2
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
APRIL 30, OCTOBER 31,
---------------- -----------
1996 1997 1997
-------- ------- -----------
(UNAUDITED)
ASSETS
------
<S> <C> <C> <C>
Current Assets:
Cash and cash equivalents....................... $ 46 15 741
Accounts receivable, less allowance for doubtful
accounts of $658 at April 30, 1996 and 1997,
and $808 at October 31, 1997, respectively..... 21,607 20,856 19,383
Inventories..................................... 40,321 37,112 34,716
Prepaid expenses and other...................... 914 1,452 479
Deferred income tax asset....................... 2,716 2,689 2,456
-------- ------- -------
Total current assets.......................... 65,604 62,124 57,775
Property, plant and equipment, net................ 68,461 65,885 65,006
Property held for sale............................ 457 439 439
Intangible asset, less accumulated amortization of
$1,667, $2,171 and $2,397 at April 30, 1996 and
1997 and October 31, 1997, respectively.......... 3,818 3,314 4,450
Other assets...................................... 347 290 379
Receivable from parent............................ 2,705 2,705 2,705
Deferred income tax asset......................... 1,790 1,817 2,034
-------- ------- -------
$143,182 136,574 132,788
======== ======= =======
<CAPTION>
LIABILITIES AND STOCKHOLDERS' EQUITY
------------------------------------
<S> <C> <C> <C>
Current liabilities:
Current portion of long-term debt............... $ 717 936 1,717
Accounts payable................................ 20,495 16,475 15,064
Accrued interest payable........................ 4,500 4,500 4,500
Accrued liabilities............................. 6,281 5,601 6,978
Due to affiliated company....................... 47 49 49
-------- ------- -------
Total current liabilities..................... 32,040 27,561 28,308
Long-term debt, excluding current portion, less
unamortized discount of $1,840, $1,696 and $1,563
at April 30, 1996 and 1997 and October 31, 1997,
respectively..................................... 96,324 95,614 89,474
Accrued post-retirement benefit costs............. 7,823 9,095 9,971
Other liabilities................................. 610 2,148 1,336
-------- ------- -------
Total liabilities............................. 136,797 134,418 129,089
-------- ------- -------
Stockholders' equity:
Common stock, $.01 par value, authorized
10,000,000 shares, issued and outstanding
3,375,000 shares............................... 34 34 34
Additional paid-in capital...................... 3,591 2,536 2,536
Retained earnings............................... 4,037 528 2,095
-------- ------- -------
Total stockholders' equity.................... 7,662 3,098 4,665
Less loans to stockholders...................... 1,277 942 966
-------- ------- -------
6,385 2,156 3,699
Commitments and contingencies ....................
-------- ------- -------
$143,182 136,574 132,788
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
F-3
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
(IN THOUSANDS, EXCEPT SHARE DATA)
<TABLE>
<CAPTION>
SIX MONTHS ENDED
YEAR ENDED APRIL 30 OCTOBER 31,
------------------------------- --------------------
1995 1996 1997 1996 1997
--------- --------- --------- --------- ---------
(UNAUDITED)
<S> <C> <C> <C> <C> <C>
Sales................... $ 175,753 172,317 170,865 89,925 94,181
Cost of sales........... 144,385 l43,121 140,234 74,338 75,382
--------- --------- --------- --------- ---------
Gross profit......... 31,368 29,196 30,631 15,587 18,799
Selling, general and
administrative expense. 12,156 11,737 11,923 6,495 6,631
Depreciation and
amortization expense... 5,930 6,567 6,775 3,427 3,460
Postretirement benefit
expense other than
pensions............... 3,153 2,776 2,353 1,477 1,373
Restructuring expense... -- -- 1,320 -- --
--------- --------- --------- --------- ---------
Operating income...... 10,129 8,116 8,260 4,188 7,335
--------- --------- --------- --------- ---------
Other (expense) income:
Interest expense, net. (8,049) (11,733) (11,769) (5,854) (5,768)
Other................. (58) 526 -- -- --
--------- --------- --------- --------- ---------
(8,107) (11,207) (11,769) (5,854) (5,768)
--------- --------- --------- --------- ---------
Income (loss) from
operations before
income tax expense... 2,022 (3,091) (3,509) (1,666) 1,567
Income tax expense...... 197 -- -- -- --
--------- --------- --------- --------- ---------
Net income (loss)..... $ 1,825 (3,091) (3,509) (1,666) 1,567
========= ========= ========= ========= =========
Net income (loss) per
common and common $ .50 (.92) (1.04) (.49) .41
equivalent share....... ========= ========= ========= ========= =========
Dividends per common $ .18 .52 -- -- --
share.................. ========= ========= ========= ========= =========
Common and common equiv-
alent shares 3,649,588 3,375,000 3,375,000 3,375,000 3,840,767
outstanding............ ========= ========= ========= ========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
F-4
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED APRIL 30 ENDED OCTOBER 31
----------------------- ------------------
1995 1996 1997 1996 1997
------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
Common stock........................ $ 34 34 34 34 34
------- ------ ------ -------- -------
Additional paid-in capital:
Balance at beginning of year...... 3,997 3,685 3,591 3,591 2,536
Agreement to repurchase common
stock............................ -- -- (1,055) (1,055) --
Repurchase of common stock (312) (94) -- -- --
warrants......................... ------- ------ ------ -------- -------
Balance at end of year............ 3,685 3,591 2,536 2,536 2,536
------- ------ ------ -------- -------
Retained earnings:
Balance at beginning of year...... 7,652 8,877 4,037 4,037 528
Net income (loss)................. 1,825 (3,091) (3,509) (1,666) 1,567
Dividends......................... (600) (1,749) -- -- --
------- ------ ------ -------- -------
Balance at end of year............ 8,877 4,037 528 2,371 2,095
------- ------ ------ -------- -------
Total stockholders' equity.......... $12,596 7,662 3,098 4,941 4,665
======= ====== ====== ======== =======
</TABLE>
See accompanying notes to consolidated financial statements
F-5
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(IN THOUSANDS)
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED APRIL 30, ENDED OCTOBER 31
----------------------- ------------------
1995 1996 1997 1996 1997
------- ------ ------ -------- --------
<S> <C> <C> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVI-
TIES:
Net income (loss)................ $ 1,825 (3,091) (3,509) (1,666) 1,567
Adjustments to reconcile net in-
come (loss) to net cash pro-
vided by operating activities:
Depreciation and amortization.. 6,317 6,711 6,919 3,499 3,593
Loss (gain) on sale or retire-
ment of assets................ 58 (526) -- -- 81
Accrual of postretirement bene-
fits other than pensions, net
of cash paid.................. 2,523 1,747 1,272 1,002 876
Deferred income taxes.......... 23 -- -- -- --
Changes in assets and liabili-
ties:
Accounts receivable.......... (5,515) 1,564 751 3,226 2,337
Inventories.................. (9,024) (303) 3,209 1,162 2,611
Prepaid expenses and other... (563) (301) (538) (150) 1,042
Other assets................. (115) 177 (54) (189) (96)
Accounts payable............. 4,806 (2,624) (4,020) (3,854) (1,782)
Accrued interest payable..... 100 -- -- -- --
Accrued liabilities.......... 74 (172) (680) (310) 1,078
Due to affiliated company.... 4 -- 2 2 --
Income taxes payable......... 123 (123) -- -- --
Other liabilities............ (121) 8 1,377 477 (812)
------- ------ ------ -------- --------
Total adjustments............ (1,310) 6,158 8,238 4,865 8,928
------- ------ ------ -------- --------
Net cash provided by (used 515 3,067 4,729 3,199 10,495
in) operating activities.... ------- ------ ------ -------- --------
CASH FLOWS FROM INVESTING ACTIVI-
TIES:
Capital expenditures............. (24,220) (4,978) (3,695) (1,762) (1,849)
Acquisition of business, net of
cash required................... -- -- -- -- (2,317)
Proceeds from sale of fixed as-
sets............................ 30 538 18 13 --
------- ------ ------ -------- --------
Net cash used in investing
activities ................. (24,190) (4,440) (3,677) (1,749) (4,166)
------- ------ ------ -------- --------
CASH FLOWS FROM FINANCING ACTIVI-
TIES:
Net increase (decrease) under
revolving lines of credit....... 19,553 2,081 (1,995) (694) (6,940)
Proceeds from issuance of long-
term debt....................... 659 2,195 2,075 -- 2,221
Repayment of long-term debt...... (58) (549) (715) (360) (884)
Payment of debt issuance costs... -- (75) -- -- --
Payments in respect of stock ap-
preciation rights............... (524) (416) (448) (424) --
Dividends paid................... (600) (1,749) -- -- --
Repurchase of common stock war- (312) (94) -- -- --
rants........................... ------- ------ ------ -------- --------
Net cash provided by (used 18,718 1,393 (1,083) (1,478) (5,603)
in) financing activities.... ------- ------ ------ -------- --------
Net (decrease) increase in cash
and cash equivalents............. (4,957) 20 (31) (28) 726
Cash and cash equivalents at be- 4,983 26 46 46 15
ginning of year.................. ------- ------ ------ -------- --------
Cash and cash equivalents at end $ 26 46 15 18 741
of year.......................... ======= ====== ====== ======== ========
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid during the year for:
Interest......................... $ 9,675 11,611 11,625 5,782 5,635
======= ====== ====== ======== ========
Income taxes..................... $ 50 174 -- -- --
======= ====== ====== ======== ========
Noncash items:
Change in unfunded accumulated
benefit obligation included in
other assets and other $ 163 558 53 -- --
liabilities..................... ======= ====== ====== ======== ========
Adjustment of property, plant
and equipment to reflect
reclassification of idle assets $ 157 -- -- -- --
to property held for sale....... ======= ====== ====== ======== ========
Adjustment of property, plant
and equipment and accounts pay-
able representing amounts ac- $ 2,301 -- -- -- --
crued for fixed asset purchases ======= ====== ====== ======== ========
Decrease in paid-in capital for $ -- -- 1,055 1,055 --
stock repurchase agreement...... ======= ====== ====== ======== ========
Increase in other liabilities $ -- -- 662 662 --
for stock repurchase agreement.. ======= ====== ====== ======== ========
Decrease in loans to stockhold-
ers related to stock $ -- -- 393 393 --
repurchase agreement............ ======= ====== ====== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
F-6
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
APRIL 30, 1995, 1996 AND 1997
(IN THOUSANDS, EXCEPT SHARE DATA)
(1)SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
ORGANIZATION AND NATURE OF BUSINESS
The consolidated financial statements of Sheffield Steel Corporation (the
Company) include the accounts of its divisions, Sheffield Steel-Sand Springs
(Sand Springs), Sheffield Steel-Kansas City (Kansas City), and Sheffield
Steel-Joliet (Joliet) and its wholly owned subsidiaries, Sheffield Steel
Corporation-Oklahoma City (Oklahoma City), Waddell's Rebar Fabricators, Inc.
(Waddell) since October 28, 1997, and Sand Springs Railway Company (the
Railway). HMK Enterprises, Inc. (HMK) owns approximately 96% of the currently
issued and outstanding common stock. All material intercompany transactions
and balances have been eliminated in consolidation.
The Company's primary business is the production of concrete reinforcing bar,
fence posts, and a range of hot rolled bar products including rounds, flats
and squares. The Company operates in an economic environment wherein the
commodity nature of both its products for sale and its primary raw materials
cause sales prices and purchase costs to fluctuate, often on a short-term
basis, due to the worldwide supply and demand situation for those commodities.
The supply and demand factors for its products for sale and the supply and
demand factors for its primary raw materials correlate to a degree, but are
not necessarily the same. Therefore, margins between sales price and
production costs can fluctuate significantly on a short-term basis.
The Company sells to customers located throughout the continental United
States. The Company had one customer that accounted for approximately 10% of
sales for the year ended April 30, 1996 and no customers that accounted for
greater than 10% of sales for the years ended April 30, 1997 and 1995. The
Company had one customer that accounted for approximately 12% and 11.5% of
sales for the six months ended October 31, 1996 and 1997, respectively
(unaudited). The Company grants credit to customers under normal industry
standards and terms. Policies and procedures have been established which allow
for proper evaluation of each customer's creditworthiness as well as general
economic conditions. Consequently, an adverse change in those factors could
effect the Company's estimate of its bad debts.
CASH EQUIVALENTS
The Company considers all highly liquid debt instruments with a maturity of
three months or less when purchased to be cash equivalents.
INVENTORIES
Inventories are stated at the lower of cost (as determined by the first-in
first-out method) or market. The cost of work-in-process and finished goods
inventories is based on standards which approximate cost. Work-in-process and
finished goods include direct labor and allocated overhead.
INTANGIBLE ASSETS
Intangible assets consist primarily of goodwill and debt issuance costs. The
cost of goodwill is being amortized on a straight-line basis over a period of
40 years. Debt issuance costs are amortized over the term of the related
indebtedness. It is the Company's policy to recognize an impairment of the
carrying value of goodwill when management's best estimate of undiscounted
future cash flows over the remaining amortization period is less than the
carrying amount.
F-7
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment are recorded at cost. Depreciation is provided
over the estimated useful lives of the individual assets using the straight-
line method. The useful lives of the property and equipment range from three
to forty years. Significant renewals and betterments are capitalized; costs of
maintenance and repairs are charged to expense as incurred. Interest costs for
the construction of certain long-term assets are capitalized and amortized
over the estimated useful lives of the related assets.
INCOME TAXES
Deferred tax assets and liabilities are recognized for the estimated future
tax consequences attributable to differences between the financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. Deferred tax assets and liabilities are measured using enacted tax
rates in effect for the year in which those temporary differences are expected
to be recovered or settled. The effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date.
The Company is a member of a group that files a consolidated income tax return
with HMK (the Group). The Group's tax-sharing agreement provides that current
and deferred income taxes be determined as if each member of the Group were a
separate taxpayer. All income taxes payable or receivable are due to or from
HMK.
POSTRETIREMENT BENEFITS
The Company provides postretirement benefits to certain retirees and their
beneficiaries, generally for the remainder of their lives. The Company
measures the cost of its obligation based on an actuarially determined present
liability, the accumulated postretirement benefit obligation (APBO). The net
periodic costs are recognized as employees render the services necessary to
earn the postretirement benefits.
ENVIRONMENTAL COMPLIANCE COSTS
In October, 1996, the American Institute of Certified Public Accountants
issued Statement of Position (SOP) 96-1, Environmental Remediation
Liabilities. SOP 96-1 was adopted by the Company on May 1, 1997 and requires,
among other things, environmental remediation liabilities to be accrued when
the criteria of Statement of Financial Accounting Standards (SFAS) No. 5,
Accounting for Contingencies, have been met. The SOP also provides guidance
with respect to the measurement of the remediation liabilities. Such
accounting is consistent with the Company's current method of accounting for
environmental remediation costs and, therefore, adoption of this new Statement
will not have a material impact on the Company's financial position, results
of operations, or liquidity.
REVENUE RECOGNITION
Revenues from sales are recognized when products are shipped to customers,
except the Railway which recognizes revenues when services are performed.
INCOME (LOSS) PER COMMON AND COMMON EQUIVALENT SHARE
Income (loss) per share is based on the weighted average number of common
shares and dilutive common stock equivalents outstanding each year.
Outstanding stock purchase warrants (see Note 5[a]) and stock options (see
Note 12) are common stock equivalents but were excluded from per-share
computations in the years ended April 30, 1996 and 1997 and the six months
ended October 31, 1996 since their effect on loss per common share was anti-
dilutive.
F-8
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.
STOCK OPTION PLAN
Prior to May 1, 1996, the Company accounted for its stock option plan in
accordance with the provisions of Accounting Principles Board (APB) Opinion
No. 25, Accounting for Stock Issued to Employees, and related interpretations.
As such, compensation expense would be recorded on the date of grant only if
the current market price of the underlying stock exceeded the exercise price.
On May 1, 1996, the Company adopted SFAS No. 123, Accounting for Stock-Based
Compensation, which permits entities to recognize as expense over the vesting
period the fair value of all stock-based awards on the date of grant.
Alternatively, SFAS No. 123 also allows entities to continue to apply the
provisions of APB Opinion No. 25 and provide pro forma net income and pro
forma earnings per share disclosures for employee stock option grants as if
the fair-value-based method defined in SFAS No. 123 had been applied. The
Company has elected to continue to apply the provisions of APB Opinion No. 25
and provide the pro forma disclosure provisions of SFAS No. 123.
(2)FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company defines the fair value of a financial instrument as the amount at
which the instrument could be exchanged in a current transaction between
willing parties. The carrying value of cash and cash equivalents, trade
accounts receivable and trade accounts payable approximates the fair value
because of the short maturity of those instruments. The carrying amounts of
notes payable to banks and an equipment financing company (see Note 5)
approximates the fair value due to these debt instruments having variable
interest rates similar to those that are currently available to the Company.
The fair value of the 2001 Notes (see Note 5) at April 30, 1997, based on the
currently offered market price, is approximately $71.6 million versus a
carrying value of approximately $73.3 million. The fair value of the 2001
Notes at October 31, 1997, is approximately $78.8 million versus a carrying
value of approximately $73.4 million (unaudited).
(3)INVENTORIES
The components of inventories are as follows:
<TABLE>
<CAPTION>
APRIL 30 (UNAUDITED)
-------------- OCTOBER 31,
1996 1997 1997
------- ------ -----------
<S> <C> <C> <C>
Raw materials and storeroom supplies................. $10,823 10,924 12,792
Work in process...................................... 15,640 10,978 8,178
Finished goods....................................... 13,858 15,210 13,746
------- ------ ------
$40,321 37,112 34,716
======= ====== ======
</TABLE>
F-9
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(4)PROPERTY, PLANT AND EQUIPMENT
The components of property, plant and equipment are as follows:
<TABLE>
<CAPTION>
APRIL 30 (UNAUDITED)
--------------- OCTOBER 31,
1996 1997 1997
------- ------- -----------
<S> <C> <C> <C>
Land and buildings.................................. $16,448 16,483 17,175
Machinery and equipment............................. 88,096 92,607 94,804
Roadbed and improvements............................ 5,129 5,197 5,297
Construction in process............................. 3,899 2,727 2,063
------- ------- -------
113,572 117,014 119,339
Less accumulated depreciation and amortization...... 45,111 51,129 54,333
------- ------- -------
$68,461 65,885 65,006
======= ======= =======
</TABLE>
Depreciation and amortization of property, plant and equipment charged to
operations in 1995, 1996 and 1997 was $5,388, $6,021 and $6,271, respectively.
Depreciation and amortization of property, plant and equipment charged to
operations for the six months ended October 31, 1996 and 1997 was $3,148 and
$3,234, respectively (unaudited). Included in depreciation expense for 1995 is
approximately $500 related to the write-down of mill equipment replaced during
1995. Approximately $2,078 and $25 of interest costs were capitalized as part
of property, plant and equipment in 1995 and 1996, respectively. No interest
costs were capitalized subsequent to April 30, 1996. Interest costs incurred
in 1995, 1996 and 1997 were $10,127, $11,758 and $11,769, respectively.
Interest costs incurred in the six months ended October 31, 1996 and 1997 were
$5,854 and $5,768, respectively (unaudited).
The range of estimated useful lives for determining depreciation and
amortization of the major classes of assets are:
<TABLE>
<S> <C>
Buildings.............................. 5-25 years
Machinery and equipment................ 3-25 years
Roadbed and improvements............... 3-40 years
</TABLE>
(5)LONG-TERM DEBT
Long-term debt is comprised of the following:
<TABLE>
<CAPTION>
APRIL 30, (UNAUDITED)
-------------- OCTOBER 31,
1996 1997 1997
------- ------ -----------
<S> <C> <C> <C>
2001 Notes, net of unamortized discount, effective
rate 12.5% [a]..................................... $73,160 73,304 73,437
Revolving credit agreement [b]...................... 18,660 18,417 11,614
Railway term loan [c]............................... -- 2,000 1,500
Railway revolving credit agreement [c].............. 3,019 1,267 1,130
Equipment notes [d]................................. 2,202 1,562 1,399
Note Payable [e].................................... -- -- 2,111
------- ------ ------
97,041 96,550 91,191
Less current portion................................ 717 936 1,717
------- ------ ------
$96,324 95,614 89,474
======= ====== ======
</TABLE>
F-10
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
[a] On November 4, 1993, the Company issued $75 million of 12% first
mortgage notes due 2001 (2001 Notes) with warrants to purchase 10% of
the Company's common stock. The notes were sold in units consisting of
$1,000 principal amount and five warrants. Each warrant entitles the
holder to purchase one share of the Company's common stock through
November 1, 2001, at an exercise price of $.01 per share, subject to
adjustment. The notes are secured by a first priority lien on
substantially all existing and future real property and equipment and a
second priority lien on inventory and accounts receivable. Interest is
payable semi-annually on May 1 and November 1 of each year. Effective
November 26, 1997, the Company offered $110,000,000 of its First
Mortgage Notes to institutional investors pursuant to Rule 144A of the
Securities Act of 1933, as amended. The proceeds from the offering will
primarily be used to redeem the 2001 Notes, to pay dividends to
stockholders and to pay down outstanding indebtedness under the
Company's revolving credit facilities. The 2001 Notes were called on
November 26, 1997 at a redemption price of 106%. As a result of the
offering, the Company anticipates it will recognize an extraordinary
loss of approximately $8.1 million in the third fiscal quarter related
to extinguishment of debt.
[b] The revolving credit agreement with a bank provides for maximum
borrowings of $40 million based on a percentage of eligible accounts
receivable and inventory. Borrowings are secured by a first priority
lien on inventory, accounts receivable and related intangibles, and a
second priority lien on existing and future real property. Interest is
computed at prime plus a variable margin (based on the achievement of
certain interest coverage ratios) from 0 to 1% and is payable monthly.
At April 30, 1997, the interest rate was 9.5%. An annual commitment fee
of 1/4% is charged on the unused portion of the revolving credit
agreement. The agreement continues through November 1, 2000 and
thereafter on a year-to-year basis until terminated by the Company or
the lender.
[c] As of April 30, 1996, the Railway credit agreement with a bank provided
for a reducing revolving credit commitment with maximum borrowings of
$3 million. During 1997, the Railway credit agreement was restructured
and is now comprised of two notes; a $2 million term loan with $0.5
million principal payments each year with the final payment on July 31,
2000, and a $1.5 million line of credit maturing July 31, 1998.
Obligations under the notes are secured by all of the assets and
capital stock of the Railway. Interest is computed at prime plus a
variable margin (based on the achievement of certain interest coverage
ratios) from 0 to 1% and is payable quarterly. At April 30, 1997, the
interest rate was 9.5%.
[d] Equipment notes are notes payable to equipment financing companies and
vendors related primarily to the financing of equipment purchases. The
notes are payable in monthly principal installments of $63 plus
interest payable at variable rates. The notes mature on various dates
through 2002 and are secured by equipment.
[e] Notes payable consists of $2 million payable in quarterly installments
over four years to the former shareholders of Waddell (See Note 14).
The notes are secured by the capital stock of Waddell and bear interest
at NationsBank prime rate minus one half of one percent. In addition,
the Company assumed a $111 note payable to a bank in conjunction with
the purchase.
F-11
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The aggregate maturities of long-term debt for the years ended April 30,
are as follows:
<TABLE>
<S> <C>
1998............................................................. $ 936
1999............................................................. 2,613
2000............................................................. 689
2001............................................................. 18,933
2002............................................................. 75,075
-------
Total maturities............................................... 98,246
Less unamortized discount.................................... (1,696)
-------
$96,550
=======
</TABLE>
Various agreements contain restrictive covenants including limitations on
additional borrowings, dividends and other distributions and the retirement
of stock. Additionally, certain agreements require maintenance of specified
levels of tangible net worth, working capital, cash flow and performance
ratios. In the event of default of the restrictive covenants or failure to
maintain the specified performance measures, the commitments related to the
credit agreements can be withdrawn by the lender.
(6)INCOME TAXES
The Company had no income tax expense or benefit for the years ended April 30,
1996 and 1997 or the six months ended October 31, 1996 and 1997 (unaudited).
Income tax expense attributable to operations for the year ended April 30,
1995 consists of the following:
<TABLE>
<CAPTION>
CURRENT DEFERRED TOTAL
------- -------- -----
<S> <C> <C> <C>
Year ended April 30, 1995:
Federal.............................................. $(174) (20) (194)
State................................................ -- (3) (3)
----- --- ----
$(174) (23) (197)
===== === ====
</TABLE>
Income taxes attributable to operations differed from the amounts computed by
applying the U.S. federal income tax rate of 34% as a result of the following:
<TABLE>
<CAPTION>
(UNAUDITED)
SIX MONTHS
YEAR ENDED APRIL ENDED OCTOBER
30, 31,
--------------------- --------------
1995 1996 1997 1996 1997
----- ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
Computed "expected" tax (expense) bene-
fit.................................... $(687) 1,050 1,193 566 (533)
State income taxes, net of federal bene-
fit.................................... (81) 124 140 67 (63)
Decrease (increase) in the valuation al-
lowance for deferred tax assets........ 659 (1,231) (1,032) (633) 610
Other, net.............................. (88) 57 (301) -- (14)
----- ------ ------ ------ ------
$(197) -- -- -- --
===== ====== ====== ====== ======
</TABLE>
F-12
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The tax effects of temporary differences that gave rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
APRIL 30, (UNAUDITED)
--------------- OCTOBER 31,
1996 1997 1997
------ ------- -----------
<S> <C> <C> <C>
Deductible temporary differences, excluding
postretirement benefit costs:
Inventories.................................... $1,066 1,338 1,343
Allowance for doubtful accounts................ 250 250 307
Accrued liabilities not deductible until paid.. 1,583 1,677 1,705
Restructuring charge........................... 559 560 560
Net operating loss carryforwards............... 8,805 10,848 10,703
Alternative minimum tax credit carryforwards... 962 962 962
Investment tax credit carryforwards............ 856 856 856
Other.......................................... 103 12 12
------ ------- -------
14,184 16,503 16,448
Less valuation allowance........................ 3,409 4,441 3,831
------ ------- -------
10,775 12,062 12,617
Taxable temporary difference--plant and equip-
ment............................................ (9,242) (11,012) (11,916)
------ ------- -------
Net deferred tax asset, excluding postretirement
benefit costs.................................. 1,533 1,050 701
Postretirement benefit costs..................... 2,973 3,456 3,789
------ ------- -------
Net deferred tax asset.......................... $4,506 4,506 4,490
====== ======= =======
</TABLE>
At April 30, 1997 the Company had available net operating loss (NOL)
carryforwards for regular federal tax purposes of approximately $28,800 which
will expire as follows: $1,400, $400, $3,700, $4,200, $5,600, $7,400 and
$6,100 in the years ended 2000, 2002, 2007, 2008, 2009, 2011 and 2012,
respectively. The Company has investment tax credit carryforwards for tax
purposes of $856 which the Company has fully reserved as it is likely that
those tax credits will not be utilized prior to their expiration. The credits
expire in various periods through 2004. Company also has available $962 of
alternative minimum tax (AMT) credit carryforwards which may be used
indefinitely to reduce future federal regular income tax obligations. A net
deferred tax liability of $16 was recorded in conjunction with the acquisition
of Waddell.
A valuation allowance is required when it is more likely than not that all or
a portion of the deferred tax assets will not be realized. The ultimate
realization of the deferred tax assets is dependent upon future profitability.
Fiscal 1990 capped a three-year period in which the Company generated
approximately $19 million and $11.5 million in book and tax earnings,
respectively. During fiscal 1991 through fiscal 1994, the Company incurred
approximately $12.4 million in taxable losses as a result of steel bar prices,
significant losses from operations at Oklahoma City, and a $5.3 million loss
on the early retirement of debt. A recovery of steel bar prices which began in
fiscal 1994 and continued into 1995 resulted in the Company generating $3.6
million in taxable income. In 1995, the Company started up a new rolling mill
which passed the required performance tests and was accepted during fiscal
1997. Productivity expectations of the mill are linked to the future operating
performance of the Company. Management has introduced new mill products and
made progress toward achieving the full potential of the new mill. However,
there can be no assurance that the mill will reach the forecasted production
goals or that the Company will achieve future profitability. Accordingly, a
valuation allowance has been established to reduce the deferred tax assets to
a level which, more likely than not, will be realized.
Future annual postretirement benefit costs are expected to exceed deductible
amounts for many years and it is anticipated that all of the deferred tax
assets related thereto will be utilized as such amounts become deductible.
Accordingly, management did not establish a valuation allowance for the
deferred tax asset related to future
F-13
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
annual postretirement benefit costs. In order to fully realize the remaining
net deferred tax asset, the Company will need to generate future taxable
income of approximately $7,100 of which approximately $6,900 is required to
fully utilize existing AMT credit carryforwards. Based upon historical taxable
income trends and projections for future taxable income over the periods which
the deferred tax assets are deductible, management believes it is more likely
than not that the Company will realize the benefits of the net deferred
assets, net of the existing valuation allowance.
(7)EMPLOYEE BENEFIT PLANS
Sand Springs and Joliet have defined benefit plans covering substantially all
of their employees. Benefits are generally based on years of service and the
employee's compensation during the last ten years of employment. The Company's
funding policy is to contribute annually at least the minimum amount necessary
to avoid a deficiency in the funding standard. The Company received a waiver
of the minimum funding standard in the amount of $776 for the plan year ended
December 31, 1984, which is being amortized over 15 years. Net periodic
pension expense for these plans included the following:
<TABLE>
<CAPTION>
YEAR ENDED APRIL 30,
----------------------
1995 1996 1997
------ ------ ------
<S> <C> <C> <C>
Service cost............................................ $ 619 653 747
Interest cost........................................... 1,201 1,306 1,462
Net amortization and deferral........................... 845 2,575 420
Actual return on plan assets (1,550) (3,420) (l,483)
------ ------ ------
$1,115 1,114 1,146
====== ====== ======
</TABLE>
The following table sets forth the funded status of the Company's plans, as
determined by an independent actuary:
<TABLE>
<CAPTION>
APRIL 30, 1996 APRIL 30, 1997
----------------------- -----------------------
ACCUMULATED ASSETS ACCUMULATED ASSETS
BENEFITS EXCEED BENEFITS EXCEED
EXCEED ACCUMULATED EXCEED ACCUMULATED
ASSETS BENEFITS ASSETS BENEFITS
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Actuarial present value of $ 2,741 13,691 2,527 15,658
vested benefit obligation..... ======= ====== ===== ======
Accumulated benefit obligation. $ 2,770 14,035 2,556 15,998
======= ====== ===== ======
Projected benefit obligation... $ 2,950 16,858 2,737 18,451
Plan assets at fair value...... 2,578 16,912 2,313 19,340
------- ------ ----- ------
Projected benefit obligation in
excess of plan assets......... 372 (54) 424 (889)
Unrecognized net gain.......... 114 2,732 151 2,371
Unrecognized prior service
cost.......................... (484) 101 (494) 94
Unrecognized net transition
liability..................... (35) (3,306) (11) (2,774)
Adjustment required to 225 -- 173 --
recognize minimum liability... ------- ------ ----- ------
Net pension liability (as- $ 192 (527) 243 (1,198)
set)....................... ======= ====== ===== ======
</TABLE>
Plan assets consist primarily of U.S. government obligations and marketable
equity securities. The unrecognized net transition obligations are being
amortized over periods of 14-15 years.
F-14
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Major assumptions used in the accounting for the pension plans were as
follows:
<TABLE>
<CAPTION>
1996 1997
---- ----
<S> <C> <C>
Discount rate..................................................... 7.25% 7.50%
Rate of increase in compensation levels........................... 0%-5% 0%-4%
Expected long-term rate of return on assets....................... 8.0% 8.0%
</TABLE>
Certain divisions of the Company maintain defined contribution plans in which
various groups of employees participate. Total Company contributions for these
plans amounted to $57, $85, and $81 in 1995, 1996, and 1997, respectively.
Company contributions for these plans for the six months ended October 31,
1996 and 1997 were $49 and $42, respectively (unaudited).
(8)POSTRETIREMENT BENEFITS OTHER THAN PENSIONS
The Company provides postretirement health and life insurance benefits to
certain retirees and their beneficiaries, generally for the remainder of their
lives. The Plan is contributory, with retiree contributions adjusted annually,
and contains other cost-sharing features such as deductibles, coinsurance, and
Medicare. The Company's policy is to fund accumulated postretirement benefits
on a "pay-as-you-go" basis. Net periodic postretirement benefit costs for
1995, 1996 and 1997 include the following components:
<TABLE>
<CAPTION>
YEAR ENDED APRIL
30,
------------------
1995 1996 1997
------ ----- -----
<S> <C> <C> <C>
Service cost............................................... $ 359 326 321
Interest cost.............................................. 1,825 1,690 1,372
Net amortization........................................... 969 760 660
------ ----- -----
$3,153 2,776 2,353
====== ===== =====
</TABLE>
The following table sets forth the APBO and the amount of the net
postretirement benefit liability as determined by an actuary and recognized in
the balance sheet at April 30, 1996 and 1997:
<TABLE>
<CAPTION>
1996 1997
------- -------
<S> <C> <C>
Retirees................................................ $12,727 10,173
Fully eligible active plan participants................. 4,245 4,522
Other active plan participants.......................... 8,035 4,848
------- -------
Accumulated post retirement benefit obligation........ 25,007 19,543
Unrecognized transition obligation...................... (24,391) (22,956)
Unrecognized net gain................................... 7,207 12,508
------- -------
Accrued postretirement benefit cost................... $ 7,823 9,095
======= =======
</TABLE>
The annual discount rate used in determining the APBO was 7.25 and 7.5% at
April 30, 1996 and 1997, respectively. Also, for measurement purposes, HMO
trend rates of 8.5% and 6.3% and medical trend rates of 12.0% and 11.0% were
used for the hourly and salaried medical indemnity plans, respectively. The
medical and HMO trend rates are assumed to decline one-half percent per year
to an ultimate level of 5.5%. The health care cost trend rate assumption has a
significant effect on the amounts reported. For example, increasing the
assumed health care cost trend rates by one percentage point in each year
would increase the APBO as of April 30, 1997, by $2,800 and the aggregate
service and interest cost components of net periodic postretirement benefit
costs by $268.
F-15
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
(9)OPERATING LEASES
The Company is obligated under various noncancelable operating leases for
certain land and buildings. These leases generally contain inflationary rent
escalations and require the Company to pay all executory costs such as
maintenance and insurance. Rental expense for operating leases (except those
with lease terms of a month or less that were not renewed) was $260, $277 and
$313 for the years ended April 30, 1995, 1996 and 1997, respectively. Rental
expense for the six months ended October 31, 1996 and 1997 was $156 and $158,
respectively (unaudited).
Future minimum lease payments under noncancelable operating leases (with
initial lease terms in excess of one year) for the years ending April 30, are
as follows:
<TABLE>
<S> <C>
1998............................................................... $ 328
1999............................................................... 328
2000............................................................... 337
2001............................................................... 353
2002............................................................... 353
Later years........................................................ 570
------
Total............................................................ $2,269
======
</TABLE>
(10)COMMITMENTS AND CONTINGENCIES
The Company is partially self-insured for certain risks consisting primarily
of employee health insurance programs and workers' compensation. Probable
losses and claims are accrued as they become estimable. At April 30, 1997, the
Company maintained letters of credit totaling approximately $2,000 in
accordance with workers' compensation arrangements. At October 31, 1997, the
Company had approximately $3,200 in letters of credit related to workers
compensation and supplier agreements (unaudited).
The Company is involved in claims and legal actions arising in the ordinary
course of business. In the opinion of management, the ultimate disposition of
these matters will not have a material adverse effect on the Company's
financial position, results of operations, or liquidity.
On October 1, 1997, the Company entered into an agreement with an equipment
financing company whereby the Company may request advances totaling $4,000
through July 31, 1998, based on satisfactory documentation of the collateral
to be financed. In accordance with the agreement, the Company must maintain a
letter of credit in an amount equal to 25% of each advance which will be
reduced subject to the Company meeting certain ratio and earnings
requirements. At October 31, 1997, there were no outstanding advances related
to this agreement.
(11)RELATED PARTY TRANSACTIONS
An affiliated company provides management and business services to the
Company, including, but not limited to, financial, marketing, executive
personnel, corporate development, human resources, and limited legal services.
The Company believes that transactions with related parties are at costs that
could be obtained from third parties. Management fees charged during the years
ended April 30, 1995, 1996 and 1997, were approximately $598, $573 and $569,
respectively. Management fees charged during the six months ended October 31,
1996 and 1997, were approximately $299 and $314, respectively (unaudited). In
addition, the Company purchases general liability, workers' compensation and
other insurance through an affiliated company which provides risk management
services, including procuring and maintaining property and casualty insurance
coverage; reviewing and recommending alternative financing methods for
insurance coverage; identifying and
F-16
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
evaluating risk exposures, and preparing and filing proof of loss statements
for insured claims. Total fees paid for insurance services during the years
ended April 30, 1995, 1996 and 1997, were approximately $224, $115 and $115,
respectively. Total fees paid for insurance services during the six months
ended October 31, 1996 and 1997 were approximately $58 (unaudited).
During fiscal year 1993, certain minority shareholders issued $1,000 of notes
receivable to the Company. The notes bear interest at an annual rate of 7.61%
and are secured by common stock of the Company. Principal and interest are due
on February 1, 2007, unless extended at the Company's option until February 1,
2012. The principal balance outstanding as of April 30, 1996 and 1997 was
$1,000 and $700, respectively. The principal balance outstanding as of October
31, 1997 was $700 (unaudited).
On September 30, 1996, the Company signed an agreement to repurchase 50,625
shares of the Company's common stock from two minority shareholders who
formerly were officers of the Company. The stock repurchase is pursuant to the
Amended and Restated Stockholder's Agreement dated September 15, 1993 and the
stock purchase price was calculated in accordance with said agreement. Certain
payments, including those to reacquire the Company's common stock, are
currently not permitted under the terms of the Company's first mortgage notes
and revolving credit agreements. As a result of this transaction, $393 of
notes receivable from the former shareholders was satisfied, the Company
recorded a note payable in the amount of $662 and decreased paid-in capital by
$1,055. The note payable will accrue simple interest at 6.02% and will be
repaid in five annual installments beginning when, and only when, the purchase
of the shares is permitted under the Company's credit agreements.
The Company has a receivable of $2,205 from HMK related to certain tax
attributes allocated to the Company. Under an agreement with HMK, the
receivable will be realized by reducing future income taxes otherwise payable
by the Company to HMK. In addition, the Company advanced $500 to HMK to secure
a letter of credit for the Joliet insurance program.
(12) STOCK OPTIONS
On September 15, 1993, the Board of Directors adopted, and the stockholders of
the Company approved, the Company's 1993 Employee, Director and Consultant
Stock Option Plan (the Stock Option Plan). The Stock Option Plan provides for
the grant of incentive options to key employees of the Company and
nonqualified stock options to key employees, directors, and consultants of the
Company. A total of 580,000 shares of the Company's common stock, which would
represent approximately 13.4% of the Company's common stock on a fully diluted
basis, have been reserved for issuance under the Stock Option Plan. The
options vest in three years and may be exercised within 10 years from the
grant date at a price not less than the fair market value of the stock at the
time the options are granted. Fair market value for purposes of determining
the exercise price is determined by the performance-based formula prescribed
in the Stock Option Plan. At April 30, 1997, there were 124,000 additional
shares available for grant under the Plan. During the six months ended October
31, 1997, there were 5,000 options granted and 5,000 options forfeited
(unaudited).
F-17
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
The Company continues to apply APB Opinion No. 25 in accounting for its Plan
and, accordingly, no compensation cost has been recognized for its stock
options in the financial statements. Had the Company determined compensation
cost based on the fair value at the grant date for its stock options under
SFAS No. 123, the Company's net income would have been reduced to the pro
forma amounts indicated below:
<TABLE>
<CAPTION>
(UNAUDITED)
YEAR ENDED SIX MONTHS ENDED
APRIL 30, 1997 OCTOBER 31, 1997
-------------- ----------------
<S> <C> <C>
Net income
As reported................................... $(3,509) $1,567
======= ======
Pro forma..................................... $(3,578) $1,531
======= ======
Earnings per share:
As reported................................... $ (1.04) $ .41
======= ======
Pro forma..................................... $ (1.06) $ .40
======= ======
</TABLE>
The per share weighted-average fair value of stock options granted during 1997
and the six months ended October 31, 1997 was $4.83 and $4.78, respectively,
on the date of grant using the minimum value method with the following
assumptions: expected dividend yield of approximately 1.0%, risk-free interest
rate of 6.38% and 6.55% for 1997 and the six months ended October 31, 1997,
respectively, and an expected life of five years. Pro forma net income
reflects only options granted in 1997 and in the six month period ended
October 31, 1997. Therefore, the full impact of calculating compensation cost
for stock options under SFAS No. 123 is not reflected in the pro forma net
income amounts presented above because compensation cost is reflected over the
options' vesting period of three years and compensation cost for options
granted prior to May 1, 1994 is not considered.
The options outstanding and activity during the periods indicated is as
follows:
<TABLE>
<CAPTION>
WEIGHTED AVERAGE
OPTIONS EXERCISE PRICE
------- ----------------
<S> <C> <C>
At May 1, 1994........................................ 474,609 $7.41
Granted............................................. --
Exercised........................................... -- --
Canceled............................................ -- --
-------
At April 30, 1995..................................... 474,609 7.41
Granted............................................. -- --
Exercised........................................... -- --
Canceled............................................ (69,609) --
-------
At April 30, 1996..................................... 405,000 7.41
Granted............................................. 51,000 20.52
Exercised........................................... -- --
Canceled............................................ -- --
-------
At April 30, 1997..................................... 456,000 8.87
-------
Granted............................................. 5,000 19.88
Exercised........................................... -- --
Canceled............................................ (5,000) 20.52
-------
At October 31, 1997................................... 456,000 8.87
=======
</TABLE>
F-18
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS, CONTINUED
Exercise prices for options outstanding as of October 31, 1997 ranged from
$7.41 to $20.52 (unaudited). The weighted-average remaining contractual life
of those options is 6.34 years. There were 405,000 shares exercisable as of
April 30, 1996 and 1997 and as of October 31, 1997. There were no shares
exercisable at April 30, 1995.
In connection with the adoption of the Stock Option Plan, the Company elected
to terminate its Stock Appreciation Rights Plan (SAR). Existing liabilities
under the SAR plan were frozen at their current level. All vested rights
become exercisable upon the participants' termination. The present value of
the SAR's, based on vesting and retirement dates, is included in accrued and
other liabilities. At April 30, 1996 and 1997, the amounts of the liability
were $873 and $368, respectively. The amount of the liability at October 31,
1997 was $368 (unaudited).
(13)RESTRUCTURING EXPENSE
During 1997, the Company recognized costs related to workforce reductions.
Approximately 42 hourly employees accepted early retirement incentives
resulting in costs of approximately $1,070 during the fourth quarter. In
addition, 14 salaried employees were involuntarily terminated in the third
quarter resulting in severance costs totaling approximately $250.
(14)ACQUISITION (UNAUDITED)
On October 28, 1997, the Company acquired all of the outstanding capital stock
of Waddell's Rebar Fabricators, Inc. The purchase price of the stock was
$3,040 subject to certain post-closing adjustments and potential performance
related payments. The Company incurred approximately $2,000 in debt related to
this acquisition. The acquisition notes mature quarterly over a four year
period and bear interest at NationsBank prime rate minus of one percent.
The acquisition was accounted for using the purchase method of accounting. The
fair value of tangible assets acquired and liabilities assumed was $3,861 and
$812, respectively. In addition, the Company recorded $1,362 as excess of cost
over net assets acquired (goodwill) which is being amortized over 40 years on
a straight-line basis.
F-19
<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
NO DEALER, SALESPERSON, OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATIONS IN CONNECTION WITH THE OFFER
CONTAINED HEREIN OTHER THAN THOSE CONTAINED IN THIS PROSPECTUS, AND, IF GIVEN
OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON AS HAVING
BEEN AUTHORIZED BY THE COMPANY. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER TO
SELL OR THE SOLICITATION OF ANY OFFER TO BUY ANY SECURITY OTHER THAN THOSE TO
WHICH IT RELATES, NOR DOES IT CONSTITUTE AN OFFER TO SELL, OR THE SOLICITATION
OF AN OFFER TO BUY, TO ANY PERSON IN ANY JURISDICTION IN WHICH SUCH OFFER OR
SOLICITATION IS NOT AUTHORIZED, OR IN WHICH THE PERSON MAKING SUCH OFFER OR
SOLICITATION IS NOT QUALIFIED TO DO SO, OR TO ANY PERSON TO WHOM IT IS UNLAWFUL
TO MAKE SUCH OFFER OR SOLICITATION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR
ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE ANY IMPLICATION
THAT THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE
HEREOF NOR THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF.
----------------
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary........................................................ 1
Risk Factors.............................................................. 10
The Exchange Offer........................................................ 16
Use of Proceeds........................................................... 25
Capitalization............................................................ 26
Selected Historical Financial Data........................................ 27
Management's Discussion and Analysis of Financial Condition and Results of
Operations............................................................... 29
Business.................................................................. 37
Management................................................................ 47
Security Ownership of Certain Beneficial Owners and Management............ 52
Certain Relationships and Related Transactions............................ 54
Description of Capital Stock.............................................. 57
Description of Revolving Credit Facility.................................. 59
Description of First Mortgage Notes....................................... 60
Certain Federal Income Tax Consequences................................... 86
Plan of Distribution...................................................... 89
Legal Matters............................................................. 90
Experts................................................................... 90
Index to Consolidated Financial Statements................................ F-1
</TABLE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
LOGO
11 1/2% SERIES B
FIRST MORTGAGE NOTES DUE 2005
----------------
PROSPECTUS
----------------
, 1998
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 13. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION
The following table sets forth the costs and expenses to be paid in
connection with the New First Mortgage Notes, all of which shall be paid by
the Registrant. All amounts are estimates except for the Registration Fee.
<TABLE>
<S> <C>
Registration Fee................................................. $ 32,450
Accounting Fees and Expenses..................................... 40,000
Legal Fees and Expenses.......................................... 75,000
Printing and Engraving Expenses.................................. 50,000
Miscellaneous.................................................... 27,550
--------
Total.......................................................... $225,000
========
</TABLE>
ITEM 14. INDEMNIFICATION OF DIRECTORS AND OFFICERS
Section 145 of the General Corporation Law of Delaware provides that a
corporation may indemnify directors and officers against liabilities and
expenses they may incur in such capacities provided certain standards are met,
including good faith and the belief that the particular action is in or not
opposed to the best interests of the corporation. Article TENTH of the
Registrant's Certificate of Incorporation provides as follows:
"TENTH: The Corporation shall, to the fullest extent permitted by Section
145 of the General Corporation Law of Delaware, as the same may be amended
and supplemented, indemnify any and all persons whom it shall have power to
indemnify under said section from and against any and all of the expenses,
liabilities or other matters referred to in or covered by said section, and
the indemnification provided for herein shall not be deemed exclusive of
any other rights to which those indemnified may be entitled under any by-
law, agreement, vote of stockholders or disinterested directors or
otherwise, both as to action in his official capacity and as to action in
another capacity while holding such office, and shall continue as to a
person who has ceased to be a director, officer, employee or agent and
shall inure to the benefit of the heirs, executors and administrators of
such person."
The Registrant maintains insurance which insures the officers and directors
of the Registrant against certain losses and which insures the Registrant
against certain of its obligations to indemnify such officers and directors.
ITEM 15. RECENT SALES OF UNREGISTERED SECURITIES
On December 5,1997, the Registrant sold $110,000,000 principal amount of 11
1/2% Series A First Mortgage Notes due 2005 (the "Old First Mortgage Notes")
to BT Alex Brown (the "Initial Purchaser") for an aggregate purchase price of
$107,525,000. The Old First Mortgage Notes were exempt from registration
pursuant to Section 4(2) of the Securities Act. In accordance with the
agreement to which the Initial Purchaser purchased the Old First Mortgage
Notes, the Initial Purchaser agreed to offer and sell the Old First Mortgage
Notes to "qualified institutional buyers" (as defined in Rule 144A under the
Securities Act) and outside the United States in compliance with Regulation S
under the Securities Act.
II-1
<PAGE>
ITEM 16. EXHIBITS AND FINANCIAL STATEMENT SCHEDULES
(a) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
3.1 Certificate of Incorporation of the Registrant, as amended.
(Incorporated by reference to Exhibit 3.1 to Amendment No. 2 to the
Registrant's Registration Statement on Form S-1 filed on October 21,
1993).
3.2 By-Laws of the Registrant. (Incorporated by reference to Exhibit 3.2
to Amendment No. 2 to the Registrant's Registration Statement on Form
S-1 filed on October 21, 1993).
4.1 Indenture for First Mortgage Notes (including form of First Mortgage
Note issued thereunder), dated as of December 1, 1997, between
Sheffield Steel Corporation and State Street Bank and Trust Company,
as Trustee.+
4.2 Form of New First Mortgage Note.+
4.3 Intercreditor Agreement, dated December 1, 1997, among Sheffield Steel
Corporation, NationsBank, N.A. and State Street Bank and Trust
Company, as Trustee.+
4.4 Registration Rights Agreement dated as of December 1, 1997 between
Sheffield Steel Corporation and BT Alex Brown, as Initial Purchaser.+
4.5 Purchase Contract relating to $110,000,000 principal amount of First
Mortgage Notes dated as of November 26, 1997 between Sheffield Steel
Corporation and BT Alex Brown.+
4.6 Receivable and Inventory Financing Agreement, dated as of January 16,
1992, between HMK Industries of Oklahoma, Inc., Sheffield Steel
Corporation, Sheffield Steel Corporation-Joliet, Sheffield Steel
Corporation-Oklahoma City and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.2 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
4.7 Guaranty, dated January 16, 1992, from HMK Industries of Oklahoma,
Inc. to NationsBank of Georgia, N.A. (Incorporated by reference to
Exhibit 4.3 to the Registrant's Registration Statement on Form S-1
filed on August 17, 1993).
4.8 Mortgage and Security Agreement, dated January 16, 1992, between
Sheffield Steel Corporation and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.4 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
4.9 Mortgage and Security Agreement, dated January 16, 1992, between
Sheffield Steel Corporation-Joliet and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.5 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
4.10 Stock Pledge Agreement, dated January 16, 1992, between HMK Industries
of Oklahoma, Inc. and NationsBank of Georgia, N.A. (Incorporated by
reference to Exhibit 4.6 to the Registrant's Registration Statement on
Form S-1 filed on August 17, 1993).
4.11 First Amendment to Receivable and Inventory Financing Agreement, dated
August 13, 1993 between HMK Industries of Oklahoma, Inc., Sheffield
Steel Corporation, Sheffield Steel Corporation-Joliet, Sheffield Steel
Corporation-Oklahoma City and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.24 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 filed on October 6,
1993).
4.12 Warrant Agreement, dated November 1, 1993, between Sheffield Steel
Corporation and Shawmut Bank Connecticut, N.A., as Warrant Agent
(Incorporated by reference to Exhibit 4.8 to the Registrant's
Quarterly Report on Form l0-Q for the quarter ended October 31, 1993).
4.13 Second Amendment to Receivable and Inventory Financing Agreement,
dated November 1, 1993 between Sheffield Steel Corporation-Oklahoma
City, Sheffield Steel Corporation, and NationsBank of Georgia, N.A.
(Incorporated by reference to Exhibit 4.13 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended October 31, 1993).
</TABLE>
II-2
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
4.14 Third Amendment to Receivable and Inventory Financing Agreement, dated
December 13, 1994 between Sheffield Steel Corporation and NationsBank
of Georgia, N.A. (Incorporated by reference to Exhibit 4.14 to the
Registrant's Quarterly Report on Form l0-Q for the quarter ended
October 31, 1993).
4.15 Fourth Amendment to Receivable and Inventory Financing Agreement,
dated October 30, 1995 between Sheffield Steel Corporation and
NationsBank of Georgia, N.A. (Incorporated by reference to Exhibit
4.15 to the Registrant's Quarterly Report on Form 10-Q for the quarter
ended October 31, 1995).
4.16 Fifth Amendment to Receivable and Inventory Financing Agreement, dated
April 19, 1996 between Sheffield Steel Corporation and NationsBank of
Georgia, N.A. (Incorporated by reference to Exhibit 4.16 to the
Registrant's Annual Report on Form 10-K for the fiscal year ended
April 30, 1996).
4.17 Sixth Amendment to Receivable and Inventory Financing Agreement, dated
December 1, 1997 between Sheffield Steel Corporation and NationsBank,
N.A.+
5 Opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., with
respect to the legality of the securities being registered.+
10.1 Income Tax Expense Allocation Policy and Tax Sharing Agreement,
effective May 1, 1991 between HMK Enterprises, Inc. and Sheffield
Steel Corporation, Sheffield Steel Corporation-Joliet, Sheffield Steel
Corporation-Oklahoma City and Sand Springs Railway Company.
(Incorporated by reference to Exhibit 10.2 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.2 Form of Master Loan and Security Agreement between Sheffield Steel
Corporation and the CIT Group/Equipment Financing, Inc. dated July 14,
1994 (Incorporated by reference to Exhibit 10.6 to the Registrant's
Annual Report on Form 10-K for the year ended April 30, 1994).
10.3 Restated Credit Agreement, dated April 23, 1991, between Sand Springs
Railway Company and Bank of Oklahoma. (Incorporated by reference to
Exhibit 4.7 to the Registrant's Registration Statement on Form S-1
filed on August 17, 1993).
10.4 Amendment to Restated Credit Agreement, dated May 31, 1992, between
Sand Springs Railway Company and Bank of Oklahoma. (Incorporated by
reference to Exhibit 4.8 to the Registrant's Registration Statement on
Form S-1 filed on August 17, 1993).
10.5 Amendment to Assignment of Transportation Agreement, dated April 23,
1991 between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.10 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.6 Amendment to Assignment of User Contracts, dated April 23, 1991
between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.11 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.7 Amendment to Pledge and Security Agreement, dated April 23, 1991
between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.12 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.8 Amendment to Security Agreements, dated April 23, 1991 between Sand
Springs Railway Company and Bank of Oklahoma. (Incorporated by
reference to Exhibit 4.13 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.9 Amendment to Real Estate Mortgage and Security Agreement, dated April
23, 1991 between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.14 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.10 Amendment to Real Estate Mortgage and Security Agreement, dated April
23, 1991 between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.15 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
</TABLE>
II-3
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.11 Assignment of Transportation Agreement, dated December 10, 1987
between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.16 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.12 Assignment of User Contracts, dated December 10, 1987 between Sand
Springs Railway Company and Bank of Oklahoma. (Incorporated by
reference to Exhibit 4.17 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.13 Security Agreement, dated December 10, 1987 between Sand Springs
Railway Company and Bank of Oklahoma. (Incorporated by reference to
Exhibit 4.18 to the Registrant's Registration Statement on Form S-1
filed on August 17, 1993).
10.14 Security Agreement, dated December 10, 1987 between Sand Springs
Railway Company and Bank of Oklahoma. (Incorporated by reference to
Exhibit 4.19 to the Registrant's Registration Statement on Form S-1
filed on August 17, 1993).
10.15 Real Estate Mortgage and Security Agreement, dated December 10, 1987
between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.20 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.16 Real Estate Mortgage and Security Agreement, dated December 10, 1987
between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.21 to the Registrant's
Registration Statement on Form S-1 filed on August 17, 1993).
10.17 Pledge and Security Agreement, dated December 10, 1987 between Sand
Springs Railway Company and Bank of Oklahoma. (Incorporated by
reference to Exhibit 4.22 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.18 Guaranty Agreement, dated December 10, 1987 between HMK Industries of
Oklahoma, Inc. and Sand Springs Railway Company. (Incorporated by
reference to Exhibit 4.23 to the Registrant's Registration Statement
on Form S-1 filed on August 17, 1993).
10.19 Second Amendment to Restated Credit Agreement, dated September 24,
1993 between Sand Springs Railway Company and Bank of Oklahoma.
(Incorporated by reference to Exhibit 4.25 to Amendment No. 1 to the
Registrant's Registration Statement on Form S-1 filed on October 6,
1993).
10.20 Subordination Agreement dated November 10, 1995, between Sheffield
Steel Corporation and the CIT Group/Equipment Financing, Inc.
(Incorporated by reference to Exhibit 10.25 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1996.)
10.21 First Amendment to Master Loan and Security Agreement between
Sheffield Steel Corporation and the CIT Group/Equipment Financing,
Inc. dated April 25th, 1995. (Incorporated by reference to Exhibit
10.26 to the Registrant's Annual Report on Form 10-K for the fiscal
year ended April 30, 1996.)
10.22 Second Amendment to Master Loan and Security Agreement between
Sheffield Steel Corporation and the CIT Group/Equipment Financing,
Inc. dated July 2, 1996. (Incorporated by reference to Exhibit 10.27
to the Registrant's Annual Report on Form 10-K for the fiscal year
ended April 30, 1996.)
10.23 Sheffield Steel Corporation 1993 Employee, Director and Consultant
Stock Option Plan. (Incorporated by reference to Exhibit 10.1 to
Amendment No. 1 to the Registrant's Registration Statement on Form S-1
filed October 21, 1993).
10.24 Second Amendment to Real Estate Mortgage and Security Agreement, dated
July 31, 1996 between Sand Springs Railway Company and Bank of
Oklahoma, N.A. (Incorporated by reference to Exhibit 10.29 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July
31, 1996.)
</TABLE>
II-4
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
10.25 Third Amendment to Real Estate Mortgage and Security Agreement, dated
July 31, 1996 between Sand Springs Railway Company and Bank of
Oklahoma, N.A. (Incorporated by reference to Exhibit 10.30 to the
Registrant's Quarterly Report on Form 10-Q for the quarter ended July
31, 1996.)
10.26 Fourth Amendment to Restated Credit Agreement, date July 31, 1996
between Sand Springs Railway Company and Bank of Oklahoma, N.A.
(Incorporated by reference to Exhibit 10.31 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996.)
10.27 Promissory Note, date July 31, 1996, executed by Sand Springs Railway
Company in the amount of $1.5 million in favor of Bank of Oklahoma,
N.A. (Incorporated by reference to Exhibit 10.32 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996.)
10.28 Promissory Note, date July 31, 1996, executed by Sand Springs Railway
Company in the amount of $2 million in favor of Bank of Oklahoma, N.A.
(Incorporated by reference to Exhibit 10.33 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996.)
10.29 Real Time Pricing Program Agreement dated June 1, 1996 between
Sheffield Steel Corporation and Public Service Company of Oklahoma.
(Incorporated by reference to Exhibit 10.34 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1996.)
10.30 Agreement between the United Steelworkers of America and the Sand
Springs Division of Sheffield Steel Corporation dated March 2, 1997.
(Incorporated by reference to Exhibit 10.35 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30. 1997.)
10.31 Fifth Amendment to Restated Credit Agreement, dated July 31, 1997
between Sand Springs Railway Company and Bank of Oklahoma, N.A.
(Incorporated by reference to Exhibit 10.36 to the Registrant's
Quarterly Report on Form 10-Q for the quarter ended July 31, 1997.)
10.32 Management Services Agreement, dated December 5, 1997 between HMK
Enterprises, Inc. and Sheffield Steel Corporation.+
10.33 Insurance Services Agreement, dated December 1, 1997 between Risk
Management Solutions, Inc. and Sheffield Steel Corporation.+
10.34 Security Agreement between Sheffield Steel Corporation and Heller
Financial, Inc. dated October 3, 1997. (Incorporated by reference to
Exhibit 37 to the Registrant's Quarterly Report on Form 10-Q for the
Quarter ended October 31, 1997.)
10.35 Stock Purchase Agreement between Sheffield Steel Corporation,
Waddell's Rebar Fabricators, Inc. and the Stockholders of Waddell's
Rebar Fabricators, Inc. dated October 27, 1997. (Incorporated by
reference to Exhibit 38 to the Registrant's Quarterly Report on Form
10-Q for the Quarter ended October 31, 1997.)
12 Statement re Computation of Ratio of Earnings to Fixed Charges.
(Incorporated by reference to Exhibit 10.35 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended April 30, 1997.)
13 Statement re Computation of EBITDA. (Incorporated by reference to
Exhibit 10.35 to the Registrant's Annual Report on Form 10-K for the
fiscal year ended April 30, 1997.)
21 Subsidiaries of the Registrant. (Incorporated by reference to Exhibit
21 to the Registrant's Registration Statement on Form S-1 filed on
August 17, 1993).
23.1 Consent of KPMG Peat Marwick.+
23.2 Consent of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. (see
Exhibit 5).
24 Power of Attorney (included in this Part II).
25 Form T-1 Statement of Eligibility and Qualification under the Trust
Indenture Act of 1939 of State Street Bank and Trust Company, as
Trustee.+
</TABLE>
II-5
<PAGE>
<TABLE>
<CAPTION>
EXHIBIT
NO. DESCRIPTION
------- -----------
<C> <S>
27 Financial Data Schedule (Incorporated by reference to Exhibit 27 to
the Registrant's Quarterly Report on Form 10-Q for the Quarter ended
October 31, 1997 and Exhibit 27 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended April 30, 1997)
99.1 Form of Letter of Transmittal.+
99.2 Form of Notice of Guaranteed Delivery.+
99.3 Form of Letter to Brokers, Dealers, Commercial Banks, Trust Companies
and other Nominees.+
99.4 Form of Letter to Clients.+
</TABLE>
- --------
+ Filed herewith.
(b) Financial Statements Schedules
Schedule II--Valuation and Qualifying Accounts
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under
the related instructions or are inapplicable, and therefore have been omitted.
ITEM 17. UNDERTAKINGS
The undersigned Registrant hereby undertakes
(1) To file, during any period in which offers or sales are being made, a
post-effective amendment to this registration statement:
(i) To include any prospectus required by section 10(a)(3) of the
Securities Act of 1933;
(ii) To reflect in the prospectus any facts or events arising after
the effective date of the registration statement (or the most recent
post-effective amendment thereof) which, individually or in the
aggregate, represent a fundamental change in the information set forth
in the registration statement;
(iii) To include any material information with respect to the plan of
distribution not previously disclosed in the registration statement or
any material change to such information in the registration statement.
(2) That, for the purpose of determining any liability under the
Securities Act of 1933, each such post-effective amendment shall be deemed
to be a new registration statement relating to the securities offered
therein, and the offering of such securities at that time shall be deemed
to be the initial bona fide offering thereof.
(3) To remove from registration by means of a post-effective amendment
any of the securities being registered which remain unsold at the
termination of the offering.
The undersigned Registrant hereby undertakes that:
(1) For purposes of determining any liability under the Securities Act of
1933, the information omitted from the form of prospectus filed as a part
of this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(l) or
(4) or 497(h) under the Securities Act shall be deemed to be part of this
registration statement as of the time it was declared effective;
(2) For the purpose of determining any liability under the Securities Act
of 1933, each post-effective amendment that contains a form of prospectus
shall be deemed to be a new registration statement relating to the
securities offered therein, and the offering of such securities at that
time shall be deemed to be the initial bona fide offering thereof.
II-6
<PAGE>
Insofar as indemnification for liabilities arising under the Securities Act
of 1933 may be permitted to directors, officers and controlling persons of the
Registrant pursuant to the foregoing provisions, or otherwise, the Registrant
has been advised that in the opinion of the Securities and Exchange Commission
such indemnification is against public policy as expressed in the Act and is,
therefore, unenforceable. In the event that a claim for indemnification
against such liabilities (other than the payment by the Registrant of expenses
incurred or paid by a director, officer or controlling person of the
Registrant in the successful defense of any action, suit or proceeding) is
asserted by such director, officer or controlling person in connection with
the securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to a
court of appropriate jurisdiction the question whether such indemnification by
it is against public policy as expressed in the Securities Act and will be
governed by the final adjudication of such issue.
II-7
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the Registrant
has duly caused this Amendment to the Registration Statement to be signed on
its behalf by the undersigned, thereunto duly authorized in the City of
Boston, Massachusetts on January 8, 1998.
SHEFFIELD STEEL CORPORATION
/s/ Robert W. Ackerman
By: _________________________________
Robert W. Ackerman
President and Chief Executive
Officer
POWER OF ATTORNEY
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears
below constitutes and appoints Steven E. Karol and Dale S. Okonow and each of
them singly his true and lawful attorneys-in-fact and agents, with full power
of substitution and resubstitution in each of them for him and in his name,
place and stead, and in any and all capacities, to sign any and all amendments
(including post-effective amendments) to this Registration Statement, and to
file the same, with all exhibits thereto and other documents in connection
therewith, with the Securities and Exchange Commission, granting unto said
attorneys-in-fact and agents, and each of them, full power and authority to do
and perform each and every act and thing requisite or necessary to be done in
and about the premises, as full to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said attorneys-
in-fact and agents or any of them or their or his substitute or substitutes
may lawfully do or cause to be done by virtue hereof.
Pursuant to the requirements of the Securities Act of 1933, this Amendment
to the Registration statement has been signed by the following persons on the
dates indicated.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<S> <C> <C>
/s/ Robert W. Ackerman President, Chief Executive January 8, 1998
____________________________________ Officer (principal
Robert W. Ackerman executive officer),
and Director
/s/ Dale S. Okonow Vice President and Secretary January 8, 1998
____________________________________ (principal financial
Dale S. Okonow officer),
and Director
/s/ Steven E. Karol Chairman of the Board of January 8, 1998
____________________________________ Directors
Steven E. Karol
/s/ Jane M. Karol Director January 8, 1998
____________________________________
Jane M. Karol
/s/ Howard H. Stevenson Director January 4, 1998
____________________________________
Howard H. Stevenson
/s/ John D. Lefler Director January 8, 1998
____________________________________
John D. Lefler
</TABLE>
II-8
<PAGE>
SCHEDULE II
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
VALUATION AND QUALIFYING ACCOUNTS
YEARS ENDED APRIL 30, 1997, 1996 AND 1995
(IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED
BALANCE TO COSTS BALANCE
APRIL 30, AND DEDUCTIONS-- APRIL 30,
1996 EXPENSES WRITE-OFFS 1997
--------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Accounts receivable--allowance for
doubtful accounts................... $658 -- -- 658
==== === === ===
<CAPTION>
CHARGED
BALANCE TO COSTS BALANCE
APRIL 30, AND DEDUCTIONS-- APRIL 30,
1995 EXPENSES WRITE-OFFS 1996
--------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Accounts receivable--allowance for
doubtful accounts................... $461 197 -- 658
==== === === ===
<CAPTION>
CHARGED
BALANCE TO COSTS BALANCE
APRIL 30, AND DEDUCTIONS-- APRIL 30,
1994 EXPENSES WRITE-OFFS 1995
--------- -------- ------------ ---------
<S> <C> <C> <C> <C>
Accounts receivable--allowance for
doubtful accounts................... $432 36 (7) 461
==== === === ===
</TABLE>
S-1
<PAGE>
ACCOUNTANTS' CONSENT AND REPORT ON SCHEDULE
The Board of Directors
Sheffield Steel Corporation:
The audits referred to in our report dated June 27, 1997, included the
related consolidated financial statement schedules as of April 30, 1996 and
April 30, 1997, and for each of the years in the three year period ended April
30, 1997, included in the registration statement. This financial statement
schedule is the responsibility of the Company's management. Our responsibility
is to express an opinion on this consolidated financial statement schedule
based on our audits. In our opinion, such financial statement schedules, 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.
We consent to the use of our reports included herein and the reference to
our firm under the headings "Experts" and "Selected Historical Financial Data"
in the prospectus.
/s/ KPMG Peat Marwick LLP
Tulsa, Oklahoma
January 9, 1998
S-2
<PAGE>
Exhibit 4.1
- --------------------------------------------------------------------------------
SHEFFIELD STEEL CORPORATION
AND
STATE STREET BANK AND TRUST COMPANY
as Trustee
---------------------------
INDENTURE
Dated as of December 1, 1997
---------------------------
up to $150,000,000
11 1/2% First Mortgage Notes due 2005, Series A
and
11 1/2% First Mortgage Notes due 2005, Series B
- --------------------------------------------------------------------------------
<PAGE>
CROSS-REFERENCE TABLE
<TABLE>
<CAPTION>
TIA Indenture
Section Section
- ------- ---------
<S> <C>
310(a)(1).......................................... 7.10
(a)(2).......................................... 7.10
(a)(3).......................................... N.A.
(a)(4).......................................... N.A.
(a)(5).......................................... 7.08; 7.10
(b)............................................. 7.08; 7.10;
12.02
(c)............................................. N.A.
311(a)............................................. 7.11
(b)............................................. 7.11
(c)............................................. N.A.
312(a)............................................. 2.05
(b)............................................. 12.03
(c)............................................. 12.03
313(a)............................................. 7.06
(b)(1).......................................... N.A.
(b)(2).......................................... 7.06
(c)............................................. 7.06; 12.02
(d)............................................. 7.06
314(a)............................................. 4.09; 4.10;
12.02
(b)............................................. 10.02
(c)(1).......................................... 7.02; 12.04
(c)(2).......................................... 7.02; 12.04
(c)(3).......................................... N.A.
(d)............................................. 10.03
(e)............................................. 12.05
(f)............................................. N.A.
315(a)............................................. 7.01(b)
(b)............................................. 7.05; 12.02
(c)............................................. 7.01(a)
(d)............................................. 6.05; 7.01(c)
(e)............................................. 6.11
316(a)(last sentence).............................. 2.09
(a)(1)(A)....................................... 6.05
</TABLE>
______________________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture
<PAGE>
<TABLE>
<S> <C>
(a)(1)(B)..................................... 6.04
(a)(2)........................................ N.A.
(b)........................................... 6.07
317(a)(1)........................................ 6.08
(a)(2)........................................ 6.09
(b)........................................... 2.04
318(a)........................................... 12.01
(c)........................................... 12.01
</TABLE>
______________________
N.A. means Not Applicable
Note: This Cross-Reference Table shall not, for any purpose, be deemed to be a
part of the Indenture
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.......................................... 1
SECTION 1.02. Incorporation by Reference of TIA.................... 28
SECTION 1.03. Rules of Construction................................ 29
ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating...................................... 30
SECTION 2.02. Execution and Authentication......................... 31
SECTION 2.03. Registrar and Paying Agent........................... 32
SECTION 2.04. Paying Agent To Hold Assets in Trust................. 32
SECTION 2.05. Securityholder Lists................................. 32
SECTION 2.06. Transfer and Exchange................................ 33
SECTION 2.07. Replacement Securities............................... 33
SECTION 2.08. Outstanding Securities............................... 34
SECTION 2.09. Treasury Securities.................................. 34
SECTION 2.10. Temporary Securities................................. 35
SECTION 2.11. Cancellation......................................... 35
SECTION 2.12. Defaulted Interest................................... 35
SECTION 2.13. CUSIP Number......................................... 36
SECTION 2.14. Deposit of Moneys.................................... 36
SECTION 2.15. Book-Entry Provisions for Global Securities.......... 36
SECTION 2.16. Special Transfer Provisions.......................... 38
SECTION 2.17. Designation.......................................... 40
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee................................... 40
SECTION 3.02. Selection of Securities To Be Redeemed............... 40
SECTION 3.03. Notice of Redemption................................. 41
SECTION 3.04. Effect of Notice of Redemption....................... 42
SECTION 3.05. Deposit of Redemption Price.......................... 42
SECTION 3.06 Securities Redeemed in Part.......................... 42
</TABLE>
-i-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities................................ 43
SECTION 4.02. Maintenance of Office or Agency...................... 43
SECTION 4.03. Limitation on Restricted Payments.................... 43
SECTION 4.04. Limitation on Indebtedness........................... 45
SECTION 4.05. Corporate Existence.................................. 46
SECTION 4.06. Payment of Taxes and Other Claims.................... 46
SECTION 4.07. Maintenance of Properties and Insurance.............. 47
SECTION 4.08. Compliance Certificate; Notice of Default............ 47
SECTION 4.09. Compliance with Laws................................. 48
SECTION 4.10. SEC Reports.......................................... 48
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.............. 49
SECTION 4.12. Limitation on Transactions with Affiliates........... 49
SECTION 4.13. Impairment of Security Interest...................... 50
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries................ 50
SECTION 4.15. Limitation on Liens.................................. 51
SECTION 4.16. Change of Control.................................... 51
SECTION 4.17. Limitation on Sale of Assets......................... 53
SECTION 4.18. Limitation on Sale and Leaseback Transactions........ 57
SECTION 4.19. Limitation on Preferred Stock of Subsidiaries........ 58
SECTION 4.20. Limitation on Designations of Unrestricted
Subsidiaries....................................... 58
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets............. 59
SECTION 5.02. Successor Corporation Substituted.................... 61
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.................................... 61
SECTION 6.02. Acceleration......................................... 63
SECTION 6.03. Other Remedies....................................... 64
SECTION 6.04. Waiver of Past Defaults.............................. 64
SECTION 6.05. Control by Majority.................................. 64
</TABLE>
-ii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 6.06. Limitation on Suits.................................. 65
SECTION 6.07. Rights of Holders To Receive Payment................. 66
SECTION 6.08. Collection Suit by Trustee........................... 66
SECTION 6.09. Trustee May File Proofs of Claim..................... 66
SECTION 6.10. Priorities........................................... 67
SECTION 6.11. Undertaking for Costs................................ 67
ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.................................... 68
SECTION 7.02. Rights of Trustee.................................... 69
SECTION 7.03. Individual Rights of Trustee......................... 70
SECTION 7.04. Trustee's Disclaimer................................. 70
SECTION 7.05. Notice of Default.................................... 71
SECTION 7.06. Reports by Trustee to Holders........................ 71
SECTION 7.07. Compensation and Indemnity........................... 72
SECTION 7.08. Replacement of Trustee............................... 73
SECTION 7.09. Successor Trustee by Merger, Etc..................... 74
SECTION 7.10. Eligibility; Disqualification........................ 75
SECTION 7.11. Preferential Collection of Claims Against Company.... 75
SECTION 7.12. Appointment of Co-Trustee............................ 75
ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance............. 76
SECTION 8.02. Satisfaction and Discharge........................... 79
SECTION 8.03. Survival of Certain Obligations...................... 80
SECTION 8.04. Application of Trust Assets.......................... 80
SECTION 8.05. Repayment to the Company; Unclaimed Money............ 81
SECTION 8.06. Reinstatement........................................ 81
ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders........................... 82
SECTION 9.02. With Consent of Holders.............................. 82
SECTION 9.03. Compliance with TIA.................................. 84
SECTION 9.04. Revocation and Effect of Consents.................... 84
</TABLE>
-iii-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 9.05. Notation on or Exchange of Securities................ 85
SECTION 9.06. Trustee To Sign Amendments, Etc...................... 85
ARTICLE TEN
COLLATERAL AND SECURITY
SECTION 10.01. Collateral and Security Documents; Additional
Collateral........................................... 86
SECTION 10.02. Recording and Opinions............................... 87
SECTION 10.03. Release of Collateral................................ 89
SECTION 10.04. Possession and Use of Collateral..................... 90
SECTION 10.05. Specified Releases of Collateral..................... 90
SECTION 10.06. Disposition of Collateral Without Release............ 92
SECTION 10.07. Form and Sufficiency of Release...................... 93
SECTION 10.08. Purchaser Protected.................................. 93
SECTION 10.09. Authorization of Actions To Be Taken by the Trustee,
as Collateral Agent, Under the Security Documents.. 94
SECTION 10.10. Authorization of Receipt of Funds by the Trustee
Under the Security Documents....................... 94
ARTICLE ELEVEN
APPLICATION OF TRUST MONEYS
SECTION 11.01. "Trust Moneys" Defined............................... 95
SECTION 11.02. Withdrawals of Certain Net Cash Proceeds Aggregating
Less Than $5 Million............................... 96
SECTION 11.03. Withdrawal of Net Cash Proceeds Following an Asset... 100
Sale.
SECTION 11.04. Withdrawal of Trust Moneys for Replacement Assets.... 101
SECTION 11.05. Withdrawal of Trust Moneys on Basis of Retirement of
Securities......................................... 103
SECTION 11.06. Investment of Trust Moneys........................... 104
SECTION 11.07. Powers Exercisable by Trustee or Receiver............ 104
SECTION 11.08. Disposition of Securities Retired.................... 105
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls......................................... 105
SECTION 12.02. Notices.............................................. 105
</TABLE>
-iv-
<PAGE>
<TABLE>
<CAPTION>
Page
----
<S> <C>
SECTION 12.03. Communications by Holders with Other Holders......... 107
SECTION 12.04. Certificate and Opinion as to Conditions Precedent... 108
SECTION 12.05. Statements Required in Certificate or Opinion........ 108
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar............ 109
SECTION 12.07. Legal Holidays....................................... 109
SECTION 12.08. Governing Law........................................ 109
SECTION 12.09. No Adverse Interpretation of Other Agreements........ 109
SECTION 12.10. No Recourse Against Others........................... 109
SECTION 12.11. Successors........................................... 110
SECTION 12.12. Duplicate Originals.................................. 110
SECTION 12.13. Severability......................................... 110
SIGNATURES............................................................ 111
Exhibit A-1 - Form of Series A Security
Exhibit A-2 - Form of Series B Security
Exhibit B - Form of Legend for Global Securities
Exhibit C - Transferee Certificate for Non-QIB Accredited Investors
Exhibit D - Transferee Certificate for Transfers Pursuant
to Regulation S
Exhibit E - Form of Mortgage
Exhibit F - Form of Security Agreement
Exhibit G - Form of Intercreditor Agreement
</TABLE>
-v-
<PAGE>
INDENTURE dated as of December 1, 1997, among SHEFFIELD STEEL
CORPORATION, a Delaware corporation (the "Company"), and STATE STREET BANK AND
TRUST COMPANY, a Massachusetts chartered trust company, as Trustee (the
"Trustee").
Each party hereto agrees as follows for the benefit of each other
party and for the equal and ratable benefit of the Holders of the Company's 11
1/2% First Mortgage Notes due 2005:
ARTICLE ONE
DEFINITIONS AND INCORPORATION BY REFERENCE
SECTION 1.01. Definitions.
-----------
"Acquired Indebtedness" means Indebtedness of a Person or any of its
Subsidiaries existing at the time such Person becomes a Restricted Subsidiary or
at the time it merges or consolidates with the Company or any of the Restricted
Subsidiaries or assumed in connection with the acquisition of assets from such
Person and in each case not incurred by such Person in connection with, or in
anticipation or contemplation of, such Person becoming a Restricted Subsidiary
or such acquisition, merger or consolidation.
"Affiliate" means, with respect to any specified Person, any other
Person who directly or indirectly through one or more intermediaries controls,
or is controlled by, or is under common control with, such specified Person.
The term "control" means the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of a Person,
whether through the ownership of voting securities, by contract or otherwise;
and the terms "controlling" and "controlled" have meanings correlative of the
foregoing.
"Affiliate Transaction" shall have the meaning provided in Section
4.12.
"Agent" means any Registrar, Paying Agent or co-Registrar.
"Appraiser" means a Person who, in the ordinary course of its
business, appraises property and, where real property is involved, who is a
member in good
<PAGE>
-2-
standing of the American Institute of Real Estate Appraisers, recognized and
licensed to do business in the jurisdiction where the applicable real property
is held.
"Asset Acquisition" means (a) an Investment by the Company or any
Restricted Subsidiary in any other Person pursuant to which such Person shall
become a Restricted Subsidiary or shall be merged with or into the Company or
any Restricted Subsidiary, or (b) the acquisition by the Company or any
Restricted Subsidiary of the assets of any Person (other than a Restricted
Subsidiary) which constitute all or substantially all of the assets of such
Person or comprises any division or line of business of such Person or any other
properties or assets of such Person other than in the ordinary course of
business.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease (other than operating leases entered into in the ordinary course
of business), assignment or other transfer for value by the Company or any of
the Restricted Subsidiaries (including any Sale and Leaseback Transaction) to
any Person other than the Company or a Restricted Subsidiary of (a) any Capital
Stock of any Restricted Subsidiary; or (b) any other property or assets of the
Company or any Restricted Subsidiary other than in the ordinary course of
business; provided, however, that Asset Sales shall not include (i) the sale,
-------- -------
lease, conveyance, disposition or other transfer of all or substantially all of
the assets of the Company as permitted under Section 5.01, (ii) disposals or
replacements of obsolete equipment in the ordinary course of business, (iii) the
sale, lease, conveyance, disposition or other transfer by the Company or any
Restricted Subsidiary of assets or property to the Company or one or more
Restricted Subsidiaries; provided, that, if such sale, conveyance, transfer,
--------
lease, assignment or other transfer is to a Restricted Subsidiary and the fair
market value of Property subject to such transfer is $1 million or greater, such
Restricted Subsidiary shall, in order for such transaction not to be an Asset
Sale, enter into a supplemental indenture wherein such Restricted Subsidiary
unconditionally guarantees all of the obligations of the Company under this
Indenture and the Securities and (iv) any Restricted Payment.
"Bankruptcy Law" means Title 11, U.S. Code or any similar Federal,
state or foreign law for the relief of debtors.
"Board of Directors" means, as to any Person, the board of directors
of such Person or any duly authorized committee thereof.
<PAGE>
-3-
"Board Resolution" means, with respect to any Person, a copy of a
resolution certified by the Secretary or an Assistant Secretary of such Person
to have been duly adopted by the Board of Directors of such Person and to be in
full force and effect on the date of such certification, and delivered to the
Trustee.
"Business Day" means any day other than a Saturday, Sunday or any day
which banking institutions in the City of New York or in the city of the
Corporate Trust Office of the Trustee are required or authorized by law or other
governmental action to be closed.
"Capital Stock" means (i) with respect to any Person that is a
corporation, any and all shares, interests, participations or other equivalents
(however designated and whether or not voting) of corporate stock, including
each class of Common Stock and Preferred Stock of such Person and (ii) with
respect to any Person that is not a corporation, any and all partnership or
other equity interests of such Person.
"Capitalized Lease Obligation" means, as to any Person, the
obligations of such Person under a lease that are required to be classified and
accounted for as capital lease obligations under GAAP and, for purposes of this
definition, the amount of such obligations at any date shall be the capitalized
amount of such obligations at such date, determined in accordance with GAAP.
"Cash Equivalents" means (i) marketable direct obligations issued by,
or unconditionally guaranteed by, the United States Government or issued by any
agency thereof and backed by the full faith and credit of the United States, in
each case maturing within one year from the date of acquisition thereof; (ii)
marketable direct obligations issued by any state of the United States of
America or any political subdivision of any such state or any public
instrumentality thereof maturing within one year from the date of acquisition
thereof and, at the time of acquisition, having one of the two highest ratings
obtainable from either Standard & Poor's Corporation ("S&P") or Moody's
Investors Service, Inc. ("Moody's"); (iii) commercial paper maturing no more
than one year from the date of creation thereof and, at the time of acquisition,
having a rating of at least A-1 from S&P or at least P-1 from Moody's; (iv)
certificates of deposit or bankers' acceptances maturing within one year from
the date of acquisition thereof issued by any bank organized under the laws of
the United States of America or any state thereof or the District of Columbia or
any U.S. branch of a foreign bank having at the date of acquisition thereof
combined capital and surplus of not less than $250,000,000; (v) repurchase
obligations with a term of not more than seven days for underlying secu-
<PAGE>
-4-
rities of the types described in clause (i) above entered into with any bank
meeting the qualifications specified in clause (iv) above; and (vi) investments
in money market funds which invest substantially all their assets in securities
of the types described in clauses (i) through (v) above.
"Change of Control" means the occurrence of one or more of the
following events: (i) any sale, lease, exchange or other transfer (in one
transaction or a series of related transactions) of all or substantially all of
the assets of the Company to any Person (other than a Restricted Subsidiary or
any HMK Affiliate) or group of related Persons (other than any Restricted
Subsidiaries or any HMK Affiliate) for purposes of Section 13(d) of the
Exchange Act (a "Group"), together with any Affiliates thereof (whether or not
otherwise in compliance with the provisions of this Indenture); (ii) the
approval by the holders of Capital Stock of the Company of any plan or proposal
for the liquidation or dissolution of the Company (whether or not otherwise in
compliance with the provisions of this Indenture); (iii) any Person or Group,
other than any HMK Affiliate or Affiliates, shall become the owner, directly or
indirectly, beneficially or of record, of shares representing (x) more than 50%
of the aggregate voting power represented by the issued and outstanding Capital
Stock of the Company or (y) if the Company shall then have a class of Capital
Stock registered under Section 12(b) or 12(g) of the Exchange Act, more than
40% of the aggregate ordinary voting power represented by the issued and
outstanding Capital Stock of the Company; or (iv) the replacement of a majority
of the Board of Directors of the Company over a two-year period from the
directors who constituted the Board of Directors of the Company at the beginning
of such period, and such replacement shall not have been approved by a vote of a
least a majority of the Board of Directors of the Company then still in office
who either were members of any such Board of Directors at the beginning of such
period or whose election as a member of any such Board of Directors was
previously so approved.
"Change of Control Offer" shall have the meaning provided in Section
4.16.
"Change of Control Payment Date" shall have the meaning provided in
Section 4.16.
"Collateral" means, collectively, all of the property and assets that
are from time to time subject to the Security Documents.
<PAGE>
-5-
"Collateral Agent" means State Street Bank and Trust Company, a
Massachusetts chartered trust company, as collateral agent under the Security
Documents until a party replaces it in accordance with the provisions of this
Indenture and the Security Documents and thereafter means such successor.
"Collateral Account" means the collateral account established by the
Trustee pursuant to Section 11.01.
"Commodity Agreement" of any Person means any option or futures
contract or similar agreement or arrangement designed to protect such Person or
any of its subsidiaries against fluctuations in commodity prices.
"Common Stock" of any Person means any and all shares, interests or
other participations in, and other equivalents (however designated and whether
voting or non-voting) of such Person's common stock, whether outstanding on the
Issue Date or issued after the Issue Date, and includes, without limitation, all
series and classes of such common stock.
"Company" means Sheffield Steel Corporation, a Delaware corporation.
"Company Order" means a written order or request signed in the name of
the Company by its President or Vice President, and by its Treasurer, Assistant
Treasurer, Secretary or any other officer so authorized and delivered to the
Trustee.
"Consolidated EBITDA" means, for any period, the sum (without
duplication) of (i) Consolidated Net Income and (ii) to the extent Consolidated
Net Income has been reduced thereby, (A) all income taxes of the Company and the
Restricted Subsidiaries paid or accrued in accordance with GAAP for such period
(other than income taxes attributable to extraordinary, unusual or nonrecurring
gains or losses or taxes attributable to sales or dispositions outside the
ordinary course of business), (B) Consolidated Interest Expense and (C)
Consolidated Non-cash Charges less any non-cash items increasing Consolidated
----
Net Income for such period, all as determined on a consolidated basis for the
Company and the Restricted Subsidiaries in accordance with GAAP.
"Consolidated Fixed Charge Coverage Ratio" means the ratio of
Consolidated EBITDA during the four full fiscal quarters (the "Four Quarter
Period") ending on or prior to the date of the transaction giving rise to the
need to calculate the Consolidated Fixed Charge Coverage Ratio (the "Transaction
Date") to Consolidated Fixed
<PAGE>
-6-
Charges for the Four Quarter Period. In addition to and without limitation of
the foregoing, for purposes of this definition, "Consolidated EBITDA" and
"Consolidated Fixed Charges" shall be calculated after giving effect on a pro
---
forma basis (including any pro forma expense and cost reductions calculated on a
- ----- --- -----
basis consistent with Regulation S-X under the Securities Act) for the period of
such calculation to (i) the incurrence or repayment of any Indebtedness of the
Company or any of the Restricted Subsidiaries (and the application of the
proceeds thereof) giving rise to the need to make such calculation and any
incurrence or repayment of other Indebtedness (and the application of the
proceeds thereof), other than the incurrence or repayment of Indebtedness in the
ordinary course of business for working capital purposes pursuant to working
capital facilities, occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such incurrence or repayment, as the case may be (and
the application of the proceeds thereof), occurred on the first day of the Four
Quarter Period and (ii) any Asset Sale or Asset Acquisitions (including, without
limitation, any Asset Acquisition giving rise to the need to make such
calculation as a result of the Company or one of the Restricted Subsidiaries
(including any Person who becomes a Restricted Subsidiary as a result of the
Asset Acquisition) incurring, assuming or otherwise being liable for Acquired
Indebtedness and also including any Consolidated EBITDA attributable to the
assets which are the subject of the Asset Acquisition or Asset Sale during the
Four Quarter Period) occurring during the Four Quarter Period or at any time
subsequent to the last day of the Four Quarter Period and on or prior to the
Transaction Date, as if such Asset Sale or Asset Acquisition (including the
incurrence, assumption or liability for any such Acquired Indebtedness) occurred
on the first day of the Four Quarter Period. If the Company or any of the
Restricted Subsidiaries directly or indirectly guarantees Indebtedness of a
third Person, the preceding sentence shall give effect to the incurrence of such
guaranteed Indebtedness as if the Company or any such Restricted Subsidiary had
directly incurred or otherwise assumed such guaranteed indebtedness.
Furthermore, in calculating Consolidated Fixed Charges for purposes of
determining the denominator (but not the numerator) of this Consolidated Fixed
Charge Coverage Ratio, (1) interest on outstanding Indebtedness determined on a
fluctuating basis as of the Transaction Date and which will continue to be so de
termined thereafter shall be deemed to have accrued at a fixed rate per annum
equal to the rate of interest on such Indebtedness in effect on the Transaction
Date; (2) if interest on any Indebtedness actually incurred on the Transaction
Date may optionally be deter mined at an interest rate based upon a factor of a
prime or similar rate, a eurocurrency interbank offered rate, or other rates,
then the interest rate in effect on the Transaction Date will be deemed to have
been in effect during the Four Quarter
<PAGE>
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Period; and (3) notwithstanding clause (1) above, interest on Indebtedness
determined on a fluctuating basis, to the extent such interest is covered by
agreements relating to Interest Swap Obligations, shall be deemed to accrue at
the rate per annum resulting after giving effect to the operation of such
agreements.
"Consolidated Fixed Charges" means, with respect to the Company for
any period, the sum, without duplication, of (i) Consolidated Interest Expense,
plus (ii) the product of (x) the amount of all dividend payments on any series
of Preferred Stock of the Company (other than dividends paid in Qualified
Capital Stock) paid, accrued or scheduled to be paid or accrued during such
period times (y) a fraction, the numerator of which is one and the denominator
of which is one minus the then current effective consolidated federal, state
and local tax rate of such Person, expressed as a decimal.
"Consolidated Interest Expense" means, with respect to the Company for
any period, the sum of, without duplication: (i) the aggregate of the interest
expense of the Company and the Restricted Subsidiaries for such period
determined on a consolidated basis in accordance with GAAP, including without
limitation, (a) any amortization of debt discount, (b) the net costs under
Interest Swap Obligations, (c) all capitalized interest and (d) the interest
portion of any deferred payment obligation; and (ii) the inter est component of
Capitalized Lease Obligations paid, accrued and/or scheduled to be paid or
accrued by the Company and the Restricted Subsidiaries during such period as
determined on a consolidated basis in accordance with GAAP.
"Consolidated Net Income" means, with respect to the Company, for any
period, the aggregate net income (or loss) of the Company and the Restricted
Subsidiaries for such period on a consolidated basis, determined in accordance
with GAAP; provided that there shall be excluded therefrom (a) after-tax gains
--------
or losses from Asset Sales or abandonments or reserves relating thereto, (b)
after-tax items classified as extraordinary or nonrecurring gains or losses,
(c) the net income (or loss) of any Person acquired in a "pooling of interests"
transaction accrued prior to the date it becomes a Restricted Subsidiary or is
merged or consolidated with the Company or any Restricted Subsidiary, (d) the
net income (but not loss) of any Restricted Subsidiary to the extent that the
declaration of dividends or similar distributions by that Restricted Subsidiary
of that income is restricted by a contract, operation of law or otherwise, (e)
the net income of any Person, other than a Restricted Subsidiary, except to the
extent of cash dividends or distributions paid to the Company or to a
Restricted Subsidiary by such Person, (f) income or loss attributable to
discontinued operations (including, without limitation,
<PAGE>
-8-
operations disposed of during such period whether or not such operations were
classified as discontinued), (g) in the case of a successor to the Company by
consolidation or merger or as a transferee of the Company's assets, any net
income of the successor corporation prior to such consolidation, merger or
transfer of assets, (h) any non-cash charges incurred by the Company at any time
in connection with, and including at the time of, the adoption of Statement of
Financial Accounting Standards 106; and (i) any expenses related to the
refinancing of the 2001 Notes with the net proceeds from the issuance and sale
of the Securities including, without limitation, the premium on redemption of
the 2001 Notes, and the amortization of debt discount and other debt issuance
costs relating to the issuance of the Securities.
"Consolidated Non-cash Charges" means, with respect to the Company,
for any period, the aggregate depreciation, amortization and other non-cash
expenses of the Company and the Restricted Subsidiaries reducing Consolidated
Net Income of the Company for such period, determined on a consolidated basis in
accordance with GAAP (excluding any such charges constituting an extraordinary
item or loss or any such charge which requires an accrual of or a reserve for
cash charges for any future period).
"Consolidated Tangible Net Worth" of any Person means the consolidated
stockholders' equity of such Person, determined on a consolidated basis in
accordance with GAAP, less (without duplication) amounts attributable to
Disqualified Capital Stock of such Person; less the book value of all Intangible
Assets reflected on the consolidated balance sheet of the Company and its
Restricted Subsidiaries as of such date.
"Corporate Trust Office" means the office of the Trustee at which at
any particular time its corporate trust business shall be administered, which
office at the date of execution of this Indenture is located at Goodwin Square,
225 Asylum Street, Hartford, Connecticut 06103.
"Covenant Defeasance" shall have the meaning provided in Section 8.01.
"Currency Agreement" means any foreign exchange contract, currency
swap agreement or other similar agreement or arrangement designed to protect the
Company or any Restricted Subsidiary against fluctuations in currency values.
<PAGE>
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"Custodian" means any receiver, trustee, assignee, liquidator,
sequestrator or similar official under any Bankruptcy Law.
"Default" means an event or condition the occurrence of which is, or
with lapse of time or the giving of notice or both would be, an Event of
Default.
"Depository" means, with respect to the Securities issued in the form
of one or more Global Securities, The Depository Trust Company or another Person
designated as Depository by the Company, which must be a clearing agency
registered under the Exchange Act.
"Designation" shall have the meaning provided in Section 4.20.
"Designation Amount" shall have the meaning provided in Section 4.20.
"Destruction" shall have the meaning assigned to such term in each
Mortgage.
"Disqualified Capital Stock" means that portion of any Capital Stock
which, by its terms (or by the terms of any security into which it is
convertible or for which it is exchangeable), or upon the happening of any
event, matures or is mandatorily redeemable, pursuant to a sinking fund
obligation or otherwise, or is redeemable at the sole option of the holder
thereof on or prior to the final maturity date of the Securities.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended from time to time.
"Event of Default" shall have the meaning set forth in Section 6.01.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
or any successor statute or statutes thereto.
"Fair Value" or "fair market value" means, with respect to any asset
or property, the price which could be negotiated in an arm's-length, free market
transaction, for cash, between a willing seller and a willing and able buyer,
neither of whom is under undue pressure or compulsion to complete the
transaction. Fair market value shall be determined by the Board of Directors of
the Company acting reasonably and in
<PAGE>
-10-
good faith and shall be evidenced by a Board Resolution of the Board of
Directors of the Company delivered to the Trustee.
"Final Memorandum" means the Final Offering Memorandum of the Company,
dated November 26, 1997 which describes the Securities.
"Four Quarter Period" has the meaning set forth in the definition of
"Consolidated Fixed Charge Coverage Ratio."
"GAAP" means generally accepted accounting principles set forth in the
opinions and pronouncements of the Accounting Principles Board of the American
Institute of Certified Public Accountants and statements and pronouncements of
the Financial Accounting Standards Board or in such other statements by such
other entity as may be approved by a significant segment of the accounting
profession of the United States, which are in effect as of the Issue Date.
"Global Security" means a Security evidencing all or a part of the
Securities issued to the Depository in accordance with Section 2.01 and bearing
the legend prescribed in Exhibit B.
"HMK Affiliates" means Steven E. Karol, Jane M. Karol, Joan L. Karol,
William S. Karol and Thomas D. Karol, or any of them (each a "Karol Family
Member"), any spouse of a Karol Family Member, any lineal descendants of a Karol
Family Member, any trust, estate or family limited partnership or limited
liability company the sole beneficiaries of which are Karol Family Members,
spouses of Karol Family Members or any lineal descendants of Karol Family
Members, or any entity owned or controlled by any of the foregoing.
"Holder" or "Securityholder" means the Person in whose name a Security
is registered on the Registrar's books.
"incur" shall have the meaning provided in Section 4.04.
"Indebtedness" means with respect to any Person, without duplication,
(i) all Obligations of such Person for borrowed money, (ii) all Obligations of
such Person evidenced by bonds, debentures, notes or other similar instruments,
(iii) all Capitalized Lease Obligations of such Person, (iv) all Obligations of
such Person issued or assumed as the deferred purchase price of property, all
conditional sale obligations and
<PAGE>
-11-
all Obligations under any title retention agreement (but excluding trade
accounts payable and other accrued liabilities arising in the ordinary course of
business), (v) all Obligations for the reimbursement of any obligor on any
letter of credit, banker's acceptance or similar credit transaction, (vi)
guarantees and other contingent obligations in respect of Indebtedness referred
to in clauses (i) through (v) above and clause (viii) below, (vii) all
Obligations of any other Person of the type referred to in clauses (i) through
(vi) which are secured by any Lien on any property or asset of such Person, the
amount of such Obligation being deemed to be the lesser of the fair market value
of such property or asset or the amount of the Obligation so secured, (viii) all
Obligations under Currency Agreements and all Interest Swap Obligations of such
Person and (ix) all Disqualified Capital Stock issued by such Person with the
amount of Indebtedness represented by such Disqualified Capital Stock being
equal to the greater of its voluntary or involuntary liquidation preference and
its maximum fixed repurchase price. For purposes hereof, the "maximum fixed re
purchase price" of any Disqualified Capital Stock which does not have a fixed
repurchase price shall be calculated in accordance with the terms of such
Disqualified Capital Stock as if such Disqualified Capital Stock were purchased
on any date on which Indebtedness shall be required to be determined pursuant to
this Indenture, and if such price is based upon, or measured by, the fair market
value of such Disqualified Capital Stock, such fair market value shall be
determined reasonably and in good faith by the Board of Directors of the
Company.
"Indenture" means this Indenture, as amended or supplemented from time
to time in accordance with the terms hereof.
"Independent" when used with respect to any specified Person means
such a Person who (a) is in fact independent, (b) does not have any direct
financial interest or any material indirect financial interest in the Company
or any of its Subsidiaries, or in any Affiliate of the Company or any of its
Subsidiaries and (c) is not an officer, employee, promoter, underwriter,
trustee, partner, director or person performing similar functions for the
Company or any of its Subsidiaries. Whenever it is provided in this Indenture
that any Independent Person's opinion or certificate shall be furnished to the
Trustee, such Person shall be appointed by the Company and approved by the
Trustee, and such opinion or certificate shall state that the signer has read
this definition and that the signer is Independent within the meaning thereof.
"Independent Financial Advisor" means a firm (i) which does not, and
whose directors, officers and employees or Affiliates do not, have a direct or
indirect
<PAGE>
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financial interest in the Company and (ii) which, in the judgment of the Board
of Directors of the Company, is otherwise Independent and qualified to perform
the task for which it is to be engaged.
"Initial Purchaser" means BT Alex. Brown Incorporated.
"Institutional Accredited Investor" means an institution that is an
"accredited investor" as that term is defined in Rule 501(a)(1), (2), (3) or (7)
under the Securities Act.
"Intangible Assets" of any Person means all unamortized debt discount
and expense, unamortized deferred charges, good will, patents, trademarks,
service marks, trade names, copyrights, write-ups of assets over their prior
carrying values (other than write-ups which occurred prior to the Issue Date and
other than, in connection with Asset Acquisitions, the write-up of the value of
such asset (within one year of its acquisition) to its fair market value in
accordance with GAAP), and all other times which would be treated as intangibles
on the consolidated balance sheet of the Company and its Restricted Subsidiaries
prepared in accordance with GAAP.
"Intercompany Agreements" means that certain letter agreement dated
October 1, 1997 relating to insurance services between Risk Management
Solutions, Inc. and the Company and that certain Income Tax Expense Allocation
Policy and Tax Sharing Agreements effective May 1, 1991 among HMK Enterprises,
Inc., the Company and the subsidiaries of the Company, in each case as in effect
on the Issue Date with such modifications subsequent thereto (other than
modifications of fee and expense reimbursement arrangements) which are not
adverse to the interests of Holders of the Securities.
"Intercreditor Agreement" means that certain intercreditor agreement,
of even date with this Indenture, by and between the Trustee on behalf of the
holders of the Securities, on the one hand, and NationsBank, N.A., formerly
known as NationsBank, N.A. (South), formerly known as NationsBank of Georgia
N.A. (and any successor or successors thereto or assignee or assignees
therefrom), on the other hand, substantially in the form of Exhibit G hereto, as
the same may be amended, supplemented or modified from time to time in
accordance with the terms thereof.
"Interest Payment Date" means the stated maturity of an installment of
interest on the Securities.
<PAGE>
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"Interest Swap Obligations" means the obligations of any Person
pursuant to any arrangements with any other Person, whereby, directly or
indirectly, such Person is entitled to receive from time to time periodic
payments calculated by applying either a floating or a fixed rate of interest on
a stated notional amount in exchange for periodic payments made by such other
Person calculated by applying a fixed or a floating rate of interest on the same
notional amount and shall include, without limitation, interest rate swaps,
caps, floors, collars and similar agreements.
"Investment" means, with respect to any Person, any direct or indirect
loan or other extension of credit (including, without limitation, a guarantee)
or capital contribution to (by means of any transfer of cash or other property
to others or any payment for property or services for the account or use of
others), or any purchase or acquisition by such Person of any Capital Stock,
bonds, notes, debentures or other securities or evidences of Indebtedness
issued by, any Person. "Investment" shall exclude ex tensions of trade credit
by the Company and the Restricted Subsidiaries on commercially reasonable terms
in accordance with normal trade practices of the Company or such Restricted
Subsidiary, as the case may be. If the Company or any Restricted Subsidiary
sells or otherwise disposes of any Common Stock of any direct or indirect
Restricted Subsidiary such that, after giving effect to any such sale or
disposition, it ceases to be a Subsidiary of the Company, the Company shall be
deemed to have made an Investment on the date of any such sale or disposition
equal to the fair market value of the Common Stock of such Restricted Subsidiary
not sold or disposed of.
"Issue Date" means the date of the original issuance of the
Securities.
"Legal Defeasance" shall have the meaning provided in Section 8.01.
"Legal Holiday" shall have the meaning provided in Section 12.07.
"Lien" means any lien, mortgage, deed of trust, pledge, security
interest, charge or encumbrance of any kind (including any conditional sale or
other title retention agreement, any lease in the nature thereof and any
agreement to give any security interest).
"Management Agreement" means that certain letter agreement dated the
Issue Date relating to management consulting services by and between HMK
Enterprises, Inc. and the Company, as in effect on the Issue Date with such
modifications
<PAGE>
-14-
subsequent thereto (other than modifications of fee and expense reimbursement
arrangements) which are not adverse to the interests of Holders of the
Securities.
"Maturity Date" means December 1, 2005.
"Mortgage" means the mortgages (or deeds of trust) dated as of the
Issue Date or pursuant to Section 10.01(b) hereof granted by the Company to the
Collateral Agent for the benefit of the Trustee and the Holders, in
substantially the form of Exhibit E hereto, as the same may be amended,
supplemented or modified from time to time in accordance with the terms thereof.
"Mortgaged Property" has the meaning assigned to such term in the
Mortgages.
"Net Award" has the meaning assigned to such term in each Mortgage and
shall include any amounts received in respect of personal property pursuant to
the Security Agreement or otherwise.
"Net Cash Proceeds" means, with respect to any Asset Sale, the
proceeds in the form of cash or Cash Equivalents including payments in respect
of deferred payment obligations when received in the form of cash or Cash
Equivalents (other than the portion of any such deferred payment constituting
interest) received by the Company or any of the Restricted Subsidiaries from
such Asset Sale net of (a) reasonable out-of-pocket expenses and fees relating
to such Asset Sale (including, without limitation, legal, accounting and
investment banking fees and sales commissions), (b) taxes paid or payable after
taking into account any reduction in consolidated tax liability due to available
tax credits or deductions and any tax sharing arrangements, (c) repayment of
Indebtedness that is required to be repaid in connection with such Asset Sale
and (d) appropriate amounts to be provided by the Company or any Restricted
Subsidiary, as the case may be, as a reserve, in accordance with GAAP, against
any liabilities associated with such Asset Sale and retained by the Company or
any Restricted Subsidiary, as the case may be, after such Asset Sale, including,
without limitation, pension and other post-employment benefit liabilities,
liabilities related to environmental matters and liabilities under any
indemnification obligations associated with such Asset Sale.
"Net Proceeds" has the meaning assigned to such term in each Mortgage
and shall include any amounts received in respect of personal property pursuant
to the Security Agreement.
<PAGE>
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"Net Proceeds Offer" has the meaning set forth in Section 4.17.
"Net Proceeds Offer Amount" has the meaning set forth in Section 4.17.
"Net Proceeds Offer Payment Date" shall have the meaning provided in
Section 4.17.
"Obligations" means all obligations for principal, premium, interest,
penalties, fees, indemnifications, reimbursements, damages and other liabilities
payable under the documentation governing any Indebtedness.
"Officer" means, with respect to any Person, the Chairman of the
Board, the Chief Executive Officer, the President, any Vice President, the Chief
Financial Officer, the Controller, the Treasurer or the Secretary of such
Person.
"Officers' Certificate" means, with respect to any Person, a
certificate signed by two Officers or by an Officer and either an Assistant
Treasurer or an Assistant Secretary of such Person and otherwise complying with
the requirements of Sections 12.04 and 12.05.
"Offshore Physical Securities" has the meaning set forth in Section
2.01.
"Opinion of Counsel" means a written opinion from legal counsel who is
reasonably acceptable to the Trustee complying with the requirements of Sections
12.04 and 12.05. Unless otherwise required by the TIA, the legal counsel may be
an employee of or counsel to the Company or the Trustee.
"Paying Agent" shall have the meaning provided in Section 2.03.
"Permitted Indebtedness" means, without duplication, each of the
following:
(i) Indebtedness under the Securities and this Indenture
incurred as of the Issue Date together with any guarantees of the
Securities by Restricted Subsidiaries of the Company required by the terms
of this Indenture;
(ii) Indebtedness incurred pursuant to the Revolving Credit
Facility in an aggregate principal amount at any time outstanding not to
exceed the greater of (a) $40 million or (b) the aggregate of 85% of the
Company's Eligible
<PAGE>
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Accounts Receivable (as defined in the Revolving Credit Facility or the
equivalent term defined in any facility which replaces such Revolving
Credit Facility) and 65% of the Company's Eligible Inventory (as defined in
the Revolving Credit Facility or the equivalent term defined in any
facility which replaces such Revolving Credit Facility) calculated in
accordance with GAAP;
(iii) other Indebtedness (including Capitalized Lease Obligations)
of the Company and the Restricted Subsidiaries outstanding on the Issue
Date after giving effect to the application of the proceeds from the sale
of the Securities set forth under "Use of Proceeds" in the Final
Memorandum;
(iv) purchase money indebtedness, Capitalized Lease Obligations
and any other Indebtedness in an aggregate amount for all Indebtedness
incurred pursuant to this subclause (iv) not to exceed $15 million
outstanding at any one time; provided, however, that not more than $5
-------- -------
million in aggregate principal amount of such Indebtedness outstanding at
any one time may be incurred by Restricted Subsidiaries of the Company;
(v) Interest Swap Obligations of the Company or a Restricted
Subsidiary covering Indebtedness of the Company or any of the Restricted
Subsidiaries and Interest Swap Obligations of any Restricted Subsidiary
covering Indebtedness of such Restricted Subsidiary; provided, however,
-------- -------
that such Interest Swap Obligations are entered into to protect the Company
and the Restricted Subsidiaries from fluctuations in interest rates on
Indebtedness incurred in accordance with this Indenture to the extent the
notional principal amount of such Interest Swap Obligation does not exceed
the principal amount of the Indebtedness to which such Interest Swap
Obligation relates;
(vi) Indebtedness under Currency Agreements and Commodity
Agreements; provided that in the case of Currency Agreements which relate
--------
to Indebtedness, such Currency Agreements do not increase the Indebtedness
of the Company and the Restricted Subsidiaries outstanding other than as a
result of fluctuations in foreign currency exchange rates or by reason of
fees, indemnities and compensation payable thereunder;
(vii) Indebtedness of a Restricted Subsidiary to the Company or to
a Restricted Subsidiary for so long as such Indebtedness is held by the
Company or a Restricted Subsidiary, in each case subject to no Lien held by
a Person other
<PAGE>
-17-
than the Company or a Restricted Subsidiary; provided that if as of any
--------
date any Person other than the Company or a Restricted Subsidiary owns or
holds any such Indebtedness or holds a Lien in respect of such
Indebtedness, such date shall be deemed the incurrence of Indebtedness not
constituting Permitted Indebted ness by the issuer of such Indebtedness;
(viii) Indebtedness of the Company to a Restricted Subsidiary for
so long as such Indebtedness is held by a Restricted Subsidiary, in each
case subject to no Lien; provided that (a) any Indebtedness of the Company
--------
to any Restricted Subsidiary is unsecured and subordinated, pursuant to a
written agreement, to the Company's obligations under this Indenture and
the Securities and (b) if as of any date any Person other than a Restricted
Subsidiary owns or holds any such Indebtedness or any Person holds a Lien
in respect of such Indebtedness, such date shall be deemed the incurrence
of Indebtedness not constituting Permitted Indebtedness by the Company;
(ix) Indebtedness arising under the Railway Credit Facility, or
other Indebtedness the primary obligor of which is the Railway Company
(including, without limitation, the related guarantee by the Company of
Indebtedness thereunder owned by the Railway Company), in an aggregate
principal amount not to exceed $5 million;
(x) Indebtedness of the Company or any of the Restricted
Subsidiaries represented by letters of credit for the account of the
Company or such Restricted Subsidiary, as the case may be, in order to
provide security for workers' compensation claims, payment obligations in
connection with self-insurance or similar requirements in the ordinary
course of business;
(xi) Refinancing Indebtedness;
(xii) Indebtedness of the Company under the Subordinated
Management Notes; and
(xiii) additional Indebtedness of the Company in an aggregate
principal amount not to exceed $5 million at any one time outstanding.
"Permitted Investments" means (i) Investments by the Company or any
Restricted Subsidiary in any Person that is or will become immediately after
such In-
<PAGE>
-18-
vestment a Restricted Subsidiary or that will merge or consolidate into the
Company or a Restricted Subsidiary; (ii) Investments in the Company by any
Restricted Subsidiary; provided that any Indebtedness incurred by the Company
--------
evidencing such Investment by a Restricted Subsidiary is unsecured and
subordinated, pursuant to a written agreement, to the Company's obligations
under the Securities and this Indenture; (iii) Investments in cash and Cash
Equivalents; (iv) loans and advances to employees and officers of the Company
and the Restricted Subsidiaries in the ordinary course of business; (v) Currency
Agreements and Interest Swap Obligations entered into in the ordinary course of
the Company's or a Restricted Subsidiary's businesses and otherwise in
compliance with this Indenture; (vi) other Investments, including Investments in
Unrestricted Subsidiaries not to exceed $2.5 million at any one time
outstanding; (vii) Investments in securities of trade creditors or customers
received pursuant to any plan of reorganization or similar arrangement upon the
bankruptcy or insolvency of such trade creditors or customers; and (viii)
Investments made by the Company or the Restricted Subsidiaries as a result of
consideration received in connection with an Asset Sale made in compliance with
Section 4.17 hereof.
"Permitted Liens" means the following types of Liens:
(i) Liens for taxes, assessments or governmental charges or
claims either (a) not delinquent or (b) contested in good faith by
appropriate proceedings and as to which the Company or the Restricted
Subsidiaries shall have set aside on its books such reserves as may be
required pursuant to GAAP;
(ii) statutory Liens of landlords and Liens of carriers,
warehousemen, mechanics, suppliers, materialmen, repairmen and other Liens
imposed by Law incurred in the ordinary course of business for sums not yet
delinquent or being contested in good faith, if such reserve or other
appropriate provision, if any, as shall be required by GAAP shall have been
made in respect thereof;
(iii) Liens incurred or deposits made in the ordinary course of
business in connection with workers' compensation, unemployment insurance
and other types of social security, including any Lien securing letters of
credit issued in the ordinary course of business consistent with past
practice in connection therewith, or to secure the performance of tenders,
statutory obligations, surety and appeal bonds, bids, leases, government
contracts, performance and return-of-money bonds and other similar
obligations (exclusive of obligations for the payment of borrowed money);
<PAGE>
-19-
(iv) judgment Liens not giving rise to an Event of Default;
(v) easements, rights-of-way, zoning restrictions and other
similar charges or encumbrances in respect of real property not interfering
in any material respect with the ordinary conduct of the business of the
Company or any of the Restricted Subsidiaries;
(vi) any interest or title of a lessor under any Capitalized
Lease Obligation; provided that such Liens do not extend to any property
--------
or assets which is not leased property subject to such Capitalized Lease
Obligation;
(vii) Liens securing any Indebtedness incurred under the Revolving
Credit Facility or described in clause (ix) of the definition of "Permitted
Indebtedness": provided that such Liens extend solely to the categories of
--------
Property which were the subject of Liens securing the Revolving Credit
Facility and the Railway Credit Facility, as the case may be, as of the
Issue Date other than, in the case of Indebtedness described in clause (ix)
of the definition "Permitted Indebtedness", for additional security
consisting of a mortgage on the real property of the Railway Company owned
or leased on the Issue Date;
(viii) Liens upon specific items of inventory or other goods and
proceeds of any Person securing such Person's obligations in respect of
bankers' acceptances issued or created for the account of such Person to
facilitate the purchase, shipment or storage of such inventory or other
goods;
(ix) Liens securing reimbursement obligations with respect to
commercial letters of credit which encumber documents and other property
relating to such letters of credit and products and proceeds thereof;
(x) Liens encumbering deposits made to secure obligations
arising from statutory, regulatory, contractual, or warranty requirements
of the Company or any of the Restricted Subsidiaries, including rights of
offset and set-off;
(xi) Liens securing Interest Swap Obligations which Interest Swap
Obligations relate to Indebtedness that is otherwise permitted under this
Indenture;
(xii) Liens securing Indebtedness under Currency Agreements;
<PAGE>
-20-
(xiii) Liens securing Acquired Indebtedness incurred in accordance
with Section 4.04 hereof; provided that such liens secured such Acquired
--------
Indebtedness at the time of and prior to the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and were not granted
in connection with, or in anticipation of, the incurrence of such Acquired
Indebtedness by the Company or a Restricted Subsidiary and (B) such Liens
do not extend to or cover any property or assets of the Company or of any
of the Restricted Subsidiaries other than the property or assets that
secured the Acquired Indebtedness prior to the time such Indebtedness
became Acquired Indebtedness of the Company or a Restricted Subsidiary and
are no more favorable to the lienholders than those securing the Acquired
Indebtedness prior to the incurrence of such Acquired Indebtedness by the
Company or a Restricted Subsidiary;
(xiv) Liens on Property of the Company or any of its Subsidiaries
acquired after the Issue Date in favor of governmental bodies to secure
progress or advance payments relating to such Property;
(xv) Liens on Property of the Company or any of its Subsidiaries
acquired after the Issue Date securing industrial revenue or pollution
control bonds issued in connection with the acquisition or refinancing of
such Property;
(xvi) Liens to secure certain Indebtedness that is otherwise
permitted under this Indenture and that is used to finance the cost of
Property of the Company or any of its Subsidiaries acquired after the
Issue Date; provided that (a) any such Lien is created solely for the
--------
purpose of securing Indebtedness representing, or incurred to finance,
refinance or refund, the cost (including sales and excise taxes,
installation and delivery charges and other direct costs of, and other
direct expenses paid or charged in connection with, such purchase or
construction) of such Property, (b) the principal amount of the
Indebtedness secured by such Lien does not exceed 100% of such cost, (c)
the Indebtedness secured by such Lien is incurred by the Company or its
Subsidiary within 180 days of the acquisition of such Property by the
Company or its Subsidiary, as the case may be, and (d) such Lien does not
extend to or cover any Collateral or other Property other than such item of
Property and any improvements on such item;
(xvii) Liens existing on the Issue Date to the extent and in the
manner existing on the Issue Date;
<PAGE>
-21-
(xviii) Liens on the property or assets of a Person that becomes a
Restricted Subsidiary after the Issue Date to the extent that such Liens
are existing at the time such Person became a Restricted Subsidiary of the
Company and were not granted as a result of, in connection with or in
anticipation of such person be coming a Restricted Subsidiary of the
Company; provided that (A) the Indebtedness (if any) secured thereby is
--------
incurred in accordance with this Indenture and (B) such Liens do not extend
to or cover any property or assets of the Company or any of its Restricted
Subsidiaries other than the property or assets so acquired; and
(xix) Liens in respect of Indebtedness incurred to Refinance any of
the Indebtedness set forth in clauses (vi), (xiii), (xvi), (xvii) and
(xviii) above; provided that such Liens in respect of such Refinancing
---------
Indebtedness (A) are no less favorable to the Holders and are not more
favorable to the lienholders with respect to such Liens than in the Liens
in respect of the Indebtedness being Refinanced and (B) do not extend to
or cover any properties or assets of the Company or of any of the
Company's Subsidiaries, other than the property or assets that secured the
Indebtedness being Refinanced.
"Person" means an individual, partnership, corporation, limited
liability company, unincorporated organization, trust or joint venture, or a
governmental agency or political subdivision thereof.
"Physical Securities" has the meaning set forth in Section 2.01.
"Preferred Stock" of any Person means any Capital Stock of such Person
that has preferential rights to any other Capital Stock of such Person with
respect to dividends or redemptions or upon liquidation.
"principal" of any Indebtedness (including the Securities) means the
principal amount of such Indebtedness plus the premium, if any, on such
Indebtedness.
"Prior Liens" has the meaning assigned to such term in each Security
Document.
"Private Placement Legend" means the legend initially set forth on the
Securities in the form set forth on Exhibit A-1.
<PAGE>
-22-
"pro forma" means, with respect to any calculation made or required to
be made pursuant to the terms of this Indenture, a calculation in accordance
with Article 11 of Regulation S-X under the Securities Act as interpreted by the
Company's Board of Directors in consultation with its Independent certified
public accountants.
"Property" of any Person means all types of real, personal, tangible,
intangible or mixed property owned by such Person whether or not included in
the most recent consolidated balance sheet of such Person and its Subsidiaries
under GAAP.
"Public Equity Offering" means an underwritten public offering of
Qualified Capital Stock of the Company pursuant to a registration statement
filed with the SEC in accordance with the Securities Act.
"Purchase Agreement" means the purchase agreement dated as of November
26, 1997 by and among the Company and the Initial Purchaser of the Securities.
"Qualified Capital Stock" means any Capital Stock that is not
Disqualified Capital Stock.
"Qualified Institutional Buyer" or "QIB" shall have the meaning
specified in Rule 144A under the Securities Act.
"Railway Company" means the Sand Springs Railway Company, an Oklahoma
corporation.
"Railway Credit Facility" means the revolving loan agreement and the
term loan agreement, each dated as of July 31, 1997, between the Company and
Bank of Oklahoma, N.A., together with the related documents thereto (including,
without limitation, any guarantee agreements and security documents), in each
case as such agreements may be amended (including any amendment and restatement
thereof), supplemented or otherwise modified from time to time, including any
agreement extending the maturity of, refinancing, replacing or otherwise
restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowings is permitted under clause
--------
(ix) of the definition of "Permitted Indebtedness") all or any portion of the
Indebtedness under such agreement or any successor or replacement agreement and
whether by the same or any other lender or group of lenders.
<PAGE>
-23-
"Real Property" means any interest of the Company in any real property
or any portion thereof whether owned in fee or leased or otherwise owned.
"Record Date" means the Record Dates specified in the Securities;
provided that if any such date is a Legal Holiday, the Record Date shall be the
- --------
first day immediately preceding such specified day that is not a Legal Holiday.
"Redemption Date," when used with respect to any Security to be
redeemed, means the date fixed for such redemption pursuant to this Indenture
and Paragraph 5 in the form of Security annexed hereto as Exhibit A.
"Redemption Price," when used with respect to any Security to be
redeemed, means the price fixed for such redemption pursuant to this Indenture
and Paragraph 5 in the form of Security annexed hereto as Exhibit A.
"Reference Date" shall have the meaning provided in Section 4.03.
"Refinance" means, in respect of any security or Indebtedness, to
refinance, extend, renew, refund, repay, prepay, redeem, defease or retire, or
to issue a security or Indebtedness in exchange or replacement for, such
security or Indebtedness in whole or in part. "Refinanced" and "Refinancing"
shall have correlative meanings.
"Refinancing Indebtedness" means any Refinancing by the Company or any
Restricted Subsidiary of Indebtedness incurred in accordance with Section 4.04
hereof (other than pursuant to clause (ii), (iv), (v), (vi), (vii), (viii),
(ix), (x) or (xii) of the definition of Permitted Indebtedness), in each case
that does not (1) result in an increase in the aggregate principal amount of
Indebtedness of such Person as of the date of such proposed Refinancing (plus
the amount of any premium required to be paid under the terms of the instrument
governing such Indebtedness and plus the amount of reasonable expenses incurred
by the Company or any Restricted Subsidiary in connection with such Refinancing)
or (2) create Indebtedness with (A) a Weighted Average Life to Maturity that is
less than the Weighted Average Life to Maturity of the Indebtedness being
Refinanced or (B) a final maturity earlier than the final maturity of the
Indebtedness being Refinanced; provided that (x) if such Indebtedness being
--------
Refinanced is Indebtedness of the Company, then such Refinancing Indebtedness
shall be Indebtedness solely of the Company and (y) if such Indebtedness being
Refinanced is subordinate or junior to the Securities, then such Refinancing
Indebtedness shall be subordinate to the
<PAGE>
-24-
Securities at least to the same extent and in the same manner as the
Indebtedness being Refinanced.
"Registrar" shall have the meaning provided in Section 2.03.
"Registration Rights Agreement" means the Registration Rights
Agreement dated as of the Issue Date between the Company and the Initial
Purchaser.
"Regulation S" means Regulation S under the Securities Act.
"Released Interests" shall have the meaning provided in Section 10.05.
"Released Trust Moneys" shall have the meaning set forth in Section
11.04.
"Replacement Assets" means assets of a kind used or usable in the
business of the Company and its Restricted Subsidiaries as conducted on the date
of the relevant Asset Sale.
"Restricted Payment" shall have the meaning provided in Section 4.03.
"Restricted Security" has the meaning set forth in Rule 144(a)(3)
under the Securities Act; provided that the Trustee shall be entitled to request
--------
and conclusively rely upon an Opinion of Counsel with respect to whether any
Security is a Restricted Security.
"Restricted Subsidiary" means any Subsidiary of the Company that has
not been designated by the Board of Directors of the Company, by a Board
Resolution delivered to the Trustee, as an Unrestricted Subsidiary pursuant to
and in compliance with Section 4.20 hereof. Any such Designation may be revoked
by a Board Resolution of the Company delivered to the Trustee, subject to the
provisions of such Section 4.20.
"Revocation" shall have the meaning provided in Section 4.20.
"Revolving Credit Facility" means the revolving credit facility under
the Credit Agreement dated as of January 16, 1992, as amended, between the
Company and NationsBank of Georgia N.A., as lender thereunder, together with the
related documents thereto (including, without limitation, any guarantee
agreements and security documents), in each case as such agreements may be
amended (including any amendment
<PAGE>
-25-
and restatement thereof), supplemented or otherwise modified from time to time,
including any agreement extending the maturity of, refinancing, replacing or
otherwise restructuring (including increasing the amount of available borrowings
thereunder (provided that such increase in borrowing is permitted under clause
--------
(ii) of the definition of "Permitted Indebtedness") or adding Subsidiaries of
the Company as additional borrowers or guarantors thereunder) all or any
portion of the Indebtedness under such agreement or any successor or replacement
agreement and whether by the same or any other lender or group of lenders.
"Rule 144A" means Rule 144A under the Securities Act.
"Sale and Leaseback Transaction" means any direct or indirect
arrangement with any Person or to which any such Person is a party, providing
for the leasing to the Company or a Restricted Subsidiary of any property,
whether owned by the Company or any Restricted Subsidiary at the Issue Date or
later acquired, which has been or is to be sold or transferred by the Company or
such Restricted Subsidiary to such Person or to any other Person from whom funds
have been or are to be advanced by such Person on the security of such Property.
"SEC" means the Securities and Exchange Commission.
"Securities" means the Series A Securities and Series B Securities as
amended or supplemented from time to time in accordance with the terms hereof
that are issued pursuant to this Indenture.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the SEC promulgated thereunder.
"Security Agreement" means the security agreement dated as of the
Issue Date by and between the Company and the Collateral Agent, substantially in
the form of Exhibit F hereto, as the same may be amended, supplemented or
modified in accordance with the terms thereof.
"Security Documents" means, collectively, the Security Agreement, the
Mortgages and the Intercreditor Agreement and all security agreements,
mortgages, deeds of trust, collateral assignments or other instruments
evidencing or creating any security interests in favor of the Trustee in all or
any portion of the Collateral, in each
<PAGE>
-26-
case as amended, supplemented or modified from time to time in accordance with
their terms.
"Significant Subsidiary" shall have the meaning set forth in Rule
1.02(v) of Regulation S-X under the Securities Act.
"Stock Option Plan" means the Company's 1993 Employee, Director and
Consultant Stock Option Plan as adopted by the Company's Board of Directors and
stockholders on September 15, 1993, as in effect on the Issue Date, with such
modifications subsequent thereto which are not adverse to the interests of
Holders of the Securities; provided, however, that any increase in the number
-------- -------
of shares of Common Stock re served for issuance under the Stock Option Plan in
excess of the number reserved on the Issue Date shall be deemed adverse to the
interests of the Holders.
"Subordinated Management Notes" means notes payable issued by the
Company upon the terms set forth in the Stock Option Plan in respect of options
or Capital Stock issued to such Persons under the Stock Option Plan; provided
--------
that such notes provide by their terms that holders thereof shall not be
entitled to receive any payments thereon upon an Event of Default under this
Indenture, except that if such an Event of Default is one described in clauses
(iii)-(vi) of Section 6.01 hereof and the Securities shall not have been
accelerated within 270 days after such Event of Default, holders of Subordinated
Management Notes shall be entitled to resume receiving payments thereof;
provided, further, that any payments made to holders thereof in violation of the
- -------- -------
provisions described in the preceding proviso shall be deemed to be held in
trust for the benefit of the Trustee on behalf of the holder of the Securities
and shall be required to be promptly turned over to the Trustee.
"Subsidiary", with respect to any Person, means (i) any corporation of
which the outstanding Capital Stock having at least a majority of the votes
entitled to be cast in the election of directors under ordinary circumstances
shall at the time be owned, directly or indirectly, by such Person or (ii) any
other Person of which at least a majority of the voting interest under ordinary
circumstances is at the time, directly or indirectly, owned by such Person.
"Surviving Entity" shall have the meaning provided in Section 5.01.
<PAGE>
-27-
"Survey" means a survey of any parcel of Real Property (and all
improvements thereon); (i) prepared by a surveyor or engineer licensed to
perform surveys in the state where such property is located; (ii) dated (or
redated) not earlier than six months prior to the date of delivery thereof
(unless there shall have occurred within six months prior to such date of
delivery any exterior construction on the site of such property, in which event
such survey shall be dated (or redated) after the completion of such
construction as of such date of delivery); (iii) certified by the surveyor (in a
manner reasonably acceptable to the title company providing title insurance)
and (iv) complying in all respects with the minimum detail requirements of the
American Land Title Association, or local equivalent, as such requirements are
in effect on the date of preparation of such survey, or that is otherwise
reasonably acceptable to the Trustee (giving consideration to the applicable
transaction).
"Taking" shall have the meaning set forth in each Mortgage.
"TIA" means the Trust Indenture Act of 1939 (15 U.S.C. (S)(S) 77aaa-
77bbbb), as amended, as in effect on the date of the execution of this Indenture
until such time as this Indenture is qualified under the TIA, and thereafter as
in effect on the date on which this Indenture is qualified under the TIA, except
as otherwise provided in Section 9.03.
"Trust Moneys" shall have the meaning set forth in Section 11.01.
"Trust Officer" means any officer within the corporate trust
administration department (or any successor group of the Trustee), including
any vice president, assistant vice president, assistant secretary or any other
officer or assistant officer of the Trustee customarily performing functions
similar to those performed by the persons who at that time shall be such
officers, and also means, with respect to a particular corporate trust matter,
any other officer to whom such trust matter is referred because of his or her
knowledge of and familiarity with the particular subject.
"Trustee" means the party named as such in this Indenture until a
successor replaces it in accordance with the provisions of this Indenture and
thereafter means such successor.
"Unrestricted Subsidiary" means any Subsidiary of the Company
designated as such pursuant to and in compliance with Section 4.20 hereof. Any
such desig-
<PAGE>
-28-
nation may be revoked by a Board Resolution of the Company delivered to the
Trustee, subject to the provisions of such Section 4.20.
"U.S. Government Obligations" shall have the meaning provided in
Section 8.01.
"U.S. Legal Tender" means such coin or currency of the United States
of America as at the time of payment shall be legal tender for the payment of
public and private debts.
"U.S. Physical Securities" shall have the meaning set forth in Section
2.01.
"Valuation Date" shall have the meaning set forth in Section 10.05.
"Weighted Average Life to Maturity" means, when applied to any
Indebtedness at any date, the number of years obtained by dividing (a) the then
outstanding aggregate principal amount of such Indebtedness into (b) the sum of
the total of the products obtained by multiplying (i) the amount of each then
remaining installment, sinking fund, serial maturity or other required payment
of principal, including payment at final maturity, in respect thereof, by (ii)
the number of years (calculated to the nearest one-twelfth) which will elapse
between such date and the making of such payment.
"Wholly Owned Subsidiary" means any Restricted Subsidiary of which all
the outstanding voting securities (other than in the case of a foreign
Restricted Subsidiary, directors' qualifying shares or an immaterial amount of
shares required to be owned by other Persons pursuant to applicable law) are
owned by the Company or another Wholly Owned Subsidiary.
SECTION 1.02. Incorporation by Reference of TIA.
---------------------------------
Whenever this Indenture refers to a provision of the TIA, such
provision is incorporated by reference in, and made a part of, this Indenture.
The following TIA terms used in this Indenture have the following meanings:
"Commission" means the SEC.
"indenture securities" means the Securities.
<PAGE>
-29-
"indenture security holder" means a Holder or a Securityholder.
"indenture to be qualified" means this Indenture.
"indenture trustee" or "institutional trustee" means the Trustee.
"obligor" on this Indenture securities means the Company or any other
obligor on the Securities.
All other TIA terms used in this Indenture that are defined by the
TIA, defined by TIA reference to another statute or defined by SEC rule and not
otherwise defined herein have the meanings assigned to them therein.
SECTION 1.03. Rules of Construction.
---------------------
Unless the context otherwise requires:
(1) a term has the meaning assigned to it;
(2) an accounting term not otherwise defined has the meaning
assigned to it in accordance with GAAP;
(3) "or" is not exclusive;
(4) words in the singular include the plural, and words in the
plural include the singular;
(5) provisions apply to successive events and transactions; and
(6) "herein," "hereof" and other words of similar import refer to
this Indenture as a whole and not to any particular Article, Section or
other subdivision.
<PAGE>
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ARTICLE TWO
THE SECURITIES
SECTION 2.01. Form and Dating.
---------------
The Series A and Series B Securities and the Trustee's certificate of
authentication shall be substantially in the form of Exhibits A-1 and A-2,
respectively. The Securities may have notations, legends or endorsements
required by law, stock ex change rule or usage. The Company and the Trustee
shall approve the form of the Securities and any notation, legend or endorsement
on them. Each Security shall be dated the date of its issuance and shall show
the date of its authentication.
The terms and provisions contained in the Securities shall constitute,
and are hereby expressly made, a part of this Indenture and, to the extent
applicable, the Company and the Trustee, by their execution and delivery of this
Indenture, expressly agree to such terms and provisions and to be bound thereby.
Securities offered and sold in reliance on Rule 144A shall be issued
initially in the form of one or more permanent Global Securities in registered
form, substantially in the form set forth in Exhibit A-1 ("Global Securities"),
deposited with the Trustee, as custodian for the Depository, and shall bear the
legend set forth on Exhibit B. The aggregate principal amount of any Global
Security may from time to time be in creased or decreased by adjustments made on
the records of the Trustee, as custodian for the Depository, as hereinafter
provided.
Securities offered and sold in offshore transactions in reliance on
Regulation S shall be issued in the form of certificated Securities in
registered form set forth in Exhibit A-1 (the "Offshore Physical Securities").
Securities offered and sold in reliance on any other exemption from registration
under the Securities Act other than as de scribed in the preceding paragraph
shall be issued, and Securities offered and sold in reliance on Rule 144A may be
issued, in the form of certificated Securities in registered form in
substantially the form set forth in Exhibit A-1 (the "U.S. Physical
Securities"). The Offshore Physical Securities and the U.S. Physical Securities
are sometimes collectively herein referred to as the "Physical Securities."
<PAGE>
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SECTION 2.02. Execution and Authentication.
----------------------------
Two Officers, or an Officer and an Assistant Secretary, shall sign, or
one Officer shall sign and one Officer or an Assistant Secretary (each of whom
shall, in each case, have been duly authorized by all requisite corporate
actions) shall attest to, the Securities for the Company by manual or facsimile
signature.
If an Officer whose signature is on a Security was an Officer at the
time of such execution but no longer holds that office at the time the Trustee
authenticates the Security, the Security shall be valid nevertheless.
A Security shall not be valid until an authorized signatory of the
Trustee manually signs the certificate of authentication on the Security. The
signature shall be conclusive evidence that the Security has been authenticated
under this Indenture.
The Trustee shall authenticate (i) Series A Securities for original
issue on the Issue Date in the aggregate principal amount of $110,000,000, (ii)
Series A Securities or Series B Securities from time to time in the aggregate
principal amount not to exceed $40,000,000 and (iii) Series B Securities from
time to time for issue in exchange for a like principal amount of Series A
Securities, in each case upon receipt of a written order of the Company in the
form of an Officers' Certificate. The Officers' Certificate shall specify the
amount of Securities to be authenticated, the series and type of Securities and
the date on which the Securities are to be authenticated. The aggregate
principal amount of Securities outstanding at any time may not exceed
$150,000,000, except as provided in Section 2.07. Upon receipt of a written
order of the Company in the form of an Officers' Certificate, the Trustee
shall authenticate Securities in substitution of Securities originally issued to
reflect any name change of the Company.
The Trustee may appoint an authenticating agent reasonably acceptable
to the Company to authenticate Securities. Unless otherwise provided in the
appointment, an authenticating agent may authenticate Securities whenever the
Trustee may do so. Each reference in this Indenture to authentication by the
Trustee includes authentication by such agent. An authenticating agent has the
same rights as an Agent to deal with the Company and Affiliates of the Company.
The Securities shall be issuable only in registered form without
coupons in denominations of $1,000 and any integral multiple thereof.
<PAGE>
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SECTION 2.03. Registrar and Paying Agent.
--------------------------
The Company shall maintain an office or agency in the Borough of
Manhattan, The City of New York, where (a) Securities may be presented or
surrendered for registration of transfer or for exchange ("Registrar"), (b)
Securities may be presented or surrendered for payment ("Paying Agent") and (c)
notices and demands in respect of the Securities and this Indenture may be
served. The Registrar shall keep a register of the Securities and of their
transfer and exchange. The Company, upon notice to the Trustee, may have one or
more co-Registrars and one or more additional Paying Agents reasonably
acceptable to the Trustee. The term "Paying Agent" includes any additional
Paying Agent. The Company initially appoints the Trustee as Registrar and Paying
Agent until such time as the Trustee has resigned or a successor has been
appointed. Neither the Company nor any Affiliate of the Company may act as
Paying Agent.
SECTION 2.04. Paying Agent To Hold Assets in Trust.
------------------------------------
The Company shall require each Paying Agent other than the Trustee to
agree in writing that each Paying Agent shall hold in trust for the benefit of
Holders or the Trustee all assets held by the Paying Agent for the payment of
principal of, or interest on, the Securities, and shall notify the Trustee of
any Default by the Company in making any such payment. The Company at any time
may require a Paying Agent to distribute all assets held by it to the Trustee
and account for any assets disbursed and the Trustee may at any time during the
continuance of any payment Default, upon written request to a Paying Agent,
require such Paying Agent to distribute all assets held by it to the Trustee
and to account for any assets distributed. Upon distribution to the Trustee of
all as sets that shall have been delivered by the Company to the Paying Agent,
the Paying Agent shall have no further liability for such assets.
SECTION 2.05. Securityholder Lists.
--------------------
The Trustee shall preserve in as current a form as is reasonably
practicable the most recent list available to it of the names and addresses of
Holders. If the Trustee is not the Registrar, the Company shall furnish to the
Trustee before each Record Date and at such other times as the Trustee may
request in writing a list as of such date and in such form as the Trustee may
reasonably require of the names and addresses of Holders, which list may be
conclusively relied upon by the Trustee.
<PAGE>
-33-
SECTION 2.06. Transfer and Exchange.
---------------------
Subject to the provisions of Sections 2.15 and 2.16, when Securities
are presented to the Registrar or a co-Registrar with a request to register the
transfer of such Securities or to exchange such Securities for an equal
principal amount of Securities of other authorized denominations, the Registrar
or co-Registrar shall register the transfer or make the exchange as requested if
its requirements for such transaction are met; provided, however, that the
-------- -------
Securities surrendered for transfer or exchange shall be duly endorsed or
accompanied by a written instrument of transfer in form satisfactory to the
Company and the Registrar or co-Registrar, duly executed by the Holder thereof
or his attorney duly authorized in writing. To permit registrations of
transfers and exchanges, the Company shall execute and the Trustee shall
authenticate Securities at the Registrar's or co-Registrar's written request.
No service charge shall be made for any registration of transfer or exchange,
but the Company may require payment of a sum sufficient to cover any transfer
tax or similar governmental charge payable in connection therewith (other than
any such transfer taxes or other governmental charge payable upon exchanges or
transfers pursuant to Section 2.02, 2.10, 3.06, 4.16, 4.17 or 9.05). The
Registrar or co-Registrar shall not be required to register the transfer of or
exchange of any Security (i) during a period beginning at the opening of
business 15 days before the mailing of a notice of redemption of Securities and
ending at the close of business on the day of such mailing and (ii) selected
for redemption in whole or in part pursuant to Article Three, except the
unredeemed portion of any Security being redeemed in part.
Any Holder of the Global Security shall, by acceptance of such Global
Security, agree that transfers of beneficial interests in such Global Security
may be effected only through a book-entry system maintained by the Depository
(or its agent), and that ownership of a beneficial interest in the Global
Security shall be required to be reflected in a book entry.
SECTION 2.07. Replacement Securities.
----------------------
If a mutilated Security is surrendered to the Trustee or if the Holder
of a Security claims that the Security has been lost, destroyed or wrongfully
taken, the Company shall issue and the Trustee shall authenticate a replacement
Security if the Trustee's requirements are met. If required by the Trustee or
the Company, such Holder must provide an indemnity bond or other indemnity,
sufficient in the judgment of both the Company and the Trustee, to protect the
Company, the Trustee and any Agent from any loss which any of them may suffer if
a Security is replaced. The Company may
<PAGE>
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charge such Holder for its reasonable, out-of-pocket expenses in replacing a
Security, including reasonable fees and expenses of counsel.
Every replacement Security is an additional obligation of the Company.
SECTION 2.08. Outstanding Securities.
----------------------
Subject to Article Eight, Securities outstanding at any time are all
the Securities that have been authenticated by the Trustee except those
cancelled by it, those delivered to it for cancellation and those described in
this Section as not outstanding. Subject to Section 2.09, a Security does not
cease to be outstanding because the Company or any of its Affiliates holds the
Security.
If a Security is replaced pursuant to Section 2.07 (other than a
mutilated Security surrendered for replacement), it ceases to be outstanding
unless the Trustee receives proof satisfactory to it that the replaced Security
is held by a bona fide purchaser. A mutilated Security ceases to be outstanding
---- ----
upon surrender of such Security and replacement thereof pursuant to Section
2.07.
If on a Redemption Date or the Maturity Date the Paying Agent holds
U.S. Legal Tender or U.S. Government Obligations sufficient to pay all of the
principal and interest due on the Securities payable on that date, then on and
after that date such Securities cease to be outstanding and interest on them
ceases to accrue.
SECTION 2.09. Treasury Securities.
-------------------
In determining whether the Holders of the required principal amount of
Securities have concurred in any direction, waiver or consent, Securities owned
by the Company or any of its Affiliates shall be disregarded, except that, for
the purposes of determining whether the Trustee shall be protected in relying on
any such direction, waiver or consent, only Securities that the Trustee knows
are so owned shall be disregarded.
The Trustee may require an Officers' Certificate listing Securities
owned by the Company, a Subsidiary of the Company or an Affiliate of the
Company.
<PAGE>
-35-
SECTION 2.10. Temporary Securities.
--------------------
Until definitive Securities are ready for delivery, the Company may
prepare and the Trustee shall authenticate temporary Securities upon receipt of
a written order of the Company in the form of an Officers' Certificate. The
Officers' Certificate shall specify the amount of temporary Securities to be
authenticated and the date on which the temporary Securities are to be
authenticated. Temporary Securities shall be substantially in the form of
definitive Securities but may have variations that the Company considers
appropriate for temporary Securities. Without unreasonable delay, the Company
shall prepare and the Trustee shall authenticate upon receipt of a written order
of the Company pursuant to Section 2.02 definitive Securities in exchange for
temporary Securities.
SECTION 2.11. Cancellation.
------------
The Company at any time may deliver Securities to the Trustee for
cancellation. The Registrar and the Paying Agent shall forward to the Trustee
any Securities surrendered to them for transfer, exchange or payment. The
Trustee, or at the direction of the Trustee, the Registrar or the Paying Agent,
and no one else, shall cancel and, at the written direction of the Company,
shall dispose of all Securities surrendered for transfer, exchange, payment or
cancellation. Subject to Section 2.07, the Company may not issue new Securities
to replace Securities that it has paid or delivered to the Trustee for
cancellation. If the Company shall acquire any of the Securities, such
acquisition shall not operate as a redemption or satisfaction of the
Indebtedness represented by such Securities unless and until the same are
surrendered to the Trustee for cancellation pursuant to this Section 2.11.
SECTION 2.12. Defaulted Interest.
------------------
If the Company defaults in a payment of interest on the Securities, it
shall pay the defaulted interest, plus (to the extent lawful) any interest
payable on the de faulted interest, to the persons who are Holders on a
subsequent special record date, which date shall be the fifteenth day next
preceding the date fixed by the Company for the payment of defaulted interest or
the next succeeding Business Day if such date is not a Business Day. At least
15 days before the subsequent special record date, the Company shall mail to
each Holder, with a copy to the Trustee, a notice that states the subsequent
special record date, the payment date and the amount of defaulted interest, and
interest payable on such defaulted interest, if any, to be paid.
<PAGE>
-36-
SECTION 2.13. CUSIP Number.
------------
The Company in issuing the Securities may use a "CUSIP" number, and if
so, the Trustee shall use the CUSIP number in notices of redemption or exchange
as a convenience to Holders; provided that any such notice may state that no
--------
representation is made as to the correctness or accuracy of the CUSIP number
printed in the notice or on the Securities, and that reliance may be placed only
on the other identification numbers printed on the Securities.
SECTION 2.14. Deposit of Moneys.
-----------------
Prior to 11:00 a.m. New York City time on each Interest Payment Date
and Maturity Date, the Company shall have deposited with the Paying Agent in
immediately available funds money sufficient to make cash payments, if any, due
on such Inter est Payment Date or Maturity Date, as the case may be, in a timely
manner which permits the Paying Agent to remit payment to the Holders on such
Interest Payment Date or Maturity Date, as the case may be.
SECTION 2.15. Book-Entry Provisions for Global Securities
-------------------------------------------
(a) The Global Securities initially shall (i) be registered in the
name of the Depository or the nominee of such Depository, (ii) be delivered to
the Trustee as custodian for such Depository and (iii) bear legends as set
forth in Exhibit B.
Members of, or participants in, the Depository ("Agent Members") shall
have no rights under this Indenture with respect to any Global Security held on
their behalf by the Depository, or the Trustee as its custodian, or under the
Global Security, and the Depository may be treated by the Company, the Trustee
and any agent of the Company or the Trustee as the absolute owner of the Global
Security for all purposes whatsoever. Notwithstanding the foregoing, nothing
herein shall prevent the Company, the Trustee or any agent of the Company or the
Trustee from giving effect to any written certification, proxy or other
authorization furnished by the Depository or impair, as between the Depository
and its Agent Members, the operation of customary practices governing the
exercise of the rights of a Holder of any Security.
(b) Transfers of Global Securities shall be limited to transfers in
whole, but not in part, to the Depository, its successors or their respective
nominees. Interests of beneficial owners in the Global Securities may be
transferred or exchanged for
<PAGE>
-37-
Physical Securities in accordance with the rules and procedures of the
Depository and the provisions of Section 2.16. In addition, Physical Securities
shall be transferred to all beneficial owners in exchange for their beneficial
interests in Global Securities if (i) the Depository notifies the Company that
it is unwilling or unable to continue as Depository for any Global Security and
a successor depositary is not appointed by the Company within 90 days of such
notice or (ii) an Event of Default has occurred and is continuing and the
Registrar has received a request from the Depository to issue Physical
Securities.
(c) In connection with any transfer or exchange of a portion of the
beneficial interest in any Global Security to beneficial owners pursuant to
paragraph (b), the Registrar shall (if one or more Physical Securities are to be
issued) reflect on its books and records the date and a decrease in the
principal amount of the Global Security in an amount equal to the principal
amount of the beneficial interest in the Global Security to be transferred, and
the Company shall execute, and the Trustee shall authenticate and deliver, one
or more Physical Securities of like tenor and amount.
(d) In connection with the transfer of Global Securities as an
entirety to beneficial owners pursuant to paragraph (b), the Global Securities
shall be deemed to be surrendered to the Trustee for cancellation, and the
Company shall execute, and the Trustee shall authenticate and deliver, to each
beneficial owner identified by the Depository in exchange for its beneficial
interest in the Global Securities, an equal aggregate principal amount of
Physical Securities of authorized denominations.
(e) Any Physical Security constituting a Restricted Security
delivered in exchange for an interest in a Global Security pursuant to paragraph
(b) or (c) shall, except as otherwise provided by paragraphs (a)(i)(x) and (c)
of Section 2.16, bear the legend regarding transfer restrictions applicable to
the Physical Securities set forth in Exhibit A-1.
(f) The Holder of any Global Security may grant proxies and otherwise
authorize any person, including Agent Members and persons that may hold
interests through Agent Members, to take any action which a Holder is entitled
to take under this Indenture or the Securities.
<PAGE>
-38-
SECTION 2.16. Special Transfer Provisions.
---------------------------
(a) Transfers to Non-QIB Institutional Accredited Investors and Non-
---------------------------------------------------------------
U.S. Persons. The following provisions shall apply with respect to the
- ------------
registration of any proposed transfer of a Security constituting a Restricted
Security to any Institutional Accredited Investor which is not a QIB or to any
Non-U.S. Person:
(i) the Registrar shall register the transfer of any Security
constituting a Restricted Security, whether or not such Security bears the
Private Placement Legend, if (x) the requested transfer is after December
5, 1999 or (y) (1) in the case of a transfer to an Institutional Accredited
Investor which is not a QIB (excluding Non-U.S. Persons), the proposed
transferee has delivered to the Reg istrar a certificate substantially in
the form of Exhibit C hereto or (2) in the case of a transfer to a Non-U.S.
Person, the proposed transferee has delivered to the Registrar a
certificate substantially in the form of Exhibit D hereto; and
(ii) if the proposed transferor is an Agent Member holding a
beneficial interest in a Global Security, upon receipt by the Registrar of
(x) the certificate, if any, required by paragraph (i) above and (y)
instructions given in accordance with the Depository's and the Registrar's
procedures,
(a) the Registrar shall reflect on its books and records the date and (if the
transfer does not involve a transfer of outstanding Physical Securities) a
decrease in the principal amount of a Global Security in an amount equal to the
principal amount of the beneficial interest in a Global Security to be
transferred, and (b) the Company shall execute and the Trustee shall
authenticate and deliver one or more Physical Securities of like tenor and
amount.
(b) Transfers to QIBs. The following provisions shall apply with
-----------------
respect to the registration of any proposed transfer of a Security constituting
a Restricted Security to a QIB (excluding transfers to Non-U.S. Persons):
(i) the Registrar shall register the transfer if such transfer
is being made by a proposed transferor who has checked the box provided for
on the form of Security stating, or has otherwise advised the Company and
the Registrar in writing, that the sale has been made in compliance with
the provisions of Rule 144A to a transferee who has signed the
certification provided for on the form of Security stating, or has
otherwise advised the Company and the Regis-
<PAGE>
-39-
trar in writing, that it is purchasing the Security for its own account or
an account with respect to which it exercises sole investment discretion
and that it and any such account is a QIB within the meaning of Rule 144A,
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as
it has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon
its foregoing representations in order to claim the exemption from
registration provided by Rule 144A; and
(ii) if the proposed transferee is an Agent Member, and the
Securities to be transferred consist of Physical Securities which after
transfer are to be evidenced by an interest in the Global Security, upon
receipt by the Registrar of instructions given in accordance with the
Depository's and the Registrar's procedures, the Registrar shall reflect
on its books and records the date and an increase in the principal amount
of the Global Security in an amount equal to the principal amount of the
Physical Securities to be transferred, and the Trustee shall cancel the
Physical Securities so transferred.
(c) Private Placement Legend. Upon the transfer, exchange or
------------------------
replacement of Securities not bearing the Private Placement Legend, the
Registrar shall deliver Securities that do not bear the Private Placement
Legend. Upon the transfer, exchange or replacement of Securities bearing the
Private Placement Legend, the Registrar shall deliver only Securities that bear
the Private Placement Legend unless (i) the circumstances contemplated by
paragraph (a)(i)(x) of this Section 2.16 exist, (ii) there is delivered to the
Registrar an Opinion of Counsel reasonably satisfactory to the Company and the
Trustee to the effect that neither such legend nor the related restrictions on
transfer are required in order to maintain compliance with the provisions of the
Securities Act or (iii) such Security has been sold pursuant to an effective
registration statement under the Securities Act.
(d) General. By its acceptance of any Security bearing the Private
-------
Placement Legend, each Holder of such a Security acknowledges the restrictions
on transfer of such Security set forth in this Indenture and in the Private
Placement Legend and agrees that it will transfer such Security only as provided
in this Indenture.
The Registrar shall retain copies of all letters, notices and other
written communications received pursuant to Section 2.15 or this Section 2.16.
The Company shall have the right to inspect and make copies of all such letters,
notices or other writ-
<PAGE>
-40-
ten communications at any reasonable time upon the giving of reasonable written
notice to the Registrar.
SECTION 2.17. Designation.
-----------
The Indebtedness evidenced by the Securities is hereby irrevocably
designated as "senior indebtedness" or such other term denoting seniority for
the purposes of any future Indebtedness of the Company which the Company makes
subordinate to any senior indebtedness or such other term denoting seniority.
ARTICLE THREE
REDEMPTION
SECTION 3.01. Notices to Trustee.
------------------
If the Company elects to redeem Securities pursuant to Paragraph 5 of
the Securities, it shall notify the Trustee in writing of the Redemption Date
and the principal amount of Securities to be redeemed. The Company shall give
notice of redemption to the Trustee at least 35 days but not more than 60 days
before the Redemption Date (unless a shorter notice shall be agreed to by the
Trustee in writing), together with an Officers' Certificate stating that such
redemption will comply with the conditions contained herein.
SECTION 3.02. Selection of Securities To Be Redeemed.
--------------------------------------
If fewer than all of the Securities are to be redeemed, the Trustee
shall select the Securities to be redeemed on a pro rata basis, by lot or by
--- ----
such other method as the Trustee shall determine to be fair and appropriate;
provided, however, that if a partial redemption is made with the proceeds of a
- -------- -------
Public Equity Offering, selection of the Securities or portion thereof for
redemption shall be made by the Trustee only on a pro rata basis, unless such a
--- ----
method is prohibited.
The Trustee shall make the selection from the Securities outstanding
and not previously called for redemption and shall promptly notify the Company
in writing of the Securities selected for redemption and, in the case of any
Security selected for partial redemption, the principal amount thereof to be
redeemed. Securities in denomi-
<PAGE>
-41-
nations of $1,000 may be redeemed only in whole. The Trustee may select for
redemption portions (equal to $1,000 or any integral multiple thereof) of the
principal of Securities that have denominations larger than $1,000. Provisions
of this Indenture that apply to Securities called for redemption also apply to
portions of Securities called for redemption.
SECTION 3.03. Notice of Redemption.
--------------------
At least 30 days but not more than 60 days before a Redemption Date,
the Company shall mail a notice of redemption by first class mail, postage
prepaid, to each Holder whose Securities are to be redeemed at its registered
address. At the Company's request made at least 35 days before the Redemption
Date, the Trustee shall give the notice of redemption in the Company's name and
at the Company's expense. Each notice for redemption shall identify the
Securities to be redeemed and shall state:
(1) the Redemption Date;
(2) the Redemption Price and the amount of accrued interest, if
any, to be paid;
(3) the name and address of the Paying Agent;
(4) that Securities called for redemption must be surrendered to
the Paying Agent to collect the Redemption Price;
(5) that, unless the Company defaults in making the redemption
payment, interest on Securities called for redemption ceases to accrue on
and after the Redemption Date, and the only remaining right of the Holders
of such Securities is to receive payment of the Redemption Price upon
surrender to the Paying Agent of the Securities redeemed;
(6) if any Security is being redeemed in part, the portion of the
principal amount of such Security to be redeemed and that, after the
Redemption Date, and upon surrender of such Security, a new Security or
Securities in aggregate principal amount equal to the unredeemed portion
thereof will be issued; and
(7) if fewer than all the Securities are to be redeemed, the
identification of the particular Securities (or portion thereof) to be
redeemed, as well as
<PAGE>
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the aggregate principal amount of Securities to be redeemed and the
aggregate principal amount of Securities to be outstanding after such
partial redemption.
SECTION 3.04. Effect of Notice of Redemption.
------------------------------
Once notice of redemption is mailed in accordance with Section 3.03,
Securities called for redemption become due and payable on the Redemption Date
and at the Redemption Price plus accrued interest, if any. Upon surrender to
the Trustee or Paying Agent, such Securities called for redemption shall be paid
at the Redemption Price (which shall include accrued interest thereon to the
Redemption Date), but installments of interest, the maturity of which is on or
prior to the Redemption Date, shall be payable to Holders of record at the close
of business on the relevant Record Dates.
SECTION 3.05. Deposit of Redemption Price.
---------------------------
On or before the Redemption Date, the Company shall deposit with the
Paying Agent U.S. Legal Tender sufficient to pay the Redemption Price plus
accrued interest, if any, of all Securities to be redeemed on that date. The
Paying Agent shall promptly return to the Company any U.S. Legal Tender so
deposited which is not required for that purpose, except with respect to monies
owed as obligations to the Trustee pursuant to Article Seven.
If the Company complies with the preceding paragraph, then, unless the
Company defaults in the payment of such Redemption Price plus accrued interest,
if any, interest on the Securities to be redeemed will cease to accrue on and
after the applicable Redemption Date, whether or not such Securities are
presented for payment.
SECTION 3.06 Securities Redeemed in Part.
---------------------------
Upon surrender of a Security that is to be redeemed in part, the
Trustee shall authenticate for the Holder a new Security or Securities equal in
principal amount to the unredeemed portion of the Security surrendered.
<PAGE>
-43-
ARTICLE FOUR
COVENANTS
SECTION 4.01. Payment of Securities.
---------------------
The Company shall pay the principal of and interest on the Securities
in the manner provided in the Securities. An installment of principal of or
interest on the Securities shall be considered paid on the date it is due if the
Trustee or Paying Agent holds on that date U.S. Legal Tender designated for and
sufficient to pay the installment.
The Company shall pay, to the extent such payments are lawful,
interest on overdue principal and it shall pay interest on overdue installments
of interest (without regard to any applicable grace periods) from time to time
on demand at the rate borne by the Securities. Interest will be computed on the
basis of a 360-day year comprised of twelve 30-day months.
SECTION 4.02. Maintenance of Office or Agency.
-------------------------------
The Company shall maintain in the Borough of Manhattan, The City of
New York, the office or agency required under Section 2.03. The Company shall
give prompt written notice to the Trustee of the location, and any change in the
location, of such office or agency. If at any time the Company shall fail to
maintain any such required office or agency or shall fail to furnish the
Trustee with the address thereof, such presentations, surrenders, notices and
demands may be made or served at the address of the Trustee set forth in Section
12.02. The Company hereby initially designates the office of State Street Bank
and Trust Company located at 61 Broadway, 15th Floor, Corporate Trust Window,
New York, N.Y. 10006, as its office or agency in the Borough of Manhattan, The
City of New York.
SECTION 4.03. Limitation on Restricted Payments.
---------------------------------
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, (a) declare or pay any
dividend or make any distribution (other than dividends or distributions payable
in Qualified Capital Stock of the Company) on or in respect of shares of the
Company's Capital Stock to holders of such
<PAGE>
-44-
Capital Stock, (b) purchase, redeem or otherwise acquire or retire for value any
Capital Stock of the Company or any warrants, rights or options to purchase or
acquire shares of any class of such Capital Stock, (c) make any principal
payment on, purchase, defease, redeem, prepay or otherwise acquire or retire for
value, prior to any scheduled maturity, scheduled repayment or scheduled sinking
fund payment, any Indebtedness of the Company or its Subsidiaries that is
subordinate or junior in right of payment to the Securities, or (d) make any
Investment (other than Permitted Investments) (each of the foregoing actions set
forth in clauses (a), (b), (c) and (d) being referred to as a "Restricted Pay
ment"), if at the time of such Restricted Payment or immediately after giving
effect thereto, (i) a Default or an Event of Default shall have occurred and be
continuing or (ii) the Company is not able to incur at least $1.00 of additional
Indebtedness (other than Permitted Indebtedness) in compliance with Section 4.04
or (iii) the aggregate amount of Restricted Payments (including such proposed
Restricted Payment) made subsequent to the Issue Date (the amount expended for
such purposes, if other than in cash, being the fair market value of such
property as determined reasonably and in good faith by the Board of Directors of
the Company) shall exceed the sum of: (w) 50% of the cumulative Consolidated Net
Income (or if cumulative Consolidated Net Income shall be a loss, minus 100% of
such loss) of the Company from and including the first full fiscal quarter of
the Company commencing after the Issue Date to the date the Restricted Payment
occurs (the "Reference Date") (treating such period as a single accounting
period); plus (x) 100% of the aggregate net cash proceeds received by the
Company from any Person (other than a Subsidiary of the Company) from the
issuance and sale subsequent to the Issue Date and on or prior to the Reference
Date of Qualified Capital Stock of the Company; plus (y) without duplication of
any amounts included in clause (iii)(x) above, 100% of the aggregate net cash
proceeds of any equity contribution received by the Company from a holder of the
Company's Capital Stock (other than from a Subsidiary of the Company).
Notwithstanding the foregoing, the provisions set forth in the
immediately preceding paragraph do not prohibit: (1) the payment of any
dividend or redemption payment within 60 days after the date of declaration of
such dividend if the dividend or redemption payment, as the case may be, would
have been permitted on the date of declaration; (2) if no Default or Event of
Default shall have occurred and be continuing, the repurchase, redemption,
retirement or acquisition of any shares of Capital Stock of the Company, either
(i) solely in exchange for shares of Qualified Capital Stock of the Company or
(ii) through the application of net proceeds of a substantially concurrent sale
for cash (other than to a Subsidiary of the Company) of shares of Quali-
<PAGE>
-45-
fied Capital Stock of the Company; (3) if no Default or Event of Default shall
have occurred and be continuing, the repurchase, redemption, retirement or
acquisition of any Indebtedness of the Company or a Subsidiary of the Company
that is subordinate or junior in right of pay ment to the Securities either (i)
solely in exchange for shares of Qualified Capital Stock of the Company, or (ii)
through the application of net proceeds of a substantially concurrent sale for
cash (other than to a Subsidiary of the Company) of (A) shares of Qualified
Capital Stock of the Company or (B) Refinancing Indebtedness; (4) so long as no
Default or Event of Default shall have occurred and be continuing, pursuant to
and in accordance with the Stock Option Plan, the purchase of capital stock or
options from members of management or directors of the Company upon the terms
set forth in the Stock Option Plan for consideration consisting of cash and/or
Subordinated Management Notes; (5) the making of Restricted Payments in an
aggregate amount not to exceed $2.5 million; (6) the payment of a dividend as
described in the Final Memorandum under "Use of Proceeds" within 90 days of the
Issue Date in an aggregate amount not to exceed $10 million; and (7) the
purchase of an aggregate 50,625 shares of Common Stock from two former employees
of the Company, for an aggregate purchase price (exclusive of interest) not to
exceed $700,000, pursuant to those certain letter agreements dated September 10,
1996. In determining the aggregate amount of Restricted Payments made subsequent
to the Issue Date in accordance with clause (iii) of the immediately preceding
paragraph, amounts expended pursuant to clauses (1), (2)(ii), (3)(ii)(A) and (5)
above and clause (vi) of the definition of Permitted Investments shall be
included in such calculation.
Not later than the date of making any Restricted Payment, the Company
shall deliver to the Trustee an Officers' Certificate stating that such
Restricted Payment complies with this Indenture and setting forth in reasonable
detail the basis upon which the required calculations were computed, which
calculations may be based upon the Company's latest available internal quarterly
financial statements.
SECTION 4.04. Limitation on Indebtedness.
--------------------------
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, create, incur, assume, guarantee,
acquire, become liable, contingently or otherwise, with respect to, or otherwise
become responsible for payment of (collectively, "incur") any Indebtedness
(other than Permitted Indebtedness); provided, however, that if no Default or
-------- -------
Event of Default shall have occurred and be continuing at the time of or as a
consequence of the incurrence of any such Indebted-
<PAGE>
-46-
ness, the Company may incur Indebtedness (including, without limitation,
Acquired Indebtedness) if on the date of the incurrence of such Indebtedness,
after giving effect to the incurrence thereof, the Consolidated Fixed Charge
Coverage Ratio of the Company is greater than 1.9 to 1.0 through October 31,
1999 and greater than 2.0 to 1.0 thereafter.
(b) The Company will not, directly or indirectly, in any event incur
any Indebtedness which by its terms (or by the terms of any agreement governing
such Indebtedness) is subordinated to any other Indebtedness of the Company
unless such Indebtedness is also by its terms (or by the terms of any agreement
governing such Indebtedness) made expressly subordinate to the Securities to
the same extent and in the same manner as such Indebtedness is subordinated
pursuant to subordination provisions that are most favorable to the holders of
any other Indebtedness of the Company.
SECTION 4.05. Corporate Existence.
-------------------
Except as otherwise permitted by Article Five, the Company shall do or
cause to be done all things necessary to preserve and keep in full force and
effect its corporate existence and the corporate, partnership or other existence
of each of its Subsidiaries in accordance with the respective organizational
documents of each Subsidiary and the rights (charter and statutory) and material
franchises of the Company and each of its Subsidiaries; provided, however, that
-------- -------
the Company shall not be required to preserve any such right or franchise, or
the corporate existence of any Subsidiary, if the Board of Directors of the
Company shall determine that the preservation thereof is no longer desirable in
the conduct of the business of the Company and each of its Subsidiaries, taken
as a whole, and that the loss thereof is not, and will not be, adverse in any
material respect to the Holders.
SECTION 4.06. Payment of Taxes and Other Claims.
---------------------------------
The Company shall pay or discharge or cause to be paid or discharged,
before the same shall become delinquent, (i) all material taxes, assessments and
governmental charges levied or imposed upon it or any of its Subsidiaries or
upon the income, profits or property of it or any of its Subsidiaries and (ii)
all lawful claims for labor, materials and supplies which, in each case, if
unpaid, might by law become a material liability or Lien upon the property of
it or any of its Subsidiaries; provided, however, that the Company shall not be
-------- -------
required to pay or discharge or cause to be paid or discharged any such tax,
assessment, charge or claim whose amount, applicability or
<PAGE>
-47-
validity is being contested in good faith by appropriate proceedings and for
which appropriate provision has been made.
SECTION 4.07. Maintenance of Properties and Insurance.
---------------------------------------
(a) The Company shall cause all material properties owned by or
leased by it or any of its Subsidiaries used or useful to the conduct of its
business or the business of any of its Subsidiaries to be improved or maintained
and kept in normal condition, repair and working order and supplied with all
necessary equipment and shall cause to be made all necessary repairs, renewals,
replacements, betterments and improvements thereof, all as in its judgment may
be necessary, so that the business carried on in connection therewith may be
properly and advantageously conducted at all times; provided, however, that
-------- -------
nothing in this Section 4.07 shall prevent the Company or any of its
Subsidiaries from discontinuing the use, operation or maintenance of any of such
properties, or disposing of any of them, if such discontinuance or disposal is,
in the judgment of the Board of Directors or of the board of directors of any
Subsidiary of the Company concerned, or of an officer (or other agent employed
by the Company or of any of its Subsidiaries) of the Company or any of its
Subsidiaries having managerial responsibility for any such property, desirable
in the conduct of the business of the Company or any Subsidiary of the Company,
and if such discontinuance or disposal is not adverse in any material respect to
the Holders.
(b) The Company shall maintain, and shall cause its Subsidiaries to
maintain, insurance with responsible carriers against such risks and in such
amounts, and with such deductibles, retentions, self-insured amounts and co-
insurance provisions, as are customarily carried by similar businesses of
similar size, including property and casualty loss, workers' compensation and
interruption of business insurance. The Company shall provide, and shall cause
its Subsidiaries to provide, an Officers' Certificate as to compliance with the
foregoing requirements to the Trustee prior to the anniversary or renewal date
of each such policy, together with satisfactory evidence of such insurance,
which certificate shall expressly state such expiration date for each policy
listed.
SECTION 4.08. Compliance Certificate; Notice of Default.
-----------------------------------------
(a) The Company shall deliver to the Trustee, within 100 days after
the close of each fiscal year an Officers' Certificate stating that a review of
the activities of the Company has been made under the supervision of the signing
officers with a view to determining whether it has kept, observed, performed and
fulfilled its obligations under
<PAGE>
-48-
this Indenture and further stating, as to each such Officer signing such
certificate, that to the best of his knowledge the Company during such preceding
fiscal year has kept, observed, performed and fulfilled each and every such
covenant and no Default or Event of Default occurred during such year and at the
date of such certificate there is no Default or Event of Default which has
occurred and is continuing or, if such signers do know of such Default or Event
of Default, the certificate shall describe its status with particularity. The
Officers' Certificate shall also notify the Trustee should the Company elect to
change the manner in which it fixes its fiscal year end.
(b) The Company shall deliver to the Trustee, forthwith upon becoming
aware of any Default or Event of Default in the performance of any covenant,
agreement or condition contained in this Indenture, an Officers' Certificate
specifying the Default or Event of Default and describing its status with
particularity.
SECTION 4.09. Compliance with Laws.
--------------------
The Company shall comply, and shall cause each of its Subsidiaries to
comply, with all applicable statutes, rules, regulations, orders and
restrictions of the United States of America, all states and municipalities
thereof, and of any governmental department, commission, board, regulatory
authority, bureau, agency and instrumentality of the foregoing, in respect of
the conduct of their respective businesses and the ownership of their respective
properties, except for such noncompliances as would not in the aggregate have a
material adverse effect on the financial condition or results of operations of
the Company and its Subsidiaries taken as a whole.
SECTION 4.10. SEC Reports.
-----------
(a) The Company will file with the SEC all information documents and
reports to be filed with the SEC pursuant to Section 13 or 15(d) of the Exchange
Act, whether or not the Company is subject to such filing requirements so long
as the SEC will accept such filings. The Company (at its own expense) will
deliver to the Trustee within 15 days after it files them with the SEC, copies
of the quarterly and annual reports and of the information, documents and other
reports (or copies of such portions of any of the foregoing as the SEC may by
rules and regulations prescribe) which the Company files with the SEC pursuant
to Section 13 or 15(d) of the Exchange Act. Upon qualification of this Indenture
under the TIA, the Company shall also comply with the provisions of TIA (S)
314(a).
<PAGE>
-49-
(b) At the Company's expense, regardless of whether the Company is
required to furnish such reports to its stockholders pursuant to the Exchange
Act, the Company shall cause an annual report and each quarterly or other
financial report to be delivered to the Trustee and the Trustee will mail them
to the Holders at their addresses appearing in the register of Securities
maintained by the Registrar.
(c) The Company will, upon request, provide to any Holder of
Securities or any prospective transferee of any such Holder any information
concerning the Company (including financial statements) necessary in order to
permit such Holder to sell or transfer Securities in compliance with Rule 144A
under the Securities Act.
SECTION 4.11. Waiver of Stay, Extension or Usury Laws.
---------------------------------------
The Company covenants (to the extent that it may lawfully do so) that
it shall not at any time insist upon, plead, or in any manner whatsoever claim
or take the benefit or advantage of, any stay or extension law or any usury law
or other law that would prohibit or forgive the Company from paying all or any
portion of the principal of and/or interest on the Securities as contemplated
herein, wherever enacted, now or at any time hereafter in force, or which may
affect the covenants or the performance of this Indenture, and (to the extent
that it may lawfully do so) the Company hereby expressly waives all benefit or
advantage of any such law, and covenants that it will not hinder, delay or
impede the execution of any power herein granted to the Trustee, but will suffer
and permit the execution of every such power as though no such law had been
enacted.
SECTION 4.12. Limitation on Transactions with Affiliates.
------------------------------------------
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, directly or indirectly, enter into or permit to exist any
transaction or series of related transactions (including, without limitation,
the purchase, sale, lease or exchange of any property or the rendering of any
service) with, or for the benefit of, any of its Affiliates (each an "Affiliate
Transaction"), other than (x) Affiliate Transactions permitted under paragraph
(b) below and (y) Affiliate Transactions on terms that are no less favorable
than those that might reasonably have been obtained in a comparable transaction
at such time on an arm's-length basis from a Person that is not an Affiliate of
the Company or such Restricted Subsidiary. All Affiliate Transactions (and each
series of related Affiliate Transactions which are similar or part of a common
plan) involving aggregate payments or other property with a fair market value in
excess of
<PAGE>
-50-
$500,000 shall be approved by the Board of Directors of the Company or such
Restricted Subsidiary, as the case may be, such approval to be evidenced by a
Board Resolution stating that such Board of Directors has determined that such
transaction complies with the foregoing provisions. If the Company or any
Restricted Subsidiary enters into an Affiliate Transaction (or a series of
related Affiliate Transactions related to a common plan) that involves an
aggregate fair market value of more than $4 million, the Company or such
Restricted Subsidiary, as the case may be, shall, prior to the consummation
thereof, obtain an opinion stating that such transaction or series of related
transactions are fair to the Company or the relevant Restricted Subsidiary, as
the case may be, from a financial point of view, from an Independent Financial
Advisor and file the same with the Trustee.
(b) The restrictions set forth in clause (a) shall not apply to (i)
reasonable fees and compensation paid to and indemnity provided on behalf of,
officers, directors, employees or consultants of the Company or any Restricted
Subsidiary as determined in good faith by the Company's Board of Directors; (ii)
transactions exclusively between or among the Company and any of the Restricted
Subsidiaries or exclusively between or among such Restricted Subsidiaries,
provided such transactions are not otherwise prohibited by this Indenture;
(iii) Restricted Payments permitted by this Indenture; (iv) advances and loans
to employees and officers in the ordinary course of business; and (v) payments
to HMK Enterprises, Inc. and/or its Affiliates required pursuant to the
Management Agreement or the Intercompany Agreements.
SECTION 4.13. Impairment of Security Interest.
-------------------------------
The Company shall not, and shall not permit any Restricted Subsidiary
of the Company to, take or omit to take any action, which action or omission
would have the result of materially adversely affecting the security interests
in the Collateral in favor of the Collateral Agent for the benefit of the
Trustee and the Securityholders, nor shall the Company or any such Subsidiary
grant any interest whatsoever in the Collateral except as expressly permitted by
this Indenture and the Security Documents.
SECTION 4.14. Limitation on Dividend and Other Payment
Restrictions Affecting Subsidiaries.
------------------------------------
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create or otherwise cause or
permit to exist or become effective any encumbrance or restriction on the
ability of any Restricted Subsidi-
<PAGE>
-51-
ary to (a) pay dividends or make any other distributions on or in respect of its
Capital Stock; (b) make loans or advances or to pay any Indebtedness or other
obligation owed to the Company or any other Restricted Subsidiary; or (c)
transfer any of its property or assets to the Company or any other Restricted
Subsidiary, except for such encumbrances or restrictions existing under or by
reason of: (1) applicable law; (2) this Indenture and the Security Documents;
(3) customary non-assignment provisions of any contract or any lease governing a
leasehold interest of any Restricted Subsidiary; (4) any instrument governing
Acquired Indebtedness, which encumbrance or restriction is not applicable to any
Person, or the properties or assets of any Person, other than the Person or the
properties or assets of the Person so acquired (including, but not limited to,
such Person's direct and indirect Subsidiaries); (5) agreements existing on the
Issue Date to the extent and in the manner such agreements are in effect on the
Issue Date; (6) Permitted Liens; or (7) an agreement governing Indebtedness
incurred to Refinance the Indebtedness issued, assumed or incurred pursuant to
an agreement referred to in clause (2), (4) or (5) above; provided, however,
that the provisions relating to such encumbrance or restriction contained in any
such Indebtedness are no less favorable to the Company in any material respect
as determined by the Board of Directors of the Company in its reason able and
good faith judgment than the provisions relating to such encumbrance or
restriction contained in agreements referred to in such clause (2), (4) or (5).
SECTION 4.15. Limitation on Liens.
-------------------
The Company will not, and will not cause or permit any of the
Restricted Subsidiaries to, directly or indirectly, create, incur, assume or
permit or suffer to exist any Liens upon any property or assets of the Company
or any of the Restricted Subsidiaries whether owned on the Issue Date or
acquired after the Issue Date, or any proceeds therefrom, except (i) in the case
of Property not constituting Collateral, Permitted Liens, and (ii) in the case
of Property constituting Collateral, Liens permitted by the Security Documents.
SECTION 4.16. Change of Control.
-----------------
(a) Upon the occurrence of a Change of Control, each Holder will have
the right to require that the Company purchase all or a portion of such Holder's
Securities pursuant to the offer described below (the "Change of Control
Offer"), at a purchase price equal to 101% of the principal amount thereof plus
accrued interest to the date of purchase.
<PAGE>
-52-
(b) Within 30 days following the date upon which the Change of
Control occurred (the "Change of Control Date"), the Company shall send, by
first class mail, a notice to each Holder, with a copy to the Trustee, which
notice shall govern the terms of the Change of Control Offer. The notice to the
Holders shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to the Change of Control Offer. Such
notice shall state:
(1) that the Change of Control Offer is being made pursuant to this
Section 4.16 and that all Securities tendered and not withdrawn will be
accepted for payment;
(2) the purchase price (including the amount of accrued interest)
and the purchase date (which shall be no earlier than 30 days nor later
than 60 days from the date such notice is mailed, other than as may be
required by law) (the "Change of Control Payment Date") and that the Change
of Control Offer will remain open for at least 20 Business Days and until
the close of business on the Business Day prior to the Change of Control
Payment Date;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Change of Control Offer
shall cease to accrue interest after the Change of Control Payment Date;
(5) that Holders electing to have a Security purchased pursuant to a
Change of Control Offer will be required to surrender the Security, with
the form entitled "Option of Holder to Elect Purchase" on the reverse of
the Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the third Business Day prior to
the Change of Control Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the
Change of Control Payment Date, a telegram, telex, facsimile transmission
or letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased;
<PAGE>
-53-
(7) that Holders whose Securities are purchased only in part will be
issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; provided that each Security
purchased and each new Security issued shall be in an original principal
amount of $1,000 or integral multiples thereof; and
(8) the circumstances and relevant facts regarding such Change of
Control.
On or before the Change of Control Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Change of Control Offer, (ii) deposit with the Paying Agent U.S. Legal Tender
sufficient to pay the purchase price plus accrued interest, if any, to the
Change of Control Payment Date of all Securities so tendered and (iii) deliver
to the Trustee Securities so accepted together with an Officers' Certificate
stating the Securities or portions thereof being purchased by the Company. The
Paying Agent shall promptly mail to the Holders of Securities so accepted
payment in an amount equal to the purchase price plus accrued interest, if any,
to the Change of Control Payment Date and the Trustee shall promptly
authenticate and mail to such Holders new Securities equal in principal amount
to any unpurchased portion of the Securities surrendered. Any Securities not so
accepted shall be promptly mailed by the Company to the Holder thereof. For
purposes of this Section 4.16, the Trustee shall act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to a
Change of Control Offer shall be returned by the Trustee to the Company.
The Company shall comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of Securities pursuant to a Change of Control Offer. To the extent
the provisions of any securities laws or regulations conflict with the
provisions under this Section 4.16, the Company shall comply with the applicable
securities laws and regulations and shall not be deemed to have breached its
obligations under this Section 4.16 by virtue thereof.
SECTION 4.17. Limitation on Sale of Assets.
----------------------------
(a) The Company will not, and will not permit any of the Restricted
Subsidiaries to, consummate an Asset Sale unless (i) the Company or the
applicable Re-
<PAGE>
-54-
stricted Subsidiary, as the case may be, receives consideration at the time of
such Asset Sale at least equal to the fair market value of the assets sold or
otherwise disposed of (as determined in good faith by the Company's Board of
Directors), (ii) at least 75% of the consideration received by the Company or
the Restricted Subsidiary, as the case may be, from such Asset Sale shall be in
the form of cash and/or Cash Equivalents and is received at the time of such
disposition, and (iii) to the extent such Asset Sale involves Collateral, it
shall be in compliance with the provisions described under Section 10.04.
(b) Upon the consummation of an Asset Sale, the Company may apply, or
may cause such Restricted Subsidiary to apply, the Net Cash Proceeds relating to
such Asset Sale within 180 days of receipt thereof to make an investment in
properties and assets that replace the properties and assets that were the
subject of such Asset Sale or in Replacement Assets; provided that, to the
--------
extent the Net Cash Proceeds relate to an Asset Sale of Collateral, the
Replacement Assets, if any, relating to such Net Cash Proceeds shall be of a
type constituting Collateral and shall be subject to a first priority Lien in
favor of the Trustee pursuant to the Security Documents and shall constitute
Collateral.
(c) On the 180th day after an Asset Sale or such earlier date, if
any, as the Board of Directors of the Company or of such Restricted Subsidiary
determines not to apply the Net Cash Proceeds relating to such Asset Sale as set
forth in the next preceding sentence (each, a "Net Proceeds Offer Trigger
Date"), such aggregate amount of Net Cash Proceeds which have not been applied
on or before such Net Proceeds Offer Trigger Date as permitted in the next
preceding sentence (each a "Net Proceeds Offer Amount") shall be applied by the
Company or such Restricted Subsidiary to make an offer to purchase (the "Net
Proceeds Offer") on a date (the "Net Proceeds Offer Payment Date") not less than
30 nor more than 60 days following the applicable Net Proceeds Offer Trigger
Date, from all Holders on a pro rata basis, that amount of Securities equal to
--- ----
the Net Proceeds Offer Amount at a price equal to 100% of the principal amount
of the Securities to be purchased, plus accrued and unpaid interest thereon, if
any, to the date of purchase; provided, however, that if at any time any non-
-------- -------
cash consideration received by the Company or any Restricted Subsidiary, as the
case may be, in connection with any Asset Sale is converted into or sold or
otherwise disposed of for cash (other than interest received with respect to any
such non-cash consideration), then such con version or disposition shall be
deemed to constitute an Asset Sale hereunder and the Net Cash Proceeds thereof
shall be applied in accordance with this Section 4.17.
<PAGE>
-55-
(d) The Company may defer the Net Proceeds Offer until there is an
aggregate unutilized Net Proceeds Offer Amount equal to or in excess of $5
million resulting from one or more Asset Sales (at which time, the entire
unutilized Net Proceeds Offer Amount, not just the amount in excess of $5
million, shall be applied as required pursuant to this paragraph). All Net Cash
Proceeds in excess of $5 million from Asset Sales not immediately applied to
purchase Replacement Assets, pending their application in accordance with this
Section 4.17 or the release thereof in accordance with Section 10.05 hereof,
shall be deposited in a cash collateral account under this Indenture.
(e) Subject to the deferral of the Net Proceeds Offer contained in
subsection (d) above, each notice of a Net Proceeds Offer pursuant to this
Section 4.17 shall be mailed or caused to be mailed, by first class mail, by the
Company within 25 days following the Net Proceeds Offer Trigger Date to all
Holders at their last registered ad dresses, with a copy to the Trustee. The
notice shall contain all instructions and materials necessary to enable such
Holders to tender Securities pursuant to the Net Proceeds Offer and shall state
the following terms:
(1) that the Net Proceeds Offer is being made pursuant to Section
4.17 and that all Securities tendered will be accepted for payment;
provided, however, that if the aggregate principal amount of Securities
-------- -------
tendered in a Net Proceeds Offer plus accrued interest at the Net Proceeds
Offer Payment Date exceeds the aggregate amount of the Net Proceeds Offer
Amount, the Company shall select the Securities to be purchased on a pro
---
rata basis (with such adjustments as may be deemed appropriate by the
----
Company so that only Securities in denominations of $1,000 or multiples
thereof shall be purchased);
(2) the purchase price (including the amount of accrued interest)
and the Net Proceeds Offer Payment Date (which shall be at least 20
Business Days from the date of mailing of notice of such Net Proceeds
Offer, or such longer period as required by law;
(3) that any Security not tendered will continue to accrue interest;
(4) that, unless the Company defaults in making payment therefor,
any Security accepted for payment pursuant to the Net Proceeds Offer shall
cease to accrue interest after the Net Proceeds Offer Payment Date;
<PAGE>
-56-
(5) that Holders electing to have a Security purchased pursuant to
a Net Proceeds Offer will be required to surrender the Security, with the
form entitled "Option of Holder to Elect Purchase" on the reverse of the
Security completed, to the Paying Agent at the address specified in the
notice prior to the close of business on the Business Day prior to the Net
Proceeds Offer Payment Date;
(6) that Holders will be entitled to withdraw their election if the
Paying Agent receives, not later than five Business Days prior to the Net
Proceeds Offer Payment Date, a telegram, telex, facsimile transmission or
letter setting forth the name of the Holder, the principal amount of the
Securities the Holder delivered for purchase and a statement that such
Holder is withdrawing his election to have such Security purchased; and
(7) that Holders whose Securities are purchased only in part will
be issued new Securities in a principal amount equal to the unpurchased
portion of the Securities surrendered; provided that each Security
--------
purchased and each new Security issued shall be in an original principal
amount of $1,000 or integral multiples thereof.
On or before the Net Proceeds Offer Payment Date, the Company shall
(i) accept for payment Securities or portions thereof tendered pursuant to the
Net Proceeds Offer which are to be purchased in accordance with item (e)(1)
above, (ii) deposit with the Paying Agent U.S. Legal Tender sufficient to pay
the purchase price plus accrued interest, if any, of all Securities to be
purchased and (iii) deliver to the Trustee Securities so accepted together with
an Officers' Certificate stating the Securities or portions thereof being
purchased by the Company. The Paying Agent shall promptly mail to the Holders
of Securities so accepted payment in an amount equal to the purchase price plus
accrued interest, if any. For purposes of this Section 4.17, the Trustee shall
act as the Paying Agent.
Any amounts remaining after the purchase of Securities pursuant to an
Asset Sale Offer shall be returned by the Trustee to the Company.
In the event of the transfer of substantially all (but not all) of the
property and assets of the Company and the Restricted Subsidiaries as an
entirety to a Person in a transaction permitted under Section 5.01, the
successor corporation shall be deemed to have sold the properties and assets of
the Company and the Restricted Subsidiaries not
<PAGE>
-57-
so transferred for purposes of this Section 4.17, and shall comply with the
provisions of this Section 4.17 with respect to such deemed sale as if it were
an Asset Sale. In addition, the fair market value of such properties and assets
of the Company or the Restricted Subsidiaries deemed to be sold shall be deemed
to be Net Cash Proceeds for purposes of this Section 4.17.
The Company will comply with the requirements of Rule 14e-1 under the
Exchange Act and any other securities laws and regulations thereunder to the
extent such laws and regulations are applicable in connection with the
repurchase of the Securities pursuant to a Net Proceeds Offer. To the extent
that the provisions of any securities laws or regulations conflict with the
provisions of this Indenture relating to an Asset Sale, the Company shall comply
with the applicable securities laws and regulations and shall not be deemed to
have breached its obligations relating to such Asset Sale by virtue thereof.
In the event that the Capital Stock of a Restricted Subsidiary of the
Company, which has entered into a supplemental indenture guaranteeing the
obligations of the Company under the Securities and this Indenture, is sold or
otherwise disposed of in a transaction with any Person that is not an Affiliate
of the Company, such Restricted Subsidiary shall be deemed automatically and
unconditionally released and discharged from any of its obligations under the
supplemental indenture without any further action on the part of the Trustee or
any holder of the Securities; provided that the Net Cash Proceeds of such sale
--------
or other disposition are applied in accordance with the applicable provisions of
this Indenture.
SECTION 4.18. Limitation on Sale and Leaseback Transactions.
---------------------------------------------
The Company will not, and will not permit any Restricted Subsidiary of
the Company to, enter into any Sale and Leaseback Transaction with respect to
Property (whether now owned or hereafter acquired) unless (i)(a) the Property
that is the subject of the Sale and Leaseback Transaction does not constitute
Collateral and (b) the sale or transfer of the Property to be leased complies
with the requirements of Section 4.17 and (ii) the Company or such Restricted
Subsidiary would be entitled under Section 4.04 to incur any Capitalized Lease
Obligation in respect of such Sale and Leaseback Transaction.
<PAGE>
-58-
SECTION 4.19. Limitation on Preferred Stock of Subsidiaries.
----------------------------------------------
The Company will not permit any of the Restricted Subsidiaries to
issue any Preferred Stock (other than to the Company or to a Wholly Owned
Subsidiary) or permit any Person (other than the Company or a Wholly Owned
Subsidiary) to own any Preferred Stock of any Restricted Subsidiary.
SECTION 4.20. Limitation on Designations of Unrestricted Subsidiaries
------------
(a) The Company may designate any Subsidiary of the Company (other
than a Subsidiary of the Company which owns Capital Stock of a Restricted Sub-
sidiary) as an "Unrestricted Subsidiary" under this Indenture (a "Designation")
only if:
(i) no Default shall have occurred and be continuing at the time of
or after giving effect to such Designation;
(ii) the Company would be permitted under this Indenture to make an
Investment at the time of Designation (assuming the effectiveness of such
Designation) in an amount (the "Designation Amount") equal to the sum of
(i) fair market value of the Capital Stock of such Subsidiary owned by the
Company and the Restricted Subsidiaries on such date and (ii) the aggregate
amount of other Investments of the Company and the Restricted Subsidiaries
in such Subsidiary on such date; and
(iii) the Company would be permitted to incur $1.00 of additional
Indebtedness (other than Permitted Indebtedness) pursuant to paragraph (a)
of Section 4.04 at the time of Designation (assuming the effectiveness of
such Designation).
(b) In the event of any such Designation, the Company shall be
deemed to have made an Investment constituting a Restricted Payment pursuant to
Section 4.03 for all purposes of this Indenture in the Designation Amount. The
Company shall not, and shall not permit any Restricted Subsidiary to, at any
time (x) provide direct or indirect credit support for or a guarantee of any
Indebtedness of any Unrestricted Subsidiary (including of any undertaking,
agreement or instrument evidencing such Indebtedness), (y) be directly or
indirectly liable for any Indebtedness of any Unrestricted Subsidiary or (z) be
directly or indirectly liable for any Indebtedness which provides that the
holder thereof may (upon notice, lapse of time or both) declare a default
thereon
<PAGE>
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or cause the payment thereof to be accelerated or payable prior to its final
scheduled maturity upon the occurrence of a default with respect to any
Indebtedness of any Unrestricted Subsidiary (including any right to take
enforcement action against such Unrestricted Subsidiary), except, in the case
of clause (x) or (y), to the extent permitted under Section 4.03.
(c) The Company may revoke any Designation of a Subsidiary as an
Unrestricted Subsidiary (a "Revocation"), whereupon such Subsidiary shall then
constitute a Restricted Subsidiary, if:
(i) no Default shall have occurred and be continuing at the time of
and after giving effect to such Revocation; and
(ii) all Liens and Indebtedness of such Unrestricted Subsidiary
outstanding immediately following such Revocation would, if incurred at
such time, have been permitted to be incurred for all purposes of this
Indenture.
(d) All Designations and Revocations must be evidenced by Board
Resolutions of the Company delivered to the Trustee certifying compliance with
the foregoing provisions.
ARTICLE FIVE
SUCCESSOR CORPORATION
SECTION 5.01. Merger, Consolidation and Sale of Assets.
----------------------------------------
(a) The Company will not, in a single transaction or series of
related transactions, consolidate or merge with or into any Person, or sell,
assign, transfer, lease, convey or otherwise dispose of (or cause or permit any
Restricted Subsidiary to sell, as sign, transfer, lease, convey or otherwise
dispose of) all or substantially all of the Company's assets (determined on a
consolidated basis for the Company and the Restricted Subsidiaries) whether as
an entirety or substantially as an entirety to any Person unless: (i) either
(1) the Company shall be the surviving or continuing corporation or (2) the
Person (if other than the Company) formed by such consolidation or into which
the Company is merged or the Person which acquires by sale, assignment,
transfer, lease, conveyance or other disposition the properties and assets of
the Company and of
<PAGE>
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the Restricted Subsidiaries substantially as an entirety (the "Surviving
Entity") (x) shall be a corporation organized and validly existing under the
laws of the United States or any State thereof or the District of Columbia and
(y) shall expressly assume, by supplemental indenture (in form and substance
satisfactory to the Trustee), executed and delivered to the Trustee, the due and
punctual payment of the principal of, and premium, if any, and interest on all
of the Securities and the performance of every covenant of the Securities, this
Indenture and the Registration Rights Agreement on the part of the Company to be
performed or observed; (ii) immediately after giving effect to such transaction
and the assumption contemplated by clause (i)(2)(y) above (including giving
effect to any Indebtedness and Acquired Indebtedness incurred or anticipated to
be incurred in connection with or in respect of such transaction), the Company
or such Surviving Entity, as the case may be, (1) shall have a Consolidated
Tangible Net Worth equal to or greater than the Consolidated Tangible Net Worth
of the Company immediately prior to such transaction and (2) shall be able to
incur at least $1.00 of additional Indebtedness (other than Permitted
Indebtedness) pursuant to Section 4.04; (iii) immediately before and immedi-
ately after giving effect to such transaction and the assumption contemplated by
clause (i)(2)(y) above (including, without limitation, giving effect to any
Indebtedness and Acquired Indebtedness incurred or anticipated to be incurred
and any Lien granted in connection with or in respect of the transaction), no
Default or Event of Default shall have occurred or be continuing; and (iv) the
Company or the Surviving Entity shall have delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel, each stating that such
consolidation, merger, sale, assignment, transfer, lease, conveyance or other
disposition and, if a supplemental indenture is required in connection with such
transaction, such supplemental indenture comply with the applicable provisions
of this Indenture and that all conditions precedent in this Indenture relating
to such transaction have been satisfied.
(b) For purposes of the foregoing, the transfer (by lease,
assignment, sale or otherwise, in a single transaction or series of
transactions) of all or substantially all of the properties or assets of one or
more Restricted Subsidiaries the Capital Stock of which constitutes all or
substantially all of the properties and assets of the Company, shall be deemed
to be the transfer of all or substantially all of the properties and assets of
the Company.
<PAGE>
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SECTION 5.02. Successor Corporation Substituted.
---------------------------------
Upon any consolidation, combination or merger or any transfer of all
or substantially all of the assets of the Company in accordance with the
foregoing, in which the Company is not the continuing corporation, the successor
Person formed by such consolidation or into which the Company is merged or to
which such conveyance, lease or transfer is made shall succeed to, and be
substituted for, and may exercise every right and power of, the Company under
this Indenture and the Securities with the same effect as if such surviving
entity had been named as such.
ARTICLE SIX
DEFAULT AND REMEDIES
SECTION 6.01. Events of Default.
-----------------
An "Event of Default" occurs if:
(1) the Company fails to pay interest on any Securities when the
same becomes due and payable and the default continues for a period of 30
days;
(2) the Company fails to pay the principal on any Securities, when
such principal becomes due and payable, at maturity, upon redemption or
other wise;
(3) the Company defaults in the observance or performance of any
other covenant or agreement contained in this Indenture which default
continues for a period of 30 days after the Company receives written notice
specifying the default (and demanding that such default be remedied) from
the Trustee or the Holders of at least 25% of the outstanding principal
amount of the Securities (except in the case of a default with respect to
the Sections 4.16 and 5.01 which will constitute an Event of Default with
such notice requirement but without such passage of time requirement);
(4) the Company fails to pay at final maturity (giving effect to
any applicable grace periods and any extensions thereof) the principal
amount of any Indebtedness of the Company or any Restricted Subsidiary, or
the acceleration
<PAGE>
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of the final stated maturity of any such Indebtedness in either event if
the aggregate principal amount of such Indebtedness, together with the
principal amount of any other such Indebtedness in default for failure to
pay principal at final maturity or which has been accelerated, aggregates
$5 million or more at any time;
(5) one or more judgments in an aggregate amount in excess of $5
million in the aggregate shall have been rendered against the Company or
any of the Restricted Subsidiaries and such judgments remain undischarged,
unpaid or unstayed for a period of 60 days after such judgment or judgments
become final and non-appealable;
(6) the Company or any of its Significant Subsidiaries (A) admits
in writing its inability to pay its debts generally as they become due, (B)
commences a voluntary case or proceeding under any Bankruptcy Law with
respect to itself, (C) consents to the entry of a judgment, decree or order
for relief against it in an involuntary case or proceeding under any
Bankruptcy Law, (D) consents to the appointment of a Custodian of it or for
substantially all of its property, (E) consents to or acquiesces in the
institution of a bankruptcy or an insolvency proceeding against it, (F)
makes a general assignment for the benefit of its creditors, or (G) takes
any corporate action to authorize or effect any of the foregoing;
(7) a court of competent jurisdiction enters a judgment, decree or
order for relief in respect of the Company or any of its Significant
Subsidiaries in an involuntary case or proceeding under any Bankruptcy Law,
which shall (A) approve as properly filed a petition seeking
reorganization, arrangement, adjustment or composition in respect of the
Company or any of its Significant Subsidiaries, (B) appoint a Custodian of
the Company or any of its Significant Subsidiaries or for substantially
all of its property or (C) order the winding-up or liquidation of its
affairs; and such judgment, decree or order shall remain unstayed and in
effect for a period of 60 consecutive days; or
(8) any of the Security Documents cease to be in full force and
effect (other than in accordance with their respective terms), or any of
the Security Documents cease to give the Collateral Agent the Liens,
rights, powers and privileges purported to be created thereby, or any
Security Document is declared null and void, or the Company denies any of
its obligations under any Security
<PAGE>
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Document or any Collateral becomes subject to any Lien other than the Liens
created or permitted by the Security Documents.
The Trustee shall, within 90 days after the occurrence of any Default
known to it, give to the holders of Securities notice of such Default; provided
--------
that, except in the case of a Default in the payment of principal of or
interest on any of the Securities, the Trustee shall be protected in
withholding such notice if it in good faith determines that the withholding of
such notice is in the interest of the Holders of Securities.
SECTION 6.02. Acceleration.
------------
If an Event of Default (other than an Event of Default specified in
Section 6.01(6) or (7) relating to the Company) shall occur and be continuing,
the Trustee or the Holders of at least 25% in principal amount of outstanding
Securities may declare the principal of and accrued interest on all the
Securities to be due and payable by notice in writing to the Company and the
Trustee specifying the respective Event of Default, and the same shall become
immediately due and payable. If an Event of Default specified in Section
6.01(6) or (7) relating to the Company occurs and is continuing, then all unpaid
principal of, and premium, if any, and accrued and unpaid interest on all of the
outstanding Securities shall ipso facto become and be immediately due and
---- -----
payable without any declaration or other act on the part of the Trustee or any
Holder.
The Holders of a majority in principal amount of the Securities may
rescind and cancel such declaration and its consequences (i) if the rescission
would not conflict with any judgment or decree, (ii) if all existing Events of
Default have been cured or waived except nonpayment of principal or interest
that has become due solely because of the acceleration, (iii) to the extent the
payment of such interest is lawful, interest on overdue installments of interest
and overdue principal, which has become due otherwise than by such declaration
of acceleration, has been paid, (iv) if the Company has paid the Trustee its
reasonable compensation and reimbursed the Trustee for its expenses,
disbursements and advances and (v) in the event of the cure or waiver of an
Event of Default of the type described in Section 6.01(6) or (7), the Trustee
shall have received an Officers' Certificate and an Opinion of Counsel that such
Event of Default has been cured or waived. No such rescission shall affect any
subsequent Default or impair any right consequent thereto.
<PAGE>
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SECTION 6.03. Other Remedies.
--------------
If an Event of Default occurs and is continuing, the Trustee may
pursue any available remedy by proceeding at law or in equity to collect the
payment of principal of or interest on the Securities or to enforce the
performance of any provision of the Securities or this Indenture and may
instruct the Collateral Agent to take any action under the Security Documents as
may be required or permitted thereunder.
The Trustee may maintain a proceeding even if it does not possess any
of the Securities or does not produce any of them in the proceeding. A delay or
omission by the Trustee or any Securityholder in exercising any right or remedy
accruing upon an Event of Default shall not impair the right or remedy or
constitute a waiver of or acquiescence in the Event of Default. No remedy is
exclusive of any other remedy. All available remedies are cumulative to the
extent permitted by law.
Each Securityholder, by accepting a Security, acknowledges that the
exercise of remedies by Collateral Agent at the direction of the Trustee with
respect to the Collateral is subject to the terms and conditions of the Security
Documents and the proceeds received upon realization of the Collateral shall be
applied in accordance with Section 6.10 hereof.
SECTION 6.04. Waiver of Past Defaults.
-----------------------
Subject to Sections 2.09, 6.07 and 9.02, the Holders of not less than
a majority in principal amount of the outstanding Securities by notice to the
Trustee may waive an existing Default or Event of Default and its consequences,
except a Default in the payment of principal of or interest on any Security as
specified in clauses (1) and (2) of Section 6.01. The Company shall deliver to
the Trustee an Officers' Certificate stating that the requisite percentage of
Holders have consented to such waiver and attaching copies of such consents.
When a Default or Event of Default is waived, it is cured and ceases.
SECTION 6.05. Control by Majority.
-------------------
Subject to Section 2.09, the Holders of not less than a majority in
principal amount of the outstanding Securities may direct the time, method and
place of conducting any proceeding for any remedy available to the Trustee or
exercising any trust or power conferred on it. Subject to Section 7.01,
however, the Trustee may refuse to
<PAGE>
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follow any direction that conflicts with any law or this Indenture, that the
Trustee determines may be unduly prejudicial to the rights of another
Securityholder, or that may involve the Trustee in personal liability; provided
--------
that the Trustee may take any other action deemed proper by the Trustee which
is not inconsistent with such direction.
In the event the Trustee takes any action or follows any direction
pursuant to this Indenture, the Trustee shall be entitled to indemnification
satisfactory to it in its sole discretion against any loss or expense caused by
taking such action or following such direction.
SECTION 6.06. Limitation on Suits.
-------------------
A Securityholder may not pursue any remedy with respect to this
Indenture or the Securities unless:
(1) the Holder gives to the Trustee written notice of a
continuing Event of Default;
(2) the Holder or Holders of at least 25% in principal amount of
the outstanding Securities make a written request to the Trustee to pursue
the remedy;
(3) such Holder or Holders offer and, if requested, provide to
the Trustee indemnity satisfactory to the Trustee against any loss,
liability or expense;
(4) the Trustee does not comply with the request within 60 days
after receipt of the request and the offer and, if requested, the provision
of indemnity; and
(5) during such 60-day period the Holder or Holders of a majority
in principal amount of the outstanding Securities do not give the Trustee a
direction which, in the opinion of the Trustee, is inconsistent with the
request.
A Securityholder may not use this Indenture to prejudice the
rights of another Securityholder or to obtain a preference or priority over such
other Security holder.
<PAGE>
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SECTION 6.07. Rights of Holders To Receive Payment.
------------------------------------
Notwithstanding any other provision of this Indenture, the right of
any Holder to receive payment of principal of and interest on a Security, on or
after the respective due dates expressed in such Security, or to bring suit for
the enforcement of any such payment on or after such respective dates, shall not
be impaired or affected without the consent of the Holder except to the extent
that the institution or prosecution of such suit or entry of judgment therein
would, under applicable law, result in the surrender, impairment or waiver of
the Lien of this Indenture and the Security Documents upon the Collateral.
SECTION 6.08. Collection Suit by Trustee.
--------------------------
If an Event of Default in payment of principal or interest specified
in clause (1) or (2) of Section 6.01 occurs and is continuing, the Trustee may
recover judgment in its own name and as trustee of an express trust against the
Company or any other obligor on the Securities for the whole amount of principal
and accrued interest remaining unpaid, together with interest on overdue
principal and, to the extent that payment of such interest is lawful, interest
on overdue installments of interest, in each case at the rate per annum borne by
the Securities and such further amount as shall be sufficient to cover the costs
and expenses of collection, including the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel.
SECTION 6.09. Trustee May File Proofs of Claim.
--------------------------------
The Trustee may file such proofs of claim and other papers or
documents as may be necessary or advisable in order to have the claims of the
Trustee (including any claim for the reasonable compensation, expenses,
disbursements and advances of the Trustee, its agents and counsel) and the
Securityholders allowed in any judicial proceedings relating to the Company,
its creditors or its property and shall be entitled and empowered to collect
and receive any monies or other property payable or deliverable on any such
claims and to distribute the same, and any Custodian in any such judicial
proceedings is hereby authorized by each Securityholder to make such payments to
the Trustee and, in the event that the Trustee shall consent to the making of
such payments directly to the Securityholders, to pay to the Trustee any amount
due to it for the reasonable compensation, expenses, disbursements and advances
of the Trustee, its agent and counsel, and any other amounts due the Trustee
under Section 7.07. Nothing herein contained shall be deemed to authorize the
Trustee to authorize or consent to or accept
<PAGE>
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or adopt on behalf of any Securityholder any plan of reorganization,
arrangement, adjustment or composition affecting the Securities or the rights
of any Holder thereof, or to authorize the Trustee to vote in respect of the
claim of any Securityholder in any such proceeding.
SECTION 6.10. Priorities.
----------
If the Trustee collects any money or property pursuant to this Article
Six, it shall pay out the money or property in the following order:
First: to the Trustee for amounts due under Section 7.07 and then to
Collateral Agent for amounts due under the Security Documents (other than
payments of interest and principal described in the next subclause);
Second: to Holders for amounts due and unpaid on the Securities for
principal and interest, ratably, without preference or priority of any
kind, according to the amounts due and payable on the Securities for
principal and interest, respectively; and
Third: to the Company.
The Trustee, upon prior notice to the Company, may fix a record date
and payment date for any payment to Securityholders pursuant to this Section
6.10.
SECTION 6.11. Undertaking for Costs.
---------------------
In any suit for the enforcement of any right or remedy under this
Indenture or in any suit against the Trustee for any action taken or omitted by
it as Trustee, a court in its discretion may require the filing by any party
litigant in the suit of an under taking to pay the costs of the suit, and the
court in its discretion may assess reasonable costs, including reasonable
attorneys' fees, against any party litigant in the suit, having due regard to
the merits and good faith of the claims or defenses made by the party litigant.
This Section 6.11 does not apply to a suit by the Trustee, a suit by a Holder
pursuant to Section 6.07, or a suit by a Holder or Holders of more than 10% in
principal amount of the outstanding Securities.
<PAGE>
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ARTICLE SEVEN
TRUSTEE
SECTION 7.01. Duties of Trustee.
-----------------
(a) If an Event of Default actually known to the Trustee has occurred
and is continuing, the Trustee shall exercise such of the rights and powers
vested in it by this Indenture and use the same degree of care and skill in
their exercise as a prudent person would exercise or use under the circumstances
in the conduct of his or her own affairs. The Trustee will be under no
obligation to exercise any of its rights or powers under this Indenture at the
request of any of the holders of Securities, unless they shall have offered to
the Trustee security and indemnity satisfactory to it.
(b) Except during the continuance of an Event of Default actually
known to the Trustee:
(1) The Trustee need perform only those duties as are specifically
set forth herein and no others and no implied covenants or obligations
shall be read into this Indenture against the Trustee.
(2) In the absence of bad faith on its part, the Trustee may
conclusively rely, as to the truth of the statements and the correctness of
the opinions expressed therein, upon certificates or opinions and such
other documents delivered to it pursuant to Section 12.04 hereof furnished
to the Trustee and conforming to the requirements of this Indenture.
However, the Trustee shall examine the certificates and opinions to
determine whether or not they conform to the requirements of this
Indenture.
(c) The Trustee may not be relieved from liability for its own
negligent action, its own negligent failure to act, or its own willful
misconduct, except that:
(1) This paragraph does not limit the effect of paragraph (b) of
this Section 7.01.
<PAGE>
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(2) The Trustee shall not be liable for any error of judgment made in good
faith by a Trust Officer, unless it is proved that the Trustee was
negligent in ascertaining the pertinent facts.
(3) The Trustee shall not be liable with respect to any action it
takes or omits to take in good faith in accordance with a direction
received by it pursuant to Section 6.05.
(d) No provision of this Indenture shall require the Trustee to
expend or risk its own funds or otherwise incur any financial liability in the
performance of any of its duties hereunder or to take or omit to take any action
under this Indenture or take any action at the request or direction of Holders
if it shall have reasonable grounds for believing that repayment of such funds
is not assured to it or it does not receive an indemnity satisfactory to it in
its sole discretion against such risk, liability, loss, fee or expense which
might be incurred by it in compliance with such request or direction.
(e) Every provision of this Indenture that in any way relates to the
Trustee is subject to paragraphs (a), (b), (c) and (d) of this Section 7.01.
(f) The Trustee shall not be liable for interest on any money
received by it except as the Trustee may agree in writing with the Company.
Money held in trust by the Trustee need not be segregated from other funds
except to the extent required by law.
SECTION 7.02. Rights of Trustee.
-----------------
Subject to Section 7.01:
(a) The Trustee may rely on any document believed by it to be genuine
and to have been signed or presented by the proper person. The Trustee
need not investigate any fact or matter stated in the document.
(b) Before the Trustee acts or refrains from acting, it may require
an Officers' Certificate and an Opinion of Counsel, which shall conform to
the provisions of Section 12.05. The Trustee shall not be liable for any
action it takes or omits to take in good faith in reliance on such
certificate or opinion.
<PAGE>
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(c) The Trustee may act through its attorneys and agents and shall
not be responsible for the misconduct or negligence of any agent (other
than an agent who is an employee of the Trustee) appointed with due care.
(d) The Trustee shall not be liable for any action it takes or omits
to take in good faith which it reasonably believes to be authorized or
within its rights or powers.
(e) The Trustee may consult with counsel and the advice or opinion of
such counsel as to matters of law shall be full and complete authorization
and protection from liability in respect of any action taken, omitted or
suffered by it hereunder in good faith and in accordance with the advice or
opinion of such counsel.
(f) Subject to Section 9.02 hereof, the Trustee may (but shall not be
obligated to), without the consent of the Holders, give any consent,
waiver or approval required under the Security Documents or by the terms
hereof with respect to the Collateral, but shall not without the consent
of the Holders of not less than a majority in aggregate principal amount of
the Securities at the time outstanding (i) give any consent, waiver or
approval or (ii) agree to any amendment or modification of the Security
Documents, in each case, that shall have a material adverse effect on the
interests of any Holder. The Trustee shall be entitled to request and
conclusively rely on an Opinion of Counsel with respect to whether any
consent, waiver, approval, amendment or modification shall have a material
adverse effect on the interests of any Holder.
SECTION 7.03. Individual Rights of Trustee.
----------------------------
The Trustee in its individual or any other capacity may become the
owner or pledgee of Securities and may otherwise deal with the Company, its
Subsidiaries, or their respective Affiliates with the same rights it would have
if it were not Trustee. Any Agent may do the same with like rights. However,
the Trustee must comply with Sections 7.10 and 7.11.
<PAGE>
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SECTION 7.04. Trustee's Disclaimer.
--------------------
The Trustee shall not be responsible for and makes no representation
as to the value or condition of the Collateral or any part thereof, or as to the
title of the Company thereto, or as to the security afforded thereby or hereby,
or as to the validity or genuineness of any Collateral pledged and deposited
with the Trustee, or as to the validity or adequacy of this Indenture or the
Securities. It shall not be accountable for the Company's use of the proceeds
from the Securities, and it shall not be responsible for any statement of the
Company in this Indenture or any document issued in connection with the sale of
Securities or any statement in the Securities other than the Trustee's
certificate of authentication. The Trustee makes no representations with respect
to the effectiveness or adequacy of this Indenture or the Security Documents, or
the validity or perfection, if any, of Liens granted under this Indenture or the
Security Documents. The Trustee shall not be responsible for independently
ascertaining or maintaining such validity or perfection, if any, and shall be
fully protected in relying upon certificates and opinions delivered to it in
accordance with the terms of this Indenture or the Security Documents.
SECTION 7.05. Notice of Default.
-----------------
If a Default or an Event of Default occurs and is continuing and the
Trustee receives actual notice of such event, the Trustee shall mail to each
Security holder, as their names and addresses appear on the Securityholder list
described in Section 2.05, notice of the uncured Default or Event of Default
within 90 days after the Trustee receives such notice. Except in the case of a
Default or an Event of Default in payment of principal of, or interest on, any
Security, including the failure to make payment on (i) the Change of Control
Payment Date pursuant to a Change of Control Offer; or (ii) the Net Proceeds
Offer Payment Date pursuant to an Asset Sale, the Trustee may withhold the
notice if and so long as a committee of its Trust Officers in good faith
determines that withholding the notice is in the interest of the
Securityholders.
SECTION 7.06. Reports by Trustee to Holders.
-----------------------------
This Section 7.06 shall not be operative as a part of this Indenture
until this Indenture is qualified under the TIA, and, until such qualification,
this Indenture shall be construed as if this Section 7.06 were not contained
herein.
<PAGE>
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Within 60 days after each May 15 beginning with the May 15 following
the date of this Indenture, the Trustee shall, to the extent that any of the
events described in TIA (S) 313(a) occurred within the previous twelve months,
but not otherwise, mail to each Securityholder a brief report dated as of such
May 15 that complies with TIA (S) 313(a). The Trustee also shall comply with
TIA (S)(S) 313(b), 313(c) and 313(d).
A copy of each report at the time of its mailing to Securityholders
shall be mailed to the Company and filed with the SEC and each securities
exchange, if any, on which the Securities are listed.
The Company shall notify the Trustee if the Securities become listed
on any securities exchange or of any delisting thereof.
SECTION 7.07. Compensation and Indemnity.
--------------------------
The Company shall pay to the Trustee from time to time reasonable
compensation for its services hereunder and under the Security Documents. The
Trustee's compensation shall not be limited by any law on compensation of a
trustee of an express trust. The Company shall reimburse the Trustee upon
request for all reasonable disbursements, expenses and advances (including
reasonable fees and expenses of counsel) incurred or made by it in addition to
the compensation for its services, except any such disbursements, expenses and
advances as may be attributable to the Trustee's negligence or bad faith. Such
expenses shall include the reasonable compensation, disbursements and expenses
of the Trustee's agents, accountants, experts and counsel and any taxes or other
expenses incurred by a trust created pursuant to Section 8.01 hereof.
The Company shall indemnify the Trustee for, and hold it harmless
against, any loss or liability incurred by the Trustee without negligence or bad
faith on its part in connection with the administration of this trust and its
duties under this Indenture and in its capacity as Collateral Agent under the
Security Documents, including the reasonable expenses and attorneys' fees of
defending itself against any claim of liability arising hereunder. The Trustee
shall notify the Company promptly of any claim asserted against the Trustee for
which it may seek indemnity. However, the failure by the Trustee to so notify
the Company shall not relieve the Company of its obligations hereunder. The
Company shall defend the claim and the Trustee shall cooperate in the defense
(and may employ its own counsel) at the Company's expense. The Company need not
pay for any settlement made without its written consent, which consent shall not
be unreasonably withheld. The Company need not reimburse any expense or in-
<PAGE>
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demnify against any loss or liability incurred by the Trustee as a result of the
violation of this Indenture by the Trustee if such violation arose from the
Trustee's negligence or bad faith.
To secure the Company's payment obligations in this Section 7.07, the
Trustee shall have a senior claim prior to the Securities against all money or
property held or collected by the Trustee, in its capacity as Trustee, except
money or property held in trust to pay principal of or interest on particular
Securities.
When the Trustee incurs expenses or renders services after an Event of
Default specified in clause (6) or (7) of Section 6.01 occurs, the expenses
(including the reasonable fees and expenses of its agents and counsel) and the
compensation for the services shall be preferred over the status of the Holders
in a proceeding under any Bankruptcy Law and are intended to constitute expenses
of administration under any Bankruptcy Law. The Company's obligations under
this Section 7.07 and any claim arising hereunder shall survive the resignation
or removal of any Trustee, the discharge of the Company's obligations pursuant
to Article Eight and any rejection or termination under any Bankruptcy Law.
SECTION 7.08. Replacement of Trustee.
----------------------
The Trustee may resign at any time by so notifying the Company in
writing. The Holders of a majority in principal amount of the outstanding
Securities may remove the Trustee by so notifying the Company and the Trustee in
writing and may appoint a successor trustee with the Company's consent. The
Company may remove the Trustee if:
(1) the Trustee fails to comply with Section 7.10;
(2) the Trustee is adjudged a bankrupt or an insolvent;
(3) a receiver or other public officer takes charge of the Trustee
or its property; or
(4) the Trustee becomes incapable of acting.
If the Trustee resigns or is removed or if a vacancy exists in the
office of Trustee for any reason, the Company shall notify each Holder of such
event and shall promptly appoint a successor Trustee. Within one year after the
successor Trustee takes
<PAGE>
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office, the Holders of a majority in principal amount of the Securities may
appoint a successor Trustee to replace the successor Trustee appointed by the
Company.
A successor Trustee shall deliver a written acceptance of its
appointment to the retiring Trustee and to the Company. Immediately after that,
the retiring Trustee shall transfer, after payment of all sums then owing to the
Trustee pursuant to Section 7.07, all property held by it as Trustee to the
successor Trustee, subject to the lien provided in Section 7.07, the
resignation or removal of the retiring Trustee shall become effective, and the
successor Trustee shall have all the rights, powers and duties of the Trustee
under this Indenture. A successor Trustee shall mail notice of its succession
to each Securityholder.
If a successor Trustee does not take office within 60 days after the
retiring Trustee resigns or is removed, the retiring Trustee, the Company or
the Holders of at least 10% in principal amount of the outstanding Securities
may petition any court of competent jurisdiction for the appointment of a
successor Trustee.
If the Trustee fails to comply with Section 7.10, any Securityholder
may petition any court of competent jurisdiction for the removal of the Trustee
and the appointment of a successor Trustee.
Any resignation or removal of the Trustee pursuant to this Indenture
shall be deemed to be a resignation or removal of the Trustee in its capacity as
Collateral Agent under the Security Documents and any appointment of a successor
Trustee pursuant to this Indenture shall be deemed to be an appointment of a
successor Collateral Agent under the Security Documents and such successor shall
assume all of the obligations of the Trustee in its capacity as Collateral
Agent under the Security Documents.
Notwithstanding replacement of the Trustee pursuant to this Section
7.08, the Company's obligations under Section 7.07 shall continue for the
benefit of the retiring Trustee.
<PAGE>
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SECTION 7.09. Successor Trustee by Merger, Etc.
--------------------------------
If the Trustee consolidates with, merges or converts into, or
transfers all or substantially all of its corporate trust business to, another
corporation, the resulting, surviving or transferee corporation without any
further act shall, if such resulting, surviving or transferee corporation is
otherwise eligible hereunder, be the successor Trustee (and successor Collateral
Agent under the Security Documents).
SECTION 7.10. Eligibility; Disqualification.
-----------------------------
This Indenture shall always have a Trustee who satisfies the
requirement of TIA (S)(S) 310(a)(1) and 310(a)(5). The Trustee shall have a
combined capital and surplus of at least $100,000,000 as set forth in its most
recent published annual report of condition. The Trustee shall comply with TIA
(S) 310(b); provided, however, that there shall be excluded from the operation
-------- -------
of TIA (S) 310(b)(1) any indenture or indentures under which other securities,
or certificates of interest or participation in other securities, of the Company
are outstanding, if the requirements for such exclusion set forth in TIA (S)
310(b)(1) are met.
SECTION 7.11. Preferential Collection of Claims Against Company.
-------------------------------------------------
The Trustee, in its capacity as Trustee hereunder and in its capacity
as Collateral Agent under the Security Documents, shall comply with TIA (S)
311(a), excluding any creditor relationship listed in TIA (S) 311(b). A
Trustee who has resigned or been removed shall be subject to TIA (S) 311(a) to
the extent indicated.
SECTION 7.12. Appointment of Co-Trustee.
-------------------------
If the Trustee deems it necessary or desirable in connection with the
Collateral and/or the enforcement of the Security Documents, the Trustee may
appoint a co-Trustee with such powers of the Trustee as may be designated by the
Trustee at the time of such appointment, and the Company shall, on request,
execute and deliver to such co-Trustee any deeds, conveyances or other
instruments required by such co-Trustee so appointed by the Trustee to more
fully and certainly vest in and confirm to such co-Trustee its rights, powers,
trusts, duties and obligations hereunder.
<PAGE>
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ARTICLE EIGHT
SATISFACTION AND DISCHARGE OF INDENTURE
SECTION 8.01. Legal Defeasance and Covenant Defeasance.
----------------------------------------
(a) The Company may, at its option by Board Resolution, at any time,
with respect to the Securities, elect to have either paragraph (b) or paragraph
(c) below be applied to the outstanding Securities upon compliance with the
conditions set forth in paragraph (d).
(b) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (b), the Company shall be deemed to have been
released and discharged from its obligations with respect to the outstanding
Securities on the date the conditions set forth below are satisfied
(hereinafter, "Legal Defeasance"). For this purpose, such Legal Defeasance
means that the Company shall be deemed to have paid and discharged the entire
indebtedness represented by the outstanding Securities, which shall thereafter
be deemed to be "outstanding" only for the purposes of the Sections and matters
under this Indenture referred to in (i) and (ii) below, and to have satisfied
all its other obligations under such Securities and this Indenture insofar as
such Securities are concerned, except for the following which shall survive
until otherwise terminated or discharged hereunder: (i) the rights of Holders
of outstanding Securities to receive solely from the trust fund described in
paragraph (d) below and as more fully set forth in such paragraph, payments in
respect of the principal of and interest on such Securities when such payments
are due and (ii) obligations listed in Section 8.03, subject to compliance with
this Section 8.01. The Company may exercise its option under this paragraph
(b) notwithstanding the prior exercise of its option under paragraph (c) below
with respect to the Securities.
(c) Upon the Company's exercise under paragraph (a) of the option
applicable to this paragraph (c), the Company shall be released and discharged
from its obligations under any covenant contained in Sections 4.03 through 4.20
and Article Five with respect to the outstanding Securities on and after the
date the conditions set forth below are satisfied (hereinafter, "Covenant
Defeasance"), and the Securities shall thereafter be deemed to be not
"outstanding" for the purpose of any direction, waiver, consent or declaration
or act of Holders (and the consequences of any thereof) in connection with such
covenants, but shall continue to be deemed "outstanding" for all other
<PAGE>
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purposes hereunder. For this purpose, such Covenant Defeasance means that, with
respect to the outstanding Securities, the Company may omit to comply with and
shall have no liability in respect of any term, condition or limitation set
forth in any such covenant, whether directly or indirectly, by reason of any
reference elsewhere herein to any such covenant or by reason of any reference in
any such covenant to any other provision herein or in any other document and
such omission to comply shall not constitute a De fault or an Event of Default
under Section 6.01(3), nor shall any event referred to in Section 6.01(4), (5)
or (8) thereafter constitute a Default or an Event of Default there under but,
except as specified above, the remainder of this Indenture and such Securities
shall be unaffected thereby.
(d) The following shall be the conditions to application of either
paragraph (b) or paragraph (c) above to the outstanding Securities:
(1) The Company shall have irrevocably deposited in trust with the
Trustee, pursuant to an irrevocable trust and security agreement in form
and substance satisfactory to the Trustee, U.S. Legal Tender or direct
non-callable obligations of, or non-callable obligations guaranteed by, the
United States of America for the payment of which obligation or guarantee
the full faith and credit of the United States of America is pledged ("U.S.
Government Obligations") maturing as to principal and interest in such
amounts and at such times as are sufficient, without consideration of the
reinvestment of such interest and after payment of all Federal, state and
local taxes or other charges or assessments in respect thereof payable by
the Trustee, in the opinion of a nationally recognized firm of Independent
public accountants expressed in a written certification thereof (in form
and substance reasonably satisfactory to the Trustee) delivered to the
Trustee, to pay the principal of, premium, if any, and interest on the out
standing Securities on the dates on which any such payments are due and
payable in accordance with the terms of this Indenture and of the
Securities;
(2) Such deposits shall not cause the Trustee to have a conflicting
interest as defined in and for purposes of the TIA;
(3) No Default or Event of Default (i) shall have occurred or be
continuing on the date of such deposit (other than a Default or Event of
Default resulting from the Incurrence of Indebtedness, all or a portion of
which will be used to defease the Securities concurrently with such
Incurrence) or (ii) shall occur on or before the 91st day after the date of
such deposit;
<PAGE>
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(4) Such deposit will not result in a Default under this Indenture
or a breach or violation of, or constitute a default under, any other
material instrument or agreement to which the Company or any of its
Subsidiaries is a party or by which it or its property is bound;
(5) (i) In the event the Company elects paragraph (b) hereof, the
Company shall deliver to the Trustee an Opinion of Counsel in the United
States, in form and substance reasonably satisfactory to the Trustee to the
effect that (A) the Company has received from, or there has been published
by, the Internal Revenue Service a ruling or (B) since the Issue Date,
there has been a change in the applicable federal income tax law, in either
case to the effect that, and based thereon such Opinion of Counsel shall
state that, or (ii) in the event the Company elects paragraph (c) hereof,
the Company shall deliver to the Trustee an Opinion of Counsel in the
United States, in form and substance reasonably satisfactory to the
Trustee, to the effect that, in the case of clauses (i) and (ii), Holders
of the Securities will not recognize income, gain or loss for Federal
income tax purposes as a result of such deposit and the defeasance
contemplated hereby and will be subject to Federal income tax in the same
amounts and in the same manner and at the same times as would have been the
case if such deposit and defeasance had not occurred;
(6) The deposit shall not result in the Company, the Trustee or the
trust becoming or being deemed to be an "investment company" under the
Investment Company Act of 1940;
(7) The Holders shall have a perfected security interest under
applicable law in the U.S. Legal Tender or U.S. Government Obligations
deposited pursuant to Section 8.01(d)(1) above;
(8) The Company shall have delivered to the Trustee an Officer's
Certificate, in form and substance reasonably satisfactory to the Trustee,
stating that the deposit under clause (1) was not made by the Company with
the intent of defeating, hindering, delaying or defrauding any other
creditors of the Company or others;
<PAGE>
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(9) The Company shall have delivered to the Trustee an Opinion of
Counsel, in form and substance reasonably satisfactory to the Trustee, to
the effect that, (A) the trust funds will not be subject to the rights of
holders of Indebtedness of the Company other than the Securities and (B)
assuming no intervening bankruptcy of the Company between the date of
deposit and the 91st day following the deposit and that no Holder of
Securities is an insider of the Company, after the passage of 90 days
following the deposit, the trust funds will not be subject to any
applicable bankruptcy, insolvency, reorganization or similar law affecting
creditors' rights generally; and
(10) The Company has delivered to the Trustee an Officers'
Certificate and an Opinion of Counsel, each stating that all conditions
precedent specified herein relating to the defeasance contemplated by this
Section 8.01 have been complied with; provided, however, that no deposit
-------- -------
under clause (1) above shall be effective to terminate the obligations of
the Company under the Securities the Security Documents or this Indenture
prior to 90 days following any such deposit.
In the event all or any portion of the Securities are to be redeemed
through such irrevocable trust, the Company must make arrangements satisfactory
to the Trustee, at the time of such deposit, for the giving of the notice of
such redemption or redemptions by the Trustee in the name and at the expense of
the Company.
SECTION 8.02. Satisfaction and Discharge.
--------------------------
This Indenture shall cease to be of further effect (except as to
surviving rights of registration of transfer or exchange of the Securities, as
expressly provided for in Section 2.06, and except as to Section 7.07) as to all
outstanding Securities when (i) either (a) all such Securities theretofore
authenticated and delivered (except (1) lost, destroyed or wrongfully taken
Securities which have been replaced or paid as provided in Section 2.07 and (2)
Securities for whose payment money has theretofore been deposited with the
Trustee or any Paying Agent and thereafter repaid to the Company as provided in
Section 8.06) have been delivered to the Trustee for cancellation or (b) all
such Securities not theretofore delivered to the Trustee for cancellation (A)
either (1) have become due and payable, (2) will become due and payable at their
Stated Maturity within one year or (3) are redeemable at the option of the
Company and are to be called for redemption within one year under arrangements
satisfactory to the Trustee for the giving of notice of redemption by the
Trustee in the name and at the expense of the
<PAGE>
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Company, (B) and, in any event, the Company has irrevocably deposited or caused
to be deposited, in trust, with the Trustee funds in an amount sufficient to pay
and discharge the entire indebtedness for principal of, premium, if any and
interest to the date of such deposit (in the case of Securities that have become
due and payable) or to the Maturity Date or redemption date, as the case may
be, on the Securities not theretofore delivered to the Trustee for cancellation;
(ii) the Company has paid or caused to be paid all other sums payable under this
Indenture by the Company; and (iii) the Company has delivered to the Trustee an
Officers' Certificate and an Opinion of Counsel each stating that (a) all
conditions precedent under this Indenture relating to the satisfaction and
discharge of this Indenture have been complied with and (b) such satisfaction
and discharge will not result in a breach or violation of, or constitute a
default under, this Indenture or any other material agreement or instrument to
which the Company is a party or by which it is bound.
After such delivery or irrevocable deposit and delivery of an
Officers' Certificate and Opinion of Counsel, the Trustee upon request shall
acknowledge in writing the discharge of the Company's obligations under the
Securities and this Indenture except for those surviving obligations specified
above.
Notwithstanding the satisfaction and discharge of this Indenture, if
money shall have been deposited with the Trustee pursuant to subclause (b) of
clause (i) of the first paragraph of this Section 8.02, the obligations of the
Trustee under Sections 8.04 and 8.05 shall survive.
SECTION 8.03. Survival of Certain Obligations.
-------------------------------
Notwithstanding the Legal Defeasance provided for in Section 8.01(b),
the respective obligations of the Company and the Trustee under Sections 2.02,
2.03, 2.04, 2.05, 2.06, 2.07, 2.10, 2.12, 2.13, 4.01, 4.02, 6.07, Article Seven,
8.05, 8.06 and 8.07 shall survive until the Securities are no longer
outstanding, and thereafter the obligations of the Company and the Trustee
under Sections 7.07, 8.04, 8.05 and 8.06 shall survive. Nothing contained in
this Article Eight shall abrogate any of the obligations or duties of the
Trustee under this Indenture.
<PAGE>
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SECTION 8.04. Application of Trust Assets.
---------------------------
The Trustee shall hold any U.S. Legal Tender or U.S. Government
Obligations deposited with it, in trust, pursuant to Section 8.01 or 8.02. The
Trustee shall apply the deposited U.S. Legal Tender or the U.S. Government
Obligations, together with earnings thereon, through the Paying Agent, in
accordance with this Indenture, to the payment of principal of and interest on
the Securities. The U.S. Legal Tender or U.S. Government Obligations so held in
trust and deposited with the Trustee in compliance with Section 8.01 or 8.02
shall not be part of the trust estate under this Indenture, but shall constitute
a separate trust fund for the benefit of all Holders entitled thereto.
SECTION 8.05. Repayment to the Company; Unclaimed Money.
-----------------------------------------
Upon termination of the trust established pursuant to Section 8.01 or
8.02, the Trustee and the Paying Agent shall promptly pay to the Company upon
request any excess U.S. Legal Tender or U.S. Government Obligations held by
them. Additionally, if money for the payment of principal or interest remains
unclaimed for one year, the Trustee and the Paying Agents will pay the money
back to the Company at its request. After that, all liability of the Trustee
and such Paying Agents with respect to such money shall cease. After payment to
the Company, Holders entitled to such payment must look to the Company for such
payment as general creditors unless an applicable abandoned property law
designates another person.
SECTION 8.06. Reinstatement.
-------------
If the Trustee or Paying Agent is unable to apply any U.S. Legal
Tender or U.S. Government Obligations in accordance with Section 8.01 or 8.02 by
reason of any legal proceeding or by reason of any order or judgment of any
court or governmental authority enjoining, restraining or otherwise prohibiting
such application, the Company's obligations under this Indenture and the
Securities shall be revived and reinstated as though no deposit had occurred
pursuant to Section 8.01 or 8.02 until such time as the Trustee or Paying Agent
is permitted to apply all such U.S. Legal Tender or U.S. Government Obligations
in accordance with Section 8.01 or 8.02.
<PAGE>
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ARTICLE NINE
AMENDMENTS, SUPPLEMENTS AND WAIVERS
SECTION 9.01. Without Consent of Holders.
--------------------------
The Company, when authorized by a Board Resolution, and the Trustee
(or the Collateral Agent, as applicable), together, may amend or supplement this
Indenture, the Security Documents or the Securities without notice to or
consent of any Securityholder:
(1) to cure any ambiguity, defect or inconsistency; provided that
--------
such amendment or supplement does not adversely affect the rights of any
Holder;
(2) to comply with Article Five;
(3) to provide for uncertificated Securities in addition to or in
place of certificated Securities;
(4) to make any other change that does not materially adversely
affect the rights of any Securityholders hereunder or under the Security
Documents; or
(5) to comply with any requirements of the SEC in connection with
the qualification of this Indenture under the TIA;
provided that the Company has delivered to the Trustee an Opinion of Counsel and
- --------
an Officers' Certificate, each stating that such amendment or supplement
complies with the provisions of this Section 9.01.
SECTION 9.02. With Consent of Holders.
-----------------------
Subject to Section 6.07, the Company, when authorized by a Board
Resolution, and the Trustee (or the Collateral Agent, as applicable), together,
with the written consent of the Holder or Holders of at least a majority in
aggregate principal amount of the outstanding Securities, may amend or
supplement this Indenture, the Security Documents or the Securities, without
notice to any other Securityholders. Subject to Section 6.07, the Holder or
Holders of a majority in aggregate principal amount
<PAGE>
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of the outstanding Securities may waive compliance by the Company with any
provision of this Indenture, the Security Documents or the Securities without
notice to any other Securityholder. Without the consent of each Securityholder
affected, however, no amendment, supplement or waiver, including a waiver
pursuant to Section 6.04, may:
(1) change the principal amount of Securities whose Holders must
consent to an amendment, supplement or waiver of any provision of this
Indenture, the Security Documents or the Securities;
(2) reduce the rate or change the time for payment of interest,
including default interest, on any Security;
(3) reduce the principal amount of any Security;
(4) change the Maturity Date of any Security, or alter the
redemption provisions contained in Paragraph 5 of the Securities in a
manner adverse to any Holder;
(5) make any changes in the provisions concerning waivers of
Defaults or Events of Default by Holders of the Securities or the rights of
Holders to recover the principal of, interest on, or redemption payment
with respect to, any Security;
(6) make any changes in Section 6.04, 6.07 or this third sentence
of this Section 9.02;
(7) make the principal of, or the interest on any Security payable
in money other than as provided for in this Indenture, the Security
Documents and the Securities as in effect on the date hereof;
(8) affect the ranking, or with respect to Collateral, the
priority, of the Securities, in each case in a manner adverse to the
Holders; or
(9) amend, modify or change the obligation of the Company to make
or consummate a Change of Control Offer (including the definition of Change
of Control) or after the Company's obligation to purchase Securities arises
thereunder a Net Proceeds Offer or waive any default in the performance
thereof or modify any of the provisions or definitions with respect
thereto.
<PAGE>
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It shall not be necessary for the consent of the Holders under this
Section to approve the particular form of any proposed amendment, supplement or
waiver, but it shall be sufficient if such consent approves the substance
thereof.
After an amendment, supplement or waiver under this Section 9.02
becomes effective, the Company shall mail to the Holders affected thereby a
notice briefly describing the amendment, supplement or waiver. Any failure of
the Company to mail such notice, or any defect therein, shall not, however, in
any way impair or affect the validity of any such supplemental indenture.
SECTION 9.03. Compliance with TIA.
-------------------
From the date on which this Indenture is qualified under the TIA,
every amendment, waiver or supplement of this Indenture or the Securities shall
comply with the TIA as then in effect.
SECTION 9.04. Revocation and Effect of Consents.
---------------------------------
Until an amendment, waiver or supplement becomes effective, a consent
to it by a Holder is a continuing consent by the Holder and every subsequent
Holder of a Security or portion of a Security that evidences the same debt as
the consenting Holder's Security, even if notation of the consent is not made
on any Security. However, any such Holder or subsequent Holder may revoke the
consent as to his Security or portion of his Security by notice to the Trustee
or the Company received before the date on which the Trustee receives an
Officers' Certificate certifying that the Holders of the requisite principal
amount of Securities have consented (and not theretofore revoked such consent)
to the amendment, supplement or waiver.
The Company may, but shall not be obligated to, fix a record date for
the purpose of determining the Holders entitled to consent to any amendment,
supplement or waiver, which record date shall be at least 30 days prior to the
first solicitation of such consent. If a record date is fixed, then
notwithstanding the last sentence of the immediately preceding paragraph, those
persons who were Holders at such record date (or their duly designated proxies),
and only those persons, shall be entitled to revoke any consent previously
given, whether or not such persons continue to be Holders after such record
date. No such consent shall be valid or effective for more than 90 days after
such record date.
<PAGE>
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After an amendment, supplement or waiver becomes effective, it shall
bind every Securityholder, unless it makes a change described in any of clauses
(1) through (9) of Section 9.02, in which case, the amendment, supplement or
waiver shall bind only each Holder of a Security who has consented to it and
every subsequent Holder of a Security or portion of a Security that evidences
the same debt as the consenting Holder's Security; provided that any such
--------
waiver shall not impair or affect the right of any Holder to receive payment of
principal of and interest on a Security, on or after the respective due dates
expressed in such Security, or to bring suit for the enforcement of any such
payment on or after such respective dates without the consent of such Holder.
SECTION 9.05. Notation on or Exchange of Securities.
-------------------------------------
If an amendment, supplement or waiver changes the terms of a Security,
the Trustee may require the Holder of the Security to deliver it to the Trustee.
The Trustee may place an appropriate notation on the Security about the changed
terms and return it to the Holder. Alternatively, if the Company or the Trustee
so determines, the Company in exchange for the Security shall issue and the
Trustee shall authenticate a new Security that reflects the changed terms.
SECTION 9.06. Trustee To Sign Amendments, Etc.
-------------------------------
The Trustee (or Collateral Agent, as applicable) shall execute any
amendment, supplement or waiver authorized pursuant to this Article Nine;
provided that the Trustee may, but shall not be obligated to, execute any such
- --------
amendment, supplement or waiver which affects the Trustee's own rights, duties
or immunities under this Indenture. The Trustee shall be entitled to receive,
and shall be fully protected in relying upon, an Opinion of Counsel and an
Officers' Certificate each stating that the execution of any amendment,
supplement or waiver authorized pursuant to this Article Nine is authorized or
permitted by this Indenture and constituted the legal, valid and binding
obligations of the Company enforceable in accordance with its terms. Such
Opinion of Counsel shall not be an expense of the Trustee.
<PAGE>
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ARTICLE TEN
COLLATERAL AND SECURITY
SECTION 10.01. Collateral and Security Documents; Additional Collateral.
----------------------
(a) In order to secure the due and punctual payment of the principal
of and interest on the Securities when and as the same shall be due and payable,
whether on an Interest Payment Date, at maturity, by acceleration, purchase,
repurchase, redemption or otherwise, and interest on the overdue principal of
and interest (to the extent permitted by law), if any, on the Securities and
the performance of all other obligations of the Company to the Holders or the
Trustee under this Indenture and the Securities, the Company and the Collateral
Agent for the benefit of the Trustee and the Securityholders have simultaneously
with the execution of this Indenture entered into the Security Documents
pursuant to which the Company has granted to the Collateral Agent for the
benefit of the Trustee and the Securityholders a first priority Lien on and
security interest in the Collateral. The Collateral Agent and the Company
hereby agree that the Collateral Agent holds the Collateral in trust for the
benefit of the Trustee, in its capacity as Trustee, and for the benefit of the
Securityholders pursuant to the terms of the Security Documents. The Trustee
and the Collateral Agent are also authorized and directed to enter into the
Intercreditor Agreement.
(b) Promptly upon the acquisition by the Company of assets that would
constitute Collateral pursuant to the Security Documents including the
acquisition of any real property ("After-Acquired Property"),
(i) the Company and the Collateral Agent will enter into such
amendments or supplements to the Security Documents, or additional Security
Documents, in each case in recordable form and in substantially the forms
attached hereto as Exhibits F (to the extent the After-Acquired Property
consists of personal property) and E (to the extent the After-Acquired
Property consists of real property), with such changes thereto as are
necessitated by local law or other changes in circumstances (the
"Additional Security Documents"), as are necessary in order to grant to
the Collateral Agent for the benefit of the Trustee and for the benefit of
the Securityholders a valid first priority Lien on and security interest in
such After-Acquired Property; and
<PAGE>
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(ii) the Company shall also deliver to the Collateral Agent the
following:
1. to the extent the After-Acquired Property consists of real
property, a policy of title insurance (or an endorsement to the title
insurance policy issued to the Collateral Agent on the Issue Date or
a commitment to issue a policy of title insurance or an endorsement)
insuring that the Lien of this Indenture and the applicable Security
Documents constitutes a valid and perfected first priority Lien on
such real property in an aggregate amount equal to the fair value of
the real property, together with an Officers' Certificate stating
that any specific exceptions to such title insurance are Liens
expressly permitted by the applicable Security Document and
containing such endorsements and other assurances of the type included
in the title insurance policy delivered to the Collateral Agent on the
Issue Date with respect to the Mortgaged Property; and
2. evidence of payment or a closing statement indicating payment
of all filing fees, recording charges, transfer taxes and other costs
and expenses, including reasonable legal fees and disbursements of
counsel for the Trustee and the Collateral Agent (and any local
counsel), that may be incurred to validly and effectively subject the
After-Acquired Property to the Lien of any applicable Security
Document and perfect such Lien.
(c) Each Securityholder, by accepting a Security, agrees to all of
the terms and provisions of the Security Documents, as the same may be amended
from time to time pursuant to the provisions of the Security Documents and this
Indenture, and authorizes and directs the Collateral Agent to act as mortgagee
or secured party with respect thereto.
SECTION 10.02. Recording and Opinions.
----------------------
(a) The Company shall at its sole cost and expense take or cause to
be taken all action required to perfect, maintain, preserve and protect the Lien
on and security interest in the Collateral granted by the Security Documents,
including, without limitation, the filing of financing statements, continuation
statements and any instruments of further assurance, in such manner and in such
places as may be required by law fully to preserve and protect the rights of the
Holders and the Trustee under this In
<PAGE>
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denture and the rights of the Collateral Agent under Security Documents to all
property comprising the Collateral. The Company shall from time to time
promptly pay all financing and continuation statement recording and/or filing
fees, charges, mortgage taxes and other taxes relating to this Indenture and the
Security Documents, any amendments thereto and any other instruments of further
assurance required pursuant to the Security Documents.
(b) The Company shall furnish to the Trustee, at the time of
execution and delivery of this Indenture, Opinion(s) of Counsel either (i)
substantially to the effect that, in the opinion of such counsel, this Indenture
and the grant of a security interest in the Collateral intended to be made by
the Security Documents and all other instruments of further assurance,
including, without limitation, financing statements, have been properly recorded
and filed to the extent necessary to perfect the security interests in the
Collateral created by the Security Documents and reciting the details of such
action, and stating that as to the security interests created pursuant to the
Security Documents, such recordings and filings are the only recordings and
filings necessary to give notice thereof and that no re-recordings or refilings
are necessary to maintain such notice (other than as stated in such opinion), or
(ii) to the effect that, in the opinion of such counsel, no such action is
necessary to perfect such security interests. Promptly after execution and
delivery of this Indenture, the Company shall deliver the opinion(s) required by
Section 314(b) of the TIA. The Company shall furnish to the Trustee, at the
time of execution and delivery of any Additional Security Document(s),
Opinion(s) of Counsel either substantially to the effect set forth in clause (i)
of the immediately preceding sentence (but relating only to such Additional
Security Documents and the related After-Acquired Property) or to the effect set
forth in clause (ii) thereof.
(c) The Company shall furnish to the Trustee on April 15 in each
year, beginning with April 15, 1998, an Opinion of Counsel, dated as of such
date, either (i)(A) stating that, in the opinion of such counsel, action has
been taken with respect to the recording, filing, re-recording and refiling of
all supplemental indentures, financing statements, continuation statements and
other documents as is necessary to maintain the Lien of the Security Documents
and reciting with respect to the security interests in the Collateral the
details of such action or referring to prior Opinions of Counsel in which such
details are given, and (B) stating that, based on relevant laws as in effect on
the date of such Opinion of Counsel, all financing statements, continuation
statements and other documents have been executed and filed that are necessary
as of such date and during the succeeding 24 months fully to maintain the
security interest of the Security-
<PAGE>
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holders and the Trustee hereunder and under the Security Documents with respect
to the Collateral, or (ii) stating that, in the opinion of such counsel, no such
action is necessary to maintain such Lien.
(d) At the time of execution and delivery of this Indenture, with
respect to each Mortgage, a policy of title insurance (or a commitment to issue
such a policy) which may be issued pursuant to an endorsement to any existing
policy or commitment insuring (or committing to insure) the Lien of such
Mortgage as a valid first mortgage Lien on the Real Property and fixtures
described therein, subordinate only to those Liens specified in the Mortgage as
"Permitted Liens," in an amount not less than the fair market value of such
Real Property and fixtures, which policy (or commitment) shall (i) be issued by
Chicago Title Insurance Company, (ii) have been supplemented by the following
endorsements, to the extent available at commercially reasonable rates:
contiguity, first loss, last dollar, usury, doing business and so-called
comprehensive coverage over covenants and restrictions and (iii) contain only
such exceptions to title as shall be Prior Liens;
(e) The Company shall furnish to the Trustee at least annually a
Certificate of Insurance detailing the coverage(s) for each mortgaged property
secured by this Indenture and the Security Documents.
SECTION 10.03. Release of Collateral.
---------------------
(a) The Trustee, in its capacity as Collateral Agent under the
Security Documents, shall not at any time release Collateral from the security
interest created by this Indenture and the Security Documents unless such
release is in accordance with the provisions of this Indenture and the Security
Documents.
(b) At any time when an Event of Default shall have occurred and be
continuing, no release of Collateral pursuant to the provisions of this
Indenture and the Security Documents shall be effective as against the Holders
of the Securities.
(c) The release of any Collateral from the terms of the Security
Documents shall not be deemed to impair the security under this Indenture in
contravention of the provisions hereof if and to the extent the Collateral is
released pursuant to this Indenture and the Security Documents. To the extent
applicable, the Company shall cause TIA Section 314(d) relating to the release
of property from the Lien of the Security Documents and relating to the
substitution therefor of any property to be subjected
<PAGE>
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to the Lien of the Security Documents to be complied with. Any certificate or
opinion required by TIA Section 314(d) may be made by an Officer of the
Company, except in cases where TIA Section 314(d) requires that such certificate
or opinion be made by an Independent Person, which Person shall be an
Independent engineer, appraiser or other expert selected or approved by the
Trustee in the exercise of reasonable care.
SECTION 10.04. Possession and Use of Collateral.
--------------------------------
Subject to and in accordance with the provisions of this Indenture,
the Security Documents and the TIA, so long as no Event of Default shall have
occurred and be continuing the Company shall have the right to remain in
possession and retain exclusive control of the Collateral (other than Trust
Moneys held by the Trustee), to operate, manage, develop, lease, use, consume
and enjoy the Collateral (other than Trust Moneys held by the Trustee), to alter
or repair any Collateral consisting of machinery or equipment so long as such
alterations and repairs do not diminish the value thereof or impair the Lien of
the Security Documents thereon and to collect, receive, use, invest and dispose
of the reversions, remainders, interest, rents, lease payments, issues, profits,
revenues, proceeds and other income thereof.
SECTION 10.05. Specified Releases of Collateral.
--------------------------------
(a) Satisfaction and Discharge; Defeasance. The Company shall be
--------------------------------------
entitled to obtain a full release of all of the Collateral from the Liens of
this Indenture and of the Security Documents upon compliance with the conditions
precedent set forth in Section 8.02 for satisfaction and discharge of this
Indenture or for Legal Defeasance pursuant to Section 8.01(b). Upon delivery
by the Company to the Trustee of an Officers' Certificate and an Opinion of
Counsel, each to the effect that such conditions precedent have been complied
with (and which may be the same Officers' Certificate and Opinion of Counsel
required by Article Eight), the Trustee shall forthwith take all necessary ac
tion (at the request of and the expense of the Company) to cause the release and
reconveyance to the Company of all of the Collateral, and shall deliver such
Collateral in its possession to the Company including, without limitation, the
execution and delivery of releases and satisfactions wherever required.
(b) Dispositions of Collateral Permitted by Section 4.17. The
----------------------------------------------------
Company shall be entitled to obtain a release of, and the Trustee shall cause to
be released, items of Collateral (the "Released Interests") subject to an Asset
Sale upon compliance with
<PAGE>
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the condition precedent that the Company shall have delivered to the Trustee the
following:
(i) Company Order. A Company Order requesting release of
-------------
Released Interests, such Company Order (A) specifically describing the
proposed Released Interests, (B) specifying the value of such Released
Interests on a date within 60 days of the Company Order (the "Valuation
Date"), (C) stating that the purchase price to be received is at least
equal to the fair market value of the Released Interests, (D) stating that
the release of such Released Interests will not interfere with or impede
the Trustee's ability to realize the value of the remaining Collateral and
will not impair the maintenance and operation of the remaining Collateral,
(E) confirming the sale of, or an agreement to sell, such Released
Interests in a bona fide sale to a Person that is not an Affiliate of the
Company or, in the event that such sale is to a Person that is such an
Affiliate, confirming that such sale is being made in accordance with
Section 4.12, (F) certifying that such Asset Sale complies with the terms
and conditions of Section 4.17 hereof and (G) in the event that there is to
be a substitution of property for the Collateral subject to the Asset Sale,
specifying the property intended to be substituted for the Collateral to be
disposed of;
(ii) Officers' Certificate. An Officers' Certificate certifying
---------------------
that (A) such Asset Sale covers only the Released Interests and complies
with the terms and conditions of an Asset Sale pursuant to Section 4.17,
(B) all Net Cash Proceeds from the sale of any of the Released Interests
will be applied pursuant to Section 4.17, (C) there is no Default or Event
of Default in effect or continuing on the date thereof, the Valuation Date
or the date of such Asset Sale, (D) the release of the Collateral will not
result in a Default or Event of Default hereunder and (E) all conditions
precedent to such release have been complied with; and
(iii) Compliance with TIA and Other Documentation. All
-------------------------------------------
certificates, opinions and other documentation required by the TIA, if any,
and, in the event there is to be a substitution of property for the
Collateral subject to the Asset Sale, all documentation necessary to effect
the substitution of such new Collateral, including without limitation the
documents required by Section 10.01(b).
<PAGE>
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Upon compliance by the Company with the condition precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Company, the
Released Interests.
(c) Eminent Domain and Other Governmental Takings. The Company
---------------------------------------------
shall be entitled to obtain a release of, and the Trustee shall cause to be
released, items of Collateral taken by eminent domain or sold pursuant to the
exercise by the United States of America or any State, municipality or other
governmental authority of any right which it may then have to purchase, or to
designate a purchaser or to order a sale of, all of any part of the Collateral,
upon compliance with the condition precedent that the Company shall have
delivered to the Trustee the following:
(i) Officers' Certificate. An Officers' Certificate certifying
---------------------
that (A) such Collateral has been taken by eminent domain and the amount of
the award therefor, or that such property has been sold pursuant to a right
vested in the United States of America, or a State, municipality or other
governmental authority to purchase, or to designate a purchaser, or order a
sale of such Collateral and the amount of the proceeds of such sale, and
(B) all conditions precedent to such release have been complied with;
(ii) Eminent Domain Award. Subject to the requirements of any
--------------------
Prior Lien (as defined in the applicable Mortgage) on the Collateral so
taken, cash equal to the amount of the award for such property or the
proceeds of such sale, to be held as Trust Moneys subject to the
disposition thereof pursuant to Article Eleven hereof; and
(iii) Compliance with TIA. All opinions, certificates and other
-------------------
documentation required by the TIA, if any.
Upon compliance by the Company with the condition precedent set forth
above, the Trustee shall cause to be released and reconveyed to the Company the
aforementioned items of Collateral.
SECTION 10.06. Disposition of Collateral Without Release.
-----------------------------------------
So long as no Event of Default shall have occurred and be continuing
and subject to the requirements of Section 314 of the TIA, the Company may,
without any release or consent by the Collateral Agent or the Trustee, sell or
otherwise dispose
<PAGE>
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of any machinery, equipment, furniture, apparatus, tools or implements or other
similar property subject to the Lien of the Security Documents, which (i) in any
single transaction has a fair market value of $25,000 (or if such $25,000
amount referred to in TIA Section 314(d)(1) increases then to such increased
amount) or less or (ii) shall have become worn out, obsolete or otherwise in
need of replacement or repair; provided that, in the case of this clause (ii)
--------
such sale or other disposition is in conjunction with a substantially
concurrent transaction whereby additional personal property is made subject to
the Lien of the Security Documents.
SECTION 10.07. Form and Sufficiency of Release.
-------------------------------
In the event that the Company has sold, exchanged, or otherwise
disposed of or proposes to sell, exchange or otherwise dispose of any portion of
the Collateral that under the provisions of Section 10.05 or 10.06 may be sold,
exchanged or otherwise disposed of by the Company, and the Company requests the
Trustee or the Collateral Agent to furnish a written disclaimer, release or
quit-claim of any interest in such property under this Indenture and the
Security Documents, the Trustee, in its capacity as Collateral Agent under the
Security Documents, shall execute, acknowledge and deliver to the Company (in
proper and recordable form) such an instrument promptly after satisfaction of
the conditions set forth herein for delivery of any such release.
Notwithstanding the preceding sentence, all purchasers and grantees of any
property or rights purporting to be released herefrom shall be entitled to rely
upon any release executed by the Trustee in its capacity as Collateral Agent
hereunder as sufficient for the purpose of this Indenture and as constituting a
good and valid release of the property therein described from the Lien of this
Indenture or of the Security Documents.
SECTION 10.08. Purchaser Protected.
-------------------
No purchaser or grantee of any property or rights purporting to be
released herefrom shall be bound to ascertain the authority of the Collateral
Agent or the Trustee to execute the release or to inquire as to the existence of
any conditions herein prescribed for the exercise of such authority; nor shall
any purchaser or grantee or any property or rights permitted by this Indenture
to be sold or otherwise disposed of by the Company be under any obligation to
ascertain or inquire into the authority of the Company to make such sale or
other disposition.
<PAGE>
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SECTION 10.09. Authorization of Actions To Be Taken by the Trustee, as
--
Collateral Agent, Under the Security Documents.
----------------------------------------------
Subject to the provisions of the Security Documents, (a) the Trustee
may, in its capacity as Collateral Agent, in its sole discretion and without the
consent of the Securityholders, take all actions it deems necessary or
appropriate in order to (i) enforce any of the terms of the Security Documents
and (ii) collect and receive any and all amounts payable in respect of the
obligations of the Company hereunder and (b) the Trustee, for itself and in its
capacity as Collateral Agent, shall have power to institute and to maintain such
suits and proceedings as it may deem expedient to prevent any impairment of the
Collateral by any act that may be unlawful or in violation of the Security
Documents or this Indenture, and such suits and proceedings as the Trustee or
Collateral Agent may deem expedient to preserve or protect its interests and the
interests of the Securityholders in the Collateral (including, without
limitation, the power to institute and maintain suits or proceedings to restrain
the enforcement of or compliance with any legislative or other governmental
enactment, rule or order that may be unconstitutional or otherwise invalid if
the enforcement of, or compliance with, such enactment, rule or order would
impair the security interest thereunder or be prejudicial to the interests of
the Securityholders, the Trustee or the Collateral Agent).
SECTION 10.10. Authorization of Receipt of Funds by the Trustee Under the
---
Security Documents.
------------------
The Trustee is authorized to receive any funds for the benefit of
Security holders distributed under the Security Documents, and to make further
distributions of such funds to the Holders in accordance with the provisions of
Article Eleven and the other provisions of this Indenture.
<PAGE>
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ARTICLE ELEVEN
APPLICATION OF TRUST MONEYS
SECTION 11.01. "Trust Moneys" Defined.
---------------------
All cash or Cash Equivalents received by the Trustee:
(a) upon the release of Collateral from the Lien of this Indenture
and/or the Security Documents, including investment earnings thereon; or
(b) as a Net Award or Net Awards upon the Taking of all or any part
of the Collateral; or
(c) as Net Proceeds upon the Destruction of all or any part of the
Collateral (other than any liability insurance proceeds payable to the
Trustee for any loss, liability or expense incurred by it); or
(d) pursuant to the provisions of any Mortgage; or
(e) as proceeds of any other sale or other disposition of all or any
part of the Collateral by or on behalf of the Trustee or any collection,
recovery, receipt, appropriation or other realization of or from all or any
part of the Collateral pursuant to this Indenture or any of the Security
Documents or otherwise; or
(f) for application under this Article Eleven as elsewhere provided
in this Indenture (including, without limitation, and subject to, paragraph
(d) of Section 4.17) or the Security Documents, or whose disposition is
not elsewhere otherwise specifically provided for herein or in any
Security Document;
(all such moneys being herein sometimes called "Trust Moneys"; provided,
--------
however, that Trust Moneys shall not include any property deposited with the
- -------
Trustee pursuant to Section 3.05 or 4.16 or Article Eight or delivered to or
received by the Trustee for application in accordance with Section 6.10 hereof)
shall be held by the Trustee for the benefit of the Holders as a part of the
Collateral and, upon any entry upon or sale or other disposition of the
Collateral or any part thereof pursuant to enforcement of the Security
Documents, said Trust Moneys shall be applied in accordance with Section 6.10;
<PAGE>
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but, prior to any such entry, sale or other disposition, all or any part of the
Trust Moneys may be withdrawn, and shall be released, paid or applied by the
Trustee, from time to time as provided in this Article Eleven.
On the Issue Date there shall be established and, at all times
hereafter until this Indenture shall have terminated, there shall be maintained
with the Trustee an account which shall be entitled the "Collateral Account"
(the "Collateral Account"). The Collateral Account shall be established and
maintained by the Trustee at the Corporate Trust Office of the Trustee. All
Trust Moneys which are received by the Trustee shall be deposited in the
Collateral Account and thereafter shall be held, applied and/or disbursed by the
Trustee in accordance with the terms of this Article Eleven.
SECTION 11.02. Withdrawals of Certain Net Cash Proceeds Aggregating Less Than $5
------------
Million.
-------
To the extent that any Trust Moneys consist of either (i) any Net
Proceeds or (ii) any Net Award or the proceeds of any of the Collateral subject
to a Taking or sold pursuant to the exercise by the United States of America or
any State, municipality or other governmental authority of any right which it
may then have to purchase, or to designate a purchaser or to order a sale of any
part of the Collateral, and in either case the aggregate amount of all Net Cash
Proceeds (whether derived from one or more As set Sales, insurance or eminent
domain or similar proceedings) received by the Company or the Trustee to date is
less than $5 million, such Trust Moneys may be withdrawn by the Company and
shall be paid by the Trustee to reimburse the Company for expenditures made, or
to pay costs incurred, by the Company to repair, rebuild or replace the property
destroyed, damaged or taken, upon receipt by the Trustee of the following:
(a) an Officers' Certificate of the Company, dated not more than 30
days prior to the date of the application for the withdrawal and payment of
such Trust Moneys and signed also in the case of the following clauses (i),
(iv) and (vi), by an Appraiser or Financial Advisor, certifying:
(i) that expenditures have been made, or costs incurred, by
the Company in a specified amount for the purpose of making certain
repairs, rebuildings and replacements of the Collateral, which shall
be briefly described, and stating the Fair Value thereof to the
Company at the date of the acquisition thereof by the Company, except
that it shall
<PAGE>
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not be necessary under this clause (i) to state the Fair Value of any
such repairs, rebuildings or replacements that are separately
described pursuant to clause (v) of this paragraph (a) and whose Fair
Value is stated in the Independent Appraiser's or Independent
Financial Advisor's certificate under paragraph (c) of this Section
11.02;
(ii) that no part of such expenditures in any previous or then
pending application has been or is being made the basis for the
withdrawal of any Trust Moneys pursuant to this Section 11.02;
(iii) that there is no outstanding Indebtedness, other than
costs for which payment is being requested, for the purchase price or
construction of such repairs, rebuildings or replacements, or for
labor, wages, materials or supplies in connection with the making
thereof, which, if unpaid, might become the basis of a vendor's,
mechanic's, laborer's, materialman's, statutory or other similar Lien
upon any of such repairs, rebuildings or replacement, which Lien
might, in the opinion of the signers of such certificate, materially
impair the security afforded by such repairs, rebuildings or
replacement;
(iv) that the property to be repaired, rebuilt or replaced is
necessary or desirable in the conduct of the Company's business;
(v) whether any part of such repairs, rebuildings or
replacements within six months before the date of acquisition thereof
by the Company, has been used or operated by others than the Company
in a business similar to that in which such property has been or is to
be used or operated by the Company, and whether the fair value to the
Company, at the date of such acquisition, of such part of such
repairs, rebuildings or replacement is at least $250,000, and 1% of
the aggregate principal amount of the outstanding Securities; and, if
all of such facts are present, such part of such repairs, rebuildings
or replacements shall be separately described, and it shall be stated
that an Independent Appraiser's or Independent Financial Advisor's
certificate as to the Fair Value to the Company of such separately
described repairs, rebuildings or replacements will be furnished under
paragraph (b) of this Section 11.02;
<PAGE>
-98-
(vi) that no Default or Event of Default shall have occurred
and be continuing; and
(vii) that all conditions precedent herein provided for relating
to such withdrawal and payment have been complied with.
(b) all documentation required under TIA (S) 314(d).
(c) In case any part of such repairs, rebuildings or replacements is
separately described pursuant to the foregoing clause (v) of paragraph (a)
of this Section 11.02, a certificate of an Independent Appraiser or
Independent Financial Advisor stating the fair value to the Company, in
such Independent Appraiser's or Independent Financial Advisor's opinion, of
such separately described repairs, rebuildings or replacements at the date
of the acquisition thereof by the Company.
(d) (i) In case any part of such repairs, rebuildings or
replacements constitutes Real Property:
(1) with respect to any such repairs, rebuildings or
replacements that are not encompassed within or are not erected upon
Mortgaged Property, an instrument or instruments in recordable form
sufficient for the Lien of this Indenture and any Mortgage to cover
such repairs, rebuildings or replacements which, if such repairs,
rebuildings or replacements include leasehold or easement interests,
shall include normal and customary provisions with respect thereto and
evidence of the filing of all such documents as may be necessary to
perfect such Liens;
(2) a policy of title insurance (or a commitment to issue
title insurance) insuring that the Lien of this Indenture and any
Mortgage constitutes a direct and valid and perfected first priority
mortgage Lien on such repairs, rebuildings or replacements in an
aggregate amount equal to the fair value of such repairs, rebuildings
or replacements, together with such endorsements and other opinions as
are contemplated by Section 10.02(b), or with respect to any such
repairs, rebuildings or replacements that are encompassed within or
are erected upon Mortgaged Property an endorsement to the title
insurance policy issued pursuant to Section 10.02(d) regarding the
affected Mortgaged Property confirming
<PAGE>
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that such repairs, rebuildings or replacements are encumbered by the
first priority Lien of the applicable Mortgage;
(3) in the event such repairs, rebuildings or replacements
have a fair value in excess of $250,000, a Survey with respect
thereto; and
(4) evidence of payment or a closing statement indicating
payments to be made by the Company of all title premiums, recording
charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject such repairs, rebuildings or replacements to the
Lien of any applicable Security Document to perfect such Lien; and
(ii) in case any part of such repairs, rebuildings or
replacements constitutes personal property interests:
(1) an instrument in recordable form sufficient for the
Lien of any applicable Security Document to cover such repairs,
rebuildings or replacements; and
(2) evidence of payment or a closing statement indicating
payments to be made by the Company of all filing fees, recording
charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject such repairs, rebuildings or replacements to the
Lien of any Security Document.
<PAGE>
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(e) An Opinion of Counsel substantially stating:
(i) that the instruments that have been or are therewith
delivered to the Trustee conform to the requirements of this
Indenture or any other Security Document, and that, upon the basis of
such request of the Company and the accompanying documents specified
in this Section 11.02, all conditions precedent herein provided for
relating to such withdrawal and payment have been complied with, and
the Trust Moneys whose withdrawal is then requested may be lawfully
paid over under this Section 11.02;
(ii) that the Company has acquired title to such repairs,
rebuildings and replacements at least the equivalent to its title to
the property destroyed, damaged or taken, and that the same and every
part thereof are free and clear of all Liens prior to the Lien of any
of the Security Documents, except Liens of the type permitted under
the applicable Security Document to which the property so destroyed,
damaged or taken shall have been subject at the time of such
destruction, damage or taking; and
(iii) that all of the Company's right, title and interest in
and to said repairs, rebuildings or replacements, or combination
thereof, are then subject to the Lien of any of the Security
Documents.
Upon compliance with the foregoing provisions of this Section 11.02,
the Trustee shall pay on the written request of the Company an amount of Trust
Moneys of the character aforesaid equal to the amount of the expenditures or
costs stated in the Officers' Certificate required by clause (i) of paragraph
(a) of this Section 11.02, or the fair value to the Company of such repairs,
rebuildings and replacements stated in such Officers' Certificate (and in such
Independent Appraiser's or Independent Financial Advisor's certificate, if
required by paragraph (b) of this Section 11.02), whichever is less.
SECTION 11.03. Withdrawal of Net Cash Proceeds Following an Asset Sale.
----
To the extent that any Trust Moneys consist of Trust Moneys received
by the Trustee pursuant to the provisions of Section 4.17 and the Company has
made a Net Proceeds Offer which is not fully subscribed to by the Holders, the
Trust Moneys re-
<PAGE>
-101-
maining after completion of the Net Proceeds Offer may be withdrawn by the
Company and shall be paid by the Trustee to the Company (or as otherwise
directed by the Company) upon a Company Order to the Trustee and upon receipt by
the Trustee of the following:
(a) A notice which shall (A) refer to this Section 11.03 and (B)
describe with particularity the Asset Sale from which such Trust Moneys
were held as Collateral, the amount of Trust Moneys applied to the purchase
of Securities pursuant to the Net Proceeds Offer and the remaining amount
of Trust Moneys to be released to the Company;
(b) An Officer's Certificate certifying that (A) the release of the
Trust Moneys complies with the terms and conditions of Section 4.17, (B)
there is no Default or Event of Default in effect or continuing on the date
hereof, (C) the release of the Trust Moneys will not result in a Default or
Event of Default here under, and (D) all conditions precedent and covenants
herein provided relating to such release have been complied with;
(c) All documentation required under TIA (S) 314(d); and
(d) An Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Collateral Agent and the Trustee conform
to the requirements of this Indenture and that all conditions precedent
herein provided for relating to such application of Trust Moneys have been
complied with.
SECTION 11.04. Withdrawal of Trust Moneys for Replacement Assets.
-------------------------------------------------
To the extent that any Trust Moneys consist of Net Cash Proceeds
received by the Trustee pursuant to the provisions of Section 4.17 and the
Company intends to invest such Net Cash Proceeds in Replacement Assets
consistent with the requirements of clause (b) of such Section 4.17 (the
"Released Trust Moneys"), such Trust Moneys may be withdrawn by the Company and
shall be paid by the Trustee to the Company (or as otherwise directed by the
Company) to reimburse the Company for expenditures made or to pay costs
incurred in connection with such Replacement Assets upon a Company Order to the
Trustee and upon receipt by the Trustee of the following:
(a) If the Replacement Assets are Real Property, the Company shall
also deliver to the Trustee and the Collateral Agent:
<PAGE>
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(i) an instrument or instruments in recordable form sufficient
for the Lien of any Mortgage to cover such Real Property which, if the
Real Property is a leasehold or easement interest, shall include
normal and customary provisions with respect thereto and evidence of
the filing of all such financing statements and other instruments as
may be necessary to perfect such Liens;
(ii) a policy of title insurance (or a commitment to issue title
insurance) insuring that the Lien of this Indenture and any Mortgage
constitutes a valid and perfected mortgage Lien on such Real Property
(subject to no Liens other than Prior Liens of the type which were
permitted with respect to the Collateral which was the subject of the
Asset Sale) in an aggregate amount equal to the Fair Market Value of
the Real Property, together with an Officers' Certificate stating that
any specific exceptions to such title insurance are Prior Liens of the
type which were permitted with respect to the Collateral which was the
subject of the Asset Sale, together with such endorsements and other
opinions as are contemplated by Section 10.02(d);
(iii) in the event such Real Property has a fair market value in
excess of $250,000, a Survey with respect thereto; and
(iv) evidence of payment or a closing statement indicating
payments to be made by the Company of all title premiums, recording
charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject the Real Property to the Lien of any applicable
Security Document and to perfect such Lien.
(b) If the Replacement Assets are personal property, the Company
shall deliver to the Trustee and the Collateral Agent:
(i) an instrument in recordable form sufficient for the Lien
of any applicable Security Document to cover such personal property;
and
(ii) evidence of payment or a closing statement indicating
payments to be made by the Company of all filing fees, recording
<PAGE>
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charges, transfer taxes and other costs and expenses, including
reasonable legal fees and disbursements of counsel for the Trustee
(and any local counsel), that may be incurred to validly and
effectively subject the Replacement Assets to the Lien of any Security
Document and to perfect such Lien.
(c) all documentation required under TIA (S) 314(d); and
(d) An Opinion of Counsel stating that the documents that have been
or are therewith delivered to the Trustee conform to the requirements of
this Indenture and that all conditions precedent herein relating to such
application of Trust Moneys have been complied with.
Upon compliance with the foregoing provisions of this Indenture, the
Trustee shall apply the Released Trust Moneys as directed and specified by such
Company Order.
SECTION 11.05. Withdrawal of Trust Moneys on Basis of Retirement of Securities.
----------
Except as otherwise required by the Security Documents, the Trustee
shall apply Trust Moneys from time to time to the payment of the principal of
and interest on any Securities, as the Company shall request in writing, upon
receipt by the Trustee of the following:
(a) Board Resolutions of the Company directing the application
pursuant to this Section 11.05 of a specified amount of Trust Moneys and,
if such moneys are to be applied to payment, designating the Securities so
to be paid and, if such moneys are to be applied to the purchase of
Securities, prescribing the method of purchase, the price or prices to be
paid and the maximum principal amount of Securities to be purchased and
any other provisions of this Indenture governing such purchase;
(b) cash in the maximum amount of the accrued interest, if any,
required to be paid in connection with any such purchase, which cash shall
be held by the Trustee in trust for such purpose;
<PAGE>
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(c) an Officers' Certificate, dated not more than five Business Days
prior to the date of the relevant application stating (i) that no Default
or Event of Default exists unless such Default or Event of Default would
be cured thereby, and (ii) that all conditions precedent and covenants
herein provided for relating to such application of Trust Moneys have been
complied with; and
(d) an Opinion of Counsel stating that the documents and the cash or
Cash Equivalents, if any, which have been or are therewith delivered to and
deposited with the Trustee conform to the requirements of this Indenture
and that all conditions precedent herein provided for relating to such
application of Trust Moneys have been complied with.
Upon compliance with the foregoing provisions of this Section, the
Trustee shall apply Trust Moneys as directed and specified by such Board
Resolution, up to, but not exceeding, the principal amount of the Securities so
paid or purchased, using the cash deposited pursuant to paragraph (b) of this
Section 11.05, to the extent necessary, to pay any accrued interest required in
connection with such purchase.
SECTION 11.06. Investment of Trust Moneys.
--------------------------
All or any part of any Trust Moneys held by the Trustee shall from
time to time be invested or reinvested by the Trustee in any Cash Equivalents
pursuant to the written direction of the Company, which shall specify the Cash
Equivalents in which such Trust Moneys shall be invested. Unless an Event of
Default occurs and is continuing, any interest on such Cash Equivalents (in
excess of any accrued interest paid at the time of purchase) that may be
received by the Trustee shall be forthwith paid to the Company. Such Cash
Equivalents shall be held by the Trustee as a part of the Collateral, subject to
the same provisions hereof as the cash used by it to purchase such Cash
Equivalents.
The Trustee shall not be liable or responsible for any loss resulting
from such investments or sales except only for its own negligent action, its own
negligent failure to act or its own willful misconduct in complying with this
Section 11.06.
SECTION 11.07. Powers Exercisable by Trustee or Receiver.
-----------------------------------------
In case the Collateral (other than any cash, Cash Equivalents,
securities and other personal property held by, or required to be deposited or
pledged with, the
<PAGE>
-105-
Trustee hereunder or under the Security Documents or with the trustee, mortgagee
or holder of a Prior Lien) shall be in the possession of a receiver or trustee
lawfully appointed, the powers hereinbefore in this Article Eleven conferred
upon the Company with respect to the withdrawal or application of Trust Moneys
may be exercised by such receiver or trustee, in which case a certificate signed
by such receiver or trustee shall be deemed the equivalent of any Officers'
Certificate required by this Article Eleven. If the Trustee shall be in
possession of any of the Collateral hereunder or under any of the Security
Documents, such powers may be exercised by the Trustee, in its discretion.
SECTION 11.08. Disposition of Securities Retired.
---------------------------------
All Securities received by the Trustee and for whose purchase Trust
Moneys are applied under this Article Eleven, if not otherwise cancelled, shall
be promptly delivered to the Trustee for cancellation and destruction unless the
Trustee shall be otherwise directed by the Company. Upon destruction of any
Securities, the Trustee shall issue a certificate of destruction to the Company.
ARTICLE TWELVE
MISCELLANEOUS
SECTION 12.01. TIA Controls.
------------
If any provision of this Indenture limits, qualifies, or conflicts
with the duties imposed by operation of Section 3.18(c) of the TIA, the imposed
duties shall control.
SECTION 12.02. Notices.
-------
Any notices or other communications required or permitted hereunder
shall be in writing, and shall be sufficiently given if made by hand delivery,
by telex, by telecopier, by registered or certified mail, postage prepaid,
return receipt requested, or by a nationally recognized overnight courier
service addressed as follows:
<PAGE>
-106-
if to the Company:
SHEFFIELD STEEL CORPORATION
220 North Jefferson Street
Sand Springs, OK 74063
Facsimile No.: (918) 241-6595
Attention: Bob Ackerman
with copies to:
HMK Enterprises, Inc.
Watermill Center
800 South Street
Waltham, MA 02154
Attention: Dale S. Okonow
Facsimile: (781) 891-9712
Telephone: (781) 891-6660
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Attention: Lewis J. Geffen, Esq.
Facsimile: (617) 542-2241
Telephone: (617) 542-6000
<PAGE>
-107-
if to the Trustee or the Collateral Agent:
STATE STREET BANK AND TRUST COMPANY
Goodwin Square
225 Asylum Street
Hartford, Connecticut 06103
Attention: Corporate Trust Administration
Facsimile: (860) 244-1889
Telephone: (860) 244-1817
Each of the Company, the Trustee and the Collateral Agent by written
notice to each other such person may designate additional or different addresses
for notices to such person. Any notice or communication to the Company, the
Trustee or the Collateral Agent, shall be deemed to have been given or made as
of the date so delivered if personally delivered or delivered by nationally
recognized overnight courier service; when answered back, if telexed; when
receipt is acknowledged, if telecopied; and five (5) calendar days after mailing
if sent by registered or certified mail, postage prepaid (except that a notice
of change of address shall not be deemed to have been given until actually
received by the addressee).
Any notice or communication mailed to a Securityholder shall be mailed
to him by first class mail or other equivalent means at his address as it
appears on the registration books of the Registrar and shall be sufficiently
given to him if so mailed within the time prescribed.
Failure to mail a notice or communication to a Securityholder or any
defect in it shall not affect its sufficiency with respect to other
Securityholders. If a notice or communication is mailed in the manner provided
above, it is duly given, whether or not the addressee receives it.
SECTION 12.03. Communications by Holders with Other Holders.
-------
Securityholders may communicate pursuant to TIA (S) 312(b) with other
Securityholders with respect to their rights under this Indenture, the Security
Documents or the Securities. The Company, the Trustee, the Registrar and any
other person shall have the protection of TIA (S) 312(c).
<PAGE>
-108-
SECTION 12.04. Certificate and Opinion as to Conditions Precedent
--------------------------------------------------
Upon any request or application by the Company to the Trustee to take
any action under this Indenture, the Company shall furnish to the Trustee at the
request of the Trustee:
(1) an Officers' Certificate, in form and substance satisfactory to
the Trustee, stating that, in the opinion of the signers, all conditions
precedent, if any, provided for in this Indenture relating to the proposed
action have been complied with; and
(2) an Opinion of Counsel stating that, in the opinion of such
counsel, all such conditions precedent have been complied with.
SECTION 12.05. Statements Required in Certificate or Opinion.
-------
Each certificate or opinion with respect to compliance with a
condition or covenant provided for in this Indenture, other than the Officers'
Certificate required by Section 4.08, shall include:
(1) a statement that the person making such certificate or opinion
has read such covenant or condition;
(2) a brief statement as to the nature and scope of the examination
or investigation upon which the statements or opinions contained in such
certificate or opinion are based;
(3) a statement that, in the opinion of such person, he has made
such examination or investigation as is necessary to enable him to express
an informed opinion as to whether or not such covenant or condition has
been complied with; and
(4) a statement as to whether or not, in the opinion of each such
person, such condition or covenant has been complied with; provided,
--------
however, that with respect to matters of fact an Opinion of Counsel may
-------
rely on an Officers' Certificate or certificates of public officials.
<PAGE>
-109-
SECTION 12.06. Rules by Trustee, Paying Agent, Registrar.
-----------------------------------------
The Trustee, Paying Agent or Registrar may make reasonable rules for
its functions.
SECTION 12.07. Legal Holidays.
--------------
If a payment date is not a Business Day, payment may be made on the
next succeeding day that is a Business Day, and no interest shall accrue for the
intervening period.
SECTION 12.08. Governing Law.
-------------
THIS INDENTURE AND THE SECURITIES SHALL BE GOVERNED BY AND CONSTRUED
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO PRINCIPLES
OF CONFLICTS OF LAW. Each of the parties hereto agrees to submit to the
jurisdiction of the courts of the State of New York in any action or proceeding
arising out of or relating to this Indenture.
SECTION 12.09. No Adverse Interpretation of Other Agreements.
----------
This Indenture may not be used to interpret another indenture, loan or
debt agreement of any of the Company or any of its Subsidiaries. Any such
indenture, loan or debt agreement may not be used to interpret this Indenture.
SECTION 12.10. No Recourse Against Others.
--------------------------
A director, officer, employee, stockholder or incorporator, as such,
of the Company shall not have any liability for any obligations of the Company
under the Securities, the Security Documents or this Indenture or for any claim
based on, in respect of or by reason of such obligations or their creations.
Each Securityholder by accepting a Security waives and releases all such
liability. Such waiver and release are part of the consideration for the
issuance of the Securities.
<PAGE>
-110-
SECTION 12.11. Successors.
----------
All agreements of the Company in this Indenture and the Securities
shall bind its successors. All agreements of the Trustee in this Indenture
shall bind its successor.
SECTION 12.12. Duplicate Originals.
-------------------
All parties may sign any number of copies of this Indenture. Each
signed copy or counterpart shall be an original, but all of them together shall
represent the same agreement.
SECTION 12.13. Severability.
------------
In case any one or more of the provisions in this Indenture or in the
Securities shall be held invalid, illegal or unenforceable, in any respect for
any reason, the validity, legality and enforceability of any such provision in
every other respect and of the remaining provisions shall not in any way be
affected or impaired thereby, it being in tended that all of the provisions
hereof shall be enforceable to the full extent permitted by law.
<PAGE>
-111-
SIGNATURES
----------
IN WITNESS WHEREOF, the parties hereto have caused this Indenture to
be duly executed all as of the date first written above.
SHEFFIELD STEEL CORPORATION
By: /s/ Stephen R. Johnson
--------------------------------------
Name: Stephen R. Johnson
Title: Chief Financial Officer
STATE STREET BANK AND TRUST COMPANY,
as Trustee and as Collateral Agent
By: /s/ E. C. Hammer
--------------------------------------
Name: Elizabeth C. Hammer
Title: Vice President
<PAGE>
EXHIBIT A-1
-----------
[FORM OF SERIES A SECURITY]
THIS SECURITY HAS NOT BEEN REGISTERED UNDER THE U.S. SECURITIES ACT OF 1933, AS
AMENDED (THE "SECURITIES ACT"), AND, ACCORDINGLY, MAY NOT BE OFFERED OR SOLD
WITHIN THE UNITED STATES OR TO, OR FOR THE ACCOUNT OR BENEFIT OF, U.S. PERSONS
EXCEPT AS SET FORTH BELOW. BY ITS ACQUISITION HEREOF, THE HOLDER (1) REPRESENTS
THAT (A) IT IS A "QUALIFIED INSTITUTIONAL BUYER" (AS DEFINED IN RULE 144A UNDER
THE SECURITIES ACT) OR (B) IT IS AN "ACCREDITED INVESTOR" (AS DEFINED IN RULE
501(a)(1), (2), (3) or (7) UNDER THE SECURITIES ACT) (AN "ACCREDITED INVESTOR")
OR (C) IT IS NOT A U.S. PERSON AND IS ACQUIRING THIS SECURITY IN AN OFFSHORE
TRANSACTION IN COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (2) AGREES
THAT IT WILL NOT WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE OF THIS SECURITY
RESELL OR OTHERWISE TRANSFER THIS SECURITY EXCEPT (A) TO SHEFFIELD STEEL
CORPORATION (THE "COMPANY") OR ANY SUBSIDIARY THEREOF, (B) INSIDE THE UNITED
STATES TO A QUALIFIED INSTITUTIONAL BUYER IN COMPLIANCE WITH RULE 144A UNDER
THE SECURITIES ACT, (C) INSIDE THE UNITED STATES TO AN ACCREDITED INVESTOR THAT,
PRIOR TO SUCH TRANSFER, FURNISHES (OR HAS FURNISHED ON ITS BEHALF BY A U.S.
BROKER--DEALER) TO THE TRUSTEE A SIGNED LETTER CONTAINING CERTAIN
REPRESENTATIONS AND AGREEMENTS RELATING TO THE RESTRICTIONS ON TRANSFER OF THIS
SECURITY (THE FORM OF WHICH LETTER CAN BE OBTAINED FROM THE TRUSTEE FOR THIS
SECURITY), (D) OUTSIDE THE UNITED STATES IN AN OFFSHORE TRANSACTION IN
COMPLIANCE WITH RULE 904 UNDER THE SECURITIES ACT, (E) PURSUANT TO THE EXEMPTION
FROM REGISTRATION PROVIDED BY RULE 144 UNDER THE SECURITIES ACT (IF AVAILABLE),
OR (F) PURSUANT TO AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
AND (3) AGREES THAT IT WILL GIVE TO EACH PERSON TO WHOM THIS SECURITY IS
TRANSFERRED A NOTICE SUBSTANTIALLY TO THE EFFECT OF THIS LEGEND. IN CONNECTION
WITH ANY TRANSFER OF THIS SECURITY WITHIN TWO YEARS AFTER THE ORIGINAL ISSUANCE
OF THIS SECURITY, IF THE PROPOSED TRANSFEREE IS AN ACCREDITED INVESTOR, THE
HOLDER MUST, PRIOR TO SUCH TRANSFER, FURNISH TO THE TRUSTEE AND THE COMPANY SUCH
CERTIFICATIONS, LEGAL OPINIONS OR OTHER INFORMATION AS EITHER OF THEM MAY
REASONABLY REQUIRE TO CONFIRM THAT SUCH TRANSFER IS BEING MADE PURSUANT TO AN
EXEMPTION FROM, OR IN A TRANSACTION NOT SUBJECT TO, THE REGISTRATION
REQUIREMENTS OF THE SECURITIES ACT. AS USED HEREIN, THE TERMS "OFFSHORE
TRANSACTION," "UNITED STATES" AND "U.S. PERSON" HAVE THE MEANING GIVEN TO THEM
BY REGULATIONS UNDER THE SECURITIES ACT.
A-1-1
<PAGE>
SHEFFIELD STEEL CORPORATION
11 1/2% First Mortgage Note due 2005
No. $
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company", which
term includes any successor corporation), for value received promises to pay to
or registered assigns, the principal sum of Dollars, on December 1,
2005.
Interest Payment Dates: June 1 and December 1 commencing June 1, 1998.
Record Dates: May 15 and November 15.
To the extent set forth in the Security Documents (as defined in the
Indenture), payment hereon is secured, on an equal and ratable basis with all
other Securities, by a valid, perfected first priority security interest in the
Collateral (as defined in the below-mentioned Indenture), the terms of which
security interests are more fully set forth in the Security Documents.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-1-2
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
Attest: SHEFFIELD STEEL CORPORATION
_____________________ By: ________________________________
Name: Name:
Title: Title:
A-1-3
<PAGE>
[FORM OF TRUSTEE's CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within mentioned
Indenture.
Dated: STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: ___________________________________
Authorized Signatory
A-1-4
<PAGE>
SHEFFIELD STEEL CORPORATION
11 1/2% First Mortgage Note due 2005
1. Interest.
--------
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on June 1
and December 1 of each year (the "Interest Payment Date"), commencing June 1,
1998. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 5, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Securities and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company will act as Paying Agent
and Registrar. The Company may change any Paying Agent, Registrar or
co-Registrar without notice to the Holders. The Company or any of its
Subsidiaries may, subject to certain exceptions, act as Registrar or
co-Registrar.
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
December 1, 1997 (the "Indenture"), among the Company and State Street Bank and
Trust Company (the
A-1-5
<PAGE>
"Trustee"). Capitalized terms herein are used as defined in the Indenture unless
otherwise defined herein. The terms of the Securities include those stated in
the Indenture and those made part of the Indenture by reference to the Trust
Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb) (the "TIA"), as in
effect on the date of the Indenture until such time as the Indenture is
qualified under the TIA, and thereafter as in effect on the date on which the
Indenture is qualified under the TIA. Notwithstanding anything to the contrary
herein, the Securities are subject to all such terms, and Holders of Securities
are referred to the Indenture and said Act for a statement of them. The
Securities are secured obligations of the Company limited in aggregate principal
amount to $150,000,000, which may be issued under the Indenture.
5. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole at
any time or in part from time to time, on and after December 1, 2001, upon not
less than 30 nor more than 60 days' notice, at the following redemption prices
(expressed as percentages of the principal amount thereof) if redeemed during
the twelve-month period commencing on December 1 of the year set forth below,
plus, in each case, accrued and unpaid interest thereon, if any, to the date of
redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001................................. 105.750%
2002................................. 102.875%
2003 and thereafter.................. 100.000%
</TABLE>
At any time, or from time to time, on or prior to December 1, 2000, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the Securities at a redemption price
equal to 111.5% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
--------
principal amount of Securities originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 150 days after the consummation of any such Public Equity
Offering.
6. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than 60
days be fore the Redemption Date to each Holder of Securities to be redeemed at
such Holder's registered address. Securities in denominations of $1,000 may be
redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000.
A-1-6
<PAGE>
Except as set forth in the Indenture, from and after any Redemption Date,
if monies for the redemption of the Securities called for redemption shall have
been deposited with the Paying Agent for redemption on such Redemption Date,
then, unless the Company defaults in the payment of such Redemption Price, the
Securities called for redemption will cease to bear interest and the only right
of the Holders of such Securities will be to receive payment of the Redemption
Price.
7. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be required
to offer to purchase all of the outstanding Securities at a purchase price equal
to 101% of the principal amount thereof plus accrued and unpaid interest, if
any, to the date of repurchase.
8. Limitation on Disposition of Assets.
-----------------------------------
The Company is subject to certain conditions, obligated to make an offer
to purchase Securities at 100% of their principal amount plus accrued interest
to the date of repurchase with the net cash proceeds of certain sales or other
dispositions of assets.
9. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in denominations
of $1,000 and integral multiples of $1,000. A Holder shall register the
transfer of or exchange Securities in accordance with the Indenture. The
Registrar may require a Holder, among other things, to furnish appropriate
endorsements and transfer documents and to pay certain transfer taxes or similar
governmental charges payable in connection therewith as permitted by the
Indenture. The Registrar need not register the transfer of or exchange any
Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of it
for all purposes.
11. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agents will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agents
with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company may be discharged from its obligations under the Indenture,
the Securities and the Security Documents, except for certain provisions
thereof ("Legal Defeasance"),
A-1-7
<PAGE>
and may be discharged from its obligations to comply with certain covenants
contained in the Indenture, the Securities and the Security Documents ("Covenant
Defeasance"), in each case upon satisfaction of certain conditions specified in
the Indenture.
13. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Security Documents or
the Securities may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to
or in place of certificated Securities, comply with Article Five of the
Indenture or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
14. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the Company
and its Subsidiaries to, among other things, incur additional Indebtedness, pay
dividends or make certain other Restricted Payments, create liens, consummate
certain asset sales, enter into sale-leaseback transactions, enter into certain
transactions with affiliates, and consummate certain mergers and consolidations
or sales of all or substantially all of its assets. The limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the In
denture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of Default
(except a Default in payment of principal or interest, including an accelerated
payment) if it determines that withholding notice is in their interest.
A-1-8
<PAGE>
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee.
17. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such, of
the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written request
and without charge a copy of the Indenture. Requests may be made to: Sheffield
Steel Corporation, 220 North Jefferson Street, Sand Springs, OK 74063, Attn:
Chief Financial Officer.
A-1-9
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
___________________________________________________________________________
___________________________________________________________________________
(Print or type name, address and zip code of assignee)
___________________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint ___________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to the
date which is the earlier of (i) the date of the declaration by the SEC of the
effectiveness of a registration statement under the Securities Act of 1933, as
amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) December 5, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that:
[Check One]
---------
[_] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
--
[_] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
A-1-10
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar shall
not be obligated to register this Security in the name of any person other than
the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Dated: __________________ Signed: _________________________________________
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee: _________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to
request such information and that it is aware that the transferor is relying
upon the undersigned's foregoing representations in order to claim the exemption
from registration provided by Rule 144A.
Dated: __________________ ______________________________________
NOTICE: To be executed by an
executive officer
A-1-11
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [_] Section 4.17 [_]
If you want to elect to have only part of this Security purchased by the
Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $
Dated: ______________ Your Signature: ________________________________
(Sign exactly as name appears on
the other side of this Security)
Signature Guarantee: _________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-1-12
<PAGE>
EXHIBIT A-2
-----------
[FORM OF SERIES B SECURITY]
SHEFFIELD STEEL CORPORATION
11 1/2% First Mortgage Note due 2005
No. $
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to or registered assigns, the principal sum of
Dollars, on December 1, 2005.
Interest Payment Dates: June 1 and December 1 commencing June 1, 1998.
Record Dates: May 15 and November 15.
To the extent set forth in the Security Documents (as defined in the
Indenture), payment hereon is secured, on an equal and ratable basis with all
other Securities, by a valid, perfected first priority security interest in the
Collateral (as defined in the below-mentioned In denture), the terms of which
security interests are more fully set forth in the Security Documents.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
A-2-1
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
Attest: SHEFFIELD STEEL CORPORATION
_______________________ By: __________________________________
Name: Name:
Title: Title:
[FORM OF TRUSTEE'S CERTIFICATE OF AUTHENTICATION]
This is one of the Securities described in the within mentioned
Indenture.
Dated: STATE STREET BANK AND TRUST COMPANY,
as Trustee
By: _______________________________________
Authorized Signatory
A-2-2
<PAGE>
SHEFFIELD STEEL CORPORATION
11 1/2% First Mortgage Note due 2005
1. Interest.
--------
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on June 1
and December 1 of each year (the "Interest Payment Date"), commencing June 1,
1998. Interest on the Securities will accrue from the most recent date to
which interest has been paid or, if no interest has been paid, from December 5,
1997. Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and on overdue
install ments of interest from time to time on demand at the rate borne by the
Securities and on over due installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or co-
Registrar without notice to the Holders. The Company or any of its Subsidiaries
may, subject to certain exceptions, act as Registrar or co-Registrar.
A-2-3
<PAGE>
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
December 1, 1997 (the "Indenture"), among the Company and State Street Bank and
Trust Company (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to
the contrary herein, the Securities are subject to all such terms, and Holders
of Securities are referred to the Indenture and said Act for a statement of
them. The Securities are secured obligations of the Company limited in
aggregate principal amount to $150,000,000, which may be issued under the
Indenture.
5. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after December 1, 2001, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on December 1 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001............................ 105.750%
2002............................ 102.875%
2003 and thereafter............. 100.000%
</TABLE>
At any time, or from time to time, on or prior to December 1, 2000, the
Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the Securities at a redemption price
equal to 111.5% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
--------
principal amount of Securities originally issued remains out standing
immediately after any such redemption. In order to effect the foregoing
redemption with the proceeds of any Public Equity Offering, the Company shall
make such redemption not more than 150 days after the consummation of any such
Public Equity Offering.
6. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's
A-2-4
<PAGE>
registered address. Securities in denominations of $1,000 may be redeemed only
in whole. The Trustee may select for redemption portions (equal to $1,000 or any
integral multiple thereof) of the principal of Securities that have
denominations larger than $1,000.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and the only
right of the Holders of such Securities will be to receive payment of the
Redemption Price.
7. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase.
8. Limitation on Disposition of Assets.
-----------------------------------
The Company is subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount plus accrued
interest to the date of re purchase with the net cash proceeds of certain sales
or other dispositions of assets.
9. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
11. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agents will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agents
with respect to such funds shall cease.
A-2-5
<PAGE>
12. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company may be discharged from its obligations under the Indenture,
the Securities and the Security Documents, except for certain provisions
thereof ("Legal Defeasance"), and may be discharged from its obligations to
comply with certain covenants contained in the Indenture, the Securities and
the Security Documents ("Covenant Defeasance"), in each case upon satisfaction
of certain conditions specified in the Indenture.
13. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Security Documents or
the Securities may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to
or in place of certificated Securities, comply with Article Five of the
Indenture or comply with any requirements of the SEC in connection with the
qualification of the Indenture under the TIA, or make any other change that
does not materially adversely affect the rights of any Holder of a Security.
14. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the Company
and its Subsidiaries to, among other things, incur additional Indebtedness, pay
dividends or make certain other Restricted Payments, create liens, consummate
certain asset sales, enter into sale-leaseback transactions, enter into certain
transactions with affiliates, and consummate certain mergers and consolidations
or sales of all or substantially all of its assets. The limitations are subject
to a number of important qualifications and exceptions. The Company must
annually report to the Trustee on compliance with such limitations.
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in the Indenture. Holders of Securities
may not enforce the Indenture or the Securities except as provided in the
Indenture. The Trustee is not obligated to enforce the Indenture or the
Securities unless it has received indemnity satisfactory to it. The Indenture
permits, subject to certain limitations therein provided, Holders of a majority
in aggregate principal amount of the Securities then outstanding to direct the
Trustee in its exercise of any trust or power. The Trustee may withhold from
Holders of Securities notice of any continuing Default or Event of
A-2-6
<PAGE>
Default (except a Default in payment of principal or interest, including an
accelerated payment) if it determines that withholding notice is in their
interest.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other capacity,
may become the owner or pledgee of Securities and may otherwise deal with the
Company, its Subsidiaries or their respective Affiliates as if it were not the
Trustee.
17. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such, of
the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a Security
or an assignee, such as: TEN COM (= tenants in common), TEN ENT (= tenants by
the entireties), JT TEN (= joint tenants with right of survivorship and not as
tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts to Minors
Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of such numbers as printed on the
Securities and reliance may be placed only on the other identification numbers
printed hereon.
The Company will furnish to any Holder of a Security upon written request
and without charge a copy of the Indenture. Requests may be made to: Sheffield
Steel Corporation, 220 North Jefferson Street, Sand Springs, OK 74063, Attn:
Chief Financial Officer.
A-2-7
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint ________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
Dated: __________________ Signed: __________________________________________
(Sign exactly as name appears on the other
side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-2-8
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [_] Section 4.17 [_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state
the amount: $
Dated: ______________ Your Signature: _______________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee: ___________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
A-2-9
<PAGE>
EXHIBIT B
---------
FORM OF LEGEND FOR BOOK-ENTRY SECURITIES
Any Global Security authenticated and delivered hereunder shall bear a
legend (which would be in addition to any other legends required in the case of
a Restricted Security) in substantially the following form:
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE
INDENTURE HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME
OF A DEPOSITORY OR A NOMINEE OF A DEPOSITORY OR A SUCCESSOR
DEPOSITORY. THIS SECURITY IS NOT EXCHANGEABLE FOR SECURITIES
REGISTERED IN THE NAME OF A PERSON OTHER THAN THE DEPOSITORY OR
ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A
TRANSFER OF THIS SECURITY AS A WHOLE BY THE DEPOSITORY TO A
NOMINEE OF THE DEPOSITORY OR BY A NOMINEE OF THE DEPOSITORY TO
THE DEPOSITORY OR AN OTHER NOMINEE OF THE DEPOSITORY) MAY BE
REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED
REPRESENTATIVE OF THE DEPOSITORY TRUST COMPANY, A NEW YORK
CORPORATION ("DTC"), TO ISSUER OR ITS AGENT FOR REGISTRATION OF
TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED IS
REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS
REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT
IS MADE TO CEDE & CO. OR TO SUCH OTHER ENTITY AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC), ANY TRANSFER, PLEDGE OR
OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON IS
WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS
AN INTEREST HEREIN.
B-1
<PAGE>
EXHIBIT C
---------
Form of Certificate To Be
Delivered in Connection with
Transfers to Non-QIB Institutional Accredited Investors
-------------------------------------------------------
___________, ____
State Street Bank and Trust Company
Attention: Corporate Trust Department
Re: SHEFFIELD STEEL CORPORATION (the
"Company") 11 1/2% First Mortgage Notes
due 2005 (the "Securities")
----------------------------------------
Ladies and Gentlemen:
In connection with our proposed purchase of 11 1/2% First Mortgage
Notes due 2005 (the "Securities") of Sheffield Steel Corporation (the
"Company"), we confirm that:
1. We have received a copy of the Offering Memorandum (the "Offering
Memorandum"), dated November 26, 1997, relating to the Securities and such other
information as we deem necessary in order to make our investment decision. We
acknowledge that we have read and agreed to the matters stated on pages i and ii
and under the captions "Transfer Restrictions" and "Book-Entry; Delivery and
Form" of such Offering Memorandum, including the restrictions on duplication and
circulation of such Offering Memorandum.
2. We understand that any subsequent transfer of the Securities is
subject to certain restrictions and conditions set forth in the Offering
Memorandum and the undersigned agrees to be bound by, and not to resell, pledge
or otherwise transfer the Securities except in compliance with, such
restrictions and conditions and the Securities Act of 1933, as amended (the
"Securities Act").
3. We understand that the offer and sale of the Securities have not
been registered under the Securities Act, and that the Securities may not be
offered or sold within the United States or to, or for the account or benefit
of, U.S. persons except as permitted in the following sentence. We agree, on
our own behalf and on behalf of any accounts for which we are acting as
hereinafter stated, that if we should sell any Securities, we will do so only
(A) to the Company or any subsidiary thereof, (B) inside the United States in
accordance with Rule 144A under the Securities Act to a "qualified institutional
buyer" (as defined therein), (C) inside the United States to an institutional
"accredited investor" (as defined below) that, prior to such transfer, furnishes
(or has furnished on its behalf by a U.S. broker-dealer) to the
C-1
<PAGE>
Trustee (as defined in the Indenture relating to the Securities), a signed
letter containing certain representations and agreements relating to the
restrictions on transfer of the Securities (the form of which letter can be
obtained from the Trustee), (D) outside the United States in accordance with
Rule 904 of Regulation S under the Securities Act, (E) pursuant to the exemption
from registration provided by Rule 144 under the Securities Act (if available),
or (F) pursuant to an effective registration statement under the Securities Act,
and we further agree to provide to any person purchasing Securities from us a
notice advising such purchaser that resales of the Securities are restricted as
stated herein.
4. We understand that, on any proposed resale of Securities, we will
be required to furnish to the Trustee and the Company, such certification,
legal opinions and other information as the Trustee and the Company may
reasonably require to confirm that the proposed sale complies with the
foregoing restrictions. We further understand that the Securities purchased by
us will bear a legend to the foregoing effect.
5. We are an institutional "accredited investor" (as defined in Rule
501(a)(1), (2), (3) or (7) of Regulation D under the Securities Act) and have
such knowledge and experience in financial and business matters as to be capable
of evaluating the merits and risks of our investment in the Securities, and we
and any accounts for which we are acting are each able to bear the economic risk
of our or their investment, as the case may be.
6. We are acquiring the Securities purchased by us for our account or
for one or more accounts (each of which is an institutional "accredited
investor") as to each of which we exercise sole investment discretion.
C-2
<PAGE>
You, the Company and the Initial Purchaser are entitled to rely upon
this letter and are irrevocably authorized to produce this letter or a copy
hereof to any interested party in any administrative or legal proceeding or
official inquiry with respect to the matters covered hereby.
Very truly yours,
By: ________________________________________
Name:
Title:
C-3
<PAGE>
EXHIBIT D
---------
Form of Certificate To Be Delivered
in Connection with Transfers
Pursuant to Regulation S
------------------------------------
___________, ____
State Street Bank and Trust Company
Attention: Corporate Trust Department
Re: SHEFFIELD STEEL CORPORATION (the
"Company") 11 1/2% First Mortgage Notes
due 2005 (the "Securities")
----------------------------------------
Dear Sirs:
In connection with our proposed sale of $___________ aggregate
principal amount of the Securities, we confirm that such sale has been effected
pursuant to and in accordance with Regulation S under the U.S. Securities Act
of 1933, as amended (the "Securities Act"), and, accordingly, we represent that:
(1) the offer of the Securities was not made to a person in the
United States;
(2) either (a) at the time the buy offer was originated, the
transferee was outside the United States or we and any person acting on our
behalf reasonably believed that the transferee was outside the United
States, or (b) the transaction was executed in, on or through the
facilities of a designated off-shore securities market and neither we nor
any person acting on our behalf knows that the transaction has been
pre-arranged with a buyer in the United States;
(3) no directed selling efforts have been made in the United States
in contravention of the requirements of Rule 903(b) or Rule 904(b) of
Regulation S, as applicable;
(4) the transaction is not part of a plan or scheme to evade the
registration requirements of the Securities Act; and
(5) we have advised the transferee of the transfer restrictions
applicable to the Securities.
D-1
<PAGE>
You and the Company are entitled to rely upon this letter and are
irrevocably authorized to produce this letter or a copy hereof to any interested
party in any administrative or legal proceedings or official inquiry with
respect to the matters covered hereby. Terms used in this certificate have the
meanings set forth in Regulation S.
Very truly yours,
[Name of Transferor]
By: ________________________________________
Authorized Signature
D-2
<PAGE>
Exhibit 4.2
Cusip No. 821266 AC 7
Form of
SHEFFIELD STEEL CORPORATION
Series B
11 1/2% of First Mortgage Note due 2005
No. 1 [______________]
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company",
which term includes any successor corporation), for value received promises to
pay to CEDE & CO. or registered assigns, the principal sum of ONE HUNDRED TEN
MILLION DOLLARS, on December 1, 2005.
Interest Payment Dates: June 1 and December 1 commencing [___________]
Record Dates: May 15 and November 15.
To the extent set forth in the Security Documents (as defined in the
Indenture), payment hereon is secured, on an equal and ratable basis with all
other Securities, by a valid, perfected first priority security interest in the
Collateral (as defined in the below-mentioned Indenture), the terms of which
security interests are more fully set forth in the Security Documents.
Reference is made to the further provisions of this Security contained
herein, which will for all purposes have the same effect as if set forth at this
place.
<PAGE>
THIS SECURITY IS A GLOBAL SECURITY WITHIN THE MEANING OF THE INDENTURE
HEREINAFTER REFERRED TO AND IS REGISTERED IN THE NAME OF A DEPOSITORY OR A
NOMINEE OF A DEPOSITORY OR A SUCCESSOR DEPOSITORY. THIS SECURITY IS NOT
EXCHANGEABLE FOR SECURITIES REGISTERED IN THE NAME OF A PERSON OTHER THAN THE
DEPOSITORY OR ITS NOMINEE EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN THE
INDENTURE, AND NO TRANSFER OF THIS SECURITY (OTHER THAN A TRANSFER OF THIS
SECURITY AS A WHOLE BY THE DEPOSITORY TO A NOMINEE OF THE DEPOSITORY OR BY A
NOMINEE OF THE DEPOSITORY TO THE DEPOSITORY OR ANOTHER NOMINEE OF THE
DEPOSITORY) MAY BE REGISTERED EXCEPT IN THE LIMITED CIRCUMSTANCES DESCRIBED IN
THE INDENTURE.
UNLESS THIS CERTIFICATE IS PRESENTED BY AN AUTHORIZED REPRESENTATIVE OF THE
DEPOSITORY TRUST COMPANY, A NEW YORK CORPORATION ("DTC"), TO ISSUER OR ITS AGENT
FOR REGISTRATION OF TRANSFER, EXCHANGE, OR PAYMENT, AND ANY CERTIFICATE ISSUED
IS REGISTERED IN THE NAME OF CEDE & CO. OR IN SUCH OTHER NAME AS IS REQUESTED BY
AN AUTHORIZED REPRESENTATIVE OF DTC (AND ANY PAYMENT IS MADE TO CEDE & CO. OR TO
SUCH OTHER ENTITY AS IS REQUESTED BY AN AUTHORIZED REPRESENTATIVE OF DTC), ANY
TRANSFER, PLEDGE OR OTHER USE HEREOF FOR VALUE OR OTHERWISE BY OR TO ANY PERSON
IS WRONGFUL INASMUCH AS THE REGISTERED OWNER HEREOF, CEDE & CO., HAS AN INTEREST
HEREIN.
<PAGE>
SHEFFIELD STEEL CORPORATION
11 1/2% First Mortgage Note due 2005
1. Interest.
--------
SHEFFIELD STEEL CORPORATION, a Delaware corporation (the "Company"),
promises to pay interest on the principal amount of this Security at the rate
per annum shown above. The Company will pay interest semi-annually on June 1
and December 1 of each year (the "Interest Payment Date"), commencing June 1,
1998. Interest on the Securities will accrue from the most recent date to which
interest has been paid or, if no interest has been paid, from December 5, 1997.
Interest will be computed on the basis of a 360-day year of twelve 30-day
months.
The Company shall pay interest on overdue principal and on overdue
installments of interest from time to time on demand at the rate borne by the
Securities and on overdue installments of interest (without regard to any
applicable grace periods) to the extent lawful.
2. Method of Payment.
-----------------
The Company shall pay interest on the Securities (except defaulted
interest) to the persons who are the registered Holders at the close of business
on the Record Date immediately preceding the Interest Payment Date even if the
Securities are cancelled on registration of transfer or registration of exchange
after such Record Date. Holders must surrender Securities to a Paying Agent to
collect principal payments. The Company shall pay principal and interest in
money of the United States that at the time of payment is legal tender for
payment of public and private debts ("U.S. Legal Tender"). However, the Company
may pay principal and interest by wire transfer of Federal funds, or interest by
check payable in such U.S. Legal Tender. The Company may deliver any such
interest payment to the Paying Agent or to a Holder at the Holder's registered
address. Notwithstanding the foregoing, the Company shall pay or cause to be
paid all amounts payable with respect to Restricted Securities or non-DTC
eligible Securities by wire transfer of Federal funds to the account of the
Holders of such Securities.
3. Paying Agent and Registrar.
--------------------------
Initially, State Street Bank and Trust Company will act as Paying
Agent and Registrar. The Company may change any Paying Agent, Registrar or co-
Registrar without notice to the Holders. The Company or any of its Subsidiaries
may, subject to certain exceptions, act as Registrar or co-Registrar.
<PAGE>
4. Indenture.
---------
The Company issued the Securities under an Indenture, dated as of
December 1, 1997 (the "Indenture"), among the Company and State Street Bank and
Trust Company (the "Trustee"). Capitalized terms herein are used as defined in
the Indenture unless otherwise defined herein. The terms of the Securities
include those stated in the Indenture and those made part of the Indenture by
reference to the Trust Indenture Act of 1939 (15 U.S. Code (S)(S) 77aaa-77bbbb)
(the "TIA"), as in effect on the date of the Indenture until such time as the
Indenture is qualified under the TIA, and thereafter as in effect on the date on
which the Indenture is qualified under the TIA. Notwithstanding anything to the
contrary herein, the Securities are subject to all such terms, and Holders of
Securities are referred to the Indenture and said Act for a statement of them.
The Securities are secured obligations of the Company limited in aggregate
principal amount to $150,000,000, which may be issued under the Indenture.
5. Optional Redemption.
-------------------
The Securities will be redeemable, at the Company's option, in whole
at any time or in part from time to time, on and after December 1, 2001, upon
not less than 30 nor more than 60 days' notice, at the following redemption
prices (expressed as percentages of the principal amount thereof) if redeemed
during the twelve-month period commencing on December 1 of the year set forth
below, plus, in each case, accrued and unpaid interest thereon, if any, to the
date of redemption:
<TABLE>
<CAPTION>
Year Percentage
- ---- ----------
<S> <C>
2001....................................................... 105.750%
2002....................................................... 102.875%
2003 and thereafter........................................ 100.000%
</TABLE>
At any time, or from time to time, on or prior to December 1, 2000,
the Company may, at its option, use the net cash proceeds of one or more Public
Equity Offerings to redeem up to 35% of the Securities at a redemption price
equal to 111.5% of the principal amount thereof plus accrued and unpaid interest
thereon, if any, to the date of redemption; provided that at least 65% of the
--------
principal amount of Securities originally issued remains outstanding immediately
after any such redemption. In order to effect the foregoing redemption with the
proceeds of any Public Equity Offering, the Company shall make such redemption
not more than 150 days after the consummation of any such Public Equity
Offering.
<PAGE>
6. Notice of Redemption.
--------------------
Notice of redemption will be mailed at least 30 days but not more than
60 days before the Redemption Date to each Holder of Securities to be redeemed
at such Holder's registered address. Securities in denominations of $1,000 may
be redeemed only in whole. The Trustee may select for redemption portions (equal
to $1,000 or any integral multiple thereof) of the principal of Securities that
have denominations larger than $1,000.
Except as set forth in the Indenture, from and after any Redemption
Date, if monies for the redemption of the Securities called for redemption shall
have been deposited with the Paying Agent for redemption on such Redemption
Date, then, unless the Company defaults in the payment of such Redemption Price,
the Securities called for redemption will cease to bear interest and the only
right of the Holders of such Securities will be to receive payment of the
Redemption Price.
7. Change of Control Offer.
-----------------------
Upon the occurrence of a Change of Control, the Company will be
required to offer to purchase all of the outstanding Securities at a purchase
price equal to 101% of the principal amount thereof plus accrued and unpaid
interest, if any, to the date of repurchase.
8. Limitation on Disposition of Assets.
-----------------------------------
The Company is subject to certain conditions, obligated to make an
offer to purchase Securities at 100% of their principal amount plus accrued
interest to the date of repurchase with the net cash proceeds of certain sales
or other dispositions of assets.
9. Denominations; Transfer; Exchange.
---------------------------------
The Securities are in registered form, without coupons, in
denominations of $1,000 and integral multiples of $1,000. A Holder shall
register the transfer of or exchange Securities in accordance with the
Indenture. The Registrar may require a Holder, among other things, to furnish
appropriate endorsements and transfer documents and to pay certain transfer
taxes or similar governmental charges payable in connection therewith as
permitted by the Indenture. The Registrar need not register the transfer of or
exchange any Securities or portions thereof selected for redemption.
10. Persons Deemed Owners.
---------------------
The registered Holder of a Security shall be treated as the owner of
it for all purposes.
<PAGE>
11. Unclaimed Funds.
---------------
If funds for the payment of principal or interest remain unclaimed for
one year, the Trustee and the Paying Agents will repay the funds to the Company
at its request. After that, all liability of the Trustee and such Paying Agents
with respect to such funds shall cease.
12. Legal Defeasance and Covenant Defeasance.
----------------------------------------
The Company may be discharged from its obligations under the
Indenture, the Securities and the Security Documents, except for certain
provisions thereof ("Legal Defeasance"), and may be discharged from its
obligations to comply with certain covenants contained in the Indenture, the
Securities and the Security Documents ("Covenant Defeasance"), in each case upon
satisfaction of certain conditions specified in the Indenture.
13. Amendment; Supplement; Waiver.
-----------------------------
Subject to certain exceptions, the Indenture, the Security Documents
or the Securities may be amended or supplemented with the written consent of the
Holders of at least a majority in aggregate principal amount of the Securities
then outstanding, and any existing Default or Event of Default or compliance
with any provision may be waived with the consent of the Holders of a majority
in aggregate principal amount of the Securities then outstanding. Without
notice to or consent of any Holder, the parties thereto may amend or supplement
the Indenture or the Securities to, among other things, cure any ambiguity,
defect or inconsistency, provide for uncertificated Securities in addition to or
in place of certificated Securities, comply with Article Five of the Indenture
or comply with any requirements of the SEC in connection with the qualification
of the Indenture under the TIA, or make any other change that does not
materially adversely affect the rights of any Holder of a Security.
14. Restrictive Covenants.
---------------------
The Indenture imposes certain limitations on the ability of the
Company and its Subsidiaries to, among other things, incur additional
Indebtedness, pay dividends or make certain other Restricted Payments, create
liens, consummate certain asset sales, enter into sale-leaseback transactions,
enter into certain transactions with affiliates, and consummate certain mergers
and consolidations or sales of all or substantially all of its assets. The
limitations are subject to a number of important qualifications and exceptions.
The Company must annually report to the Trustee on compliance with such
limitations.
15. Defaults and Remedies.
---------------------
If an Event of Default occurs and is continuing, the Trustee or the
Holders of at least 25% in aggregate principal amount of Securities then
outstanding may declare all the Securities to be due and payable immediately in
the manner and with the effect provided in
<PAGE>
the Indenture. Holders of Securities may not enforce the Indenture or the
Securities except as provided in the Indenture. The Trustee is not obligated to
enforce the Indenture or the Securities unless it has received indemnity
satisfactory to it. The Indenture permits, subject to certain limitations
therein provided, Holders of a majority in aggregate principal amount of the
Securities then outstanding to direct the Trustee in its exercise of any trust
or power. The Trustee may withhold from Holders of Securities notice of any
continuing Default or Event of Default (except a Default in payment of principal
or interest, including an accelerated payment) if it determines that withholding
notice is in their interest.
16. Trustee Dealings with Company.
-----------------------------
The Trustee under the Indenture, in its individual or any other
capacity, may become the owner or pledgee of Securities and may otherwise deal
with the Company, its Subsidiaries or their respective Affiliates as if it were
not the Trustee.
17. No Recourse Against Others.
--------------------------
No stockholder, director, officer, employee or incorporator, as such,
of the Company shall have any liability for any obligation of the Company under
the Securities or the Indenture or for any claim based on, in respect of or by
reason of, such obligations or their creation. Each Holder of a Security by
accepting a Security waives and releases all such liability. The waiver and
release are part of the consideration for the issuance of the Securities.
18. Authentication.
--------------
This Security shall not be valid until the Trustee or authenticating
agent signs the certificate of authentication on this Security.
19. Abbreviations and Defined Terms.
-------------------------------
Customary abbreviations may be used in the name of a Holder of a
Security or an assignee, such as: TEN COM (= tenants in common), TEN ENT (=
tenants by the entireties), JT TEN (= joint tenants with right of survivorship
and not as tenants in common), CUST (= Custodian), and U/G/M/A (= Uniform Gifts
to Minors Act).
20. CUSIP Numbers.
-------------
Pursuant to a recommendation promulgated by the Committee on Uniform
Security Identification Procedures, the Company will cause CUSIP numbers to be
printed on the Securities immediately prior to the qualification of the
Indenture under the TIA as a convenience to the Holders of the Securities. No
representation is made as to the accuracy of
<PAGE>
such numbers as printed on the Securities and reliance may be placed only on the
other identification numbers printed hereon.
The Company will furnish to any Holder of a Security upon written
request and without charge a copy of the Indenture. Requests may be made to:
Sheffield Steel Corporation, 220 North Jefferson Street, Sand Springs, OK
74063, Attn: Chief Financial Officer.
<PAGE>
ASSIGNMENT FORM
I or we assign and transfer this Security to
________________________________________________________________________________
________________________________________________________________________________
(Print or type name, address and zip code of assignee)
________________________________________________________________________________
(Insert Social Security or other identifying number of assignee)
and irrevocably appoint_________________________________________________________
agent to transfer this Security on the books of the Company. The agent may
substitute another to act for him.
In connection with any transfer of this Security occurring prior to
the date which is the earlier of (i) the date of the declaration by the SEC of
the effectiveness of a registration statement under the Securities Act of 1933,
as amended (the "Securities Act") covering resales of this Security (which
effectiveness shall not have been suspended or terminated at the date of the
transfer) and (ii) December 5, 1999, the undersigned confirms that it has not
utilized any general solicitation or general advertising in connection with the
transfer and that:
[Check One]
---------
[_] (a) this Security is being transferred in compliance with the exemption
from registration under the Securities Act provided by Rule 144A
thereunder.
or
--
[_] (b) this Security is being transferred other than in accordance with (a)
above and documents are being furnished which comply with the
conditions of transfer set forth in this Security and the Indenture.
<PAGE>
If none of the foregoing boxes is checked, the Trustee or Registrar
shall not be obligated to register this Security in the name of any person other
than the Holder hereof unless and until the conditions to any such transfer of
registration set forth herein and in Section 2.16 of the Indenture shall have
been satisfied.
Dated: __________________ Signed: ________________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
TO BE COMPLETED BY PURCHASER IF (a) ABOVE IS CHECKED
The undersigned represents and warrants that it is purchasing this
Security for its own account or an account with respect to which it exercises
sole investment discretion and that it and any such account is a "qualified
institutional buyer" within the meaning of Rule 144A under the Securities Act
and is aware that the sale to it is being made in reliance on Rule 144A and
acknowledges that it has received such information regarding the Company as the
undersigned has requested pursuant to Rule 144A or has determined not to request
such information and that it is aware that the transferor is relying upon the
undersigned's foregoing representations in order to claim the exemption from
registration provided by Rule 144A.
Dated: __________________ _____________________________________________
NOTICE: To be executed by an
executive officer
<PAGE>
OPTION OF HOLDER TO ELECT PURCHASE
If you want to elect to have this Security purchased by the Company
pursuant to Section 4.16 or Section 4.17 of the Indenture, check the appropriate
box:
Section 4.16 [_] Section 4.17 [_]
If you want to elect to have only part of this Security purchased by
the Company pursuant to Section 4.16 or Section 4.17 of the Indenture, state the
amount: $
Dated: ______________ Your Signature:________________________________________
(Sign exactly as name appears on the
other side of this Security)
Signature Guarantee:____________________________________________________________
Participant in a recognized Signature Guarantee Medallion
Program (or other signature guarantor program reasonably
acceptable to the Trustee)
<PAGE>
IN WITNESS WHEREOF, the Company has caused this Security to be signed
manually or by facsimile by its duly authorized officers.
Dated:
Attest:
By:
- ------------------------------------ ---------------------------------
Name: Name:
Title: Title:
<PAGE>
This is one of the Securities described in the within mentioned
Indenture.
Dated: December 5, 1997 STATE STREET BANK AND TRUST
COMPANY, as Trustee
By:
-----------------------------------
Authorized Signatory
<PAGE>
Exhibit 4.3
INTERCREDITOR AGREEMENT
INTERCREDITOR AGREEMENT (the "Agreement"), dated as of December 1,
1997, by and among Sheffield Steel Corporation, a Delaware corporation having
its principal place of business at 220 North Jefferson, Sand Springs, Oklahoma
74063 (together with its successors and assigns, the "Company"), NationsBank,
N.A., formerly known as NationsBank, N.A. (South), formerly known as NationsBank
of Georgia, N.A., a national banking association with its chief executive office
in Atlanta, Georgia (together with its successors and assigns, "NationsBank")
and State Street Bank and Trust Company, a Massachusetts chartered trust company
having an address at Goodwin Square, 225 Asylum Street, Hartford, Connecticut
06103, solely as trustee and collateral agent (in such capacity and together
with its successors and assigns in such capacity, the "Trustee") for the First
Mortgage Notes Secured Parties (as hereinafter defined).
R E C I T A L S :
- - - - - - - -
1. Pursuant to that certain Receivable and Inventory Financing
Agreement dated as of January 16, 1992 and amended as of the date hereof,
between NationsBank and the Company (which agreement, together with the other
agreements executed in connection therewith, and as such agreements may be
amended, amended and restated, supplemented or otherwise modified from time to
time, the "Revolving Credit Facility"), NationsBank agreed to make certain loans
and advances from time to time to the Company under the Revolving Credit
Facility.
2. Pursuant to that certain indenture (as amended, amended and
restated, supplemented or otherwise modified from time to time, the
"Indenture"), dated as of the date hereof, between the Company and the Trustee,
the Company is issuing its First Mortgage Notes due 2005 (as amended, amended
and restated, supplemented or otherwise modified from time to time, the "First
Mortgage Notes") in an aggregate principal amount not to exceed $150,000,000.
3. To secure the payment and performance of the First Mortgage
Noteholders Claim (as hereinafter defined), the Company has granted mortgage
liens on and security interests in the First Mortgage Noteholders Collateral (as
hereinafter defined) to the Trustee for the benefit of present and future
holders of the First Mortgage Notes (the "First Mortgage Notes Secured
Parties").
4. To secure the payment and performance of the Bank Claim (as
hereinafter defined), the Company has granted security interests in and liens on
the Bank Collateral (as hereinafter defined) to and for the benefit of
NationsBank.
5. It is contemplated in the Indenture that the Company may from time
to time enter into Permitted Bank Refinancings (as hereinafter defined).
<PAGE>
-2-
The parties hereto are executing and delivering this instrument to
evidence their agreement in respect of their relative rights with respect to the
Collateral (as hereinafter defined) and certain other rights, priorities and
interests under the Revolving Credit Facility, the Indenture and the other
documents executed in connection therewith.
A G R E E M E N T :
- - - - - - - - -
In consideration of the foregoing and the mutual covenants herein
contained, and for other good and valuable consideration, the parties hereby
agree as follows:
I. DEFINITIONS
-----------
Definitions. Unless otherwise defined herein, the following terms
-----------
shall have the meanings specified below:
"Accounts" shall mean all of the Company's presently existing and
--------
hereafter arising or acquired accounts, accounts receivable, margin accounts,
futures positions, book debts, instruments, documents, contracts, contract
rights, choses in action, notes, drafts, acceptances, chattel paper, and other
forms of obligation now or hereafter owned or held by or payable to the Company
relating in any way to Inventory or arising from the sale of Inventory or the
rendering of services by the Company, together with all merchandise represented
by any of the Accounts; all such merchandise that may be reclaimed or
repossessed or returned to the Company; all of the Company's rights as an unpaid
vendor, including stoppage in transit, reclamation, replevin, and sequestration;
all pledged assets and all letters of credit, guaranty claims, liens, and
security interests held by or granted to the Company to secure payment of any
Accounts and which are delivered for or on behalf of any account debtor; and all
customer lists, ledgers, books of account, records, computer programs, computer
disks or tape files, computer printouts, computer runs and other computer
prepared information relating to any of the foregoing.
"Bank Claim" shall mean all "Obligations" of the Company to
----------
NationsBank as set forth in the Revolving Credit Facility, including all sums
loaned, advanced to or for the benefit of the Company at any time, any interest
thereon, any future advances, any costs of collection or enforcement, including,
without limitation, reasonable attorneys' and paralegals' costs and fees, and
any prepayment fees with respect thereto.
"Bank Collateral" shall mean, collectively, the Accounts, Inventory
---------------
and Bank Intangibles and the Proceeds thereof, to the extent they do not
constitute First Mortgage Noteholders Collateral.
"Bank Intangibles" shall mean, to the extent the same relate to Bank
----------------
Collateral, all of the Company's now owned or hereafter acquired goodwill,
confidential information, contract rights, choses in action, causes of action,
consulting agreements, engineering
<PAGE>
-3-
contracts and rights to refunds or indemnification to the extent the foregoing
relate to Bank Collateral, and insurance proceeds relating to Bank Collateral
including business interruption proceeds, deposit accounts, letters of credit,
documents, instruments, chattel paper, claims for tax or other refunds against
any city, county, state, or federal government, or any agency or authority or
other subdivision thereof relating to Bank Collateral, corporate or other
business records relating to Bank Collateral and all other general intangibles
relating to Bank Collateral.
"Collateral" shall mean all of the First Mortgage Noteholders
----------
Collateral and Bank Collateral.
"Enforcement Notice" shall mean a written notice delivered, at a time
------------------
when an "Event of Default" (as defined in the Indenture or the Revolving Credit
Facility, respectively) or any event of default as set forth in the documents
evidencing a Permitted Bank Refinancing has occurred and is continuing, by
either the Trustee or NationsBank to the other Secured Parties announcing that
an Enforcement is being commenced, specifying the relevant Event of Default (as
defined in the Revolving Credit Facility or the Indenture, as applicable) or
event of default (as set forth in the documents evidencing or securing such
Permitted Bank Refinancing), stating the current amount of the First Mortgage
Noteholders Claim (or the portion thereof held by the Secured Party giving such
notice) or Bank Claim as of the date of such notice.
"Enforcement Period" shall mean the period of time following the
------------------
giving by a Secured Party of an Enforcement Notice to the other Secured Party
until either (i) the final payment or satisfaction in full of either the First
Mortgage Noteholders Claim or the Bank Claim, or (ii) the Trustee and
NationsBank agree in writing to terminate the Enforcement Period.
"Enforcement" shall mean, collectively or individually, for either of
-----------
NationsBank or the Trustee to make demand for payment or accelerate the
indebtedness of the Company (other than any acceleration which may occur
automatically upon the filing of a bankruptcy petition by the Company) held by
such person, repossess any Collateral or commence the judicial or other
enforcement of any of the rights and remedies of the Secured Party under the
Indenture, the Revolving Credit Facility, the instruments evidencing any
Permitted Bank Refinancing or any related mortgages, guaranties or agreements or
applicable law.
"Equipment" shall mean all of the Company's equipment, machinery,
---------
furniture, furnishings, fixtures, tools, supplies, and motor vehicles and
rolling stock, of every kind and description, now or at any time hereafter owned
by and in the custody or possession, actual or constructive, of the Company,
wherever located, together with any and all parts, improvements, additions,
replacements, accessions, and substitutions thereto or therefor, and all
licenses and other rights of the Company relating thereto, whether in the
possession and
<PAGE>
-4-
control of the Company, or in the possession and control of a third party for
the account of the Company, and all maintenance and warranty records relating
thereto.
"First Mortgage Noteholders Claim" shall mean all obligations of the
--------------------------------
Company to the Trustee and the First Mortgage Notes Secured Parties under the
Indenture, the First Mortgage Notes and any mortgage or other security
instruments securing the Company's obligations in respect of the First Mortgage
Notes, including in each case, without limitation, all principal and interest
owing by the Company, any future advances, any costs of collection or
enforcement, and reasonable attorneys' and paralegals' costs and fees.
"First Mortgage Noteholders Collateral" shall mean, collectively, the
-------------------------------------
Real Property, Equipment, First Mortgage Noteholders Intangibles, and
Intellectual Property, and the Proceeds thereof, to the extent they do not
constitute Bank Collateral.
"First Mortgage Noteholders Intangibles" shall mean, to the extent the
--------------------------------------
same relate to or arise out of the First Mortgage Noteholders Collateral, all of
the Company's now owned or hereafter acquired goodwill, service marks, service
mark applications, descriptions, name plates, choses in action, causes of
action, catalogs, contract rights, confidential information, consulting
agreements and engineering contracts, and rights to refund or indemnification
relating to First Mortgage Noteholders Collateral, insurance proceeds relating
to First Mortgage Noteholders Collateral (other than business interruption
insurance proceeds), income tax refunds relating to First Mortgage Noteholders
Collateral, claims for tax or other refunds against any city, county, state, or
federal government, or any agency or authority or other subdivision thereof
relating to First Mortgage Noteholders Collateral, lease agreements relating to
First Mortgage Noteholders Collateral, corporate or other business records
relating to First Mortgage Noteholders Collateral and all other general
intangibles relating to First Mortgage Noteholders Collateral.
"Intellectual Property" shall mean all present and future designs,
---------------------
patents, patent rights and applications therefor, trade names, inventions,
copyrights and applications and registrations therefor, license rights, trade
secrets, methods, processes, know how, drawings, specifications, descriptions,
and all memoranda, notes and records with respect to any research and
development, now owned or hereafter acquired by the Company.
"Inventory" shall mean all now owned or hereafter acquired inventory
---------
of the Company including, without limitation, all merchandise, raw materials,
parts, supplies, work-in-process and finished products intended for sale or
lease, of every kind and description now or at any time hereafter owned by the
Company, together with all the containers, packing, packaging, shipping and
similar materials related thereto, and including such inventory as is
temporarily out of the Company's custody or possession and items in transit and
including any returns and repossessions upon any accounts, documents,
instruments or chattel paper relating to or arising from the sale of inventory
(as such documents, instruments or chattel paper relate to the sale of such
inventory), and including, without limitation, all other classes of
<PAGE>
-5-
merchandise, materials, parts, supplies, work-in-process, inventories and
finished products intended for sale by the Company and all substitutions
therefor or replacements thereof, and all additions and accessions thereto.
"Permitted Bank Refinancing" means any amendment, supplement,
--------------------------
refinancing or replacement of the Revolving Credit Facility as permitted by the
Indenture in accordance with the definition of "Revolving Credit Facility"
therein that is secured by a lien on the Bank Collateral; provided, however,
-------- -------
that a representative of the lenders thereunder executes a supplement to this
Agreement under which it agrees to be bound as the lender under the Revolving
Credit Facility for all purposes hereunder, and agrees to comply with all the
terms hereof.
"Proceeds" shall have the meaning assigned to the term "proceeds"
--------
under the UCC and, in any event, shall include, without limitation, any and all
(i) proceeds of any insurance, indemnity or warranty payable to the Trustee, to
NationsBank or to the Company from time to time with respect to any of the
Collateral, (ii) payments (in any form whatsoever) made or due and payable to
the Company from time to time in connection with any requisition, confiscation,
condemnation, seizure or forfeiture of a11 or any part of the Collateral by any
governmental authority (or any person acting under color of a governmental
authority), (iii) products of the Collateral and (iv) other amounts from time to
time paid or payable under or in connection with any of the Collateral.
"Real Property" shall mean the real property described on Schedule I
------------- ----------
and Schedule II hereto and mortgaged to the Trustee pursuant to certain
-----------
mortgages to be recorded as soon as practicable following the execution and
delivery of this Agreement and all other real property mortgaged to the Trustee,
and all improvements and fixtures on and interests in such real property,
including, without limitation, such improvements and fixtures on and interests
in such real property as to which security interests are perfected by UCC-1
financing statements for fixtures.
"Secured Party" shall mean the Trustee (for the benefit of the First
-------------
Mortgage Notes Secured Parties) or NationsBank.
"UCC" shall mean the Uniform Commercial Code as in effect in any
---
relevant jurisdiction.
II. INTERCREDITOR PROVISIONS
------------------------
2.1 Liens. Notwithstanding the date, manner or order of perfection
-----
of the security interests and liens granted to NationsBank or the Trustee, and
notwithstanding any provisions of the UCC, or any applicable law or decision or
the Revolving Credit Facility, the Indenture or any instruments evidencing any
Permitted Bank Refinancing, or whether NationsBank or the Trustee holds
possession of all or any part of the Collateral, or the
<PAGE>
-6-
granting provisions of any mortgage or security instrument or the provisions of
any financing statement, the following, as between NationsBank and the Trustee,
shall be the relative rights with respect to the various security interests and
liens of NationsBank and the Trustee in the Collateral:
(a) NationsBank shall have a first and prior security interest in or
lien on the Bank Collateral and the Trustee shall have no lien thereon or
security interest therein.
(b) The Trustee shall have a first and prior security interest in or
mortgage lien on the First Mortgage Noteholders Collateral and NationsBank
shall have no lien thereon or security interest therein.
The priorities herein and provisions hereof shall apply to any
judgment liens obtained by the Secured Parties.
2.2 Distribution of Proceeds of Collateral. All Proceeds of
--------------------------------------
Collateral shall be distributed in accordance with the following procedure:
(a) Proceeds of the First Mortgage Noteholders Collateral shall be
applied to the First Mortgage Noteholders Claim. After the First Mortgage
Noteholders Claim is paid in full or otherwise satisfied, any remaining
proceeds of the First Mortgage Noteholders Collateral shall be paid over to
the Company or as otherwise required by applicable law.
(b) Proceeds of the Bank Collateral shall be applied to the Bank
Claim. After the Bank Claim is paid in full or otherwise satisfied, any
remaining proceeds of the Bank Collateral shall be paid over to the Company
or as otherwise required by applicable law.
2.3 Enforcement Actions. NationsBank agrees not to commence
-------------------
Enforcement with respect to the Revolving Credit Facility and/or any security
instrument relating thereto or any instrument evidencing or securing any
Permitted Bank Refinancing until an Enforcement Notice has been given to the
Trustee. The Trustee agrees not to commence Enforcement with respect to the
Indenture, the First Mortgage Notes, and/or any security instrument relating
thereto until an Enforcement Notice has been given to NationsBank. NationsBank,
on the one hand, and the Trustee, on the other hand, agree that during an
Enforcement Period:
(a) NationsBank may, at its option, take any action to accelerate
payment of the Bank Claim and to foreclose or realize upon or enforce any
of its rights with respect to the Bank Collateral, without the prior
written consent of the Trustee.
<PAGE>
-7-
(b) The Trustee may, at its option, take any action to accelerate
payment of the First Mortgage Noteholders Claim and to foreclose or realize
upon or enforce any of its rights with respect to the First Mortgage
Noteholders Collateral, without the prior written consent of NationsBank.
(c) For up to one hundred twenty (120) days following the issuance of
an Enforcement Notice, NationsBank may (i) enter upon any or all of the
Company's premises, whether leased or owned, without force or process of
law and without obligation to pay rents, royalties or compensation to the
Trustee or the Company (except that NationsBank shall pay any rents
required to be paid by lessors of leased Real Property used or occupied by
NationsBank); and (ii) use the Equipment, Intellectual Property, First
Mortgage Noteholders Intangibles and the Real Property to the extent
necessary or desirable to complete the manufacture of the Inventory,
collect the Accounts and sell or otherwise dispose of the Bank Collateral.
In the event any occurrence beyond the reasonable control of NationsBank
shall prevent or otherwise prohibit NationsBank or its designees from
taking any action with respect to the Bank Collateral as contemplated in
this subsection 2.3(c), including, without limitation, any bankruptcy,
insolvency or similar proceeding with respect to the Company or its
properties, such 120-day period shall be extended by the number of days
that NationsBank's or its designees' access to the Bank Collateral shall
have been prevented thereby; if NationsBank has entered upon the Company's
premises as provided herein, it shall use its best efforts to complete as
expeditiously as is commercially reasonable its use of such premises, and
the Trustee and their designees shall have unrestricted access to the First
Mortgage Noteholders Collateral for the purpose of evaluating the First
Mortgage Noteholders Collateral and showing it to potential purchasers.
Nothing herein shall prohibit NationsBank from abandoning Bank Collateral.
2.4 Additional Credit Extensions. Subject to any restrictions on the
----------------------------
Company contained in the Indenture, the Revolving Credit Facility or the
instruments evidencing or securing any Permitted Bank Refinancing, any Secured
Party shall have the right, without the consent of the other, to extend credit
to the Company in excess of the maximum amounts set forth in the Revolving
Credit Facility, the Indenture or the instruments evidencing or securing any
Permitted Bank Refinancing, as applicable, and whether under such agreements or
under any other agreements with the Company, secured by the Bank Collateral or
the First Mortgage Noteholders Collateral, as the case may be, and otherwise
having the same rights as herein contained. Notwithstanding the foregoing, if
any such advance(s) are secured by collateral other than the Collateral, the
Secured Party making such advances shall have no obligation to marshal the
assets of the Company before enforcing its rights in the Collateral hereunder.
Each Secured Party shall use its best efforts to give to the others notice of
its intent to extend additional credit, but the failure to do so shall not
affect
<PAGE>
-8-
the validity of the extension of such credit, create a cause of action against
the party failing to give such notice or create any claim or right on behalf of
any third party.
2.5 Notices of Default. NationsBank, on the one hand, and the
------------------
Trustee, on the other hand, agree to use their best efforts to give to the other
copies of any notice of the occurrence or existence of an Event of Default or
any event of default under the instruments evidencing or securing any Permitted
Bank Refinancing sent to the Company simultaneously with the sending of such
notice to the Company, but the failure to do so shall not affect the validity of
such notice or create a cause of action against the Secured Party failing to
give such notice or create any claim or right on behalf of any third party. The
sending of such notice shall not give the recipient the obligation to cure such
Event of Default or event of default.
2.6 Agent for Perfection; Actions with Respect to Collateral.
--------------------------------------------------------
NationsBank and the Trustee hereby appoint each other as agent for purposes of
perfecting their respective security interests in and liens on Collateral which
is of a type such that perfection of a security interest therein may be
accomplished only by possession thereof by the secured party. To the extent
that either the Trustee, on the one hand, or NationsBank, on the other hand,
obtains possession of the other's Collateral, the Secured Party having
possession shall notify the other Secured Party of such fact and shall deliver
such Collateral to the Secured Party having the claims in respect thereof under
Section 2.1 upon request of such Secured Party.
2.7 Insurance. Notwithstanding anything to the contrary herein or in
---------
any agreement referred to herein, the Company shall obtain satisfactory lender's
loss payable endorsements naming the Secured Parties, as their interests may
appear, with respect to policies which insure Collateral, or with such other
designation as NationsBank, on the one hand, and the Trustee, on the other hand,
may agree. Each of NationsBank, on the one hand, and the Trustee, on the other
hand, shall have the sole and exclusive right, as against the other, to adjust
settlement of such insurance policy in the event of any loss to its Collateral
and to exercise the rights provided in any security instrument to waive or amend
insurance requirements or to give consents relating to the application of any
proceeds of insurance, including, without limitation, consents relating to
restoration of Collateral following a casualty. All proceeds of such policy
shall be paid to the Secured Party named in the applicable loss payable
endorsement and having the claim as set forth herein and disbursed in accordance
with the applicable provisions of the relevant governing documents.
2.8 UCC Notices. In the event that any Secured Party shall be
-----------
required by the UCC or any other applicable law to give notice to any other
Secured Party of any intended disposition of Collateral, such notice shall be
given in accordance with Section 3.1 hereof and five (5) days' notice shall be
deemed to be commercially reasonable.
<PAGE>
-9-
III. MISCELLANEOUS
-------------
3.1 Notices. All notices hereunder shall be effective upon receipt,
-------
and shall be in writing and sent by certified mail, return receipt requested,
courier service guaranteeing same or next day delivery, telecopy with confirmed
receipt, telegram or telex, to: (a) the Company, at the address set forth
above, Attention: President, (b) NationsBank, at the address set forth above,
Attention: Craig A. Reese, or (c) the Trustee, at the address set forth above,
Attention: Corporate Trust Administration or to such other address or person as
any of the parties hereto may designate in writing to the other parties.
3.2 Contesting Liens or Security Interest. Neither NationsBank, on
-------------------------------------
the one hand, nor the Trustee, on the other hand, shall contest the validity,
perfection or enforceability of any lien or security interest granted to the
other.
3.3 No Additional Rights for Company Hereunder. If any Secured Party
------------------------------------------
shall enforce its rights or remedies in violation of the terms of this
Agreement, the Company agrees that it shall not raise such violation as a
defense to the enforcement by any other Secured Party under the Revolving Credit
Facility, the Indenture and/or any instrument evidencing or securing any
Permitted Bank Refinancing, nor assert such violation as a counterclaim or basis
for setoff or recoupment against any Secured Party.
3.4 Independent Credit Investigations. None of NationsBank, the
---------------------------------
Trustee or their respective directors, officers, agents or employees, shall be
responsible to the other or to any other person, firm or corporation, for the
Company's solvency, financial condition or ability to repay the Bank Claim or
the First Mortgage Noteholders Claim, or for statements of the Company, oral or
written, or for the validity, sufficiency or enforceability of the Bank Claim,
the First Mortgage Noteholders Claim, the Revolving Credit Facility, the
Indenture, the instruments evidencing any Permitted Bank Refinancing or any
liens or security interests granted by the Company in connection therewith.
Each Secured Party has entered into its respective financing agreements with the
Company based upon its own independent investigation, and makes no warranty or
representation to the other Secured Party except as expressly stated in this
Agreement nor does it rely upon any representation of any other Secured Party
with respect to matters identified or referred to in this Section.
3.5 Amendments to Financing Arrangements or to this Agreement.
---------------------------------------------------------
NationsBank, on the one hand, and the Trustee, on the other hand, shall each use
their best efforts to notify the other of any amendment or modification to the
Revolving Credit Facility or any related security instrument, or the Indenture
or any related security instrument or the instruments evidencing or securing any
Permitted Bank Refinancing, but the failure to do so shall not create a cause of
action against the party failing to give such notice or create any claim or
right on behalf of any third party. NationsBank, on the one hand, and the
Trustee, on the other hand, shall, upon request of the other or others, provide
copies of all such modifications or amendments and copies of all other
documentation relevant to the Collateral.
<PAGE>
-10-
All modifications or amendments of this Agreement must be in writing and duly
executed by an authorized officer of each party to be binding and enforceable.
3.6. Limitation of Liability. Except as provided in this Agreement,
-----------------------
neither NationsBank, on the one hand, nor the Trustee, on the other hand, shall
have any liability to the other or others except for gross negligence or willful
misconduct.
3.7 Marshalling of Assets. NationsBank hereby waives any and all
---------------------
rights to have the First Mortgage Noteholders Collateral, or any part thereof,
marshalled upon any foreclosure of any liens of the Trustee. The Trustee hereby
waives any and all rights to have the Bank Collateral, or any part thereof,
marshalled upon any foreclosure of any liens of NationsBank.
3.8 Successors and Assigns. This Agreement shall be binding upon and
----------------------
inure to the benefit of the respective successors and assigns of each of the
parties hereto, but does not otherwise create, and shall not be construed as
creating, any rights enforceable by any other person not a party to this
Agreement.
3.9. Governing Law. This Agreement shall be governed as to validity,
-------------
interpretation, enforcement and effect by the laws of the Commonwealth of
Massachusetts.
3.10 Information. Upon the request of either the NationsBank, on the
-----------
one hand, or the Trustee, on the other hand, each of the Secured Parties shall
use its best efforts to provide the others with all information received from
the Company and relating to the transactions contemplated by the Revolving
Credit Facility, the Indenture and any Permitted Bank Refinancing and with any
credit or other information with respect to any of the Collateral except as
prohibited by the Indenture; but the failure of the Secured Parties to provide
such information shall not create a cause of action against the party failing to
give such information or create any claim or right on behalf of any third party.
3.11. Release of Prior Agreement. The provisions of that certain
--------------------------
intercreditor agreement dated as of November 1, 1993, as amended to date, are
hereby terminated and of no further force or effect.
3.12 Permitted Bank Refinancing. The Company shall have the right
--------------------------
from time to time to effect a Permitted Bank Refinancing. Each of NationsBank
and the Trustee shall cooperate in all reasonable respects upon request made
from time to time by the Company to accomplish and document any Permitted Bank
Refinancing. Such cooperation shall include, in the case of the Trustee,
without limitation, (i) the execution and delivery of estoppel letters and
counsel opinions, in customary form, as may be reasonably requested by the
Company or the counterparty to any Permitted Bank Refinancing or any title
insurer in connection therewith, (ii) the execution and delivery of an
appropriate amendment and/or supplement to this Agreement (including, without
limitation, to the extent reasonably
<PAGE>
-11-
required, amendments to the definitions of "Bank Claim" and "NationsBank"), and
of any related certificates, notices or other instruments reasonably requested
to be executed in connection with such Permitted Bank Refinancing and (iii)
attendance at meetings related to, and any closing of, a Permitted Bank
Refinancing. Notwithstanding the foregoing, no action requested and no document
required to be executed and delivered hereunder shall adversely affect the
Trustee's substantive rights hereunder. All reasonable expenses incurred by any
Secured Party in complying with the provisions of this Section shall be
reimbursed by the Company.
3.13 Termination. The Agreement will terminate contemporaneously
-----------
with the earlier to occur of (i) the termination of the Indenture, when all of
the First Mortgage Notes have been repaid in full and all of the obligations of
the Company under the Indenture have terminated or (ii) all of the Company's
obligations now or hereafter evidenced by the Revolving Credit Facility or the
documents evidencing or securing any Permitted Bank Refinancing shall have been
repaid in full and terminated in accordance with the terms thereof.
3.14 Further Assurances. Each of the parties hereto shall execute
------------------
and file all such further documents and instruments, and perform such other
acts, as may be necessary or advisable to effectuate the purposes of this
Agreement.
3.15 Inconsistent Provisions. If any provision of this Agreement
-----------------------
shall be inconsistent with, or contrary to, any provision in the Revolving
Credit Facility, the Indenture, the First Mortgage Notes, the documents
evidencing or securing any Permitted Bank Refinancing or any other instrument
delivered in connection with the transactions contemplated thereby, the
applicable provision in this Agreement shall be controlling and shall supersede
such inconsistent provision to the extent necessary to give full effect to all
provisions contained in this Agreement.
3.16 CONSENT TO JURISDICTION. THE PARTIES HERETO HEREBY CONSENT TO
-----------------------
THE EXCLUSIVE JURISDICTION OF ANY STATE OR FEDERAL COURT LOCATED WITHIN NEW YORK
COUNTY, STATE OF NEW YORK AND IRREVOCABLY AGREE THAT, SUBJECT TO THE TRUSTEE'S
OR NATIONSBANK'S ELECTION, ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT
SHALL BE LITIGATED IN SUCH COURTS. EACH PARTY HERETO ACCEPTS FOR AND IN
CONNECTION WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, IN ANY SUCH
ACTIONS OR PROCEEDINGS THE EXCLUSIVE JURISDICTION OF THE AFORESAID COURTS AND
WAIVES ANY DEFENSE OF FORUM NON CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND
BY ANY JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT, WITH ANY
JUDGMENT SUBJECT TO RIGHTS OF APPEAL IN THE JURISDICTIONS SET FORTH ABOVE.
<PAGE>
-12-
3.17 Authority. Each of the parties represents and warrants to all
---------
other parties hereto that the execution, delivery and performance by or on
behalf of such party to this Agreement has been duly authorized by all necessary
action, corporate or otherwise, does not violate any provision of law,
governmental regulation, or any Agreement or instrument by which such party is
bound, and requires no governmental or other consent that has not been obtained
and is not in full force and effect.
3.18 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each counterpart, when so executed and delivered, shall be deemed
to be an original and all of which counterparts, taken together, shall
constitute one and the same Agreement.
3.19 Severability of Provisions. Any provision of this Agreement
--------------------------
that is unenforceable in any jurisdiction shall, as to such jurisdiction, be
ineffective to the extent of such unenforceability, without invalidating the
remaining provisions hereof or affecting the validity or enforceability of such
provision in any other jurisdiction.
3.20 Headings. The article and section headings used in this
--------
Agreement are for convenience of reference only and shall not effect the
construction of this Agreement.
<PAGE>
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
an instrument under seal as of the date and year first above written.
NATIONSBANK, N.A.,
By: /s/ Craig A. Reese
------------------
Name:
Title:
STATE STREET BANK AND TRUST COMPANY, as Trustee
and Collateral Agent
By: /s/ E.C. Hammer
-----------------
Name:
Title:
<PAGE>
The undersigned hereby acknowledge and agrees to the foregoing terms
and provisions. By executing this Agreement, the undersigned agree to be bound
by the provisions hereof as they relate to the relative rights of the Trustee
and NationsBank as among such parties; provided, however, that nothing in this
-------- -------
Agreement shall amend, modify, change or supersede the respective terms of the
Indenture or the Revolving Credit Facility or the documents evidencing or
securing any Permitted Bank Refinancing (or any other document to which the
undersigned may be parties) as between each party and the undersigned as a
borrower and/or guarantor, and in the event of any conflict or inconsistency
between the terms of this Agreement and the Indenture or the Revolving Credit
Facility or the documents evidencing or securing any Permitted Bank Refinancing
(or any such other documents as the case may be), the terms of the Indenture,
the Revolving Credit Facility or the documents evidencing or securing any
Permitted Bank Refinancing, as the case may be, shall govern the relationship
between each such party and the undersigned, as borrower. The undersigned
further agrees that the terms of this Agreement shall not give the undersigned
any substantive rights vis-a-vis the holders of the First Mortgage Notes, the
Trustee or NationsBank.
SHEFFIELD STEEL CORPORATION
By: /s/ Stephen R. Johnson
------------------------------------------
Name: Stephen R. Johnson
Title: Vice President and Chief Financial Officer
<PAGE>
State of Georgia )
) ss:
County of Fulton )
This instrument was acknowledged before me on this 3rd day of
December, 1997, by Craig Reese as Vice President of NationsBank, N.A., a
national banking association.
My Commission expires: 9/18/98
/s/ Lisa Limmons
________________________ ----------------------------------------------
(Seal) Notary Public
State of New York )
) ss:
County of New York )
This instrument was acknowledged before me on this 4th day of
December, 1997, by Elizabeth C. Hammer as Vice President of State Street Bank
and Trust Company, a Massachusetts chartered trust company.
My Commission expires:
/s Christina Tabacco
________________________ ---------------------------------------------
(Seal) Notary Public
<PAGE>
State of New York )
) ss:
County of New York )
This instrument was acknowledged before me on this 4th day of
December, 1997, by Stephen R. Johnson as Vice President of Sheffield Steel
Corporation, a Delaware corporation.
My Commission expires:
/s/ Christina Tabacco
_________________________ -------------------------------------------
(Seal) Notary Public
<PAGE>
SCHEDULE A
----------
LEGAL DESCRIPTION
<PAGE>
Exhibit 4.4
================================================================================
REGISTRATION RIGHTS AGREEMENT
Dated as of December 1, 1997
Among
SHEFFIELD STEEL CORPORATION
as Issuer
and
BT ALEX. BROWN INCORPORATED
as Initial Purchaser
================================================================================
<PAGE>
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
1. Definitions....................................................... 1
2. Exchange Offer.................................................... 5
3. Shelf Registration................................................ 9
4. Additional Interest............................................... 10
5. Registration Procedures........................................... 12
6. Registration Expenses............................................. 22
7. Indemnification................................................... 23
8. Rules 144 and 144A................................................ 27
9. Underwritten Registrations........................................ 28
10. Miscellaneous..................................................... 28
(a) No Inconsistent Agreements.............................. 28
(b) Adjustments Affecting Registrable Notes................. 28
(c) Amendments and Waivers.................................. 29
(d) Notices................................................. 29
(e) Successors and Assigns.................................. 31
(f) Counterparts............................................ 31
(g) Headings................................................ 31
(h) GOVERNING LAW........................................... 31
(i) Severability............................................ 31
(j) Securities Held by the Company or Its Affiliates........ 33
(k) Third Party Beneficiaries............................... 33
(l) Entire Agreement........................................ 33
</TABLE>
-i-
<PAGE>
REGISTRATION RIGHTS AGREEMENT
This Registration Rights Agreement (the "Agreement") is dated as of
---------
December 1, 1997, between SHEFFIELD STEEL CORPORATION, a Delaware corporation
(the "Company"), and BT ALEX. BROWN INCORPORATED (the "Initial Purchaser").
------- -----------------
This Agreement is entered into in connection with the Purchase
Agreement, dated as of November 26, 1997, between the Company and the Initial
Purchaser (the "Purchase Agreement") which provides for the sale by the Company
------------------
to the Initial Purchaser of $110,000,000 aggregate principal amount of the
Company's 11 1/2% First Mortgage Notes due 2005 (the "First Mortgage Notes").
--------------------
In order to induce the Initial Purchaser to enter into the Purchase Agreement,
the Company has agreed to provide the registration rights set forth in this
Agreement for the benefit of the Initial Purchaser and its direct and indirect
transferees and assigns. The execution and delivery of this Agreement is a
condition to the Initial Purchaser's obligation to purchase the First Mortgage
Notes under the Purchase Agreement.
The parties hereby agree as follows:
1. Definitions
-----------
As used in this Agreement, the following terms shall have the
following meanings:
Additional Interest: See Section 4 hereof.
-------------------
Advice: See Section 5 hereof.
------
Agreement: See the introductory paragraphs hereto.
---------
Applicable Period: See Section 2 hereof.
-----------------
Closing Date: The Closing Date as defined in the Purchase Agreement.
------------
Company: See the introductory paragraphs hereto.
-------
<PAGE>
-2-
Effectiveness Date: The 150th day after the Issue Date.
------------------
Effectiveness Period: See Section 3 hereof.
-------------
Event Date: See Section 4 hereof.
----------
Exchange Act: The Securities Exchange Act of 1934, as amended, and
------------
the rules and regulations of the SEC promulgated thereunder.
Exchange Notes: See Section 2 hereof.
--------------
Exchange Offer: See Section 2 hereof.
--------------
Exchange Registration Statement: See Section 2 hereof.
-------------------------------
Filing Date: Within 45 days after the Issue Date.
-----------
First Mortgage Notes: See the introductory paragraphs hereto.
--------------------
Holder: Any holder of a Registrable Note or Registrable Notes.
------
Indemnified Person: See Section 7(c) hereof.
------------------
Indemnifying Person: See Section 7(c) hereof.
-------------------
Indenture: The Indenture, dated as of December 1, 1997 between the
---------
Company and State Street Bank and Trust Company, as trustee, pursuant to which
the First Mortgage Notes are being issued, as amended or supplemented from time
to time in accordance with the terms thereof.
Initial Purchaser: See the introductory paragraphs hereto.
-----------------
Initial Shelf Registration: See Section 3(a) hereof.
--------------------------
Inspectors: See Section 5(o) hereof.
----------
Issue Date: The date on which the original First Mortgage Notes were
----------
sold to the Initial Purchaser pursuant to the Purchase Agreement.
<PAGE>
-3-
NASD: See Section 5(t) hereof.
----
Participant: See Section 7(a) hereof.
-----------
Participating Broker-Dealer: See Section 2 hereof.
---------------------------
Person: An individual, trustee, corporation, partnership, joint stock
------
company, trust, unincorporated association, union, business association, firm or
other legal entity.
Private Exchange: See Section 2 hereof.
----------------
Private Exchange Notes: See Section 2 hereof.
----------------------
Prospectus: The prospectus included in any Registration Statement
----------
(including, without limitation, any prospectus subject to completion and a
prospectus that includes any information previously omitted from a prospectus
filed as part of an effective registration statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, and all other amendments and supplements to the
Prospectus, including post-effective amendments, and all material incorporated
by reference or deemed to be incorporated by reference in such Prospectus.
Purchase Agreement: See the introductory paragraphs hereto.
------------------
Records: See Section 5(o) hereof.
-------
Registrable Notes: Each First Mortgage Note upon original issuance of
-----------------
the First Mortgage Notes and at all times subsequent thereto, each Exchange Note
as to which Section 2(c)(v) hereof is applicable upon original issuance and at
all times subsequent thereto and each Private Exchange Note upon original
issuance thereof and at all times subsequent thereto, until in the case of any
such First Mortgage Note, Exchange Note or Private Exchange Note, as the case
may be, the earliest to occur of (i) a Registration Statement (other than, with
respect to any Exchange Note as to which Section 2(c)(v) hereof is applicable,
the Exchange Registration Statement) covering such First Mortgage Note, Exchange
Note or such Private Exchange Note, as the case may be, has been declared
effective by the SEC and such First Mortgage Note, Exchange Note or Private
Exchange Note, as the case may be, has been disposed of in accordance with such
effective
<PAGE>
-4-
Registration Statement, (ii) such First Mortgage Note, Exchange Note or Private
Exchange Note, as the case may be, is sold in compliance with Rule 144 or could
be sold in compliance with paragraph (k) of such Rule 144, (iii) such First
Mortgage Note has been exchanged for an Exchange Note or Exchange Notes pursuant
to an Exchange Offer which may be resold without restriction under state and
federal securities laws, or (iv) such First Mortgage Note, Exchange Note or
Private Exchange Note, as the case may be, ceases to be outstanding for purposes
of the Indenture.
Registration Statement: Any registration statement of the Company,
----------------------
including, but not limited to, the Exchange Registration Statement, filed with
the SEC pursuant to the provisions of this Agreement, including the Prospectus,
amendments and supplements to such registration statement, including post-
effective amendments, all exhibits, and all material incorporated by reference
or deemed to be incorporated by reference in such registration statement.
Rule 144: Rule 144 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule (other than Rule 144A) or
regulation hereafter adopted by the SEC providing for offers and sales of
securities made in compliance therewith resulting in offers and sales by
subsequent holders that are not affiliates of an issuer of such securities being
free of the registration and prospectus delivery requirements of the Securities
Act.
Rule 144A: Rule 144A promulgated under the Securities Act, as such
---------
Rule may be amended from time to time, or any similar rule (other than Rule 144)
or regulation hereafter adopted by the SEC.
Rule 415: Rule 415 promulgated under the Securities Act, as such Rule
--------
may be amended from time to time, or any similar rule or regulation hereafter
adopted by the SEC.
SEC: The Securities and Exchange Commission.
---
Securities Act: The Securities Act of 1933, as amended, and the rules
--------------
and regulations of the SEC promulgated thereunder.
Shelf Notice: See Section 2 hereof.
------------
<PAGE>
-5-
Shelf Registration: See Section 3(b) hereof.
------------------
Subsequent Shelf Registration: See Section 3(b) hereof.
-----------------------------
TIA: The Trust Indenture Act of 1939, as amended.
---
Trustee: The trustee under the Indenture and, if existent, the
-------
trustee under any indenture governing the Exchange Notes and Private Exchange
Notes (if any).
Underwritten registration or underwritten offering: A registration in
--------------------------------------------------
which securities of the Company are sold to an underwriter for re-offering to
the public.
2. Exchange Offer
--------------
(a) The Company shall file with the SEC no later than the Filing
Date, an offer to exchange (the "Exchange Offer") any and all of the Registrable
--------------
Notes (other than Private Exchange Notes, if any) for a like aggregate principal
amount of debt securities of the Company which are identical in all material
respects to the First Mortgage Notes (the "Exchange Notes") secured by the
--------------
Collateral (as defined in the Indenture) (and which are entitled to the benefits
of the Indenture or a trust indenture which is identical in all material
respects to the Indenture (other than such changes to the Indenture or any such
identical trust indenture as are necessary to comply with any requirements of
the SEC to effect or maintain the qualification thereof under the TIA) and
which, in either case, has been qualified under the TIA), except that the
Exchange Notes shall have been registered pursuant to an effective Registration
Statement under the Securities Act and shall contain no restrictive legend
thereon. The Exchange Offer shall be registered under the Securities Act on the
appropriate form (the "Exchange Registration Statement") and shall comply with
-------------------------------
all applicable tender offer rules and regulations under the Exchange Act. The
Company agrees to use its best efforts to (x) cause the Exchange Registration
Statement to be declared effective under the Securities Act on or before the
Effectiveness Date; (y) keep the Exchange Offer open for not less than 30 days
(or longer if required by applicable law) after the date that notice of the
Exchange Offer is mailed to Holders; and (z) consummate the Exchange Offer on or
prior to the 180th day following the Issue Date. If after such Exchange
Registration Statement is initially declared effective by the SEC, the Exchange
Offer or the issuance of the Exchange Notes thereunder is interfered with by any
stop order, injunction or other order or requirement of the SEC or any other
governmental
<PAGE>
-6-
agency or court, such Exchange Registration Statement shall be deemed not to
have become effective for purposes of this Agreement. Each Holder who
participates in the Exchange Offer will be required to represent that any
Exchange Notes received by it will be acquired in the ordinary course of its
business, that at the time of the consummation of the Exchange Offer such Holder
will have no arrangement or understanding with any Person to participate in the
distribution of the Exchange Notes in violation of the provisions of the
Securities Act, and that such Holder is not an affiliate of the Company within
the meaning of the Securities Act. Upon consummation of the Exchange Offer in
accordance with this Section 2, the provisions of this Agreement shall continue
to apply, mutatis mutandis, solely with respect to Registrable Notes that are
----------------
Private Exchange Notes and Exchange Notes held by Participating Broker-Dealers,
and the Company shall have no further obligation to register Registrable Notes
(other than Private Exchange Notes and other than in respect of any Exchange
Notes as to which clause 2(c)(v) hereof applies) pursuant to Section 3 hereof.
No securities other than the Exchange Notes shall be included in the Exchange
Registration Statement.
The Company shall include within the Prospectus contained in the
Exchange Registration Statement a section entitled "Plan of Distribution,"
reasonably acceptable to the Initial Purchaser, which shall contain a summary
statement of the positions taken or policies made by the Staff of the SEC with
respect to the potential "underwriter" status of any broker-dealer that is the
beneficial owner (as defined in Rule 13d-3 under the Exchange Act) of Exchange
Notes received by such broker-dealer in the Exchange Offer (a "Participating
-------------
Broker-Dealer"), whether such positions or policies have been publicly
- -------------
disseminated by the Staff of the SEC or such positions or policies, in the
judgment of the Initial Purchaser, represent the prevailing views of the Staff
of the SEC. Such "Plan of Distribution" section shall also expressly permit the
use of the Prospectus by all Persons subject to the prospectus delivery
requirements of the Securities Act, including all Participating Broker-Dealers,
and include a statement describing the means by which Participating Broker-
Dealers may resell the Exchange Notes.
The Company shall use its best efforts to keep the Exchange
Registration Statement effective and to amend and supplement the Prospectus
contained therein, in order to permit such Prospectus to be lawfully delivered
by all Persons subject to the prospectus delivery requirements of the Securities
Act for such period of time as is necessary to comply with applicable law in
connection with any resale of the Exchange Notes; provided, however, that such
-------- -------
period shall not exceed 180 days after the Exchange
<PAGE>
-7-
Registration Statement is declared effective (or such longer period if extended
pursuant to the last paragraph of Section 5 hereof) (the "Applicable Period").
-----------------
If, prior to consummation of the Exchange Offer, the Initial Purchaser
holds any First Mortgage Notes acquired by it and having, or which are
reasonably likely to be determined to have, the status of an unsold allotment in
the initial distribution, the Company upon the request of the Initial Purchaser
simultaneously with the delivery of the Exchange Notes in the Exchange Offer,
issue and deliver to the Initial Purchaser in exchange (the "Private Exchange")
----------------
for such First Mortgage Notes held by the Initial Purchaser a like principal
amount of debt securities of the Company that are identical in all material
respects to the Exchange Notes (the "Private Exchange Notes") (and which are
----------------------
issued pursuant to the same indenture as the Exchange Notes). The Private
Exchange Notes shall bear the same CUSIP number as the Exchange Notes.
Interest on the Exchange Notes and the Private Exchange Notes will
accrue from the last interest payment date on which interest was paid on the
First Mortgage Notes surrendered in exchange therefor or if no interest has been
paid on the First Mortgage Notes, from the date of the original issuance of the
First Mortgage Notes.
In connection with the Exchange Offer, the Company shall:
(1) mail to each Holder a copy of the Prospectus forming part of the
Exchange Registration Statement, together with an appropriate letter of
transmittal and related documents;
(2) utilize the services of a depositary for the Exchange Offer with
an address in the Borough of Manhattan, The City of New York;
(3) permit Holders to withdraw tendered First Mortgage Notes at any
time prior to the close of business, New York time, on the last business
day on which the Exchange Offer shall remain open; and
(4) otherwise comply in all material respects with all applicable
laws, rules and regulations.
As soon as practicable after the close of the Exchange Offer or the
Private Exchange, as the case may be, the Company shall:
<PAGE>
-8-
(1) accept for exchange all First Mortgage Notes tendered and not
validly withdrawn pursuant to the Exchange Offer or the Private Exchange;
(2) deliver to the Trustee for cancellation all First Mortgage Notes
so accepted for exchange; and
(3) cause the Trustee to authenticate and deliver promptly to each
Holder of First Mortgage Notes, Exchange Notes or Private Exchange Notes,
as the case may be, equal in principal amount to the First Mortgage Notes
of such Holder so accepted for exchange.
The Exchange Notes and the Private Exchange Notes may be issued under
(i) the Indenture or (ii) an indenture identical in all material respects to the
Indenture, which in either event shall provide that the Exchange Notes shall not
be subject to the transfer restrictions set forth in the Indenture. The
Indenture or such indenture shall provide that the Exchange Notes, the Private
Exchange Notes and the First Mortgage Notes shall vote and consent together on
all matters as one class and that neither the Exchange Notes, the Private
Exchange Notes or the First Mortgage Notes will have the right to vote or
consent as a separate class on any matter.
If, (i) because of any change in law or in currently prevailing
interpretations of the Staff of the SEC, the Company is not permitted to effect
an Exchange Offer, (ii) the Exchange Offer is not consummated within 180 days of
the date of original issuance of the First Mortgage Notes, (iii) any holder of
Private Exchange Notes so requests at any time after the consummation of the
Private Exchange, (iv) the Holders of not less than a majority in aggregate
principal amount of the Registrable Notes determine that the interests of the
Holders would be adversely affected by consummation of the Exchange Offer, or
(v) in the case of any Holder that participates in the Exchange Offer, such
Holder does not receive Exchange Notes on the date of the exchange that may be
sold without restriction under state and federal securities laws (other than due
solely to the status of such Holder as an affiliate of the Company within the
meaning of the Securities Act), in the case of each of clauses (i) to and
including (v) of this sentence, then the Company shall promptly deliver to the
Holders and the Trustee written notice thereof (the "Shelf Notice") and shall
------------
file a Shelf Registration pursuant to Section 3 hereof.
<PAGE>
-9-
3. Shelf Registration
------------------
If a Shelf Notice is delivered as contemplated by Section 2(c) hereof,
then:
(a) Shelf Registration. The Company shall as promptly as reasonably
------------------
practicable file with the SEC a Registration Statement for an offering to be
made on a continuous basis pursuant to Rule 415 covering all of the Registrable
Notes (the "Initial Shelf Registration"). If the Company shall not have yet
--------------------------
filed an Exchange Registration Statement, the Company shall use its best efforts
to file with the SEC the Initial Shelf Registration on or prior to the Filing
Date. Otherwise, the Company shall use its best efforts to file with the SEC
the Initial Shelf Registration within 30 days of the delivery of the Shelf
Notice. The Initial Shelf Registration shall be on Form S-1 or another
appropriate form permitting registration of such Registrable Notes for resale by
Holders in the manner or manners designated by them (including, without
limitation, one or more underwritten offerings). The Company shall not permit
any securities other than the Registrable Notes to be included in the Initial
Shelf Registration or any Subsequent Shelf Registration (as defined below).
The Company shall use its best efforts to cause the Initial Shelf
Registration to be declared effective under the Securities Act on or prior to
the Effectiveness Date and to keep the Initial Shelf Registration continuously
effective under the Securities Act until the date which is 24 months from the
Effectiveness Date, subject to extension pursuant to the last paragraph of
Section 5 hereof (the "Effectiveness Period"), or such shorter period ending
--------------------
when (i) all Registrable Notes covered by the Initial Shelf Registration have
been sold in the manner set forth and as contemplated in the Initial Shelf
Registration or (ii) a Subsequent Shelf Registration covering all of the
Registrable Notes has been declared effective under the Securities Act.
(b) Subsequent Shelf Registrations. If the Initial Shelf
------------------------------
Registration or any Subsequent Shelf Registration ceases to be effective for any
reason at any time during the Effectiveness Period (other than because of the
sale of all of the securities registered thereunder), the Company shall use its
best efforts to obtain the prompt withdrawal of any order suspending the
effectiveness thereof, and in any event shall within 45 days of such cessation
of effectiveness amend the Initial Shelf Registration in a manner to obtain the
withdrawal of the order suspending the effectiveness thereof, or file an
additional "shelf" Registration Statement pursuant to Rule 415 covering all of
the Registrable Notes (a
<PAGE>
-10-
"Subsequent Shelf Registration"). If a Subsequent Shelf Registration is filed,
-----------------------------
the Company shall use its best efforts to cause the Subsequent Shelf
Registration to be declared effective under the Securities Act as soon as
practicable after such filing and to keep such Registration Statement
continuously effective for a period equal to the number of days in the
Effectiveness Period less the aggregate number of days during which the Initial
Shelf Registration or any Subsequent Shelf Registration was previously
continuously effective. As used herein the term "Shelf Registration" means the
------------------
Initial Shelf Registration and any Subsequent Shelf Registration.
(c) Supplements and Amendments. The Company shall promptly
--------------------------
supplement and amend the Shelf Registration if required by the rules,
regulations or instructions applicable to the registration form used for such
Shelf Registration, if required by the Securities Act, or if reasonably
requested by the Holders of a majority in aggregate principal amount of the
Registrable Notes covered by such Registration Statement or by any underwriter
of such Registrable Notes.
4. Additional Interest
-------------------
(a) The Company and the Initial Purchaser agree that the Holders of
First Mortgage Notes will suffer damages if the Company fails to fulfill its
obligations under Section 2 or Section 3 hereof and that it would not be
feasible to ascertain the extent of such damages with precision. Accordingly,
the Company agrees to pay, as liquidated damages, additional interest on the
First Mortgage Notes ("Additional Interest") under the circumstances and to the
-------------------
extent set forth below (each of which shall be given independent effect):
(i) if (A) neither the Exchange Registration Statement nor a Shelf
Registration Statement is filed with the SEC on or prior to the Filing Date
or (B) notwithstanding that the Company has consummated or will consummate
an Exchange Offer, the Company is required to file a Shelf Registration
Statement and such Shelf Registration Statement is not filed on or prior to
the 30 days after the delivery of a Shelf Notice, then commencing on the
day after either such required filing date, Additional Interest shall
accrue on the principal amount of the First Mortgage Notes at a rate of
0.50% per annum for the first 90 days immediately following each such
filing date, such Additional Interest rate increasing by an additional
0.50% per annum at the beginning of each subsequent 90-day period;
<PAGE>
-11-
(ii) if (A) neither the Exchange Registration Statement nor a Shelf
Registration Statement is declared effective by the Commission on or prior
to 150 days after the Issue Date or (B) notwithstanding that the Company
has consummated or will consummate an Exchange Offer, the Company is
required to file a Shelf Registration Statement and such Shelf Registration
Statement is not declared effective by the Commission on or prior to the
180th day following the date such Shelf Registration Statement was filed,
then, commencing on the day after either such required date of
effectiveness, Additional Interest shall accrue on the principal amount of
the First Mortgage Notes at a rate of 0.50% per annum for the first 90 days
immediately following such date, such Additional Interest rate increasing
by an additional 0.50% per annum at the beginning of each subsequent 90-day
period; and
(iii) if (A) the Company has not exchanged Exchange Notes for all
First Mortgage Notes validly tendered in accordance with the terms of the
Exchange Offer on or prior to the 180th day after the Issue Date or (B) if
applicable, the Shelf Registration Statement has been declared effective
and such Shelf Registration Statement ceases to be effective at any time
prior to the second anniversary of its effective date (other than after
such time as all First Mortgage Notes have been disposed of thereunder),
then Additional Interest shall accrue on the principal amount of the First
Mortgage Notes at a rate of 0.50% per annum for the first 90 days
commencing on (x) the 180th day after the Issue Date, in the case of (A)
above, or (y) the day such Shelf Registration Statement ceases to be
effective in the case of (B) above, such Additional Interest rate
increasing by an additional 0.50% per annum at the beginning of each
subsequent 90-day period;
provided, however, that the Additional Interest rate on the First Mortgage Notes
- -------- -------
may not exceed at any one time in the aggregate 1.0% per annum; and provided,
--------
further, that (1) upon the filing of the Exchange Registration Statement or a
- -------
Shelf Registration as required hereunder (in the case of clause (i) of this
Section 4), (2) upon the effectiveness of the Exchange Registration Statement or
the Shelf Registration as required hereunder (in the case of clause (ii) of this
Section 4), or (3) upon the exchange of Exchange Notes for all First Mortgage
Notes tendered (in the case of clause (iii)(A) of this Section 4), or upon the
effectiveness of the Shelf Registration Statement which had ceased to remain
effective (in the case of (iii)(B) of this Section 4), Additional Interest on
the First Mortgage Notes as a
<PAGE>
-12-
result of such clause (or the relevant subclause thereof), as the case may be,
shall cease to accrue.
The Company shall notify the Trustee within one business day after
each and every date on which an event occurs in respect of which Additional
Interest is required to be paid (an "Event Date"). Any amounts of Additional
----------
Interest due pursuant to (a)(i), (a)(ii) or (a)(iii) of this Section 4 will be
payable in cash semiannually on each June 1 and December 1 (to the holders of
record on May 15 and November 15), commencing with the first such date occurring
after any such Additional Interest commences to accrue. The amount of
Additional Interest will be determined by multiplying the applicable Additional
Interest rate by the principal amount of the Registrable Notes, multiplied by a
fraction, the numerator of which is the number of days such Additional Interest
rate was applicable during such period (determined on the basis of a 360-day
year comprised of twelve 30-day months and, in the case of a partial month, the
actual number of days elapsed), and the denominator of which is 360.
5. Registration Procedures
-----------------------
In connection with the filing of any Registration Statement pursuant
to Sections 2 or 3 hereof, the Company shall effect such registrations to permit
the sale of the securities covered thereby in accordance with the intended
method or methods of disposition thereof, and pursuant thereto and in connection
with any Registration Statement filed by the Company hereunder the Company
shall:
(a) Prepare and file with the SEC prior to the Filing Date, a
Registration Statement or Registration Statements as prescribed by Sections 2 or
3 hereof, and use its best efforts to cause each such Registration Statement to
become effective and remain effective as provided herein; provided, however,
-------- -------
that, if (1) such filing is pursuant to Section 3 hereof, or (2) a Prospectus
contained in an Exchange Registration Statement filed pursuant to Section 2
hereof is required to be delivered under the Securities Act by any Participating
Broker-Dealer who seeks to sell Exchange Notes during the Applicable Period,
before filing any Registration Statement or Prospectus or any amendments or
supplements thereto, the Company shall furnish to and afford the Holders of the
Registrable Notes covered by such Registration Statement or each such
Participating Broker-Dealer, as the case may be, their counsel and the managing
underwriters, if any, a reasonable opportunity to review copies of all such
documents (including copies of any
<PAGE>
-13-
documents to be incorporated by reference therein and all exhibits thereto)
proposed to be filed (in each case at least five business days prior to such
filing). The Company shall not file any Registration Statement or Prospectus or
any amendments or supplements thereto if the Holders of a majority in aggregate
principal amount of the Registrable Notes covered by such Registration
Statement, or any such Participating Broker-Dealer, as the case may be, their
counsel, or the managing underwriters, if any, shall reasonably object.
(b) Prepare and file with the SEC such amendments and post-effective
amendments to each Shelf Registration or Exchange Registration Statement, as the
case may be, as may be necessary to keep such Registration Statement
continuously effective for the Effectiveness Period or the Applicable Period, as
the case may be; cause the related Prospectus to be supplemented by any
Prospectus supplement required by applicable law, and as so supplemented to be
filed pursuant to Rule 424 (or any similar provisions then in force) promulgated
under the Securities Act; and comply with the provisions of the Securities Act
and the Exchange Act applicable to it with respect to the disposition of all
securities covered by such Registration Statement as so amended or in such
Prospectus as so supplemented and with respect to the subsequent resale of any
securities being sold by a Participating Broker-Dealer covered by any such
Prospectus. The Company shall be deemed not to have used its best efforts to
keep a Registration Statement effective during the Applicable Period if it
voluntarily takes any action that would result in selling Holders of the
Registrable Notes covered thereby or Participating Broker-Dealers seeking to
sell Exchange Notes not being able to sell such Registrable Notes or such
Exchange Notes during that period unless such action is required by applicable
law or unless the Company complies with this Agreement, including without
limitation, the provisions of paragraph 5(k) hereof and the last paragraph of
this Section 5.
(c) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, notify the selling Holders of Registrable Notes, or each
such Participating Broker-Dealer, as the case may be, their counsel and the
managing underwriters, if any, promptly (but in any event within two business
days), and confirm such notice in writing, (i) when a Prospectus or any
Prospectus supplement or post-effective amendment has been filed, and, with
respect to a Registration Statement or any post-effective amendment, when the
same has become effective under the Securities Act (including in such notice a
written statement that any
<PAGE>
-14-
Holder may, upon request, obtain, at the sole expense of the Company, one
conformed copy of such Registration Statement or post-effective amendment
including financial statements and schedules, documents incorporated or deemed
to be incorporated by reference and exhibits), (ii) of the issuance by the SEC
of any stop order suspending the effectiveness of a Registration Statement or of
any order preventing or suspending the use of any preliminary prospectus or the
initiation of any proceedings for that purpose, (iii) if at any time when a
prospectus is required by the Securities Act to be delivered in connection with
sales of the Registrable Notes or resales of Exchange Notes by Participating
Broker-Dealers the representations and warranties of the Company contained in
any agreement (including any underwriting agreement), contemplated by Section
5(n) hereof cease to be true and correct, (iv) of the receipt by the Company of
any notification with respect to the suspension of the qualification or
exemption from qualification of a Registration Statement or any of the
Registrable Notes or the Exchange Notes to be sold by any Participating Broker-
Dealer for offer or sale in any jurisdiction, or the initiation or threatening
of any proceeding for such purpose, (v) of the happening of any event, the
existence of any condition or any information becoming known that makes any
statement made in such Registration Statement or related Prospectus or any
document incorporated or deemed to be incorporated therein by reference untrue
in any material respect or that requires the making of any changes in or
amendments or supplements to such Registration Statement, Prospectus or
documents so that, in the case of the Registration Statement, it will not
contain any untrue statement of a material fact or omit to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and that in the case of the Prospectus, it will not contain any
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading, and (vi) of the
Company's determination that a post-effective amendment to a Registration
Statement would be appropriate.
(d) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, use its best efforts to prevent the issuance of any order
suspending the effectiveness of a Registration Statement or of any order
preventing or suspending the use of a Prospectus or suspending the qualification
(or exemption from qualification) of any of the Registrable Notes or the
<PAGE>
-15-
Exchange Notes to be sold by any Participating Broker-Dealer, for sale in any
jurisdiction, and, if any such order is issued, to use its best efforts to
obtain the withdrawal of any such order at the earliest possible moment.
(e) If a Shelf Registration is filed pursuant to Section 3 and if
requested by the managing underwriter or underwriters (if any), or the Holders
of a majority in aggregate principal amount of the Registrable Notes being sold
in connection with an underwritten offering or any Participating Broker-Dealer,
(i) promptly incorporate in a prospectus supplement or post-effective amendment
such information as the managing underwriter or underwriters (if any), such
Holders, any Participating Broker-Dealer or counsel for any of them determine is
reasonably necessary to be included therein, (ii) make all required filings of
such prospectus supplement or such post-effective amendment as soon as
practicable after the Company has received notification of the matters to be
incorporated in such prospectus supplement or post-effective amendment, and
(iii) supplement or make amendments to such Registration Statement.
(f) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, furnish to each selling Holder of Registrable Notes and
to each such Participating Broker-Dealer who so requests and to counsel and each
managing underwriter, if any, at the sole expense of the Company, one conformed
copy of the Registration Statement or Registration Statements and each post-
effective amendment thereto, including financial statements and schedules, and,
if requested, all documents incorporated or deemed to be incorporated therein by
reference and all exhibits.
(g) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, deliver to each selling Holder of Registrable Notes, or
each such Participating Broker-Dealer, as the case may be, their respective
counsel, and the underwriters, if any, at the sole expense of the Company, as
many copies of the Prospectus or Prospectuses (including each form of
preliminary prospectus) and each amendment or supplement thereto and any
documents incorporated by reference therein as such Persons may reasonably
request; and, subject to
<PAGE>
-16-
the last paragraph of this Section 5, the Company hereby consents to the use of
such Prospectus and each amendment or supplement thereto by each of the selling
Holders of Registrable Notes or each such Participating Broker-Dealer, as the
case may be, and the underwriters or agents, if any, and dealers (if any), in
connection with the offering and sale of the Registrable Notes covered by, or
the sale by Participating Broker-Dealers of the Exchange Notes pursuant to, such
Prospectus and any amendment or supplement thereto.
(h) Prior to any public offering of Registrable Notes or any delivery
of a Prospectus contained in the Exchange Registration Statement by any
Participating Broker-Dealer who seeks to sell Exchange Notes during the
Applicable Period, to use its best efforts to register or qualify, and to
cooperate with the selling Holders of Registrable Notes or each such
Participating Broker-Dealer, as the case may be, the managing underwriter or
underwriters, if any, and their respective counsel in connection with the
registration or qualification (or exemption from such registration or
qualification) of such Registrable Notes for offer and sale under the securities
or Blue Sky laws of such jurisdictions within the United States as any selling
Holder, Participating Broker-Dealer, or the managing underwriter or underwriters
reasonably request; provided, however, that where Exchange Notes held by
-------- -------
Participating Broker-Dealers or Registrable Notes are offered other than through
an underwritten offering, the Company agrees to cause the Company's counsel to
perform Blue Sky investigations and file registrations and qualifications
required to be filed pursuant to this Section 5(h); keep each such registration
or qualification (or exemption therefrom) effective during the period such
Registration Statement is required to be kept effective and do any and all other
acts or things reasonably necessary or advisable to enable the disposition in
such jurisdictions of the Exchange Notes held by Participating Broker-Dealers or
the Registrable Notes covered by the applicable Registration Statement;
provided, however, that the Company shall not be required to (A) qualify
- -------- -------
generally to do business in any jurisdiction where it is not then so qualified,
(B) take any action that would subject it to general service of process in any
such jurisdiction where it is not then so subject or (C) subject itself to
taxation in excess of a nominal dollar amount in any such jurisdiction where it
is not then so subject.
(i) If a Shelf Registration is filed pursuant to Section 3 hereof,
cooperate with the selling Holders of Registrable Notes and the managing
underwriter or underwriters, if any, to facilitate the timely preparation and
delivery of certificates representing Registrable Notes to be sold, which
certificates shall not bear any restrictive legends and shall be in a form
eligible for deposit with The Depository Trust Company;
<PAGE>
-17-
and enable such Registrable Notes to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or Holders may
reasonably request.
(j) Use its best efforts to cause the Registrable Notes covered by the
Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the seller or
sellers thereof or the underwriter or underwriters, if any, to consummate the
disposition of such Registrable Notes, except as may be required solely as a
consequence of the nature of such selling Holder's business, in which case the
Company will cooperate in all reasonable respects with the filing of such
Registration Statement and the granting of such approvals.
(k) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, upon the occurrence of any event contemplated by
paragraph 5(c)(v) or 5(c)(vi) hereof, as promptly as practicable prepare and
(subject to Section 5(a) hereof) file with the SEC, at the sole expense of the
Company, a supplement or post-effective amendment to the Registration Statement
or a supplement to the related Prospectus or any document incorporated or deemed
to be incorporated therein by reference, or file any other required document so
that, as thereafter delivered to the purchasers of the Registrable Notes being
sold thereunder or to the purchasers of the Exchange Notes to whom such
Prospectus will be delivered by a Participating Broker-Dealer, any such
Prospectus will not contain an untrue statement of a material fact or omit to
state a material fact required to be stated therein or necessary to make the
statements therein, in the light of the circumstances under which they were
made, not misleading.
(l) Use its best efforts to cause the Registrable Notes covered by a
Registration Statement or the Exchange Notes, as the case may be, to be rated
with the appropriate rating agencies, if so requested by the Holders of a
majority in aggregate principal amount of Registrable Notes covered by such
Registration Statement or the Exchange Notes, as the case may be, or the
managing underwriter or underwriters, if any.
<PAGE>
-18-
(m) Prior to the effective date of the first Registration Statement
relating to the Registrable Notes, (i) provide the Trustee with certificates for
the Registrable Notes in a form eligible for deposit with The Depository Trust
Company and (ii) provide a CUSIP number for the Registrable Notes.
(n) In connection with any underwritten offering of Registrable Notes
pursuant to a Shelf Registration, enter into an underwriting agreement as is
customary in underwritten offerings of debt securities similar to the First
Mortgage Notes and take all such other actions as are reasonably requested by
the managing underwriter or underwriters in order to expedite or facilitate the
registration or the disposition of such Registrable Notes and, in such
connection, (i) make such representations and warranties to, and covenants with,
the underwriters with respect to the business of the Company and its
subsidiaries (including any acquired business, properties or entity, if
applicable) and the Registration Statement, Prospectus and documents, if any,
incorporated or deemed to be incorporated by reference therein, in each case, as
are customarily made by issuers to underwriters in underwritten offerings of
debt securities similar to the First Mortgage Notes, and confirm the same in
writing if and when requested; (ii) obtain the written opinion of counsel to the
Company and written updates thereof in form, scope and substance reasonably
satisfactory to the managing underwriter or underwriters, addressed to the
underwriters covering the matters customarily covered in opinions requested in
underwritten offerings of debt similar to the First Mortgage Notes and such
other matters as may be reasonably requested by the managing underwriter or
underwriters; (iii) obtain "cold comfort" letters and updates thereof in form,
scope and substance reasonably satisfactory to the managing underwriter or
underwriters from the independent certified public accountants of the Company
(and, if necessary, any other independent certified public accountants of any
subsidiary of the Company or of any business acquired by the Company for which
financial statements and financial data are, or are required to be, included or
incorporated by reference in the Registration Statement), addressed to each of
the underwriters, such letters to be in customary form and covering matters of
the type customarily covered in "cold comfort" letters in connection with
underwritten offerings of debt similar to the First Mortgage Notes and such
other matters as reasonably requested by the managing underwriter or
underwriters; and (iv) if an underwriting agreement is entered into, the same
shall contain indemnification provisions and procedures no less favorable than
those set forth in Section 7 hereof (or such other provisions and procedures
acceptable to Holders of a majority in aggregate principal amount of Registrable
Notes covered by
<PAGE>
-19-
such Registration Statement and the managing underwriter or underwriters or
agents) with respect to all parties to be indemnified pursuant to said Section.
The above shall be done at each closing under such underwriting agreement, or as
and to the extent required thereunder.
(o) If (1) a Shelf Registration is filed pursuant to Section 3 hereof,
or (2) a Prospectus contained in an Exchange Registration Statement filed
pursuant to Section 2 hereof is required to be delivered under the Securities
Act by any Participating Broker-Dealer who seeks to sell Exchange Notes during
the Applicable Period, make available for inspection by any selling Holder of
such Registrable Notes being sold, or each such Participating Broker-Dealer, as
the case may be, any underwriter participating in any such disposition of
Registrable Notes, if any, and any attorney, accountant or other agent retained
by any such selling Holder or each such Participating Broker-Dealer, as the case
may be, or underwriter (collectively, the "Inspectors"), at the offices where
----------
normally kept, during reasonable business hours, all financial and other
records, pertinent corporate documents and instruments of the Company and its
subsidiaries (collectively, the "Records") as shall be reasonably necessary to
-------
enable them to exercise any applicable due diligence responsibilities, and cause
the officers, directors and employees of the Company and its subsidiaries to
supply all information reasonably requested by any such Inspector in connection
with such Registration Statement. Records which the Company determines, in good
faith, to be confidential and any Records which it notifies the Inspectors are
confidential shall not be disclosed by the Inspectors unless (i) the disclosure
of such Records is necessary to avoid or correct a misstatement or omission in
such Registration Statement, (ii) the release of such Records is ordered
pursuant to a subpoena or other order from a court of competent jurisdiction,
(iii) disclosure of such information is, in the opinion of counsel for any
Inspector, necessary or advisable in connection with any action, claim, suit or
proceeding, directly or indirectly, involving or potentially involving such
Inspector and arising out of, based upon, relating to, or involving this
Agreement, or any transactions contemplated hereby or arising hereunder, or (iv)
the information in such Records has been made generally available to the public.
Each selling Holder of such Registrable Notes and each such Participating
Broker-Dealer will be required to agree that information obtained by it as a
result of such inspections shall be deemed confidential and shall not be used by
it as the basis for any market transactions in the securities of the Company
unless and until such information is generally available to the public. Each
selling Holder of such Registrable Notes and each such Participating Broker-
Dealer will be
<PAGE>
-20-
required to further agree that it will, upon learning that disclosure of such
Records is sought in a court of competent jurisdiction, give notice to the
Company and allow the Company to undertake appropriate action to prevent
disclosure of the Records deemed confidential at the Company's sole expense.
(p) Provide an indenture trustee for the Registrable Notes or the
Exchange Notes, as the case may be, and cause the Indenture or the trust
indenture provided for in Section 2(a) hereof, as the case may be, to be
qualified under the TIA not later than the effective date of the Exchange Offer
or the first Registration Statement relating to the Registrable Notes; and in
connection therewith, cooperate with the trustee under any such indenture and
the Holders of the Registrable Notes, to effect such changes to such indenture
as may be required for such indenture to be so qualified in accordance with the
terms of the TIA; and execute, and use its best efforts to cause such trustee
to execute, all documents as may be required to effect such changes, and all
other forms and documents required to be filed with the SEC to enable such
indenture to be so qualified in a timely manner.
(q) Comply with all applicable rules and regulations of the SEC and
make generally available to its securityholders earnings statements satisfying
the provisions of Section 11(a) of the Securities Act and Rule 158 thereunder
(or any similar rule promulgated under the Securities Act) no later than 45 days
after the end of any 12-month period (or 90 days after the end of any 12-month
period if such period is a fiscal year) (i) commencing at the end of any fiscal
quarter in which Registrable Notes are sold to underwriters in a firm commitment
or best efforts underwritten offering and (ii) if not sold to underwriters in
such an offering, commencing on the first day of the first fiscal quarter of the
Company after the effective date of a Registration Statement, which statements
shall cover said 12-month periods.
(r) Upon consummation of an Exchange Offer or a Private Exchange,
obtain an opinion of counsel to the Company, in a form customary for
underwritten transactions, addressed to the Trustee for the benefit of all
Holders of Registrable Notes participating in the Exchange Offer or the Private
Exchange, as the case may be, that the Exchange Notes or Private Exchange Notes,
as the case may be, and the related indenture constitute legal, valid and
binding obligations of the Company, enforceable against the Company in
accordance with its respective terms.
<PAGE>
-21-
(s) If an Exchange Offer or a Private Exchange is to be consummated,
upon delivery of the Registrable Notes by Holders to the Company (or to such
other Person as directed by the Company) in exchange for the Exchange Notes or
the Private Exchange Notes, as the case may be, the Company shall mark, or cause
to be marked, on such Registrable Notes that such Registrable Notes are being
cancelled in exchange for the Exchange Notes or the Private Exchange Notes, as
the case may be; in no event shall such Registrable Notes be marked as paid or
otherwise satisfied.
(t) Cooperate with each seller of Registrable Notes covered by any
Registration Statement and each underwriter, if any, participating in the
disposition of such Registrable Notes and their respective counsel in connection
with any filings required to be made with the National Association of
Securities Dealers, Inc. (the "NASD").
----
(u) Use its best efforts to take all other steps necessary or
advisable to effect the registration of the Exchange Notes and/or Registrable
Notes covered by a Registration Statement contemplated hereby.
The Company may require each seller of Registrable Notes as to which
any registration is being effected to furnish to the Company such information
regarding such seller and the distribution of such Registrable Notes as the
Company may, from time to time, reasonably request. The Company may exclude
from such registration the Registrable Notes of any seller who unreasonably
fails to furnish such information within a reasonable time after receiving such
request. Each seller as to which any Shelf Registration is being effected
agrees to furnish promptly to the Company all information required to be
disclosed in order to make the information previously furnished to the Company
by such seller not materially misleading.
Each Holder of Registrable Notes and each Participating Broker-Dealer
agrees by acquisition of such Registrable Notes or Exchange Notes to be sold by
such Participating Broker-Dealer, as the case may be, that, upon actual receipt
of any notice from the Company of the happening of any event of the kind
described in Section 5(c)(ii), 5(c)(iv), 5(c)(v), or 5(c)(vi) hereof, such
Holder will forthwith discontinue disposition of such Registrable Notes covered
by such Registration Statement or Prospectus or Exchange Notes to be sold by
such Holder or Participating Broker-Dealer, as the case may be, until such
Holder's or Participating Broker-Dealer's receipt of the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof, or until
it is advised in writing
<PAGE>
-22-
(the "Advice") by the Company that the use of the applicable Prospectus may be
------
resumed, and has received copies of any amendments or supplements thereto. In
the event the Company shall give any such notice, each of the Effectiveness
Period and the Applicable Period shall be extended by the number of days during
such periods from and including the date of the giving of such notice to and
including the date when each seller of Registrable Notes covered by such
Registration Statement or Exchange Notes to be sold by such Participating
Broker-Dealer, as the case may be, shall have received (x) the copies of the
supplemented or amended Prospectus contemplated by Section 5(k) hereof or (y)
the Advice.
6. Registration Expenses
---------------------
(a) All fees and expenses incident to the performance of or compliance
with this Agreement by the Company shall be borne by the Company whether or not
the Exchange Offer or a Shelf Registration is filed or becomes effective,
including, without limitation, (i) all registration and filing fees (including,
without limitation, (A) fees with respect to filings required to be made with
the NASD in connection with an underwritten offering and (B) fees and expenses
of compliance with state securities or Blue Sky laws (including, without
limitation, reasonable fees and disbursements of counsel in connection with Blue
Sky qualifications of the Registrable Notes or Exchange Notes and determination
of the eligibility of the Registrable Notes or Exchange Notes for investment
under the laws of such jurisdictions (x) where the holders of Registrable Notes
are located, in the case of the Exchange Notes, or (y) as provided in Section
5(h) hereof, in the case of Registrable Notes or Exchange Notes to be sold by a
Participating Broker-Dealer during the Applicable Period)), (ii) printing
expenses, including, without limitation, expenses of printing certificates for
Registrable Notes or Exchange Notes in a form eligible for deposit with The
Depository Trust Company and of printing prospectuses if the printing of
prospectuses is requested by the managing underwriter or underwriters, if any,
by the Holders of a majority in aggregate principal amount of the Registrable
Notes included in any Registration Statement or sold by any Participating
Broker-Dealer as the case may be, (iii) messenger, telephone and delivery
expenses, (iv) fees and disbursements of counsel for the Company and fees and
disbursements of special counsel for the sellers of Registrable Notes (subject
to the provisions of Section 6(b) hereof), (v) fees and disbursements of all
independent certified public accountants referred to in Section 5(n)(iii) hereof
(including, without limitation, the expenses of any special audit and "cold
comfort"
<PAGE>
-23-
letters required by or incident to such performance), (vi) rating agency fees,
(vii) Securities Act liability insurance, if the Company desires such insurance,
(viii) fees and expenses of all other Persons retained by the Company, (ix)
internal expenses of the Company (including, without limitation, all salaries
and expenses of officers and employees of the Company performing legal or
accounting duties), (x) the expense of any annual audit, (xi) the fees and
expenses incurred in connection with the listing of the securities to be
registered on any securities exchange, if applicable, and (xii) the expenses
relating to printing, word processing and distributing all Registration
Statements, underwriting agreements, securities sales agreements, indentures and
any other documents necessary in order to comply with this Agreement.
(b) The Company shall reimburse the Holders of the Registrable Notes
being registered in a Shelf Registration for the reasonable fees and
disbursements, not to exceed $25,000, of not more than one counsel (in addition
to appropriate local counsel) chosen by the Holders of a majority in aggregate
principal amount of the Registrable Notes to be included in such Registration
Statement and other out-of-pocket expenses of such Holders of Registrable Notes
incurred in connection with the registration and sale of the Registrable Notes
pursuant to the Exchange Offer.
7. Indemnification
---------------
(a) The Company agrees to indemnify and hold harmless each Holder of
Registrable Notes and each Participating Broker-Dealer selling Exchange Notes
during the Applicable Period, the officers and directors of each such Person,
and each Person, if any, who controls any such Person within the meaning of
either Section 15 of the Securities Act or Section 20 of the Exchange Act (each,
a "Participant"), from and against any and all losses, claims, damages and
-----------
liabilities (including, without limitation, the reasonable legal fees and other
expenses actually incurred in connection with any suit, action or proceeding or
any claim asserted) caused by, arising out of or based upon any untrue statement
or alleged untrue statement of a material fact contained in any Registration
Statement (or any amendment thereto) or Prospectus (as amended or supplemented
if the Company shall have furnished any amendments or supplements thereto) or
any preliminary prospectus, or caused by, arising out of or based upon any
omission or alleged omission to state therein a material fact required to be
stated therein or necessary to make the statements therein, in light of the
circumstances under which they were made, not misleading, except insofar as such
losses, claims, damages or liabilities are caused by any untrue statement or
omission
<PAGE>
-24-
or alleged untrue statement or omission made in reliance upon and in conformity
with information relating to any Participant furnished to the Company in writing
by such Participant expressly for use therein; provided, however, that the
-------- -------
Company will not be liable if such untrue statement or omission or alleged
untrue statement or omission was contained or made in any preliminary prospectus
and corrected in the Prospectus or any amendment or supplement thereto and the
Prospectus does not contain any other untrue statement or omission or alleged
untrue statement or omission of a material fact that was the subject matter of
the related proceeding and any such loss, liability, claim, damage or expense
suffered or incurred by the Participants resulted from any action, claim or suit
by any Person who purchased Registrable Notes or Exchange Notes which are the
subject thereof from such Participant and it is established in the related
proceeding that such Participant failed to deliver or provide a copy of the
Prospectus (as amended or supplemented) to such Person with or prior to the
confirmation of the sale of such Registrable Notes or Exchange Notes sold to
such Person if required by applicable law, unless such failure to deliver or
provide a copy of the Prospectus (as amended or supplemented) was a result of
noncompliance by the Company with Section 5 of this Agreement.
(b) Each Participant agrees, severally and not jointly, to indemnify
and hold harmless the Company, its directors and officers who sign the
Registration Statement and each Person who controls the Company within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act to
the same extent as the foregoing indemnity from the Company to each Participant,
but only (i) with reference to information relating to such Participant
furnished to the Company in writing by such Participant expressly for use in any
Registration Statement or Prospectus, any amendment or supplement thereto, or
any preliminary prospectus or (ii) with respect to any untrue statement or
representation made by such Participant in writing to the Company. The
liability of any Participant under this paragraph shall in no event exceed the
proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes giving rise to such obligations.
(c) If any suit, action, proceeding (including any governmental or
regulatory investigation), claim or demand shall be brought or asserted against
any Person in respect of which indemnity may be sought pursuant to either of the
two preceding paragraphs, such Person (the "Indemnified Person") shall promptly
------------------
notify the Person against whom such indemnity may be sought (the "Indemnifying
------------
Person") in writing, and
- ------
<PAGE>
-25-
the Indemnifying Person, upon request of the Indemnified Person, shall retain
counsel reasonably satisfactory to the Indemnified Person to represent the
Indemnified Person and any others the Indemnifying Person may reasonably
designate in such proceeding and shall pay the reasonable fees and expenses
actually incurred by such counsel related to such proceeding; provided, however,
-------- -------
that the failure to so notify the Indemnifying Person shall not relieve it of
any obligation or liability which it may have hereunder or otherwise (unless and
only to the extent that such failure directly results in the loss or compromise
of any material rights or defenses by the Company and the Company was not
otherwise aware of such action or claim). In any such proceeding, any
Indemnified Person shall have the right to retain its own counsel, but the fees
and expenses of such counsel shall be at the expense of such Indemnified Person
unless (i) the Indemnifying Person and the Indemnified Person shall have
mutually agreed in writing to the contrary, (ii) the Indemnifying Person shall
have failed within a reasonable period of time to retain counsel reasonably
satisfactory to the Indemnified Person or (iii) the named parties in any such
proceeding (including any impleaded parties) include both the Indemnifying
Person and the Indemnified Person and representation of both parties by the same
counsel would be inappropriate due to actual or potential differing interests
between them. It is understood that, unless there exists a conflict among
Indemnified Persons, the Indemnifying Person shall not, in connection with any
one such proceeding or separate but substantially similar related proceeding in
the same jurisdiction arising out of the same general allegations, be liable for
the fees and expenses of more than one separate firm (in addition to any local
counsel) for all Indemnified Persons, and that all such fees and expenses shall
be reimbursed promptly as they are incurred. Any such separate firm for the
Participants and such control Persons of Participants shall be designated in
writing by Participants who sold a majority in interest of Registrable Notes and
Exchange Notes sold by all such Participants and any such separate firm for the
Company, its directors, its officers and such control Persons of the Company
shall be designated in writing by the Company. The Indemnifying Person shall not
be liable for any settlement of any proceeding effected without its prior
written consent, but if settled with such consent or if there be a final non-
appealable judgment for the plaintiff for which the Indemnified Person is
entitled to indemnification pursuant to this Agreement, the Indemnifying Person
agrees to indemnify and hold harmless each Indemnified Person from and against
any loss or liability by reason of such settlement or judgment. Notwithstanding
the foregoing sentence, if at any time an Indemnified Person shall have
requested an Indemnifying Person to reimburse the Indemnified Person for
reasonable fees and expenses actually incurred by counsel as
<PAGE>
-26-
contemplated by the third sentence of this paragraph, the Indemnifying Person
agrees that it shall be liable for any settlement of any proceeding effected
without its consent if (i) such settlement is entered into more than 30 days
after receipt by such Indemnifying Person of the aforesaid request and (ii) such
Indemnifying Person shall not have reimbursed the Indemnified Person in
accordance with such request prior to the date of such settlement; provided,
--------
however, that the Indemnifying Person shall not be liable for any settlement
- -------
effected without its consent pursuant to this sentence if the Indemnifying
Person is contesting, in good faith, the request for reimbursement. No
Indemnifying Person shall, without the prior written consent of the Indemnified
Person effect any settlement or compromise of any pending or threatened
proceeding in respect of which any Indemnified Person is or could have been a
party, or indemnity could have been sought hereunder by such Indemnified Person,
unless such settlement (A) includes an unconditional written release of such
Indemnified Person, in form and substance reasonably satisfactory to such
Indemnified Person, from all liability on claims that are the subject matter of
such proceeding and (B) does not include any statement as to an admission of
fault, culpability or failure to act by or on behalf of any Indemnified Person.
(d) If the indemnification provided for in the first and second
paragraphs of this Section 7 is for any reason unavailable to, or insufficient
to hold harmless, an Indemnified Person in respect of any losses, claims,
damages or liabilities referred to therein, then each Indemnifying Person under
such paragraphs, in lieu of indemnifying such Indemnified Person thereunder and
in order to provide for just and equitable contribution, shall contribute to the
amount paid or payable by such Indemnified Person as a result of such losses,
claims, damages or liabilities in such proportion as is appropriate to reflect
(i) the relative benefits received by the Indemnifying Person or Persons on the
one hand and the Indemnified Person or Persons on the other from the offering of
the First Mortgage Notes or (ii) if the allocation provided by the foregoing
clause (i) is not permitted by applicable law, not only such relative benefits
but also the relative fault of the Indemnifying Person or Persons on the one
hand and the Indemnified Person or Persons on the other in connection with the
statements or omissions or alleged statements or omissions that resulted in such
losses, claims, damages or liabilities (or actions in respect thereof) as well
as any other relevant equitable considerations. The relative fault of the
parties shall be determined by reference to, among other things, whether the
untrue or alleged untrue statement of a material fact or the omission or alleged
omission to state a material fact relates to information supplied by the Company
on the one
<PAGE>
-27-
hand or such Participant or such other Indemnified Person, as the case may be,
on the other, the parties' relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission, and any other
equitable considerations appropriate in the circumstances.
(e) The parties agree that it would not be just and equitable if
contribution pursuant to this Section 7 were determined by pro rata allocation
--- ----
(even if the Participants were treated as one entity for such purpose) or by any
other method of allocation that does not take account of the equitable
considerations referred to in the immediately preceding paragraph. The amount
paid or payable by an Indemnified Person as a result of the losses, claims,
damages and liabilities referred to in the immediately preceding paragraph shall
be deemed to include, subject to the limitations set forth above, any reasonable
legal or other expenses actually incurred by such Indemnified Person in
connection with investigating or defending any such action or claim.
Notwithstanding the provisions of this Section 7, in no event shall a
Participant be required to contribute any amount in excess of the amount by
which proceeds received by such Participant from sales of Registrable Notes or
Exchange Notes, as the case may be, exceeds the amount of any damages that such
Participant has otherwise been required to pay or has paid by reason of such
untrue or alleged untrue statement or omission or alleged omission. No Person
guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of
the Securities Act) shall be entitled to contribution from any Person who was
not guilty of such fraudulent misrepresentation.
(f) The indemnity and contribution agreements contained in this
Section 7 will be in addition to any liability which the Indemnifying Persons
may otherwise have to the Indemnified Persons referred to above.
8. Rules 144 and 144A
------------------
The Company covenants that it will file the reports required to be
filed by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder in a timely manner in accordance with
the requirements of the Securities Act and the Exchange Act and, if at any time
the Company is not required to file such reports, it will, upon the request of
any Holder of Registrable Notes, make publicly available annual reports and such
information, documents and other reports of the type specified in Sections 13
and 15(d) of the Exchange Act. The Company further covenants
<PAGE>
-28-
for so long as any Registrable Notes remain outstanding, to make available to
any Holder or beneficial owner of Registrable Notes in connection with any sale
thereof and any prospective purchaser of such Registrable Notes from such Holder
or beneficial owner, the information required by Rule 144A(d)(4) under the
Securities Act in order to permit resales of such Registrable Notes pursuant to
Rule 144A.
9. Underwritten Registrations
--------------------------
If any of the Registrable Notes covered by any Shelf Registration are
to be sold in an underwritten offering, the investment banker or investment
bankers and manager or managers that will manage the offering will be selected
by the Holders of a majority in aggregate principal amount of such Registrable
Notes included in such offering and reasonably acceptable to the Company.
No Holder of Registrable Notes may participate in any underwritten
registration hereunder unless such Holder (a) agrees to sell such Holder's
Registrable Notes on the basis provided in any underwriting arrangements
approved by the Persons entitled hereunder to approve such arrangements and (b)
completes and executes all questionnaires, powers of attorney, indemnities,
underwriting agreements and other documents required under the terms of such
underwriting arrangements.
10. Miscellaneous
-------------
(a) No Inconsistent Agreements. The Company has not, as of the date
--------------------------
hereof, and the Company shall not, after the date of this Agreement, enter into
any agreement with respect to any of its securities that is inconsistent with
the rights granted to the Holders of Registrable Notes in this Agreement or
otherwise conflicts with the provisions hereof. The Company has not entered and
will not enter into, any agreement with respect to any of its securities which
will grant to any Person piggy-back registration rights with respect to a
Registration Statement.
(b) Adjustments Affecting Registrable Notes. The Company shall not,
---------------------------------------
directly or indirectly, take any action with respect to the Registrable Notes as
a class that would adversely affect the ability of the Holders of Registrable
Notes to include such Registrable Notes in a registration undertaken pursuant to
this Agreement.
<PAGE>
-29-
(c) Amendments and Waivers. The provisions of this Agreement may not
----------------------
be amended, modified or supplemented, and waivers or consents to departures from
the provisions hereof may not be given, otherwise than with the prior written
consent of (A) the Holders of not less than a majority in aggregate principal
amount of the then outstanding Registrable Notes and (B) in circumstances that
would adversely affect the Participating Broker-Dealers, the Participating
Broker-Dealers holding not less than a majority in aggregate principal amount of
the Exchange Notes held by all Participating Broker-Dealers; provided, however,
-------- -------
that Section 7 and this Section 10(c) may not be amended, modified or
supplemented without the prior written consent of each Holder and each
Participating Broker-Dealer (including any person who was a Holder or
Participating Broker-Dealer of Registrable Notes or Exchange Notes, as the case
may be, disposed of pursuant to any Registration Statement). Notwithstanding
the foregoing, a waiver or consent to depart from the provisions hereof with
respect to a matter that relates exclusively to the rights of Holders of
Registrable Notes whose securities are being sold pursuant to a Registration
Statement and that does not directly or indirectly affect, impair, limit or
compromise the rights of other Holders of Registrable Notes may be given by
Holders of at least a majority in aggregate principal amount of the Registrable
Notes being sold by such Holders pursuant to such Registration Statement;
provided, however, that the provisions of this sentence may not be amended,
- -------- -------
modified or supplemented except in accordance with the provisions of the
immediately preceeding sentence.
(d) Notices. All notices and other communications (including without
-------
limitation any notices or other communications to the Trustee) provided for or
permitted hereunder shall be made in writing by hand-delivery, registered
first-class mail, next-day air courier or facsimile:
1. if to a Holder of the Registrable Notes or any Participating
Broker-Dealer, at the most current address of such Holder or Participating
Broker-Dealer, as the case may be, set forth on the records of the
registrar under the Indenture, with a copy in like manner to the Initial
Purchaser as follows:
BT Alex. Brown Incorporated
130 Liberty Street, 30th Floor
New York, New York 10006
Facsimile No: (212) 250-7200
Attention: Finance Transaction Management
<PAGE>
-30-
with a copy to:
Cahill Gordon & Reindel
80 Pine Street
New York, New York 10005
Facsimile No: (212) 269-5420
Attention: Daniel J. Zubkoff, Esq.
2. if to the Initial Purchaser, at the addresses specified in
Section 10(d)(1);
3. if to the Company, at the address as follows:
Sheffield Steel Corporation
220 North Jefferson Street
Sand Springs, Oklahoma 74063
Facsimile No: (918) 241-6595
Attention: Bob Ackerman
with copies to:
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
Facsimile No: (617) 542-2241
Attention: Lewis J. Geffen, Esq.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if sent by facsimile.
Copies of all such notices, demands or other communications shall be
concurrently delivered by the Person giving the same to the Trustee at the
address and in the manner specified in such Indenture.
<PAGE>
-31-
(e) Successors and Assigns. This Agreement shall inure to the benefit
----------------------
of and be binding upon the successors and assigns of each of the parties hereto,
the Holders; provided, however, that this Agreement shall not inure to the
-------- -------
benefit of or be binding upon a successor or assign of a Holder unless and to
the extent such successor or assign holds Registrable Notes.
(f) Counterparts. This Agreement may be executed in any number of
------------
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(f) Headings. The headings in this Agreement are for convenience of
--------
reference only and shall not limit or otherwise affect the meaning hereof.
(H) GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED
-------------
IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK, AS APPLIED TO CONTRACTS
MADE AND PERFORMED WHOLLY WITHIN THE STATE OF NEW YORK, WITHOUT REGARD TO
PRINCIPLES OF CONFLICTS OF LAW. EACH OF THE PARTIES HERETO AGREES TO SUBMIT TO
THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK IN ANY ACTION OR
PROCEEDING ARISING OUT OF OR RELATING TO THIS AGREEMENT.
(i) Severability. If any term, provision, covenant or restriction of
------------
this Agreement is held by a court of competent jurisdiction to be invalid,
illegal, void or unenforceable, the remainder of the terms, provisions,
covenants and restrictions set forth herein shall remain in full force and
effect and shall in no way be affected, impaired or invalidated, and the parties
hereto shall use their best efforts to find and employ an alternative means to
achieve the same or substantially the same result as that contemplated by such
term, provision, covenant or restriction. It is hereby stipulated and declared
to be the intention of the parties that they would have executed the remaining
terms, provisions, covenants and restrictions without including any of such that
may be hereafter declared invalid, illegal, void or unenforceable.
<PAGE>
-32-
(j) Securities Held by the Company or Its Affiliates. Whenever the
------------------------------------------------
consent or approval of Holders of a specified percentage of Registrable Notes is
required hereunder, Registrable Notes held by the Company or its affiliates (as
such term is defined in Rule 405 under the Securities Act) shall not be counted
in determining whether such consent or approval was given by the Holders of such
required percentage.
(k) Third Party Beneficiaries. Holders of Registrable Notes and
-------------------------
Participating Broker-Dealers are intended third party beneficiaries of this
Agreement and this Agreement may be enforced by such Persons.
(l) Entire Agreement. This Agreement, together with the Purchase
----------------
Agreement and the Indenture, is intended by the parties as a final and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein and therein and any and all prior oral or
written agreements, representations, or warranties, contracts, understandings,
correspondence, conversations and memoranda between the Initial Purchaser on the
one hand and the Company on the other, or between or among any agents,
representatives, parents, subsidiaries, affiliates, predecessors in interest or
successors in interest with respect to the subject matter hereof and thereof are
merged herein and replaced hereby.
<PAGE>
-33-
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first written above.
The Company:
-----------
SHEFFIELD STEEL CORPORATION
By: /s/ Stephen R. Johnson
---------------------------------
Name: Stephen R. Johnson
Title: Chief Financial Officer
The Initial Purchaser:
---------------------
BT ALEX. BROWN INCORPORATED
By: /s/ Sharon Stern
--------------------------------
Name: Sharon Stern
Title: Vice President
<PAGE>
Exhibit 4.5
SHEFFIELD STEEL CORPORATION
$110,000,000
11 1/2% FIRST MORTGAGE NOTES DUE 2007
PURCHASE AGREEMENT
------------------
November 26, 1997
BT ALEX. BROWN INCORPORATED
Bankers Trust Plaza
130 Liberty Street
New York, New York 10006
Ladies and Gentlemen:
Sheffield Steel Corporation, a Delaware corporation (the "Company"),
-------
hereby confirms its agreement with you (the "Initial Purchaser"), as set forth
-----------------
below.
1. The Notes. Subject to the terms and conditions herein contained,
---------
the Company proposes to issue and sell to the Initial Purchaser $110,000,000
principal amount of 11 1/2% First Mortgage Notes due 2005 (the "Notes"). The
-----
Notes are to be issued under an indenture (the "Indenture") to be dated as of
---------
December 1, 1997 by and between the Company and State Street Bank and Trust
Company, as Trustee (the "Trustee").
-------
The Notes will be offered and sold to the Initial Purchaser without
being registered under the Securities Act of 1933, as amended (the "Act"), in
---
reliance on exemptions therefrom.
In connection with the sale of the Notes, the Company has prepared a
pre liminary offering memorandum dated November 12, 1997, and has prepared a
final offering memorandum dated November 26, 1997 (the "Final Memorandum"; the
----------------
Preliminary Memorandum and the Final Memorandum each herein being referred to as
a "Memorandum") setting forth or including a description of the terms of the
----------
Notes, the terms of the offering of the Notes, a description of the Company, and
any material developments relating to the Company occurring after the date of
the most recent historical financial statements included therein.
The Initial Purchaser and its direct and indirect transferees of the
Notes will be entitled to the benefits of a Registration Rights Agreement,
substantially in the form attached hereto as Exhibit A (the "Registration
--------- ------------
Rights Agreement"), pursuant to which the Company will agree, among other
- ----------------
things, to file with the Securities and Exchange Commission (the "Commission")
----------
under the circumstances set forth therein (i) a registration statement under the
<PAGE>
-2-
Act relating to the Company's Series B 11 1/2% First Mortgage Notes due 2005
(the "Exchange Notes") to be offered in exchange for the Notes and to use its
--------------
reasonable best efforts to cause such registration statement to be declared
effective, or (ii) a shelf registration statement pursuant to Rule 415 under the
Act relating to the resale of the Notes by holders thereof or, if applicable,
relating to the resale of debt securities of the Company substantially identical
to the Notes (the "Private Exchange Notes") by the Initial Purchaser pursuant to
----------------------
an exchange of the Notes for Private Exchange Notes, and to use its best efforts
to cause such shelf registration statement to be declared effective. The Notes
will be secured by a first mortgage lien on substantially all of the Company's
property and plant and a first security interest in equipment of the Company
pursuant to the terms of Mortgages and a Security Agreement (each as defined in
the Indenture) and which are collectively referred to, together with an
Intercreditor Agreement (as defined in the Indenture), as the "Security
--------
Documents". This Agreement, the Notes, the Exchange Notes, the Private Exchange
- ---------
Notes the Indenture, the Registration Rights Agreement and the Security
Documents are herein collectively referred to as the "Transaction Documents."
----------- ---------
2. Representations and Warranties. The Company represents and
------------------------------
warrants to and agrees with the Initial Purchaser that:
(a) Neither the Preliminary Offering Memorandum as of the date
thereof, nor the Final Memorandum nor any amendment or supplement thereto
as of the date thereof and at all times subsequent thereto up to the
Closing Date (as defined in Section 3 below) contained or contains any
untrue statement of a material fact or omitted or omits to state a material
fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, except that the
representations and warranties set forth in this Section 2(a) do not apply
to statements or omissions made in reliance upon and in conformity with
information relating to the Initial Purchaser furnished to the Company in
writing by the Initial Purchaser expressly for use in the Preliminary
Offering Memorandum, the Final Memorandum or any amendment or supplement
thereto.
(b) The only direct or indirect subsidiaries of the Company are, and
as of the Closing Date will be, those entities listed on Schedule I hereto
(the "Subsidiaries"). The Company does not own, directly or indirectly,
any shares of stock or any other equity or long term debt securities or
have any equity interest in any firm, partnership, joint venture or other
entity other than the Subsidiaries. As of the Closing Date, the Company
will have the capitalization set forth in the Final Memorandum; all of the
outstanding shares of capital stock of the Company and each of the
Subsidiaries have been, and as of the Closing Date will be, duly authorized
and validly issued, except as set forth in the Final Memorandum, are fully
paid and nonassessable and were not issued in violation of any preemptive
or similar rights; except as set forth in the Final Memorandum, the Amended
and Restated Stockholders Agreement dated as of Sep-
<PAGE>
-3-
tember 15, 1993 between the Company and the Stockholders party thereto (the
"Stockholder Agreement") or the pledge of stock of Waddell's Rebar
Fabricators, Inc. ("Waddell's") to secure the Company's promissory notes to
the sellers of Waddell's, all of the outstanding shares of capital stock of
the Company and each of the Subsidiaries are and as of the Closing Date
will be free and clear of all liens, encumbrances, equities and claims or
restrictions on transferability (other than those imposed by the Act and
the securities or "Blue Sky" laws of certain jurisdictions) or voting;
other than pursuant to a Warrant Agreement dated as of November 1, 1993
between the Company and Shawmut Bank Connecticut, N.A. as warrant agent
(the "Warrant Agreement") and pursuant to options granted under the 1993
Stock Option Plan, there are no options, warrants or other rights to
purchase from the Company, or agreements or other obligations of the
Company to issue or other rights to convert any obligation into, or
exchange securities for, shares of capital stock of or ownership interests
in the Subsidiaries.
(c) The Company and each of the Subsidiaries are duly incorporated,
validly existing and in good standing as a corporation under the laws of
their respective jurisdictions of incorporation, with all requisite
corporate power and authority to own their respective properties and
conduct their respective businesses as now conducted as described in the
Final Memorandum; the Company and each of the Subsidiaries are duly
qualified to do business as a foreign corporation in good standing in all
other jurisdictions where the ownership or leasing of their respective
properties or the conduct of their respective businesses requires such
qualification, except where the failure to be so qualified would not have a
material adverse effect on the business, condition (financial or other),
prospects or results of operations of the Company and the Subsidiaries,
taken as a whole (each such event a "Material Adverse Effect").
-----------------------
(d) No holder of securities of the Company will be entitled to have
such securities registered under the registration statements required to
be filed by the Company pursuant to the Registration Rights Agreements,
other than as expressly permitted thereby.
(e) The Company has all requisite corporate power and authority to
execute, deliver and perform each of its obligations under the Transaction
Documents;
(f) This Agreement has been duly and validly authorized, executed and
delivered by the Company.
(g) The Notes, the Exchange Notes and the Private Exchange Notes have
each been duly and validly authorized by the Company for issuance and when
executed by the Company and authenticated by the Trustee in accordance
with the provisions of the Indenture, and in the case of the Notes
delivered to and paid for by the Initial Purchaser in accordance with the
terms hereof, will have been duly executed, issued and
<PAGE>
-4-
delivered and will constitute valid and legally binding obligations of the
Company, entitled to the benefits of the Indenture and enforceable against
the Company in accordance with their terms, except that enforcement thereof
may be subject to (i) bankruptcy, insolvency, reorganization, moratorium or
other similar laws now or hereafter in effect relating to creditors' rights
generally and (ii) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) and the
discretion of any court before which any proceeding therefor may be
brought.
(h) The Indenture has been duly and validly authorized by the Company
and is in a form to be qualified under the Trust Indenture Act of 1939, as
amended (the "TIA"), and, when executed and delivered by the Company
---
(assuming the due authorization, execution and delivery by the Trustee),
will constitute a valid and legally binding agreement of the Company,
enforceable against the Company in accordance with its terms, except that
the enforcement thereof may be subject to (i) bankruptcy, insolvency,
reorganization, moratorium or other similar laws now or hereafter in effect
relating to creditors' rights generally and (ii) general principles of
equity (regardless of whether enforceability is considered in a proceeding
at law or in equity) and the discretion of any court before which any
proceeding therefor may be brought.
(i) The Registration Rights Agreement has been duly authorized,
executed and delivered by the Company and (assuming the due authorization,
execution and delivery by the Initial Purchaser) constitutes a valid and
legally binding agreement of the Company enforceable against the Company in
accordance with its terms except that the enforcement thereof may be
subject to (a) bankruptcy, insolvency, reorganization, moratorium or other
similar laws now or hereafter in effect relating to creditors' rights
generally and (b) general principles of equity (regardless of whether
enforceability is considered in a proceeding at law or in equity) and the
discretion of any court before which any proceeding therefor may be
brought.
(j) The Security Documents have been duly authorized, executed and
delivered by the Company and (assuming the due authorization, execution
and delivery by any other party thereto) constitute a valid and legally
binding agreements of the Company enforceable against the Company in
accordance with their respective terms except that the enforcement thereof
may be subject to (a) bankruptcy, insolvency, reorganization, moratorium
or other similar laws now or hereafter in effect relating to creditors'
rights generally and (b) general principles of equity (regardless of
whether enforceability is considered in a proceeding at law or in equity)
and the discretion of any court before which any proceeding therefor may be
brought.
(k) Except as set forth in the Final Memorandum, no consent,
approval, authorization or order of any court or governmental agency or
body, or third party is
<PAGE>
-5-
required for the performance of any of the Transaction Documents by the
Company or the consummation by the Company of the transactions contemplated
thereby, except such as may be required and have been obtained under the
state securities or "Blue Sky" laws in connection with the purchase and
distribution of the Notes by the Initial Purchaser and applicable federal
securities laws in connection with the registration of the Exchange Notes
with the Commission and except as may be required and have been obtained
under the Revolving Credit Facility (as defined in the Indenture).
(l) Neither the Company nor any of the Subsidiaries is (i) in
violation of its certificate of incorporation or bylaws or similar
organizational documents, (ii) in violation of any statute, judgment,
decree, order, rule or regulation applicable to any of them or any of their
respective properties or assets, which violation would, singly or in the
aggregate, have a Material Adverse Effect, or (iii) in breach of or in
default in (including, without limitation, any event which with notice or
lapse of time would constitute a breach of or a default in) the performance
or observance of any obligation, agreement, covenant or condition contained
in any of (x) the Transaction Documents or (y) any other contract,
indenture, mortgage, deed of trust, loan agreement, note, lease, license,
franchise agreement, permit, certificate or agreement or instrument to
which any of them is a party or to which any of them or any of their
respective properties or assets is or will be bound or subject (each a
"Contract"), except in the case of clause (iii)(y) breaches or defaults,
--------
which singly or in the aggregate, would not have a Material Adverse Effect.
(m) The execution, delivery and full and timely performance by the
Company of each of the Transaction Documents and the consummation by the
Company of the transactions contemplated thereby, will not violate,
conflict with or constitute or result in a breach of or a default under (or
an event which, with notice or lapse of time, or both, would constitute a
breach of or a default under) (i) any of the terms or provisions of any of
(x) the Transaction Documents or (y) any other Contract, except in the
case of clause (y) which violations, conflicts, breaches or defaults,
would not, singly or in the aggregate, have a Material Adverse Effect, (ii)
the certificate of incorporation or bylaws or similar organizational
documents of the Company or any of the Subsidiaries or (iii) (assuming
compliance with all applicable state securities and "Blue Sky" laws) any
statute, judgment, decree, order, rule or regulation of any court or
governmental agency or other body applicable to the Company or any of the
Subsidiaries or any of their respective properties or assets, which
violation, conflict, breach or default would, singly or in the aggregate,
have a Material Adverse Effect.
(n) The audited consolidated financial statements of the Company and
its subsidiaries included in the Final Memorandum present fairly, in all
material respects, the consolidated financial position, results of
operations and cash flows of the Company at the dates and for the periods
to which they relate, and have been prepared in accor-
<PAGE>
-6-
dance with United States generally accepted accounting principles applied
on a consistent basis, except as otherwise stated therein. The summary and
selected financial and statistical data included in the Final Memorandum
present fairly, in all material respects, the information shown therein and
have been prepared and compiled on a basis consistent with the audited
financial statements included therein, except as otherwise stated therein;
and KPMG Peat Marwick LLP (the "Independent Accountant"), who have examined
----------------------
certain of such financial statements as set forth in its report included in
the Final Memorandum, is an independent public accounting firm within the
meaning of the Act and the rules and regulations promulgated thereunder
(the "Rules and Regulations").
---------------------
(o) No pro forma financial statements would be required to be
included in a registration statement filed under the Act for an offering of
securities equivalent to the Notes; the pro forma financial information
included in the Final Memorandum has been prepared in accordance with the
Commission's rules and guidelines with respect to pro forma financial
statements, and has been properly computed on the basis described therein;
the assumptions used in the preparation of the pro forma financial
information included in the Final Memorandum are reasonable and the
adjustments used therein are appropriate to give effect to the
transactions or circumstances referred to therein.
(p) Except as described in the Final Memorandum, there is not pending
or, to the best knowledge of the Company after due inquiry, threatened any
action, suit, proceeding, inquiry or investigation to which the Company or
any of the Subsidiaries is a party, or to which any of their respective
properties or assets are subject, before or brought by any court,
arbitrator or governmental agency or body, which, if determined adversely
to the Company or any of the Subsidiaries, would result in any material
adverse change in the business, condition (financial or other), prospects,
results of operations of, or materially adversely affect the respective
properties or assets of the Company and the Subsidiaries, taken as a whole
(each such event a "Material Adverse Change"), or which seeks to restrain,
-----------------------
enjoin, prevent the consummation of or otherwise challenge the issuance or
sale of the Notes to be sold hereunder or the consummation of the
transactions described in the Final Memorandum.
(q) The Company and each of the Subsidiaries own, possess or will
have obtained all licenses, permits, certificates, consents, orders,
approvals and other authorizations from, and have made all declarations and
filings with, all federal, state, local and other governmental authorities,
all self-regulatory organizations and all courts and other tribunals,
presently required or necessary to own or lease, as the case may be, and to
operate their respective properties and to carry on their business as now
conducted as set forth in the Final Memorandum, except where the failure to
obtain licenses, permits, certificates, consents, orders, approvals and
other authorizations, or to
<PAGE>
-7-
make all declarations and filings, would not, singly or in the aggregate,
have a Material Adverse Effect, and neither the Company nor any of the
Subsidiaries has received any notice of any proceeding relating to
revocation or modification of any such license, permit, certificate,
consent, order, approval or other authorization, except as described in the
Final Memorandum and except, where such revocation or modification would
not, singly or in the aggregate, have a Material Adverse Effect.
(r) Except as contemplated by this Agreement, subsequent to the
respective dates as of which information is given in the Final Memorandum
and except as described therein, (i) neither the Company nor any of the
Subsidiaries has incurred any liabilities or obligations, direct or
contingent, or entered into or agreed to enter into any transactions or
contracts (written or oral), in either case not in the ordinary course of
business and which are material to the Company and the Subsidiaries and
(ii) there has not occurred any Material Adverse Change, nor has any event
occurred, information become known or state of facts arisen which could,
singly or in the aggregate, reasonably be expected to result in a Material
Adverse Change, whether or not arising in the ordinary course of business.
(s) Neither the Company nor any agent acting on its behalf has taken
or will take any action that is reasonably likely to cause the execution of
this Agreement or the issuance or sale of the Notes to violate Regulation
G, T, U or X of the Board of Governors of the Federal Reserve System, in
each case as in effect, or as the same may hereafter be in effect, on the
Closing Date.
(t) Immediately after the consummation of the transactions
contemplated by the Transaction Documents, the fair value and present fair
salable value of the as sets of the Company (on a consolidated basis) will
exceed the sum of its stated liabilities and identified contingent
liabilities; the Company will not (on a consolidated basis) after giving
effect to the execution, delivery and performance of the Transaction
Documents and the consummation of the transactions contemplated thereby be,
(i) left with unreasonably small capital with which to carry on its
business as it is proposed to be conducted, (ii) unable to pay its debts
(contingent or otherwise) as they mature or (iii) otherwise insolvent.
(u) There exists as of the date hereof and will exist on the Closing
Date, after giving effect to the transactions contemplated by each of the
Transaction Documents, no event or condition which would constitute a
default or an event of default (in each case as defined in the Revolving
Credit Facility or the Railway Credit Facility (as defined in the
Indenture), as the case may be).
(v) Neither the Company nor any of its Affiliates (as defined in Rule
501(b) of Regulation D promulgated under the Act) has, directly or through
any agent, (i) sold, offered for sale, solicited offers to buy or otherwise
negotiated in respect of, any
<PAGE>
-8-
"security" (as defined in the Act) which is or will be integrated with the
sale of the Notes in a manner that would require the registration under the
Act of the Notes or (ii) engaged in any form of general solicitation or
general advertising in connection with the offering of the Notes (as those
terms are used in Regulation D under the Act) or in any manner involving a
public offering within the meaning of Section 4(2) of the Act.
(w) Assuming the accuracy of the representations and warranties of
the Initial Purchaser in Section 8 hereof, it is not necessary in
connection with the offer, sale and delivery of the Notes to the Initial
Purchaser in the manner contemplated by this Agreement to register any of
the Notes under the Act or to qualify the Indenture under the TIA.
(x) The statistical and market-related data included in the Final
Memorandum are based on or derived from sources which the Company believes
to be reliable and accurate.
(y) No labor dispute with the employees of the Company or any of the
Subsidiaries is imminent or which could reasonably be expected to have,
singly or in the aggregate, a Material Adverse Effect.
(z) The Company and each of the Subsidiaries carry, and as of the
Closing Date will carry, insurance in such amounts and covering such risks
as is adequate for the conduct of their respective businesses and the value
of their respective properties.
(aa) Except as disclosed in the Final Memorandum, or except as would
not individually or in the aggregate have a Material Adverse Effect, (A)
the Company and each of the Subsidiaries are in compliance with and not
subject to liability under applicable Environmental Laws, (B) the Company
and each of the Subsidiaries have made all filings and provided all notices
required under any applicable Environmental Law, and have and are in
compliance with all permits, licenses, authorizations and approvals
required under any applicable Environmental Laws and each of them is in
full force and effect, (C) there is no civil, criminal or administrative
action, suit, demand, claim, hearing, notice of violation, investigation,
proceeding, notice or demand letter or request for information pending or,
to the knowledge of the Company, threatened against the Company or any of
the Subsidiaries under any Environmental Law, (D) no Lien has been recorded
under any Environmental Law with respect to any assets, facility or
property owned, operated, leased or controlled by the Company or any of the
Subsidiaries, (E) the Company and each of the Subsidiaries have not
received notice that it has been identified as a potentially responsible
party under the Comprehensive Environmental Response, Compensation and
Liability Act of 1980, as amended ("CERCLA") or any comparable state law,
------
(F) no property or facility of the Company or any of the Subsidiaries is
(i) listed or proposed for listing on the National Priorities
<PAGE>
-9-
List under CERCLA or (ii) listed in the Comprehensive Environmental
Response, Compensation, Liability Information System List promulgated
pursuant to CERCLA, or on any comparable list maintained by any state or
local governmental authority.
For purpose of this Agreement, "Environmental Laws" means the common
------------- ----
law and all applicable federal, state and local laws or regulations, codes,
orders, decrees, judgments or injunctions issued, promulgated, approved or
entered thereunder, relating to pollution or protection of public or
employee health and safety or the environment, including, without
limitation, laws relating to (i) emissions, discharges, releases or
threatened releases of hazardous materials, into the environment
(including, without limitation, ambient air, surface water, ground water,
land surface or subsurface strata), (ii) the manufacture, processing,
distribution, use, generation, treatment, storage, disposal, transport or
handling of hazardous materials, and (iii) underground and above ground
storage tanks, and related piping, and emissions, discharges, releases or
threatened releases therefrom.
(bb) Upon execution and delivery by the Company on the Closing Date
and assuming due recording, each of the Mortgages will create and
constitute (A) a valid and enforceable mortgage lien on the real property
and fixtures described therein (the "Real Property") and (B) a valid and
-------------
enforceable security interest in the Equipment and such other items of the
Mortgaged Property (as defined in such Mortgage), other than the Real
Property, in which a security interest can be created under Article 9 (the
"UCC Property") of the Uniform Commercial Code (the "UCC") as in effect in
------------ ---
the state in which such Mortgaged Property is located. Each Mortgage will
be in proper form under laws of the state in which the Mortgaged Property
encumbered thereby is located, to be accepted for recording in the county
where such Mortgaged Property is located.
(cc) Upon execution and delivery by the Company on the Closing Date,
the Security Agreement will create and constitute a valid and enforceable
security interest in, lien on or pledge of all of the Pledged Collateral
(as defined in the Security Agreement). In no event shall any Mortgage,
Security Agreement or other instrument or document executed in connection
herewith be deemed or intended to create, grant or perfect any interest in
or lien or any accounts receivable or inventory of the Company.
(dd) Assuming the proper filing of UCC-3 termination statements and
mortgage releases relating to the collateral securing the Company's First
Mortgage Notes due 2001 and the proper filing of UCC-3 termination or
amendment statements relating to the second lien of the Revolving Credit
Facility (as defined in the Final Memorandum) on the Pledged Collateral,
upon the filing of the UCC-1 financing statements (the "Financing
---------
Statements") relating to (A) each Mortgage with the Office of the Secretary
----------
of State in the state in which the Mortgaged Property encumbered by each
such
<PAGE>
-10-
Mortgage is located, and with the recorder in the county where Real
Property encumbered by such Mortgage is located (other than Oklahoma), and
(B) the Security Agreement with the Office of the Secretary of State in
each state in which Mortgaged Property is located and each state in which
Pledged Collateral is located (except that in Oklahoma, the Financing
Statements relating to the Security Agreement shall be filed with the
County Clerk of Oklahoma County) and with the recorder in the county where
Real Property encumbered by a Mortgage is located and in each county where
Pledged Collateral is located and with the Secretary of State in the state
in which the Company has its principal executive offices, the security
interest, lien or pledge created by (x) the Security Agreement covering the
Pledged Collateral will create a perfected security interest with respect
to that portion of the Pledged Collateral in which a security interest can
be perfected by the filing of a financing statement, prior to all other
claims or security interests therein which may be perfected by the filing
of a Financing Statement or by possession, except for prior liens and
encumbrances permitted by the Security Agreement, and (y) each Mortgage
covering UCC Property will create a perfected security interest with
respect to that portion of the UCC Property in which a security interest
can be perfected by filing a financing statement; prior to all other
security interests therein which may be perfected by filing a Financing
Statement or by possession, except for prior liens and encumbrances
permitted by the Security Agreement or the Mort gages, respectively.
(ee) The Company does not have any liability for any prohibited
transaction or funding deficiency or any complete or partial withdrawal
liability with respect to any pension, profit sharing or other plan which
is subject to the Employee Retirement Income Security Act of 1974, as
amended ("ERISA"), to which the Company makes or ever has made a
-----
contribution and in which any employee of the Company is or has ever been a
participant; with respect to such plans, to the best knowledge of the
Company after due inquiry, the Company is in compliance in all material
respects with all applicable provisions of ERISA.
(ff) Neither the Company nor any of the Subsidiaries is an
"investment company" or "promoter" or "principal underwriter" for an
"investment company," as such terms are defined in the Investment Company
Act of 1940, as amended, and the rules and regulations thereunder.
Any certificate signed by any officer of the Company and delivered to
the Initial Purchaser or to counsel for the Initial Purchaser shall be deemed a
representation and warranty by the Company to the Initial Purchaser as to the
matters covered thereby.
3. Purchase, Sale and Delivery of the Notes. On the basis of the
----------------------------------------
representations, warranties, agreements and covenants herein contained and
subject to the terms and conditions herein set forth, the Company agrees to
issue and sell to the Initial Purchaser,
<PAGE>
-11-
and the Initial Purchaser agrees to purchase from the Company, the Notes at
97.75% of their principal amount. One or more certificates in definitive form
for the Notes that the Initial Purchaser has agreed to purchase hereunder, and
in such denomination or denominations and registered in such name or names as
the Initial Purchaser requests upon notice to the Company at least 48 hours
prior to the Closing Date, shall be delivered by or on behalf of the Company to
the Initial Purchaser (with any transfer taxes payable in connection with the
transfer of such Notes to the Initial Purchaser duly paid by the Company),
against payment by or on behalf of the Initial Purchaser of the purchase price
therefor by wire transfer (same day funds) to such account or accounts as the
Company shall specify prior to the Closing Date. Such delivery of and payment
for the Notes shall be made at the offices of Cahill Gordon & Reindel, 80 Pine
Street, New York, New York at 10:00 A.M., New York time, on December 5, 1997, or
at such other place, time or date as the Initial Purchaser and the Company may
agree upon, such time and date of delivery against payment being herein
referred to as the "Closing Date." The Company will make such certificate or
------------
certificates for the Notes available for checking and packaging by the Initial
Purchaser at the offices of BT Alex. Brown Incorporated in New York, New York,
or at such other place as BT Alex. Brown Incorporated may designate, at least 24
hours prior to the Closing Date.
4. Offering by the Initial Purchaser. The Initial Purchaser
---------------------------------
proposes to make an offering of the Notes at the price and upon the terms set
forth in the Final Memorandum, as soon as practicable after this Agreement is
entered into and as in the judgment of the Initial Purchaser is advisable.
5. Covenants of the Company. The Company covenants and agrees with
------------------------
the Initial Purchaser that:
(a) The Company will not amend or supplement the Final Memorandum or
any amendment or supplement thereto of which the Initial Purchaser and its
counsel shall not previously have been advised and furnished with a copy a
reasonable period of time prior to the proposed amendment or supplement
and as to which the Initial Purchaser shall not have given its prior
consent. The Company will, promptly upon the reasonable request by the
Initial Purchaser or counsel for the Initial Purchaser, make any amendments
or supplements to any Memorandum that may be necessary or advisable in
connection with the distribution of the Notes by the Initial Purchaser.
(b) The Company will cooperate with the Initial Purchaser in
arranging for the qualification of the Notes for offering and sale under
the securities or "Blue Sky" laws of such jurisdictions as the Initial
Purchaser may designate and will continue such qualifications in effect
for as long as may be necessary to complete the distribution of the Notes;
provided, however, that in connection therewith the Company shall not be
-------- -------
required to qualify as a foreign corporation or to take any action that
would subject it to a general consent to service of process in any
jurisdiction.
<PAGE>
-12-
(c) If, at any time prior to the completion of the distribution of
the Notes or the Private Exchange Notes, as the case may be, to persons
that are not affiliates of the Initial Purchaser (as determined by the
Initial Purchaser), any event occurs or information becomes known as a
result of which the Final Memorandum as then amended or supplemented would
include any untrue statement of a material fact, or omit to state a
material fact necessary to make the statements therein, in the light of the
circumstances under which they were made, not misleading, or if for any
other reason it is necessary or advisable at any time to amend or
supplement the Final Memorandum to comply with applicable law, the Company
will promptly notify the Initial Purchaser thereof and will prepare, at its
sole expense, an amendment or supplement to the Final Memorandum that
corrects such statement or omission or effects such compliance.
(d) The Company will, without charge, provide to the Initial
Purchaser and to counsel for the Initial Purchaser as many copies of each
Memorandum or any amendment or supplement thereto as the Initial Purchaser
may reasonably request.
(e) The Company will apply the net proceeds from the sale of the
Notes, as set forth under "Use of Proceeds" in the Final Memorandum.
(f) For and during the period ending on the date no Notes are
outstanding the Company will furnish to the Initial Purchaser upon request
copies of all reports and other communications (financial or otherwise)
furnished by the Company to its security holders generally and copies of
any reports or financial statements furnished to or filed by the Company
with the Commission or any national securities exchange on which any class
of securities of the Company may be listed.
(g) Prior to the Closing Date, the Company will furnish to the
Initial Purchaser, if and to the extent and as soon as they have been
prepared and are available, a copy of any unaudited interim consolidated
financial statements of the Company for any period subsequent to the
period covered by the most recent financial statements appearing in the
Final Memorandum.
(h) Neither the Company nor any of its Affiliates will sell, offer
for sale or solicit offers to buy or otherwise negotiate in respect of any
"security" (as defined in the Act) which could be integrated with the sale
of the Notes in a manner which would require the registration under the Act
of the Notes.
(i) The Company will not, and will not permit any of the Subsidiaries
to, solicit any offer to buy or offer to sell the Notes by means of any
form of general solicitation or general advertising (as those terms are
used in Regulation D under the Act) or in any manner involving a public
offering within the meaning of Section 4(2) of the Act.
<PAGE>
-13-
(j) For so long as any of the Notes remain outstanding, the Company
will make available, upon request, to any seller of such Notes the
information specified in Rule 144A(d)(4) promulgated under the Act, unless
the Company is subject to Section 13 or 15(d) of the Securities Exchange
Act of 1934, as amended (the "Exchange Act").
------------
(k) The Company will use its best efforts to (i) permit the Notes to
be designated PORTAL securities in accordance with the rules and
regulations adopted by the National Association of Securities Dealers, Inc.
relating to trading in the Private Offerings, Resales and Trading through
Automated Linkages market (the "PORTAL Market") and (ii) permit the Notes
-------------
to be eligible for clearance and settlement through The Depository Trust
Company.
6. Expenses. The Company agrees that, whether or not the
--------
transactions contemplated herein are consummated or this Agreement is terminated
pursuant to Section 11 hereof, it shall pay or cause to be paid all costs and
expenses incident to the performance of its obligations hereunder and shall pay
or cause to be paid all costs and expenses incident to (a) the printing or
other production (including word processing) of all documents relating to the
transactions contemplated hereby, including, without limitation, each Memorandum
and any amendment or supplement thereto, and any "Blue Sky" memoranda, (b) all
arrangements relating to the delivery to the Initial Purchaser of copies of the
foregoing documents and copies of the other Transaction Documents as required by
this Agreement, (c) the fees and disbursements of the counsel, the accountants
and any other experts or advisors retained by the Company, (d) preparation
(including printing), issuance and delivery to the Initial Purchaser of the
Notes, (e) the qualification of the Notes under state securities and "Blue Sky"
laws, including filing fees and reasonable fees and disbursements of counsel
for the Initial Purchaser relating thereto, (f) expenses of the Company in
connection with any meetings with prospective investors in the Notes, (g) fees
and expenses of the Trustee including fees and expenses of its counsel, (h) all
expenses and listing fees incurred in connection with the application for
quotation of the Notes on the PORTAL Market and (j) any fees charged by
investment rating agencies for the rating of the Notes. If the sale of the
Notes provided for herein is not consummated because any condition to the
obligations of the Initial Purchaser set forth in Section 7 hereof is not
satisfied, because this Agreement is terminated or because of any failure,
refusal or inability on the part of the Company to perform all obligations and
satisfy all conditions on its part to be performed or satisfied hereunder (other
than solely by reason of a default by the Initial Purchaser), the Company will
promptly reimburse the Initial Purchaser upon demand for all out-of-pocket
expenses (including reasonable fees, disbursements and charges of Cahill Gordon
& Reindel, counsel for the Initial Purchaser) that shall have been incurred by
the Initial Purchaser in connection with the proposed purchase and sale of the
Notes.
7. Conditions of the Initial Purchaser's Obligations. The
-------------------------------------------------
obligation of the Initial Purchaser to purchase and pay for the Notes shall, in
its sole discretion, be subject to the satisfaction and fulfillment of the
following conditions on or prior to the Closing Date:
<PAGE>
-14-
(a) The Initial Purchaser shall have received a signed opinion, in
form and substance satisfactory to the Initial Purchaser and Cahill Gordon
& Reindel, counsel for the Initial Purchaser, dated the Closing Date and
addressed to the Initial Purchaser, of Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo, P.C. ("Mintz Levin"), counsel for the Company, in the form of
-----------
Exhibit B hereto. In addition, in rendering their opinion, Mintz, Levin
---------
may rely as to matters involving the application of laws of any
jurisdiction other than the Commonwealth of Massachusetts or the General
Corporation Law of the State of Delaware or federal law, to the extent such
counsel deems proper and specifies in such opinion, upon the opinion of
other counsel who are reasonably satisfactory to counsel for the Initial
Purchaser; provided, however, that Mintz Levin shall state that they, the
-------- -------
Initial Purchaser and counsel for the Initial Purchaser are justified in
relying on such opinion.
(b) The Initial Purchaser shall have received a signed opinion, in
form and substance satisfactory to the Initial Purchaser and Cahill Gordon
& Reindel, counsel for the Initial Purchaser, dated the Closing Date and
addressed to the Initial Purchaser, from a local counsel in each
jurisdiction in which Mortgaged Property is located, each substantially in
the form of Exhibit C hereto.
---------
(c) The Initial Purchaser shall have received a signed opinion, in
form and substance satisfactory to the Initial Purchaser, dated the Closing
Date and addressed to the Initial Purchaser, of Cahill Gordon & Reindel,
counsel for the Initial Purchaser, with respect to certain legal matters
relating to this Agreement, and such other related matters as the Initial
Purchaser may reasonably require. In rendering such opinion, Cahill Gordon
& Reindel shall have received, and may rely upon, such certificates and
other documents and information as they may reasonably re quest to pass
upon such matters.
(d) The Initial Purchaser shall have received from the Independent
Accountant a letter dated the date hereof and the Closing Date, addressed
to the Initial Purchaser, each in form and substance satisfactory to the
Initial Purchaser and Ca hill Gordon & Reindel, counsel for the Initial
Purchaser.
(e) The representations and warranties of the Company contained in
this Agreement shall be true and correct in all material respects on and as
of the date hereof and on and as of the Closing Date as if made on and as
of the Closing Date; the Company shall have performed all covenants and
agreements and satisfied all conditions on their part to be performed or
satisfied hereunder at or prior to the Closing Date; and, subsequent to the
date of the most recent financial statements in the Final Memorandum, there
shall have been no Material Adverse Change.
(f) The sale of the Notes by the Company hereunder shall not be
enjoined (temporarily or permanently) on the Closing Date.
<PAGE>
-15-
(g) Subsequent to the date as of which information is given in the
Final Memorandum, except in each case as described in the Final Memorandum,
neither the Company nor any of the Subsidiaries shall have incurred any
liabilities or obligations, direct or contingent (whether or not in the
ordinary course of business), that are material to the business, condition
(financial or other) or results of operations or prospects of the Company
and the Subsidiaries, taken as a whole, or entered into any transactions
whether or not in the ordinary course of business that are material to the
business, condition (financial or other) or results of operations or
prospects of the Company and the Subsidiaries, taken as a whole, and there
shall not have been any adverse change in the capital stock or long-term
indebtedness of the Company or any of the Subsidiaries that is material to
the business, condition (financial or other) or results of operations or
prospects of the Company and the Subsidiaries, taken as a whole.
(h) Subsequent to the date as of which information is given in the
Final Memorandum, the conduct of the business and operations of the Company
or any of the Subsidiaries has not been interfered with by strike, fire,
flood, hurricane, accident or other calamity (whether or not insured) or
by any court or governmental action, order or decree and, except as
otherwise stated in the Final Memorandum, the properties of the Company or
any of the Subsidiaries have not sustained any loss or damage (whether or
not insured) as a result of any such occurrence, except any such
interference, loss or damage which would not, singly or in the aggregate,
have a Material Adverse Effect.
(i) The Initial Purchaser shall have received a certificate of the
Company, dated the Closing Date and addressed to the Initial Purchaser,
signed on behalf of the Company by its Chairman, President or any Vice
President and the Chief Financial Officer to the effect that:
(i) The representations and warranties of the Company
contained in this Agreement are true and correct in all material
respects as if made on and as of the Closing Date, and the Company has
performed in all material respects all covenants and agreements and
satisfied all conditions on its part to be performed or satisfied in
connection with this Agreement at or prior to the Closing Date;
(ii) At the Closing Date, since the date hereof or since the
respective dates as of which information is given in the Final
Memorandum (exclusive of any amendment or supplement thereto since the
date hereof), no event or events have occurred, no information has
become known nor does any condition exist that, individually or in the
aggregate, to the best knowledge of such officers after due inquiry
would have a material adverse effect on the
<PAGE>
-16-
business, condition (financial or other) or results of operations or
prospects of the Company;
(iii) Since the date hereof or since the date of which
information is given in the Final Memorandum, neither the Company nor
any of the Subsidiaries has incurred any liabilities or obligations
direct or contingent (other than in the ordinary course of business)
that are material to the Company or any of the Subsidiaries or,
entered into any transactions not in the ordinary course of business
that are material to the business, condition (financial or other) or
results of operations or prospects of the Company and the
Subsidiaries, taken as a whole, and there has not been any change in
the capital stock or long-term indebtedness of the Company or any of
the Subsidiaries that is material to the business, condition
(financial or other) or results of operations or prospects of the
Company and the Subsidiaries at and as of the Closing Date, taken as a
whole, except as described by the Final Memorandum.
(iv) The sale of the Notes by the Company has not been
enjoined (temporarily or permanently).
(j) The Initial Purchaser shall have received the Registration Rights
Agreement executed by the Company and the Registration Rights Agreement
shall be in full force and effect at all times from and after the date
hereof.
(k) On the Closing Date, the Company shall have delivered to the
Initial Purchaser and to the Trustee the following documents and
instruments with regard to the Mortgaged Property:
(i) each Mortgage encumbering the Company's fee interest in
the Mortgaged Property, duly executed and acknowledged by the owner or
holder of such fee interest and otherwise in form for recording in the
appropriate recording office of the political subdivision where such
Mortgaged Property is situated, together with such certificates,
affidavits, questionnaires or returns as shall be required in
connection with the recording or filing thereof and such UCC-1
financing statements and other similar statements as are contemplated
in respect of such Mortgage by the local counsel opinion delivered
with respect thereto, pursuant to Section 7(b) hereof, and any other
instruments necessary to grant the interests purported to be granted
by the Mortgage under the laws of any applicable jurisdiction, which
Mortgage and financing statements and other instruments shall be
effective to create a Lien (as defined in the Indenture) on such
Mortgaged Property subject to no Liens other than as set forth in
Schedule B to the applicable Mortgage;
<PAGE>
-17-
(ii) with respect to each Mortgage, a policy of title
insurance on ALTA Form B (1990) or equivalent (or a commitment to
issue such a policy) insuring (or committing to insure) the Lien of
the Mortgage as a valid first mortgage Lien on the Real Property in
respect of the Notes in an amount not less than the fair market value
of such Real Property which policy (or commitment) shall (A) be issued
by Chicago Title Insurance Company or another nationally recognized
title insurance company reasonably acceptable to the Initial
Purchaser, (B) include such reinsurance arrangements (with provisions
for direct access) as shall be reasonably acceptable to the Initial
Purchaser, (C) have been supplemented by such endorsements, or, where
such endorsements are not available at commercially reasonable
premium costs, opinion letters of special counsel, architects or other
professionals, which counsel, architects or other professionals shall
be reasonably acceptable to the Initial Purchaser, as shall be
reasonably requested by the Initial Purchaser (including, without
limitation, endorsements or opinion letters on matters relating to
usury, last dollar, zoning, non-imputation, public road access,
contiguity (where appropriate), except that improvements need not be
located thereon, survey, variable rate and so-called comprehensive
coverage over covenants and restrictions) and (D) contain only such
exceptions to title as shall be reasonably agreed to by the Initial
Purchaser prior to the Closing Date with respect to such Mortgaged
Property;
(iii) with respect to each Mortgaged Property, a survey
complying with the minimum detail requirements of the American Land
Title Association (as such requirements are in effect on the date of
delivery of such survey), except that improvements need not be
located thereon, certified to the Trustee, and dated (or redated) not
earlier than six months prior to the date of delivery thereof, unless
there shall have occurred any exterior change in the property affected
thereby during such period, in which event such survey shall be dated
or redated to a date after the completion of such change, which survey
shall locate all public streets and certify that none of the recorded
easements encroach upon the improvements on such Mortgaged Property;
(iv) with respect to the Mortgaged Property, such consents,
approvals, amendments, supplements, estoppels, tenant subordination
agreements or other instruments as shall reasonably be deemed
necessary by the Initial Purchaser in order for the owner or holder of
the fee interest to grant the Lien contemplated by the Mortgage with
respect to such Mortgaged Property;
(v) with respect to the Mortgaged Property, policies or
certificates of insurance as required by the Mortgage relating
thereto, which policies or
<PAGE>
-18-
certificates shall bear mortgagee endorsements of the character
customarily and reasonably required by the Mortgage;
(vi) with respect to each Mortgaged Property, UCC, judgment
and tax lien searches confirming that the personal property comprising
a part of such Mortgaged Property is subject to no Liens other than as
set forth in Schedule B to the applicable Mortgage;
(vii) checks payable to the appropriate public officials in
payment of all recording costs and transfer taxes due in respect of
the execution, delivery or recording of each Mortgage, together with
a check or wire transfer for the title company in payment of its
premium search and examination charges, survey costs and any other
amounts due in connection with the issuance of its policies (or
commitments);
(viii) with respect to the Mortgaged Property, copies of all
Leases and Subleases (as defined in the Mortgages), all of which
Leases and Subleases shall, to the extent not previously approved in
writing by the Initial Purchaser, be reasonably satisfactory to the
Initial Purchaser; and
(ix) with respect to the Mortgaged Property, an Officers'
Certificate (as defined in the Indenture) stating that (i) there has
been issued and is in effect a valid and proper certificate of
occupancy or local equivalent if required by the local codes or
ordinances, for the use of such Mortgaged Property and (ii) there is
not outstanding any citation, violation or similar notice indicating
that such Mortgaged Property contains conditions which are not in
compliance with local codes or ordinances relating to building or fire
safety or structural soundness.
(l) On the Closing Date, the Company shall have delivered to the
Initial Purchaser and to the Trustee the Security Agreement, duly executed
by the Company, together with the evidence of the filing of appropriate
financing statements in each of the offices where such filing is necessary
or, in the opinion of the Initial Purchaser, desirable to perfect the Liens
created or intended to be created, by the Security Agreement. All filing
fees and taxes in connection with such filings shall have been paid and the
Initial Purchaser shall have received evidence satisfactory to it of such
filings and payments, including in the case of any financing statements,
the acknowledgment copies of all such financing statements bearing evidence
of filing in each such office.
(m) On the Closing Date, the Company shall have delivered to the
Initial Purchaser, the Intercreditor Agreement among the Company, the
Trustee and NationsBank, N.A. duly executed by the Company.
<PAGE>
-19-
(n) On the Closing Date, the Company shall have delivered or cause to
be delivered to the Initial Purchaser such documentation and instruments as
may be necessary or required to effectuate the termination of the Lien of
the Revolver Lender on the Pledged Collateral and Mortgaged Property,
including, without limitation, mortgage releases, UCC financing statements
and amendments to the existing Revolving Credit Facility.
On or before the Closing Date, the Initial Purchaser and Cahill Gordon
& Reindel, counsel for the Initial Purchaser, shall have received such further
documents, certificates and schedules or instruments relating to the business,
corporate, legal and financial affairs of the Company as they shall reasonably
request from the Company.
All such opinions, certificates, letters, schedules, documents or
instruments delivered pursuant to this Section 7 will comply with the provisions
hereof only if they are reasonably satisfactory in all respects to the Initial
Purchaser. The Company shall furnish to the Initial Purchaser such conformed
copies of such opinions, certificates, letters, schedules, documents and
instruments and such other documents, in such quantities as the Initial
Purchaser shall reasonably request.
8. Offering of Notes; Restrictions on Transfer. The Initial
-------------------------------------------
Purchaser represents and warrants that it is a qualified institutional buyer as
defined in Rule 144A promulgated under the Act (a "QIB"). The Initial Purchaser
---
agrees with the Company that (a) it has not and will not solicit offers for, or
offer or sell, the Notes by any form of general solicitation or general
advertising (as those terms are used in Regulation D under the Act) or in any
manner involving a public offering within the meaning of Section 4(2) of the
Act; and (b) it has and will solicit offers for the Notes only from, and will
offer the Notes only to (A) in the case of offers inside the United States,
persons whom the Initial Purchaser reasonably believes to be QIBs or, if any
such person is buying for one or more institutional accounts for which such
person is acting as fiduciary or agent, only when such person has represented to
the Initial Purchaser that each such account is a QIB, to whom notice has been
given that such sale or delivery is being made in reliance on Rule 144A under
the Act ("Rule 144A"), and, in each case, in transactions under Rule 144A or (B)
---------
in the case of offers outside the United States, to persons other than U.S.
persons ("foreign purchasers," which term shall include dealers or other
professional fiduciaries in the United States acting on a discretionary basis
for foreign beneficial owners (other than an estate or trust)); provided,
--------
however, that, in the case of clauses (b)(A) and (b)(B) above, in purchasing
- -------
such Notes such persons are deemed to have represented and agreed as provided
under the caption "Transfer Restrictions" contained in the Final Memorandum.
9. Indemnification and Contribution. (a) The Company agrees to
--------------------------------
indemnify and hold harmless the Initial Purchaser, and each person, if any, who
controls the Initial Purchaser within the meaning of Section 15 of the Act or
Section 20 of the Exchange Act,
<PAGE>
-20-
against any losses, claims, damages or liabilities to which the Initial
Purchaser or such controlling person may become subject under the Act, the
Exchange Act or otherwise, insofar as any such losses, claims, damages or
liabilities (or actions in respect thereof) arise out of or are based upon:
(i) any untrue statement or alleged untrue statement of any
material fact contained in (A) any Memorandum or any amendment or
supplement thereto or (B) any application or other document, or any
amendment or supplement thereto, executed by the Company or based upon
written information furnished by or on behalf of the Company filed in any
jurisdiction in order to qualify the Notes under the securities or "Blue
Sky" laws thereof or filed with any securities association or securities
exchange (each an "Application"); or
-----------
(ii) the omission or alleged omission to state in (A) any
Memorandum or any amendment or supplement thereto or (B) any Application, a
material fact required to be stated therein or necessary to make the
statements therein in light of the circumstances under which they were made
not misleading,
and will reimburse, as incurred, the Initial Purchaser and each such controlling
person for any legal or other out-of-pocket expenses incurred by the Initial
Purchaser or such controlling person in connection with investigating or
defending against or appearing as a third-party witness in connection with any
such loss, claim, damage, liability or action in respect thereof; provided,
--------
however, that the Company will not be liable in any such case to the extent, but
- -------
only to the extent, that any such loss, claim, damage or liability arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in any Memorandum or any amendment or supplement thereto,
or any Application in reliance upon and in conformity with written information
concerning the Initial Purchaser furnished to the Company by the Initial
Purchaser specifically for use therein. This indemnity agreement will be in
addition to any liability that the Company may otherwise have to the indemnified
parties. The Company shall not be liable under this Section 9 for any
settlement of any claim or action effected without its prior written consent
(which shall not be unreasonably withheld).
(b) The Initial Purchaser will indemnify and hold harmless the
Company, its directors and its officers and each person, if any, who controls
the Company within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act against any losses, claims, damages or liabilities to which the
Company or any such director, officer or controlling person may become subject
under the Act, the Exchange Act or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material fact
contained in any Memorandum or any amendment or supplement thereto, or any
Applica tion or (ii) the omission or the alleged omission to state therein a
material fact required to be stated in any Memorandum or any amendment or
supplement thereto, or necessary to make the statements therein
<PAGE>
-21-
not misleading, in each case to the extent but only to the extent that such
untrue statement or alleged untrue statement or omission or alleged omission was
made in reliance upon and in conformity with written information concerning the
Initial Purchaser furnished to the Company by or on behalf of the Initial
Purchaser specifically for use therein; and, subject to the limitation set forth
immediately preceding this clause, will reimburse, as incurred, any legal or
other expenses incurred by the Company, or any such director, officer or
controlling person in connection with investigating or defending against or
appearing as a third-party witness in connection with any such loss, claim,
damage, liability or action in respect thereof. This indemnity agreement will
be in addition to any liability that the Initial Purchaser may otherwise have to
the indemnified parties. The Initial Purchaser shall not be liable under this
Section 9 for any settlement of any claim or action effected without their
consent (which shall not be unreasonably withheld). The Company shall not,
without the prior written consent of the Initial Purchaser, effect any
settlement or compromise of any pending or threatened proceeding in respect of
which any Initial Purchaser is or could have been a party, or indemnity could
have been sought hereunder by such Initial Purchaser, unless such settlement (A)
includes an unconditional written release of the Initial Purchaser, in form and
substance reasonably satisfactory to the Initial Purchaser, from all liability
on claims that are the subject matter of such proceeding and (B) does not
include any statement as to an admission of fault, culpability or failure to act
by or on behalf of any Initial Purchaser.
(c) Promptly after receipt by an indemnified party under this Section
9 of notice of the commencement of any action for which such indemnified party
is entitled to indemnification under this Section 9, such indemnified party
will, if a claim in respect thereof is to be made against the indemnifying party
under this Section 9, notify the indemnifying party of the commencement thereof
in writing, but the omission to so notify the indemnifying party (i) will not
relieve it from any liability under paragraph (a) or (b) above unless and to the
extent such failure results in the forfeiture by the indemnifying party of
substantial rights and defenses and (ii) will not, in any event, relieve the
indemnifying party from any obligations to any indemnified party other than the
indemnification obligation provided in paragraphs (a) and (b) above. In case
any such action is brought against any indemnified party, and it notifies the
indemnifying party of the commencement thereof, the indemnifying party will be
entitled to participate therein and, to the extent that it may wish, jointly
with any other indemnifying party similarly notified, to assume the defense
thereof, with counsel reasonably satisfactory to such indemnified party;
provided, however, that if (i) the use of counsel chosen by the indemnifying
- -------- -------
party to represent the indemnified party would present such counsel with a
conflict of interest, (ii) the defendants in any such action include both the
indemnified party and the indemnifying party and the indemnified party shall
have been advised by counsel that there may be one or more legal defenses
available to it and/or other indemnified parties that are different from or
additional to those available to the indemnifying party, or (iii) the
indemnifying party shall not have employed counsel reasonably satisfactory to
the indemnified party to represent the indemnified party within a reasonable
time after receipt by the indemnifying party of notice of the institution of
such action, then, in each such case, the indemnify-
<PAGE>
-22-
ing party shall not have the right to direct the defense of such action on
behalf of such indemnified party or parties and such indemnified party or
parties shall have the right to select separate counsel to defend such action on
be half of such indemnified party or parties. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense thereof
and approval by such in demnified party of counsel appointed to defend such
action, the indemnifying party will not be liable to such indemnified party
under this Section 9 for any legal or other expenses, other than reasonable
costs of investigation, subsequently incurred by such indemnified party in
connection with the defense thereof, unless (i) the indemnified party shall have
employed separate counsel in accordance with the proviso to the immediately
preceding sentence (it being understood, however, that, in connection with such
action the indemnifying party shall not be liable for the expenses of more than
one separate counsel (in addition to local counsel) in any one action or
separate but substantially similar actions in the same jurisdiction arising out
of the same general allegations or circumstances, designated by the Initial
Purchaser in the case of paragraph (a) of this Section 9 or the Company, in the
case of paragraph (b) of this Section 9, representing the indemnified parties
under such paragraph (a) or paragraph (b), as the case may be, who are parties
to such action or actions), or (ii) the indemnifying party has authorized in
writing the employment of counsel for the indemnified party at the expense of
the indemnifying party. After notice from the indemnify ing party to such
indemnified party of its election to assume the defense of such action, the
indemnifying party will not be liable for the costs and expenses of any
settlement of such action effected by such indemnified party without the prior
written consent of the indemnifying party (which consent shall not be
unreasonably withheld or delayed).
(d) In circumstances in which the indemnity agreement provided for in
the preceding paragraphs of this Section 9 is for any reason unavailable or
insufficient to hold harmless an indemnified party in respect of any losses,
claims, damages or liabilities (or actions in respect thereof), each
indemnifying party, in order to provide for just and equitable contribution,
shall contribute to the amount paid or payable by such indemnified party as a
result of such losses, claims, damages or liabilities (or actions in respect
thereof) in such proportion as is appropriate to reflect (i) the relative
benefits received by the indemnifying party or parties on the one hand and the
indemnified party on the other from the offering of the Notes or (ii) if the
allocation provided by the foregoing clause (i) is not permitted by applicable
law, not only such relative benefits but also the relative fault of the
indemnifying party or parties on the one hand and the indemnified party on the
other in connection with the statements or omissions or alleged statements or
omissions that resulted in such losses, claims, damages or liabilities (or
actions in respect thereof). The relative benefits received by the Company on
the one hand and the Initial Purchaser on the other shall be deemed to be in the
same proportion as the total proceeds from the offering (before deducting
expenses) received by the Company bear to the total discounts and commissions
received by such Initial Purchaser. The relative fault of the parties shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the Company on the
<PAGE>
-23-
one hand, or the Initial Purchaser on the other, the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission, and any other equitable considerations appropriate in the
circumstances.
(e) The Company and the Initial Purchaser agree that it would not be
just and equitable if the amount of such contribution were determined by pro
---
rata or per capita allocation or by any other method of allocation that does not
- ----
take into account the equitable considerations referred to in the first sentence
of the immediately preceding paragraph (d). Notwithstanding any other provision
of the immediately preceding paragraph (d), the Initial Purchaser shall not be
obligated to make contributions hereunder that in the aggregate exceed the
total discounts and commissions received by the Initial Purchaser under this
Agreement, less the aggregate amount of any damages that such Initial Purchaser
has otherwise paid or been required to pay by reason of the untrue or alleged
untrue statements or the omissions or alleged omissions to state a material
fact, and no person guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Act) shall be entitled to contribution from any person
who was not guilty or such fraudulent misrepresentation. For purposes of the
immediately preceding paragraph (d), each person, if any, who controls such
Initial Purchaser within the meaning of Section 15 of the Act or Section 20 of
the Exchange Act shall have the same rights to contribution as such Initial
Purchaser, and each director of the Company, and each officer of the Company and
each person, if any, who controls the Company within the meaning of Section 15
of the Act or Section 20 of the Exchange Act, shall have the same rights to
contribution as the Company.
10. Survival Clause. The respective representations, warranties,
---------------
agreements, covenants, indemnities and other statements of the Company and the
Initial Purchaser set forth in this Agreement or made by or on behalf of them,
respectively, pursuant to this Agreement shall remain in full force and effect,
regardless of (a) any investigation made by or on behalf of the Company, any of
its officers or directors, the Initial Purchaser or any controlling person
referred to in Section 9 hereof, and (b) delivery of and payment for the Notes.
The respective agreements, covenants, indemnities and other statements set forth
in Sections 6 and 9 hereof shall remain in full force and effect, regardless of
any termination or cancellation of this Agreement.
11. Termination. (a) This Agreement may be terminated in the sole
-----------
discretion of the Initial Purchaser by written notice to the Company given prior
to the Closing Date in the event that the Company shall have failed, refused or
been unable to perform all obligations and satisfy all conditions on their
respective part to be performed or satisfied hereunder at or prior thereto or,
if at or prior to the Closing Date:
(i) either the Company or any of the Subsidiaries shall have
sustained any loss or interference with respect to its business or
properties from fire, flood, hurricane, accident or other calamity, whether
or not covered by insurance, or from any la-
<PAGE>
-24-
bor dispute or any legal or governmental proceeding, which loss or
interference, in the sole judgment of the Initial Purchaser, has had or has
a Material Adverse Effect or there shall have been, in the sole judgment
of the Initial Purchaser, any Material Adverse Change, or any event or
development that is reasonably likely to cause or result in a Material
Adverse Change (including, without limitation, a change in management or
control of the Company), except in each case as described in the Final
Memorandum (exclusive of any amendment or supplement thereto after the date
hereof);
(ii) trading in securities generally on the New York Stock
Exchange, American Stock Exchange or the Nasdaq National Market shall have
been suspended or minimum or maximum prices shall have been established on
the New York Stock Exchange, American Stock Exchange or the Nasdaq National
Market;
(iii) a banking moratorium shall have been declared by New York or
United States authorities; or
(iv) there shall have been (A) an outbreak or escalation of
hostilities between the United States and any foreign power, (B) an
outbreak or escalation of any other insurrection or armed conflict
involving the United States or any other national or international calamity
or emergency or (C) any material change in the financial markets of the
United States which, in the case of (A), (B) or (C) above, and in the sole
judgment of the Initial Purchaser, makes it impracticable or inadvisable
to proceed with the offering or the delivery of the Notes as contemplated
by the Final Memorandum.
(b) Termination of this Agreement pursuant to this Section 11 shall
be without liability of any party to any other party except as provided in
Section 10 hereof.
12. Information Supplied by the Initial Purchaser. The statements
---------------------------------------------
set forth in the last paragraph on the front cover page, the first paragraph on
page i, and the last two sentences of paragraph three and all of paragraph seven
under the heading "Private Placement" in the Final Memorandum (to the extent
such statements relate to the Initial Purchaser) constitute the only information
furnished by or on behalf of the Initial Purchaser to the Company for the
purposes of Sections 2(a) and 9.
13. Notices. All communications hereunder shall be in writing and,
-------
if sent to the Initial Purchaser, shall be mailed or delivered or telecopied and
confirmed in writing to BT Alex. Brown Incorporated, 130 Liberty Street, 30th
floor, New York, New York 10006, Attention: Finance Transaction Management,
with a copy to Cahill Gordon & Reindel, 80 Pine Street, New York, New York
10005, Attention: Daniel Zubkoff, Esq., Telecopier Number (212) 269-5420, and
if sent to the Company, shall be mailed, delivered or telecopied and confirmed
in writing to Sheffield Steel Corporation, 220 North Jefferson Street, Sand
Springs, OK 74063, Attention: Bob Ackerman, Telecopier Number (918) 241-6595,
with a copy to
<PAGE>
-25-
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. , One Financial Center,
Boston, Massachusetts 02154, Attention: Lewis J. Geffen, Esq., Telecopier Number
(617) 542-2241.
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; five business days
after being deposited in the mail, postage prepaid, if mailed; one business day
after being timely delivered to a next-day air courier; and when receipt is
acknowledged by the addressee, if telecopied.
14. Successors. This Agreement shall inure to the benefit of and be
----------
binding upon the Initial Purchaser and the Company and their respective
successors and legal representatives, and nothing expressed or mentioned in this
Agreement is intended or shall be construed to give any other person any legal
or equitable right, remedy or claim under or in respect of this Agreement, or
any provisions herein contained. This Agreement and all conditions and
provisions hereof being intended to be and being for the sole and exclusive
benefit of such persons and for the benefit of no other person except that (i)
the indemnities of the Company contained in Section 9 of this Agreement shall
also be for the benefit of any person or persons who control the Initial
Purchaser within the meaning of Section 15 of the Act or Section 20 of the
Exchange Act and (ii) the indemnities of the Initial Purchaser contained in
Section 9 of this Agreement shall also be for the benefit of the directors of
the Company and its officers and any person or persons who control the Company
within the meaning of Section 15 of the Act or Section 20 of the Exchange Act.
No purchaser of Notes from the Initial Purchaser will be deemed a successor
because of such purchase.
15. APPLICABLE LAW. THE VALIDITY AND INTERPRETATION OF THIS
--------------
AGREEMENT, AND THE TERMS AND CONDITIONS SET FORTH HEREIN SHALL BE GOVERNED BY
AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF THE STATE OF NEW YORK APPLICABLE TO
CONTRACTS MADE AND TO BE PERFORMED WHOLLY THEREIN, WITHOUT GIVING EFFECT TO ANY
PROVISIONS THEREOF RELATING TO CONFLICTS OF LAW.
16. Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
<PAGE>
If the foregoing correctly sets forth our understanding, please
indicate your acceptance thereof in the space provided below for that purpose,
whereupon this letter shall constitute a binding agreement between the Company
and the Initial Purchaser.
Very truly yours,
SHEFFIELD STEEL CORPORATION
By: /s/ Stephen R. Johnson
--------------------------------
Name: Stephen R. Johnson
Title: Vice President - CFO
The foregoing Agreement is hereby
confirmed and accepted as of the
date first above written.
BT ALEX. BROWN INCORPORATED
By: /s/ Sharon Stern
--------------------------------
Name: Sharon Stern
Title: Vice President
<PAGE>
Schedule I
----------
Subsidiaries
Name: Jurisdiction of Incorporation:
- ----- -----------------------------
Sand Springs Railway Company Oklahoma
Waddell's Rebar Fabricators, Inc. Missouri
Sheffield Steel Corporation- Delaware
Oklahoma City
<PAGE>
Exhibit A
---------
Registration Rights Agreement
<PAGE>
Exhibit B
---------
Form of Opinion of Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
------------------------------------
Opinion, dated the Closing Date and addressed to the Initial
Purchaser, of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C., special
counsel of the Company, to the effect that:
(i) The Company and each of the Subsidiaries have been duly
incorporated, are validly existing as corporations in good standing under
the laws of their respective jurisdictions of incorporation, are duly
qualified to do business and are in good standing as a foreign corporation
in each jurisdiction in which they own or lease a material amount of real
or personal property, as certified by the Company and have all power and
authority necessary to own or hold their properties and conduct the
businesses as described in the Final Memorandum as being held or conducted.
(ii) As of the date hereof, the authorized and outstanding capital
stock of the Company is as set forth in the Final Memorandum; all of the
issued shares of capital stock of the Company have been duly authorized and
validly issued, are, except as described in the Final Memorandum, fully
paid and nonassessable, were not issued in violation of any preemptive
rights arising pursuant to the charter or by-laws of the Company or under
the laws of its jurisdiction of incorporation and, conforms to the
description thereof contained in the Final Memorandum, except as set forth
in the Amended and Restated Stockholders Agreement dated as of September
15, 1993 between the Company and the stockholders party thereto (the
"Stockholders Agreement"); all of the shares of the Company are owned, to
our knowledge, free and clear of all liens, encumbrances, equities and
claims or restrictions on transferability; and all of the shares of the
Subsidiaries are owned by the Company and, to our knowledge, free and clear
of all liens, encumbrances, equities and claims or restrictions on
transferability (except for liens described in the Final Memorandum and the
pledge of the stock of Waddell's Rebar Fabricators, Inc. ("Waddell's") to
secure the Company's promissory notes to the sellers of Waddell's).
(iii) To our knowledge, except as set forth in the Warrant
Agreement dated as of November 1, 1993 between the Company and Shawmut Bank
Connecticut, N.A. as the warrant agent (the "Warrant Agreement") and the
Final Memorandum, (a) no options, warrants or other rights to purchase
from the Company shares of capital stock
<PAGE>
-2-
or ownership interests in the Company are outstanding and (b) no agreements
or other obligations of the Company to issue or other rights to cause the
Company to convert any obligation into, or exchange any securities for,
shares of capital stock or ownership interests in the Company are
outstanding; and to our knowledge, after due inquiry, other than as
described in the Final Memorandum and the Stockholders Agreement, no holder
of securities of the Company is entitled to have such securities registered
under a registration statement filed under the Act.
(iv) The Company has the requisite corporate power and authority
to execute and deliver the Agreement, the Indenture, the Notes, the
Exchange Notes and the Private Exchange Notes and the transactions
contemplated hereby and thereby; the Agreement has been duly and validly
authorized, executed and deliv ered by the Company.
(v) The Notes are in the form contemplated by the Indenture; and
the Notes, the Exchange Notes and the Private Exchange Notes have each been
duly and validly authorized by the Company for issuance and when executed
by the Company and authenticated by the Trustee in accordance with the
provisions of the Indenture, and in the case of the Notes delivered to and
paid for by the Initial Purchaser in accordance with the terms of the
Agreement, will have been duly executed, issued and delivered and will
constitute valid and legally binding obligations of the Company, entitled
to the benefits of the Indenture and enforceable against the Company in
accordance with their terms, except that enforceability thereof may be
limited by bankruptcy, insolvency, reorganization, moratorium or other
similar laws relating to creditors' rights generally and by general
equitable principles (regardless of whether enforceability is considered in
a proceeding in equity or at law) or by an implied covenant of good faith
and fair dealing.
(vi) The Indenture has been duly and validly authorized, executed
and delivered by the Company and is in sufficient form to be qualified
under the TIA and, assuming due authorization, execution and delivery
thereof by the Trustee, is a valid and legally binding obligation of the
Company enforceable against the Company in accordance with its terms,
except that the enforceability may be limited by bankruptcy, insolvency,
reorganization, moratorium or other similar laws relating to creditors'
rights generally and by general equitable principles (regardless of whether
enforcement is considered in a proceeding in equity or at law) or by an
implied covenant of good faith and fair dealing.
(vii) The Company has the requisite corporate power and authority
to execute and deliver the Registration Rights Agreement; the Registration
Rights Agreement has been duly and validly authorized, executed and
delivered by the Company and (assuming the due authorization, execution and
delivery by the Initial Purchaser),
<PAGE>
-3-
is a valid and legally binding obligation of the Company enforceable
against the Company in accordance with its terms, except that the
enforceability may be limited by bankruptcy, insolvency, reorganization,
moratorium or other similar laws relating to creditors' rights generally
and by general equitable principles (regardless of whether enforcement is
considered in a proceeding in equity or at law) or by an implied covenant
of good faith and fair dealing.
(viii) The Company has all requisite corporate power and authority
to execute and deliver each of the Security Documents; each of the
Security Documents has been duly and validly authorized, executed and
delivered by the Company, and each of the Security Documents constitutes a
valid and legally binding obligation of the Company, enforceable against
the Company in accordance with its terms (assuming due authorization,
execution and delivery of each Security Document by any other party
thereto), except that enforceability may be limited by bankruptcy,
insolvency, reorganization, moratorium or other similar laws relating to
creditors' rights generally and by general equitable principles (regardless
of whether enforce ability is considered in a proceeding in equity or at
law) or by an implied covenant of good faith and fair dealing.
(ix) The Indenture, the Registration Rights Agreement and the
Notes conform in all material respects to the descriptions thereof
contained in the Final Memorandum.
(x) To our knowledge, there are no legal or governmental
proceedings are pending, threatened or contemplated to which the Company or
any of the Subsidiaries is a party that would be required under the Act to
be described in a registration statement or a prospectus and are not
described in the Final Memorandum, or which seek to restrain, enjoin,
prevent the consummation of or otherwise challenge the issuance or sale of
the Notes to the Initial Purchaser or the consummation of the transactions
described in the Final Memorandum under the caption "Use of Proceeds" and
no contract, agreement or other document to which the Company is a party
would be required under the Act to be described in a registration statement
or a prospectus that is not described in the Final Memorandum; provided,
however, that no opinion is expressed with respect to the matters
summarized, or required to be summarized, under the caption "Private
Placement" in the Final Memorandum.
(xi) The issue and sale of the Notes by the Company and the
compliance by the Company with all of the provisions of the Agreement, the
Indenture, the Security Documents and the Notes and the consummation of
the transactions contemplated thereby:
(a) will not conflict with or result in a breach or
violation of any of the terms or provisions of, or constitute a
default under (other than any such con-
<PAGE>
-4-
flicts, breaches, violations or defaults as to which the Company
or any of the Subsidiaries has obtained waivers, copies of which
have been provided to the Initial Purchaser and which are in full
force and effect on the date hereof), any indenture, mortgage,
deed of trust, loan agreement or other agreement or instrument of
which we have knowledge to which the Company or any of the
Subsidiaries is a party or by which the Company or any of the
Subsidiaries is bound or to which any of the property or assets
of the Company or any of the Subsidiaries are subject;
(b) will not result in any violation of (A) the provisions
of the charter or by-laws of the Company or any of the
Subsidiaries or (B) any statute, order, rule or regulation
generally applicable to transactions of the type contemplated by
the Agreement or to financings generally of any court or
governmental agency or body having jurisdiction over the Company
or any of the Subsidiaries or any of their respective properties
or assets; and
(c) do not require any consent, approval, authorization or
order of, or filing or registration with, any court or
governmental agency or body under or in connection with any
statute, order, rule or regulation generally applicable to
transactions of the type contemplated by the Agreement or to
financings generally, except for such consents, approvals,
authorizations, orders, filings or registrations (A) as may be
required under applicable state securities or Blue Sky laws and
(B) as have been obtained.
(xii) Neither the Company nor any subsidiary as of the Closing Date
is subject to registration and regulation as an "investment company" as
such term is defined in the Investment Company Act of 1940, as amended.
(xiii) Assuming the Initial Purchaser purchases the Notes for
resale in accordance with Rule 144A promulgated under the Act, neither the
consummation of the transactions contemplated by the Purchase Agreement nor
the sale, issuance, execution or delivery of the Notes will violate
Regulation G, T, U or X of the Board of Governors of the Federal Reserve
System.
(xiv) No registration under the Act of the Notes is required for
the sale of the Notes to the Initial Purchaser as contemplated by this
Agreement and the Final Memorandum, and prior to the commencement of the
Exchange Offer (as defined in the Registration Rights Agreement) or the
effectiveness of the Shelf Registration Statement (as defined in the
Registration Rights Agreement), the Indenture is not required to be
qualified under the Trust Indenture Act, in each case assuming (i) that the
purchasers who buy the Notes in the initial resales are Qualified
Institutional Buyers, and (ii) the accuracy of the Initial Purchaser's
representations and those of the Company
<PAGE>
-5-
contained in this Agreement regarding the absence of a general solicitation
in connection with the sale of the Notes to the Initial Purchaser and the
initial resales.
(xv) To our knowledge, other than the Stockholders Agreement and
the Warrant Agreement, there are no contracts, agreements or understandings
between the Company and any person granting such person the right to
require the Company to file a registration statement under the Act with
respect to any securities of the Company owned or to be owned by such
person or to require the Company to include such securities with the
Exchange Notes or the Private Exchange Notes registered pursuant to the
Registration Statement to be filed pursuant to the Registration Rights
Agreement.
In addition, we have participated in conferences with officers and
other representatives of the Company, representatives of the independent public
accountants for the Company and, with respect to the Final Memorandum,
representatives of the Initial Purchaser and counsel for the Initial Purchaser
at which the contents of the Final Memorandum and related matters were
discussed and, although we have not verified and are not passing upon and do not
assume any responsibility for the accuracy, completeness or fair ness of the
statements contained in the Final Memorandum (except for those made under the
captions "Description of First Mortgage Notes" and "Exchange Offer" and
"Registration Rights" in the Final Memorandum insofar as they relate to
provisions of documents therein described), on the basis of the foregoing
(relying as to materiality to a large extent upon the statements of officers and
other representatives of the Company) no facts have come to our attention that
lead us to believe that either the Final Memorandum, as of its date or any
amendment or supplement thereto as of its date or as of the Closing Date,
contained or contains an untrue statement of a material fact or omitted or omits
to state a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading (it being understood that we are expressing no opinion on the
financial statements, schedules, pro forma information, financial data or other
financial and statistical information included therein).
<PAGE>
Exhibit C
---------
Form of Local Counsel Opinion
-----------------------------
<PAGE>
Exhibit 4.17
SIXTH AMENDMENT TO RECEIVABLE
AND INVENTORY FINANCING AGREEMENT
THIS SIXTH AMENDMENT TO RECEIVABLE AND INVENTORY FINANCING AGREEMENT (this
"Amendment") is made and entered into as of the 1st day of December, 1997,
between SHEFFIELD STEEL CORPORATION, f/k/a HMK INDUSTRIES OF OKLAHOMA, INC.,
successor by merger to SHEFFIELD STEEL CORPORATION-SAND SPRINGS, f/k/a SHEFFIELD
STEEL CORPORATION and SHEFFIELD STEEL CORPORATION - JOLIET (the "Company"), and
NATIONSBANK, N.A., a national banking association, formerly known as
NationsBank, N.A. (South) and also formerly known as NationsBank of Georgia,
N.A. (the "Lender").
W I T N E S S E T H :
- - - - - - - - - -
WHEREAS, heretofore, the Company and its predecessors and Affiliates, and
the Lender, made and entered into a certain Receivable and Inventory Financing
Agreement, dated as of January 16, 1992 (hereinafter, as previously amended, the
"Financing Agreement"), pursuant to which the Lender agreed to certain financial
accommodations on the terms and conditions stated therein; and
WHEREAS, the Company and the Lender desire to make certain amendments to
the Financing Agreement.
NOW, THEREFORE, in consideration of the mutual promises and agreements
hereinafter set forth and for other good and valuable consideration, the
receipt, adequacy and sufficiency of which are hereby acknowledged, the Company
and the Lender hereby agree as follows:
DEFINITIONS.
-----------
(a) All capitalized terms used herein and not expressly defined herein
shall have the respective meanings given to such terms in the Financing
Agreement.
(b) The following definitions contained in Section 1.1 shall be deleted:
Cash Flow, Current Assets, Current Liabilities, Current Maturities of
Long-Term Debt, Current Ratio, Fixed Charge Coverage Ratio, Fixed
Charges, Net Worth, Long Term Debt, Mortgage, Mortgage Sheffield-
Joliet, Senior Notes, Tangible Net Worth, and Total Liabilities.
(c) The following new definitions are added to Section 1.1 in the
appropriate alphabetical order:
<PAGE>
"Cash Interest" shall mean, without duplication, for the
preceding twelve (12) months, all interest actually paid for such
period.
"First Mortgage Notes" shall mean the First Mortgage Notes
issued by the Company and due 2005 in an aggregate principal
amount not to exceed $150,000,000, as amended, restated or
modified.
"Indenture" shall mean that certain Indenture dated as of
December 1, 1997, by and between the Company and the Trustee, as
amended, restated, or modified.
"Trustee" shall mean State Street Bank and Trust Company.
(d) The definitions of EBITDA, General Intangibles and Receivables are
deleted from Section 1.1 and the following are inserted in lieu thereof:
"EBITDA" shall mean, for the trailing twelve month period,
the sum (without duplication) of (i) net income and (ii) to the
extent net income has been reduced thereby, (A) all income taxes
of the Company paid or accrued in accordance with GAAP for such
period (other than income taxes attributable to extraordinary,
unusual or nonrecurring gains or losses or taxes attributable to
sales or dispositions outside the ordinary course of business),
(B) interest expense, and (C) non-cash charges less any non-cash
items increasing net income for such period, all as determined on
a consolidated basis for the Company in accordance with GAAP.
"General Intangibles" shall mean all proceeds of business
interruption insurance, and, to the extent the same relate to
Inventory and Receivables, all of the Company's general
intangibles, whether now owned or existing or hereafter acquired
or arising or in which the Company now has or hereafter acquires
any rights, including, without limitation, all choses in action,
causes of action, confidential information, consulting
agreements, corporate or other business records, inventions,
designs, engineering contracts, patents, patent applications,
servicemarks, trademarks, trade names, trade secrets, good will,
copyrights, registrations, letters of credit, licenses,
franchises, customer lists, tax refund claims, computer programs,
all claims under guaranties, security interests or other security
held by or granted to the Company to secure payment of any of the
Receivables by an account debtor, all rights to indemnification,
and all other intangible property of every kind and nature (other
than Receivables).
"Receivables" shall mean all of a Company's accounts, and
instruments, contract rights, chattel paper, and documents
relating thereto, and general intangibles arising from its Sales,
and the proceeds thereof and all security and guaranties
therefor, whether now existing or hereafter created, and all
returned, reclaimed or repossessed goods, and all books and
records pertaining to the foregoing.
2
<PAGE>
(e) Subsection (q) of the definition of "Event of Default" is deleted and
the following is inserted in lieu thereof:
(q) the occurrence of an Event of Default under any First
Mortgage Note, or any document or agreement relating thereto,
including, without limitation, the Indenture, either Mortgage,
Assignment of Leases, Security Agreement and Fixture Filing
(each, a "Mortgage") by the Company to State Street Bank and
Trust Company, as Trustee and Collateral Agent pursuant to the
Indenture relating to real property of the Company located in
Tulsa County, Oklahoma and Will County, Illinois, and the
Security Agreement, by and between the Company and the Trustee,
dated as of December 1, 1997, which Event of Default is not cured
in accordance with the terms of such agreement; or
(f) The following new subsection (u) is added at the end of the definition
of "Event of Default":
(u) the Company shall at any time fail to be subject to and
bound by the terms and provisions of the Indenture.
SECTION 2.1 THE LOANS. The Financing Agreement is amended by
----------------------
deleting the existing first sentence of Section 2.1 and the following shall be
substituted in lieu thereof:
The Lender agrees to make loans to the Company, and the
Company agrees to borrow from the Lender, upon the request of the
Company from time to time up to (i) 85% of the face value of the
Company's Eligible Receivables, plus (ii) 65% of the lower of the
fair market value or cost of the Company's Eligible Inventory,
less (iii) such reserves as the Lender may in its absolute
discretion establish at any time that an Event of Default exists;
provided, however, that the total amount of all Loans outstanding
at any one time under the terms of this Agreement shall not at
any time exceed US Forty Million Dollars (US$40,000,000.00), and
the total amount of all Loans outstanding at any one time under
this Agreement against Eligible Inventory shall not exceed US
Twenty-Seven Million Dollars (US$27,000,000.00).
SECTION 2.6 EFFECTIVE DATE AND TERMINATION. The existing first
-------------------------------------------
sentence of Section 2.6 shall be deleted and in lieu thereof there shall be
substituted the following:
This Agreement shall be effective on January 16, 1992 and
shall continue in full force and effect until November 1, 2002
and from year to year thereafter unless terminated on any such
anniversary date by either the Lender or the Company giving to
the other not less than sixty (60) days' prior written notice.
SECTION 3 SECURITY INTERESTS.
-----------------------------
(a) The Financing Agreement is amended by deleting subsection (a) in its
entirety from Section 3 and substituting the following in lieu thereof:
3
<PAGE>
(a) All of its accounts and instruments, contract rights,
chattel paper, documents and general intangibles relating thereto
and the proceeds thereof and all security and guaranties
therefor, whether now existing or hereafter created, and all
returned, reclaimed or repossessed goods, and all books and
records pertaining thereto, including, without limitation, its
Receivables;
(b) The Financing Agreement is amended by deleting subsection (d) in its
entirety from Section 3. Lender hereby releases its security interest in the
Equipment.
SECTION 4.1 DOCUMENTS. The Financing Agreement is amended by
----------------------
deleting subsections (h), (i), (j), and (k) of Section 4.1.
SECTION 8 AFFIRMATIVE COVENANTS. The Financing Agreement is amended
--------------------------------
by deleting the following Sections thereof: 8.13, 8.14, 8.15, 8.16, 8.18, 8.19,
and 8.20.
SECTION 8.13 EBITDA TO CASH INTEREST. The Financing Agreement is
-------------------------------------
amended to add the following Section 8.13:
8.13 RATIO OF EBITDA TO CASH INTEREST. The Company shall
maintain at all times a ratio of EBITDA to Cash Interest,
measured as of any date of determination for the 12-month period
ending on such date, of at least 1.1 to 1.
ARTICLE 9 NEGATIVE COVENANTS. Article 9 of the Financing Agreement is
----------------------------
amended by deleting Sections 9.1, 9.2, 9.3, 9.6, 9.7, 9.8, 9.10, 9.11, 9.13,
9.14 and 9.15. Sections 9.2 and 9.8 shall be replaced with the following:
9.2 LIENS. The Company shall not create, incur, assume or
suffer to exist any Lien of any kind whatsoever upon any of the
Collateral, except for liens in favor of the Lender or liens and
security interests disclosed on Schedule 1 hereof. The Company
shall not create, incur, assume or suffer to exist any Lien upon
any of its other property or assets (other than the Collateral),
whether now owned or hereafter acquired, except liens permitted
under the Indenture.
9.8 SALE OF ASSETS. The Company will not sell, lease or
otherwise transfer any part of the Collateral, except for sales
of Inventory in the ordinary course of its business.
SECTION 9.16 MINIMUM AVAILABILITY. The Financing Agreement is
----------------------------------
amended by deleting the existing Section 9.16 and substituting the following in
lieu thereof:
9.16 MINIMUM AVAILABILITY. The Company shall not permit
Availability to be less than $5,000,000 at any time.
SECTION 9.17 AMENDMENT OF INDENTURE. The Financing Agreement is
------------------------------------
amended to add the following new Section 9.17:
4
<PAGE>
9.17 AMENDMENT OF INDENTURE. The Company shall not enter
into any amendment of the terms of the Indenture without Lender's
prior written consent.
CLOSING FEE. As consideration for this Amendment, the Company shall
-----------
pay to the Lender a closing fee of $62,500, payable on December 5, 1997.
RESTATEMENT OF REPRESENTATIONS AND WARRANTIES. The Company hereby
---------------------------------------------
reaffirms each and every representation and warranty heretofore made by it under
or in connection with the execution and delivery of the Financing Agreement and
the documents executed in connection therewith (including, without limitation,
those representations and warranties set forth in Section 10 of the Financing
Agreement) as fully as though such representations and warranties had been made
on the date hereof and with specific reference to this Amendment.
NO DEFAULT. To induce the Lender to enter into this Amendment the
----------
Company hereby, as of the date hereof, and after giving effect to the terms
hereof, (i) represents and warrants that there exists no Event of Default (or
any event which, with the giving of notice or the passage of time, or both,
would constitute an Event of Default), and (ii) agrees that there exists no
right of offset, defense, counterclaim, claim or objection in favor of the
Company as against the Lender arising out of or with respect to any of the
Obligations.
EFFECT OF AMENDMENT. Except as expressly set forth hereinafter, the
-------------------
Financing Agreement and documents executed in connection therewith shall be and
remain in full force and effect and shall constitute the legal, valid, binding
and enforceable obligations of the Company to the Lender and the Company hereby
restates, ratifies and reaffirms each and every term and condition set forth in
the Financing Agreement and documents executed in connection therewith effective
as of the date hereof.
COUNTERPARTS. This Amendment may be executed in any number of
------------
counterparts and by different parties hereto in separate counterparts, each of
which, when so executed and delivered, shall be deemed to be an original and all
of which counterparts, taken together, shall constitute but one and the same
instrument.
SUCCESSORS AND ASSIGNS. This Amendment shall be binding upon and
----------------------
inure to the benefit of the successors and permitted assigns of the parties
hereto.
SECTION REFERENCES. Section titles and references used in this
------------------
Amendment shall be without substantive meaning or content of any kind whatsoever
and are not a part of the agreements among the parties hereto evidenced hereby.
COSTS, EXPENSES, TAXES AND FEES. The Company agrees to pay on demand
-------------------------------
all costs and expenses of the Lender in connection with the preparation,
execution, delivery and enforcement of this Amendment and any other transactions
contemplated hereby, including, without limitation, the fees and out-of-pocket
expenses of legal counsel to the Lender.
5
<PAGE>
FURTHER ASSURANCES. The Company agrees to take such further action as
------------------
the Lender shall reasonably request in connection herewith to evidence the
amendments herein contained to the Financing Agreement.
GOVERNING LAW. This Amendment shall be governed by, and construed in
-------------
accordance with, the laws of the State of Georgia.
IN WITNESS WHEREOF, the Company and the Lender have caused this Amendment
to be duly executed under seal, all as of the date first above written.
SHEFFIELD STEEL CORPORATION, F/K/A HMK INDUSTRIES OF
OKLAHOMA, INC., SUCCESSOR BY MERGER TO SHEFFIELD STEEL
CORPORATION-SAND SPRINGS, F/K/A SHEFFIELD STEEL
CORPORATION and
SHEFFIELD STEEL CORPORATION - JOLIET
By: /s/ Stephen R. Johnson VP-CFO
------------------------------------------------
(Title)
Attest: /s/ Nancy D. Prior Asst
--------------------------------------------
Secretary
---------
NATIONSBANK, N.A., F/K/A NATIONSBANK, N.A. (SOUTH),
F/K/A NATIONSBANK OF GEORGIA, N.A.
By: /s/ C. A. Reese V.P.
---------------------------------------------
(Title)
6
<PAGE>
SCHEDULE 1
None.
7
<PAGE>
Exhibit 5
Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C.
One Financial Center
Boston, Massachusetts 02111
701 Pennsylvania Avenue, N.W. Telephone: 617/542-6000
Washington, D.C. 20004 Fax: 617/542-2241
Telephone: 202/434-7300
Fax: 202/434-7400
January 9, 1998
Sheffield Steel Corporation
220 North Jefferson
Sand Springs, Oklahoma 74063
Ladies and Gentlemen:
This opinion is being furnished to you in connection with the
Registration Statement on Form S-1 (the "Registration Statement") to be
filed by Sheffield Steel Corporation (the "Company") with the Securities and
Exchange Commission under the Securities Act of 1933, as amended, on or
about the date hereof. The Registration Statement relates to $110,000,000 in
aggregate principal amount of the Company's 11 1/2% Series B First Mortgage
Notes due 2005 (the "New First Mortgage Notes"). The New First Mortgage
Notes will be exchanged for the Company's 11 1/2% Series A First Mortgage
Notes due 2005. The New First Mortgage Notes are to be issued under an
Indenture dated as of December 1, 1997 (the "Indenture") between the Company
and State Street Bank and Trust Company, as trustee (the "Trustee").
We have acted as counsel for the Company in connection with the
preparation of the Registration Statement and are familiar with the
proceedings taken by the Company in connection with the authorization and
issuance of the New First Mortgage Notes. We have examined such documents as
we have deemed necessary for purposes of this opinion.
Based upon and subject to the foregoing, we are of the opinion that the
New First Mortgage Notes, when issued and authenticated pursuant to and in
accordance with the Indenture, will be duly and validly authorized.
We hereby consent to the filing of this opinion as an exhibit to the
Registration Statement and to the use of our name under the caption "Legal
Matters."
Very truly yours,
/s/ Mintz, Levin, Cohn, Ferris
Glovsky and Popeo, P.C.
Mintz, Levin, Cohn, Ferris,
Glovsky and Popeo, P.C.
<PAGE>
Exhibit 10.32
HMK ENTERPRISES, INC.
800 SOUTH STREET, SUITE 355
WALTHAM, MA 02154
TELEPHONE: (617) 891-6660
FAX: (617) 891-9712
December 5, 1997
Mr. Robert W. Ackerman
President and Chief Executive Officer
Sheffield Steel Corporation
220 N. Jefferson Street
Sand Springs, OK 74063
Dear Bob:
This letter confirms the agreement under which we will provide management
consulting services to your company from the period commencing December 5, 1997,
and continuing until either of us shall give the other not less than 180 days
prior written notice of termination of this agreement. This agreement supersedes
and amends any and all prior management consulting agreements between us and
your company and/or any of its subsidiaries.
1. SERVICES PROVIDED:
------------------
We shall provide management and business consulting services as you may
reasonably request from time to time including, but not limited to, the
following:
(a) Financial and accounting management services including, for
example: the establishment and monitoring of systems for cash management,
budgeting and internal controls; establishment, "hands-on" involvement
with, and supervision of, relationships with banks and other key financial
institutions;
(b) Marketing services including, for example, development and
monitoring of marketing, advertising and selling programs and strategies;
periodic reviews and analysis of sales results;
(c) Executive personnel services including for example, interviewing
potential employees, staffing recommendations, development of job
descriptions, performance evaluations and compensation analysis and
recommendations;
(d) Analysis and recommendations with respect to data processing
systems and services;
(e) Corporate development services including analysis of contemplated
acquisitions and divestitures and direct involvement in negotiation with
respect to acquisitions and divestitures;
<PAGE>
(f) Contract administration, limited legal services, assistance in the
selection of outside counsel and coordination and monitoring of work
performed by outside counsel;
(g) Representation and assistance in the audit process and the
coordination of the general accounting function so as to optimize the
company's position in tax matters, etc.; and
(h) Consultation and assistance in setting up and maintaining deferred
compensation, pension, profit sharing and other human resource related
programs.
In connection with the foregoing, we agree to serve your company faithfully and
to the best of our ability in order to promote the best business interests of
your company.
2. PERFORMANCE OF SERVICES:
------------------------
We shall perform the above services using highly-trained personnel who are
either full-time on our payroll or engaged by us as consultants at our expense,
unless otherwise agreed. The extent to which your company will utilize our
services will be subject to your sole discretion and we will devote as much time
and attention to your business needs as your company deems necessary. However,
your company agrees to provide reasonable notice of the services which it may
require outside the normal course of business expectation. It is contemplated
that our personnel will not have a permanent office at your facilities. As part
of our services hereunder, at your request, and without additional charge, our
personnel will serve as officers or directors of your company, provided that
your corporate documents or the law of your state of incorporation contain
indemnification provisions satisfactory to us and that your company provides
acceptable directors and officers liability insurance coverage for such
individuals.
3. COMPENSATION:
-------------
As full compensation for all of our services hereunder, you shall pay us,
on a monthly basis, a fee of one-half of 1% of your company's consolidated
sales..
In addition to the foregoing, you shall pay or promptly reimburse us for
the cost of all travel, entertainment, telephone, and other expenses incurred by
our personnel in the performance of services hereunder, and you shall make
available to us, without charge, at your facilities, suitable office space and
related secretarial and administrative support services as shall reasonably be
required in connection with the performance of services for you hereunder. Also,
as part of our compensation hereunder, you agree that all of the employees and
directors (and their immediate families) of HMK Enterprises, Inc. and its
wholly-owned insurance services subsidiary, Risk Management Solutions, Inc.,
will be covered under your group health insurance plan, and you will be
responsible for administering, adjusting, and paying all claims by such
employees and directors (and their immediate families) under such health
insurance plan, without any cost or charge-back to, or reimbursement from, us.
4. CORPORATE DEVELOPMENT.
----------------------
Our staff includes personnel who are engaged in the development,
investigation and
2
<PAGE>
negotiation of acquisition opportunities. We shall, as part of our services
hereunder, bring to the attention of your company, acquisition opportunities
which we believe would be suitable for your company, and assist your company's
evaluation, negotiation and execution thereof.
5. MISCELLANEOUS.
--------------
This agreement constitutes the entire agreement between us with respect to
the subject matter and cannot be changed except by a writing signed by both of
us. It shall be governed by and construed under that laws of the Commonwealth of
Massachusetts.
If you agree with the foregoing, please sign below whereupon this shall become a
binding agreement between us.
AGREED: Very truly yours,
SHEFFIELD STEEL CORPORATION HMK ENTERPRISES, INC.
By: /s/ Robert W. Ackerman By: /s/ Steven E. Karol
--------------------------- ---------------------------
Robert W. Ackerman Steven E. Karol
President and Chief President and Chief
Executive Officer Executive Officer
Date: December 5, 1997 Date: December 5, 1997
3
<PAGE>
Exhibit 10.33
RMS, INC.
- --------------------------------------------------------------------------------
RISK MANAGEMENT SOLUTIONS, INC.
October 1, 1997
Mr. Robert W. Ackerman
President and Chief Executive Officer
Sheffield Steel Corporation
220 N. Jefferson Street
Sand Springs, OK 74063
Re: Insurance Services Agreement
----------------------------
Dear Bob:
This letter sets forth our understanding and agreement with respect to the
insurance services that Risk Management Solutions, Inc. ("RMSI"), will provide
to Sheffield Steel Corporation and its subsidiaries (the "Company") from the
date hereof, and continuing until either of us shall give the other not less
than 180 days prior written notice of termination of this agreement. The
insurance services we will provide to the Company are as follows:
a. Procure and maintain all property and casualty insurance coverage
including (i) the preparation of insurance specifications for all
proposals and renewals, and (ii) the selection of brokers and
insurance companies;
b. Maintain accounting records for all administered insurance programs;
c. Review and recommend alternative financing methods for insurance
coverages;
d. Identify and evaluate risk exposures and provide appropriate coverage
through loss control, self retention and/or insurance so as to
properly manage and minimize overall costs;
e. Provide workers compensation and general liability claims management
support by holding meetings with insurers, training local management,
developing return to work programs, and reviewing claim reserves and
recommending changes as appropriate;
f. Support internal safety efforts by assisting with compliance,
ergonomic and injury prevention programs, including supervisory
training, monitoring safety statistics, benchmarking and setting
appropriate goals for improvements;
<PAGE>
g. Review claims and expenses with the Company on a monthly or quarterly
basis;
h. Provide budget assistance for insurance expenses; and
i. Prepare and file Proof of Loss statements for insured claims and
assist in settlement of all claims.
In order to achieve the lowest possible insurance costs for the Company,
certain insurance premiums (including, without limitation, workers compensation,
motor vehicle, and general liability) will be billed to us by the insurance
carriers. We will pay all such premiums to agents, brokers and/or insurance
companies on behalf of the Company, and invoice the Company monthly for these
costs. Some other insurance coverages that we arrange for the Company (i.e.,
property insurance, fiduciary and D & O liability insurance) may be invoiced
directly to the Company by the insurance carrier providing such coverage. In
addition, some insurance programs procured by us for the Company may require
certain collateral such as letters of credit or bonds to secure the payment
obligations of the Company related to claims thereunder. The Company will be
responsible for providing such collateral in the event it is required by the
insurance carrier.
We are pleased to be able to provide these insurance services to the
Company. As compensation for the services we provide to the Company hereunder,
you agree to pay us a fee of 15% of the total annual cost of your Company's
insurance program, which will be invoiced on a monthly basis. In addition, the
Company will be required to reimburse us for all travel, entertainment,
telephone and other out-of-pocket expenses incurred by RMSI and/or its employees
in connection with performing the services provided hereunder. If the above sets
forth our agreement, please sign a copy of this letter in the space provided
below.
AGREED: Very truly yours,
SHEFFIELD STEEL CORPORATION RISK MANAGEMENT SOLUTIONS, INC.
By: /s/ Robert W. Ackerman By: /s/ Missy Qay
--------------------------- -----------------------------
Robert W. Ackerman Missy Qay
President and Chief President
Executive Officer
Date: October 1, 1997 Date: October 1, 1997
2
<PAGE>
EXHIBIT 23.1
Accountant's Consent and Report on Schedule
The Board of Directors
Sheffield Steel Corporation:
The audits referred to in our report dated June 27, 1997, included the related
financial statement schedule as of April 30, 1997, and for each of the years in
the three-year period ended April 30, 1997, included in the registration
statement. This financial statement schedule is the responsibility of the
Company's management. Our responsibility is to express an opinion on this
financial statement schedule based on our audits. In our opinion, such 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.
We consent to the use of our reports included herein and the reference to our
firm under the headings "Experts" and "Selected Historical Financial Data" in
the prospectus.
/s/ KPMG Peat Marwick LLP
Tulsa, Oklahoma
January 9, 1998
<PAGE>
Exhibit 25
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM T-1
------
STATEMENT OF ELIGIBILITY UNDER THE
TRUST INDENTURE ACT OF 1939 OF A
CORPORATION DESIGNATED TO ACT AS TRUSTEE
Check if an Application to Determine Eligibility
of a Trustee Pursuant to Section 305(b) (2) __
STATE STREET BANK AND TRUST COMPANY
(Exact name of trustee as specified in its charter)
Massachusetts 04-1867445
(Jurisdiction of incorporation or (I.R.S.Employer
organization if not a U.S. national bank) Identification No.)
225 Franklin Street, Boston, Massachusetts 02110
(Address of principal executive offices) (ZipCode)
John R. Towers, Esq. Executive Vice President and General Counsel
225 Franklin Street, Boston, Massachusetts 02110
(617) 654-3253
(Name, address and telephone number of agent for service)
---------------------------
SHEFFIELD STEEL CORPORATION
(Exact name of obligor as specified in its charter)
Delaware 74-2191557
(State or other jurisdication of (I.R.S. Employer
incorporation or organization) Identification No.)
220 North Jefferson
Sand Springs, OK 74063
(Address of principal executive offices) (Zip Code)
--------------------
11 1/2% Series B
First Mortgage Notes due 2005
(Title of indenture securities)
<PAGE>
GENERAL
Item 1. General Information.
Furnish the following information as to the trustee:
(a) Name and address of each examining or supervisory authority to
which it is subject.
Department of Banking and Insurance of The Commonwealth of
Massachusetts, 100 Cambridge Street, Boston, Massachusetts.
Board of Governors of the Federal Reserve System, Washington, D.C.,
Federal Deposit Insurance Corporation, Washington, D.C.
(b) Whether it is authorized to exercise corporate trust powers.
Trustee is authorized to exercise corporate trust powers.
Item 2. Affiliations with Obligor.
If the Obligor is an affiliate of the trustee, describe each such
affiliation.
The obligor is not an affiliate of the trustee or of its
parent, State Street Corporation.
(See note on page 2.)
Item 3. through Item 15. Not applicable.
Item 16. List of Exhibits.
List below all exhibits filed as part of this statement of eligibility.
1. A copy of the articles of association of the trustee as now in
effect.
A copy of the Articles of Association of the trustee, as now in
effect, is on file with the Securities and Exchange Commission
as Exhibit 1 to Amendment No. 1 to the Statement of Eligibility
and Qualification of Trustee (Form T-1) filed with the
Registration Statement of Morse Shoe, Inc. (File No. 22-17940)
and is incorporated herein by reference thereto.
2. A copy of the certificate of authority of the trustee to commence
business, if not contained in the articles of association.
A copy of a Statement from the Commissioner of Banks of
Massachusetts that no certificate of authority for the trustee
to commence business was necessary or issued is on file with
the Securities and Exchange Commission as Exhibit 2 to
Amendment No. 1 to the Statement of Eligibility and
Qualification of Trustee (Form T-1) filed with the Registration
Statement of Morse Shoe, Inc. (File No. 22-17940) and is
incorporated herein by reference thereto.
3. A copy of the authorization of the trustee to exercise corporate
trust powers, if such authorization is not contained in the documents
specified in paragraph (1) or (2), above.
A copy of the authorization of the trustee to exercise
corporate trust powers is on file with the Securities and
Exchange Commission as Exhibit 3 to Amendment No. 1 to the
Statement of Eligibility and Qualification of Trustee (Form T-
1) filed with the Registration Statement of Morse Shoe, Inc.
(File No. 22-17940) and is incorporated herein by reference
thereto.
4. A copy of the existing by-laws of the trustee, or instruments
corresponding thereto.
A copy of the by-laws of the trustee, as now in effect, is on
file with the Securities and Exchange Commission as Exhibit 4
to the Statement of Eligibility and Qualification of Trustee
(Form T-1) filed with the Registration Statement of Eastern
Edison Company (File No. 33-37823) and is incorporated herein
by reference thereto.
1
<PAGE>
5. A copy of each indenture referred to in Item 4. if the obligor is in
default.
Not applicable.
6. The consents of United States institutional trustees required by
Section 321(b) of the Act.
The consent of the trustee required by Section 321(b) of the
Act is annexed hereto as Exhibit 6 and made a part hereof.
7. A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority.
A copy of the latest report of condition of the trustee published
pursuant to law or the requirements of its supervising or examining
authority is annexed hereto as Exhibit 7 and made a part hereof.
NOTES
In answering any item of this Statement of Eligibility which relates to
matters peculiarly within the knowledge of the obligor or any underwriter for
the obligor, the trustee has relied upon information furnished to it by the
obligor and the underwriters, and the trustee disclaims responsibility for the
accuracy or completeness of such information.
The answer furnished to Item 2. of this statement will be amended, if
necessary, to reflect any facts which differ from those stated and which would
have been required to be stated if known at the date hereof.
SIGNATURE
Pursuant to the requirements of the Trust Indenture Act of 1939, as
amended, the trustee, State Street Bank and Trust Company, a corporation
organized and existing under the laws of The Commonwealth of Massachusetts, has
duly caused this statement of eligibility to be signed on its behalf by the
undersigned, thereunto duly authorized, all in the City of Hartford and The
State of Connecticut, on the 5th day of January, 1998.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
----------------------------------
NAME: Elizabeth C. Hammer
TITLE: Vice President
2
<PAGE>
EXHIBIT 6
CONSENT OF THE TRUSTEE
Pursuant to the requirements of Section 321(b) of the Trust Indenture
Act of 1939, as amended, in connection with the proposed issuance by Sheffield
Steel Corporation of its 11 1/2% Series B First Mortgage Notes due 2005, we
hereby consent that reports of examination by Federal, State, Territorial or
District authorities may be furnished by such authorities to the Securities and
Exchange Commission upon request therefor.
STATE STREET BANK AND TRUST COMPANY
By: /s/ Elizabeth C. Hammer
---------------------------------
NAME: Elizabeth C. Hammer
TITLE: Vice President
Dated: January 5, 1998
3
<PAGE>
EXHIBIT 7
Consolidated Report of Condition of State Street Bank and Trust Company,
Massachusetts and foreign and domestic subsidiaries, a state banking institution
organized and operating under the banking laws of this commonwealth and a member
of the Federal Reserve System, at the close of business June 30, 1997, published
-------------
in accordance with a call made by the Federal Reserve Bank of this District
pursuant to the provisions of the Federal Reserve Act and in accordance with a
call made by the Commissioner of Banks under General Laws, Chapter 172, Section
22(a).
<TABLE>
<CAPTION>
Thousands of
ASSETS Dollars
<S> <C>
Cash and balances due from depository institutions:
Noninterest-bearing balances and currency and coin............. 1,842,337
Interest-bearing balances...................................... 8,771,397
Securities.......................................................... 10,596,119
Federal funds sold and securities purchased
under agreements to resell in domestic offices
of the bank and its Edge subsidiary............................ 5,953,036
Loans and lease financing receivables:
Loans and leases, net of unearned income....... 5,769,090
Allowance for loan and lease losses............ 74,031
Allocated transfer risk reserve................ 0
Loans and leases, net of unearned income and allowances........ 5,695,059
Assets held in trading accounts..................................... 916,608
Premises and fixed assets........................................... 374,999
Other real estate owned............................................. 755
Investments in unconsolidated subsidiaries.......................... 28,992
Customers' liability to this bank on acceptances outstanding........ 99,209
Intangible assets................................................... 229,412
Other assets........................................................ 1,589,526
----------
Total assets........................................................ 36,097,449
==========
LIABILITIES
Deposits:
In domestic offices............................................ 11,082,135
Noninterest-bearing.................. 8,932,019
Interest-bearing..................... 2,150,116
In foreign offices and Edge subsidiary......................... 13,811,677
Noninterest-bearing.................. 112,281
Interest-bearing.....................13,699,396
Federal funds purchased and securities sold under
agreements to repurchase in domestic offices of
the bank and of its Edge subsidiary............................ 6,785,263
Demand notes issued to the U.S. Treasury and Trading Liabilities.... 755,676
Other borrowed money................................................ 716,013
Subordinated notes and debentures................................... 0
Bank's liability on acceptances executed and outstanding............ 99,605
Other liabilities................................................... 841,566
Total liabilities................................................... 34,091,935
----------
EQUITY CAPITAL
Perpetual preferred stock and related surplus....................... 0
Common stock........................................................ 29,931
Surplus............................................................. 437,183
Undivided profits and capital reserves/Net unrealized holding
gains (losses)..................................................... 1,542,695
Cumulative foreign currency translation adjustments................. (4,295)
Total equity capital................................................ 2,005,514
----------
Total liabilities and equity capital................................ 36,097,449
</TABLE>
4
<PAGE>
I, Rex S. Schuette, Senior Assistant Vice President and Comptroller of the above
named bank do hereby declare that this Report of Condition has been prepared in
conformance with the instructions issued by the Board of Governors of the
Federal Reserve System and is true to the best of my knowledge and belief.
Rex S. Schuette
We, the undersigned directors, attest to the correctness of this Report of
Condition and declare that it has been examined by us and to the best of our
knowledge and belief has been prepared in conformance with the instructions
issued by the Board of Governors of the Federal Reserve System and is true and
correct.
David A. Spina
Marshall N. Carter
Truman S. Casner
5
<PAGE>
EXHIBIT 99.1
LETTER OF TRANSMITTAL
To Tender for Exchange
11 1/2% First Mortgage Notes due 2005
of
SHEFFIELD STEEL CORPORATION
Pursuant to the Prospectus
Dated ________, 1998
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON __________________, 1998 UNLESS EXTENDED.
- --------------------------------------------------------------------------------
TO: State Street Bank and Trust Company, As Exchange Agent
By Mail: By Hand:
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Goodwin Square Goodwin Square
225 Asylum Street, 23rd Floor 225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103 Hartford, Connecticut 06103
Attention: Elizabeth Hammer Attention: Elizabeth Hammer
By Facsimile:
(860) 244-1889
Confirm by Telephone:
(860) 244-1817
DELIVERY OF THIS INSTRUMENT TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN THE ONE
LISTED ABOVE WILL NOT CONSTITUTE A VALID DELIVERY. THE INSTRUCTIONS
ACCOMPANYING THIS LETTER OF TRANSMITTAL SHOULD BE READ
CAREFULLY BEFORE THIS LETTER OF TRANSMITTAL IS COMPLETED.
The undersigned acknowledges that he or she has received the
Prospectus, dated ____________ (the "Prospectus"), of Sheffield Steel
Corporation (the "Company") and this Letter of Transmittal (the "Letter of
Transmittal"), which together constitute the Company's offer (the "Exchange
Offer") to exchange its 11 1/2% Series B First Mortgage Notes due 2005 (the "New
First Mortgage Notes") for an equal principal amount of its 11 1/2% Series A
First Mortgage Notes due 2005 (the "Old First Mortgage Notes" and, together with
the New First Mortgage Notes, the "First Mortgage Notes"). The terms of the New
First Mortgage Notes are identical in all material respects to the Old First
Mortgage Notes, except that the New First Mortgage Notes have been registered
under the Securities Act of 1933, as amended (the "Securities Act"), and,
therefore, will not bear legends restricting their transfer and will not contain
certain provisions relating to an increase in the interest rate which were
included in the Old First Mortgage Notes under certain circumstances relating to
the timing of the Exchange Offer. The term "Expiration Date" shall mean 5:00
p.m., New York City time, on ____________, 1998, unless the Company, in its sole
discretion, extends the Exchange Offer, in which case the term shall mean the
latest date and time to which the Exchange Offer is extended. Capitalized terms
used but not defined herein have the meaning given to them in the Prospectus.
<PAGE>
The Letter of Transmittal is to be used by Holders of Old First
Mortgage Notes if certificates are to be forwarded herewith. Holders of Old
First Mortgage Notes whose certificates are not immediately available, or who
are unable to deliver their certificates and all other documents required by
this Letter of Transmittal to the Exchange Agent on or prior to the Expiration
Date, must tender their Old First Mortgage Notes according to the guaranteed
delivery procedures set forth in "The Exchange Offer - Guaranteed Delivery
Procedures" section of this Prospectus. See Instruction 1.
The term "Holder" with respect to the Exchange Offer means any person
in whose name Old First Mortgage Notes are registered on the books of the
Company or any other person who has obtained a properly completed bond power
from the registered holder. The undersigned has completed, executed and
delivered this Letter of Transmittal to indicate the action the undersigned
desires to take with respect to the Exchange Offer. Holders who wish to tender
their Old First Mortgage Notes must complete this letter in its entirety.
If it is a broker-dealer, the undersigned acknowledges that (i) Old
First Mortgage Notes tendered by it hereunder were acquired in the ordinary
course of its business as a result of market-making or other trading activities,
and (ii) it will deliver a prospectus in connection with any resale of New First
Mortgage Notes received in the Exchange Offer. Notwithstanding the foregoing, by
so acknowledging and by delivering a prospectus, such broker-dealer shall not be
deemed to admit that it is an "underwriter" within the meaning of such term
under the Securities Act.
PLEASE READ THE ENTIRE LETTER OF TRANSMITTAL
CAREFULLY BEFORE COMPLETING THE LETTER OF TRANSMITTAL
<TABLE>
<CAPTION>
- -------------------------------------------------------------------------------------------------------------------------
DESCRIPTION OF 11 1/2% FIRST MORTGAGE NOTES DUE 2005
- --------------------------------------------------------------------------------------------------------------------------
Aggregate Principal Amount
Principal Tendered (must be
Amount in integral
Name and Address(es) of Registered Holder(s) Certificate Represented by multiples of
(please fill in, if blank) Number(s) Certificate(s) $1,000)*
- --------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------------------------------------
Total
- --------------------------------------------------------------------------------------------------------------------------
</TABLE>
* Unless indicated in the column labeled "Principal Amount Tendered," any
tendering Holder of 11 1/2% First Mortgage Notes due 2005 will be deemed to
have tendered the entire aggregate principal amount represented by the
column labeled "Aggregate Principal Amount Represented by Certificate(s)."
If the space provided above is inadequate, lists the certificate numbers
and principal amounts on a separate signed schedule and affix the list to
this Letter of Transmittal.
The minimum permitted tender is $1,000 in principal amount. All other
tenders must be integral multiples of $1,000.
- --------------------------------------------------------------------------------
[_] CHECK HERE IF TENDERED OLD FIRST MORTGAGE NOTES ARE BEING DELIVERED
PURSUANT TO A NOTICE OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE EXCHANGE
AGENT AND COMPLETE THE FOLLOWING (SEE INSTRUCTION 1):
----------------------
Name(s) of Registered Holder(s)
--------------------------------------------
Window Ticket Number (if any)
----------------------------------------------
Date of Execution of Notice of Guaranteed Delivery
-------------------------
Name of Institution which Guaranteed Delivery
------------------------------
2
<PAGE>
[_] CHECK HERE IF YOU ARE A BROKER-DEALER AND WISH TO RECEIVE 10 ADDITIONAL
COPIES OF THE PROSPECTUS AND 10 COPIES OF ANY AMENDMENTS OR SUPPLEMENTS
THERETO.
Name:
----------------------------------------------------------------------
Address:
-------------------------------------------------------------------
-------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Instructions 4, 5 and 6)
To be completed ONLY if certificates for Old First Mortgage Notes in a
principal amount not tendered, or New First Mortgage Notes issued in exchange
for Old First Mortgage Notes accepted for exchange, are to be issued in the
name of someone other than the undersigned.
Issue certificate(s) to:
Name:
-------------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
- --------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SPECIAL REGISTRATION INSTRUCTIONS
(See Instructions 4, 5 and 6)
To be completed ONLY if certificates for Old First Mortgage Notes in a
principal amount not tendered, or New First Mortgage Notes issued in exchange
for Old First Mortgage Notes accepted for exchange, are to be sent to someone
other than the undersigned, or to the undersigned at an address other than that
shown above.
Deliver certificate(s) to:
Name:
-------------------------------------------------------------------------
(Please Print)
Address:
----------------------------------------------------------------------
------------------------------------------------------------------------------
------------------------------------------------------------------------------
(Include Zip Code)
------------------------------------------------------------------------------
(Tax Identification or Social Security No.)
- --------------------------------------------------------------------------------
3
<PAGE>
Ladies and Gentlemen:
Subject to the terms and conditions of the Exchange Offer, the
undersigned hereby tenders to the Company the principal amount of Old First
Mortgage Notes indicated above. Subject to and effective upon the acceptance for
exchange of the principal amount of Old First Mortgage Notes tendered in
accordance with this Letter of Transmittal, the undersigned sells, assigns and
transfers to, or upon the order of, the Company all right, title and interest in
and to the Old First Mortgage Notes tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Exchange Agent its agent and attorney-
in-fact (with full knowledge that the Exchange Agent also acts as the agent of
the Company) with respect to the tendered Old First Mortgage Notes with full
power of substitution to (i) deliver certificates for such Old First Mortgage
Notes to the Company and deliver all accompanying evidences of transfer and
authenticity to, or upon the order of, the Company and (ii) present such Old
First Mortgage Notes for transfer on the books of the Company and receive all
benefits and otherwise exercise all rights of beneficial ownership of such Old
First Mortgage Notes, all in accordance with the terms of the Exchange Offer.
The power of attorney granted in this paragraph shall be deemed to be
irrevocable and coupled with an interest.
The undersigned hereby represents and warrants that he or she has full
power and authority to tender, sell, assign and transfer the Old First Mortgage
Notes tendered hereby and that the Company will acquire good and unencumbered
title thereto, free and clear of all liens, restrictions, charges and
encumbrances and not subject to any adverse claim, when the same are acquired by
the Company. The undersigned and any beneficial owner of Old First Mortgage
Notes hereby further represent that any New First Mortgage Notes acquired in
exchange for Old First Mortgage Notes tendered hereby will have been acquired in
the ordinary course of business of the undersigned and any such beneficial owner
of Old First Mortgage Notes receiving such New First Mortgage Notes, that
neither the Holder nor any such beneficial owner is participating in, intends to
participate in or has an arrangement or understanding with any person to
participate in the distribution of such New First Mortgage Notes and that
neither the Holder nor any such beneficial owner is an "affiliate," as defined
in Rule 405 under the Securities Act, of the Company. The undersigned and each
beneficial owner acknowledge and agree that any person participating in the
Exchange Offer for the purpose of distributing the New First Mortgage Notes must
comply with the registration and prospectus delivery requirements of the
Securities Act in connection with any secondary resale transactions of the New
First Mortgage Notes acquired by such person and may not rely on the position of
the Staff of the Securities and Exchange Commission set forth in the no-action
letters discussed in the Prospectus under the caption "The Exchange Offer." If
the undersigned is not a broker-dealer, the undersigned represents that it is
not engaged in, and does not intend to engage in, a public distribution of New
First Mortgage Notes. The undersigned and each beneficial owner will, upon
request, execute and deliver any additional documents deemed by the Exchange
Agent or the Company to be necessary or desirable to complete the assignment,
transfer and purchase of the Old First Mortgage Notes tendered hereby.
For purposes of the Exchange Offer, the Company shall be deemed to
have accepted validly tendered Old First Mortgage Notes when, as and if the
Company has given oral or written notice thereof the Exchange Agent.
If any tendered Old First Mortgage Notes are not accepted for exchange
pursuant to the Exchange Offer for any reason, certificates for any such
unaccepted Old First Mortgage Notes will be returned, without expense, to the
undersigned at the address shown below or at a different address as may be
indicated herein under "Special Delivery Instructions" as promptly as
practicable after the Expiration Date.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall survive the death, incapacity or dissolution of the
undersigned, and every obligation of the undersigned under this Letter of
Transmittal shall be binding upon the undersigned's heirs, personal
representatives, successors and assigns.
The undersigned understands that tenders of Old First Mortgage Notes
pursuant to the procedures described under the caption "The Exchange Offer -
Procedures for Tendering" in the Prospectus and in the instructions hereto will
constitute a binding agreement between the undersigned and the Company upon the
terms and subject to the conditions of the Exchange Offer, subject only to
withdrawal of such tenders on the terms set forth in the Prospectus under the
caption "The Exchange Offer - Withdrawal of Tenders."
Unless otherwise indicated under "Special Registration Instructions,"
please issue the certificates representing the New First Mortgage Notes issued
in exchange for the Old First Mortgage Notes accepted for exchange and any
certificates for Old First Mortgage Notes not tendered or not exchanged, in the
name(s) of the undersigned. Similarly, unless otherwise indicated under
"Special Delivery Instructions," please send the certificates representing the
New First Mortgage Notes issued in exchange for the Old First Mortgage Notes
accepted for exchange and any certificates for Old
4
<PAGE>
First Mortgage Notes not tendered or not exchanged (and accompanying documents,
as appropriate) to the undersigned at the address shown below the undersigned's
signature(s). In the event that both "Special Registration Instructions" and
"Special Delivery Instructions" are completed, please issue the certificates
representing the New First Mortgage Notes issued in exchange for the Old First
Mortgage Notes accepted for exchange in the name(s) of, and return any
certificates for Old First Mortgage Notes not tendered or not exchanged to, the
person(s) so indicated. The undersigned understands that the Company has no
obligation pursuant to the "Special Registration Instructions" and "Special
Delivery Instructions" to transfer any Old First Mortgage Notes from the name of
the registered Holder(s) thereof if the Company does not accept for exchange any
of the Old First Mortgage Notes so tendered.
Holders who wish to tender their Old First Mortgage Notes and whose
Old First Mortgage Notes are not immediately available or who cannot deliver
their certificates and all other documents required by this Letter of
Transmittal to the Exchange Agent prior to the Expiration Date, may tender their
Old First Mortgage Notes according to the guaranteed delivery procedures set
forth in the Prospectus under the caption "The Exchange Offer - Guaranteed
Delivery Procedures." See Instruction 1 regarding the completion of this Letter
of Transmittal printed below.
5
<PAGE>
PLEASE SIGN HERE WHETHER OR NOT
OLD FIRST MORTGAGE NOTES ARE BEING PHYSICALLY TENDERED HEREBY
X____________________________________ Date:________________________
X____________________________________ Date:________________________
Signature(s) of Registered Holder(s)
or Authorized Signatory
Area Code and Telephone Number:
------------------------------------------------
The above lines must be signed by the registered holder(s) as their name(s)
appear(s) on the Old First Mortgage Notes or by person(s) authorized to become
registered holder(s) by a properly completed bond power from the registered
holder(s), a copy of which must be transmitted with this Letter of Transmittal.
If the Old First Mortgage Notes to which this Letter of Transmittal relate are
held of record by two or more joint holders, then all such holders must sign
this Letter of Transmittal. If signature is by a trustee, executor,
administrator, guardian, attorney-in-fact, officer of a corporation or other
person acting in a fiduciary or representative capacity, then such person must
(i) set forth his or her full title below and (ii) unless waived by the Company,
submit evidence satisfactory to the Company of such person's authority so to
act. See Instruction 4 regarding the completion of this Letter of Transmittal
printed below.
Name(s):
------------------------------------------------------------------------
(Please Print)
Capacity:
-----------------------------------------------------------------------
Address:
------------------------------------------------------------------------
(Include Zip Code)
SIGNATURE(S) GUARANTEED BY AN ELIGIBLE INSTITUTION:
(If required by Instruction 4)
- --------------------------------------------------------------------------------
(Authorized Signature)
- --------------------------------------------------------------------------------
(Title)
- --------------------------------------------------------------------------------
(Name of Firm)
Date:____________, 1998
6
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE EXCHANGE OFFER
1. Delivery of this Letter of Transmittal and Old First Mortgage
Notes; Guaranteed Delivery Procedures. The tendered Old First Mortgage Notes as
well as properly completed and duly executed copy of this Letter of Transmittal
or facsimile hereof and any other documents required by this Letter of
Transmittal must be received by the Exchange Agent at its address set forth
herein prior to 5:00 p.m., New York City time, on the Expiration Date. The
method of delivery of the tendered Old First Mortgage Notes, this Letter of
Transmittal and all other required documents to the Exchange Agent is at the
election and risk of the Holder and, except as otherwise provided below, the
delivery will be deemed made only when actually received by the Exchange Agent.
Instead of delivery by mail, it is recommended that the Holder use an overnight
or hand delivery service. In all cases, sufficient time should be allowed to
assure timely delivery. No Letter of Transmittal or Old First Mortgage Notes
should be sent to the Company.
Holders who wish to tender their Old First Mortgage Notes and (i)
whose Old First Mortgage Notes are not immediately available or (ii) who cannot
deliver their Old First Mortgage Notes, this Letter of Transmittal or any other
documents required hereby to the Exchange Agent prior to the Expiration Date
must tender their Old First Mortgage Notes according to the guaranteed delivery
procedures set forth in the Prospectus. Pursuant to such procedure: (a) such
tender must be made by or through an Eligible Institution (defined below); (b)
prior to the Expiration Date, the Exchange Agent must have received from the
Eligible Institution a properly completed and duly executed Notice of Guaranteed
Delivery (by facsimile transmission, mail or hand delivery) setting forth the
name and address of the Holder, the certificate number or numbers of such Old
First Mortgage Notes and the principal amount of Old First Mortgage Notes
tendered, stating that the tender is being made thereby and guaranteeing that,
within five New York Stock Exchange trading days after the Expiration Date, this
Letter of Transmittal (or facsimile hereof) together with the certificate(s)
representing the Old First Mortgage Notes and any other required documents will
be deposited by the Eligible Institution with the Exchange Agent; and (c) such
properly completed and executed Letter of Transmittal (or facsimile hereof) as
well as the certificate(s) representing all tendered Old First Mortgage Notes in
proper form for transfer and all other documents required by this Letter of
Transmittal must be received by the Exchange Agent within five New York Stock
Exchange trading days after the Expiration Date, all as provided in the
Prospectus under the caption "The Exchange Offer - Guaranteed Delivery
Procedures." Any Holder who wishes to tender his Old First Mortgage Notes
pursuant to the guaranteed delivery procedures described above must ensure that
the Exchange Agent receives the Notice of Guaranteed Delivery prior to 5:00
p.m., New City time, on the Expiration Date. Upon request to the Exchange Agent,
a Notice of Guaranteed Delivery will be sent to Holders who wish to tender their
Old First Mortgage Notes according to the guaranteed delivery procedures set
forth above.
All questions as to the validity, form, eligibility (including time of
receipt), acceptance of tendered Old First Mortgage Notes, and withdrawal of
tendered Old First Mortgage Notes will be determined by the Company in its sole
discretion, which determination will be final and binding. The Company reserves
the absolute right to reject any and all Old First Mortgage Notes not properly
tendered or any Old First Mortgage Notes the Company's acceptance of which
would, in the opinion of counsel for the Company, be unlawful. The Company also
reserves the right to waive any irregularities or conditions of tender as to
particular Old First Mortgage Notes. The Company's interpretation of the terms
and conditions of the Exchange Offer (including the instructions in this Letter
of Transmittal) shall be final and binding on all parties. Unless waived, any
defects or irregularities in connection with tenders of Old First Mortgage Notes
must be cured within such time as the Company shall determine. Neither the
party, the Exchange Agent nor any other person shall be under any duty to give
notification of defects or irregularities with respect to tenders of Old First
Mortgage Notes, nor shall any of them incur any liability for failure to give
such notification. Tenders of Old First Mortgage Notes will not be deemed to
have been made until such defects or irregularities have been cured or waived.
Any Old First Mortgage Notes received by the Exchange Agent that are not
properly tendered and as to which the defects or irregularities have not been
cured or waived will be returned by the Exchange Agent to the tendering Holders,
unless otherwise provided in this Letter of Transmittal, as soon as practicable
following the Expiration Date.
2. Tender by Holder. Only a Holder of Old First Mortgage Notes may
tender such Old First Mortgage Notes in the Exchange Offer. Any beneficial owner
of Old First Mortgage Notes who is not the registered holder and who wishes to
tender should arrange with such registered holder to execute and deliver this
Letter of Transmittal on such owner's behalf or must, prior to completing and
executing this Letter of Transmittal and delivering his or her Old First
Mortgage Notes, either make appropriate arrangements to register ownership of
the Old First Mortgage Notes in such owner's name or obtain a properly completed
bond power from the registered holder.
7
<PAGE>
3. Partial Tenders. Tenders of Old First Mortgage Notes will be
accepted only in integral multiples of $1,000. If less than the entire principal
amount of any Old First Mortgage Notes is tendered, the tendering Holder should
fill in the principal amount tendered in the fourth column of the box entitled
"Description of 11 1/2% First Mortgage Notes due 2005" above. The entire
principal amount of any Old First Mortgage Notes delivered to the Exchange Agent
will be deemed to have been tendered unless otherwise indicated. If the entire
principal amount of all Old First Mortgage Notes is not tendered, then Old First
Mortgage Notes for the principal amount of Old First Mortgage Notes not tendered
and a certificate or certificates representing New First Mortgage Notes issued
in exchange for any Old First Mortgage Notes accepted will be sent to the Holder
at his or her registered address, unless a different address is provided in the
appropriate box on this Letter of Transmittal, promptly after the Old First
Mortgage Notes are accepted for exchange.
4. Signature on the Letter of Transmittal; Bond Powers and
Endorsements; Guarantee of Signatures. If this Letter of Transmittal (or
facsimile hereof) is signed by the registered holder(s) of the Old First
Mortgage Notes tendered hereby, the signature must correspond with the name(s)
as written on the face of the Old First Mortgage Notes without alteration,
enlargement or any change whatsoever.
If this Letter of Transmittal (or facsimile hereof) is signed by the
registered holder or holders of Old First Mortgage Notes tendered and the
certificate or certificates for New First Mortgage Notes issued in exchange
therefor is to be issued (or any untendered principal amount of Old First
Mortgage Notes is to be reissued) to the registered holder and neither the
"Special Delivery Instructions" nor the "Special Registration Instructions" has
been completed, then such holder need not and should not endorse any tendered
Old First Mortgage Notes, nor provide a separate bond power. In any other case,
such holder must either properly endorse the Old First Mortgage Notes tendered
or transmit a properly completed separate bond power with this Letter of
Transmittal with the signatures on the endorsement or bond power guaranteed by
an Eligible Institution.
If this Letter of Transmittal (or facsimile hereof) is signed by a
person other than the registered holder or holders of any Old First Mortgage
Notes listed, such Old First Mortgage Notes must be endorsed or accompanied by
appropriate bond powers in each case signed as the name of the registered holder
or holders appears on the Old First Mortgage Notes.
If this Letter of Transmittal (or facsimile hereof) or any Old First
Mortgage Notes or bond powers are signed by trustees, executors, administrators,
guardians, attorneys-in-fact, or officers of corporations or others acting in a
fiduciary or representative capacity, such persons should so indicate when
signing, and, unless waived by the Company, evidence satisfactory to the Company
of their authority so to act must be submitted with the Letter of Transmittal.
Endorsements on Old First Mortgage Notes or signatures on bond powers
required by this Instruction 4 must be guaranteed by an Eligible Institution
which is a member of (a) the Securities Transfer Agents Medallion Program, (b)
the New York Stock Exchange Medallion Signature Program or (c) the Stock
Exchange Medallion Program.
Except as otherwise provided below, all signatures on this Letter of
Transmittal must be guaranteed by a firm that is a member of a registered
national securities exchange or the National Association of Securities Dealers,
Inc., a commercial bank or trust company having an office or correspondent in
the United States or an "eligible guarantor institution" within the meaning of
Rule 17Ad-15 under the Securities Exchange Act of 1934, as amended (an "Eligible
Institution"). Signatures on this Letter of Transmittal need not be guaranteed
if (a) this Letter of Transmittal is signed by the registered holder(s) of the
Old First Mortgage Notes tendered herewith and such holder(s) have not completed
the box set forth herein entitled "Special Registration Instructions" or the box
entitled "Special Delivery Instructions" or (b) such Old First Mortgage Notes
are tendered for the account of an Eligible Institution.
5. Special Registration and Delivery Instructions. Tendering Holders
should indicate, in the applicable box or boxes, the name and address to which
New First Mortgage Notes or substitute Old First Mortgage Notes for principal
amounts not tendered or not accepted for exchange are to be issued or sent, if
different from the name and address of the person signing this Letter of
Transmittal. In the case of issuance in a different name, the taxpayer
identification or social security number of the person named must also be
indicated.
6. Transfer Taxes. The Company will pay all transfer taxes, if any,
applicable to the exchange of Old First Mortgage Notes pursuant to the Exchange
Offer. If, however, certificates representing New First Mortgage Notes or Old
First Mortgage Notes for principal amounts not tendered or accepted for exchange
are to be delivered to, or are
8
<PAGE>
to be registered in the name of, any other than the registered holder of the Old
First Mortgage Notes tendered hereby, or if tendered Old First Mortgage Notes
are registered in the name of any person other than the person signing this
Letter of Transmittal, or if a transfer tax is imposed for any reason other than
the exchange of Old First Mortgage Notes pursuant to the Exchange Offer, then
the amount of any such transfer taxes (whether imposed on the registered holder
or on any other persons) will be payable by the tendering Holder. If
satisfactory evidence of payment of such taxes or exemption therefrom is not
submitted with this Letter of Transmittal, the amount of such transfer taxes
will be billed directly to such tendering Holder.
EXCEPT AS PROVIDED IN THIS INSTRUCTION 6, IT WILL NOT BE NECESSARY FOR
TRANSFER TAX STAMPS TO BE AFFIXED TO THE OLD FIRST MORTGAGE NOTES LISTED IN THIS
LETTER OF TRANSMITTAL.
7. Waiver of Condition. The Company reserves the right, in its sole
discretion, to amend, waive or modify specified conditions in the Exchange Offer
in the case of any Old First Mortgage Notes tendered.
8. Mutilated, Lost, Stolen or Destroyed Old First Mortgage Notes.
Any tendering Holder whose Old First Mortgage Notes have been mutilated, lost,
stolen or destroyed should contact the Exchange Agent at the address indicated
herein for further instructions.
9. Requests for Assistance or Additional Copies. Questions and
requests for assistance and requests for additional copies of the Prospectus or
this Letter of Transmittal may be directed to the Exchange Agent at the address
specified in the Prospectus. Holders may also contact their broker, dealer,
commercial bank, trust company or other nominee for assistance concerning the
Exchange Offer.
(DO NOT WRITE IN SPACE BELOW)
<TABLE>
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Certificate Surrendered Old First Mortgage Notes Tendered Old First Mortgage Notes Accepted
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C>
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
- ---------------------------------------------------------------------------------------------------------
</TABLE>
Delivery Prepared by _______________________________ Checked By ________________
Date ____________________
9
<PAGE>
Exhibit 99.2
NOTICE OF GUARANTEED DELIVERY
of
11 1/2% First Mortgage Notes Due 2005
of
SHEFFIELD STEEL CORPORATION
As set forth in the Prospectus, dated ___________, 1998 (as the same may be
amended from time to time, the "Prospectus"), of Sheffield Steel Corporation
(the "Company") under the caption "The Exchange Offer Guaranteed Delivery
Procedures," this form or one substantially equivalent hereto must be used to
accept the Company's offer (the "Exchange Offer") to exchange its 11 1/2% Series
B First Mortgage Notes due 2005 (the "New First Mortgage Notes"), which have
been registered under the Securities Act of 1933, as amended (the "Securities
Act"), for an equal principal amount of its 11 1/2% Series A First Mortgage
Notes due 2005 (the "Old First Mortgage Notes"), if (i) certificates
representing the Old First Mortgage Notes to be exchanged are not lost but are
not immediately available or (ii) time will not permit all required documents to
reach the Exchange Agent prior to the Expiration Date. This form may be
delivered by an Eligible Institution by mail or hand delivery or transmitted,
via facsimile, to the Exchange Agent at its address set forth below not later
than 5:00 p.m., New York City time, on ____________, 1998. All capitalized terms
used herein but not defined herein shall have the meanings ascribed to them in
the Prospectus.
The Exchange Agent is:
STATE STREET BANK AND TRUST COMPANY
<TABLE>
<CAPTION>
By Mail: By Hand:
<S> <C>
State Street Bank and Trust Company State Street Bank and Trust Company
Corporate Trust Department Corporate Trust Department
Goodwin Square Goodwin Square
225 Asylum Street, 23rd Floor 225 Asylum Street, 23rd Floor
Hartford, Connecticut 06103 Hartford, Connecticut 06103
Attn: Elizabeth Hammer Attn: Elizabeth Hammer
</TABLE>
By Facsimile:
(860) 244-1889
Confirm by Telephone:
(860) 244-1817
DELIVERY, OR TRANSMISSION VIA FACSIMILE, OF THIS INSTRUMENT
TO AN ADDRESS OTHER THAN AS SET FORTH ABOVE
WILL NOT CONSTITUTE A VALID DELIVERY.
Ladies and Gentlemen:
The undersigned hereby tender(s) for exchange to the Company, upon the
terms and subject to the conditions set forth in the Prospectus and Letter of
Transmittal, receipt of which is hereby acknowledged, the principal amount of
Old First Mortgage Notes set forth below pursuant to the guaranteed delivery
procedures set forth in the Prospectus under the caption "The Exchange Offer
Guaranteed Delivery Procedures."
The undersigned understands and acknowledges that the Exchange Offer will
expire at 5:00 p.m., New York City time, on _______________, 1998 unless
extended by the Company. With respect to the Exchange Offer, "Expiration Date"
means such time and date, or if the Exchange Offer is extended, the latest time
and date to which the Exchange Offer is so extended by the Company.
<PAGE>
All authority herein conferred or agreed to be conferred by this Notice of
Guaranteed Delivery shall survive the death or incapacity of the undersigned and
every obligation of the undersigned under this Notice of Guaranteed Delivery
shall be binding upon the heirs, personal representatives, executors,
administrators, successors and assigns, trustees in bankruptcy and other legal
representatives of the undersigned.
- --------------------------------------------------------------------------------
SIGNATURES
- --------------------------------------------------------------------------------
Signature of Owner
- --------------------------------------------------------------------------------
Signature of Owner (if more than one)
Dated:______________, 1998
Name(s)
------------------------------------------------------------------------
(Please Print)
Address:
------------------------------------------------------------------------
------------------------------------------------------------------------
------------------------------------------------------------------------
(Include Zip Code)
Area Code and
Telephone No.:
------------------------------------------------------------------
Capacity (full title), if signing
in a representative capacity
----------------------------------------------------
Taxpayer Identification or Social Security No.
----------------------------------
Principal Amount of Old First Mortgage Notes Exchanged: $
---------
Certificate Nos. of Old First Mortgage Notes (if available)
---------------------
- --------------------------------------------------------------------------------
Total: $
-------------
- --------------------------------------------------------------------------------
2
<PAGE>
GUARANTEE OF DELIVERY
(Not to Be Used for Signature Guarantee)
The undersigned, a firm which is a member of a registered national
securities exchange or of the National Association of Securities Dealers, Inc.,
or is a commercial bank or trust company having an office or correspondent in
the United States, or is otherwise an "eligible guaranteed institution" within
the meaning of Rule 17Ad-15 under the Securities Exchange Act of 1934, as
amended, guarantees deposit with the Exchange Agent of the Letter of Transmittal
(or facsimile thereof), together with the Old First Mortgage Notes tendered
hereby in proper form for transfer (or confirmation of the book-entry transfer
of such Old First Mortgage Notes into the Exchange Agent's account at the Book-
Entry Transfer Facility described in the Prospectus under the caption "The
Exchange Offer Guaranteed Delivery Procedures" and in the Letter of Transmittal)
and any other required documents, all by 5:00 p.m., New York City time, on the
fifth New York Stock Exchange trading day following the Expiration Date.
- --------------------------------------------------------------------------------
Name of Firm:
------------------------------- -------------------------------
Authorized Signature
Address: Name:
------------------------------------ --------------------------
Title:
- -------------------------------------------- -------------------------
Area Code and Telephone No.: Date:
---------------- --------------------------
- --------------------------------------------------------------------------------
NOTE: DO NOT SEND OLD FIRST MORTGAGE NOTES WITH THIS FORM, ACTUAL SURRENDER
OF OLD FIRST MORTGAGE NOTES MUST BE MADE PURSUANT TO, AND BE ACCOMPANIED BY, THE
LETTER OF TRANSMITTAL.
3
<PAGE>
Exhibit 99.3
Offer to Exchange up to $110,000,000 of its
11 1/2% Series B First Mortgage Notes Due 2005
for any and all of its outstanding
11 1/2% Series A First Mortgage Notes Due 2005
of
SHEFFIELD STEEL CORPORATION
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME ON [____________], 1998 UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Brokers, Dealers, Commercial Banks, ,1998
Trust Companies and Other Nominees: ---------
Sheffield Steel Corporation, a Delaware corporation, (the "Company") is
offering upon the terms and conditions set forth in the Prospectus, dated
___________, 1998 (as the same may be amended from time to time, the
Prospectus"), and in the related Letter of Transmittal enclosed herewith, to
exchange (the "Exchange Offer") its 11 1/2% Series B First Mortgage Notes due
2005 (the "New First Mortgage Notes") for an equal principal amount of its 11
1/2% Series A First Mortgage Notes due 2005 (the "Old First Mortgage Notes" and
together with the New First Mortgage Notes, the "First Mortgage Notes") As set
forth in the Prospectus, the terms of the New First Mortgage Notes are identical
in all material respects to the Old First Mortgage Notes, except for certain
transfer restrictions relating to the Old First Mortgage Notes and except that
the New First Mortgage Notes will not contain certain provisions relating to an
increase in the interest rate which were included in the Old First Mortgage
Notes under certain circumstances relating to the timing of the Exchange Offer.
The Old First Mortgage Notes may only be tendered in integral multiples of
$1,000.
THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE EXCHANGE
OFFER - CONDITIONS" IN THE PROSPECTUS.
Enclosed herewith for your information and forwarding to your clients are
copies of the following documents:
1. The Prospectus, dated ________________, 1998.
2. The Letter of Transmittal to exchange New First Mortgage Notes for
your use and for the information of your clients. Facsimile copies of the
Letter Transmittal may be used to exchange New First Mortgage Notes.
<PAGE>
3. A form of letter which may be sent to your clients for whose
accounts you hold Old First Mortgage Notes registered in your name or in
the name of your nominee, with space provided for obtaining such client's
instructions with regard to the Exchange Offer.
4. A Notice of Guaranteed Delivery.
5. Guidelines of the Internal Revenue Service for Certification of
Taxpayer Identification Number on Substitute Form W-9.
6. A return envelope addressed to State Street Bank and Trust
Company, the Exchange Agent.
YOUR PROMPT ACTION IS REQUESTED. WE URGE YOU TO CONTACT YOUR CLIENTS AS
PROMPTLY AS POSSIBLE. PLEASE NOTE THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M.,
NEW YORK CITY TIME, ON ____________, 1998, UNLESS EXTENDED. PLEASE FURNISH
COPIES OF THE ENCLOSED MATERIALS TO THOSE OF YOUR CLIENTS FOR WHOM YOU HOLD OLD
FIRST MORTGAGE NOTES REGISTERED IN YOUR NAME OF YOUR NOMINEE AS QUICKLY AS
POSSIBLE.
In all cases, exchanges of Old First Mortgage Notes accepted for exchange
pursuant to the Exchange Offer will be made only after timely receipt by the
Exchange Agent of (a) certificates representing such Old First Mortgage Notes,
(b) the Letter of Transmittal (or facsimile thereof) properly completed and duly
executed with any required signature guarantees, and (c) any other documents
required by the Letter of Transmittal.
If holders of Old First Mortgage Notes wish to tender, but it is
impracticable for them to forward their certificates for Old First Mortgage
Notes prior to the expiration of the Exchange Offer or to comply with the book-
entry transfer procedures on a timely basis, a tender may be offered by
following the guaranteed delivery procedure described in the Prospectus under
"The Exchange Offer - Guaranteed Delivery Procedures."
The Exchange Offer is not being made to (nor will tenders be accepted from
or on behalf of) holders of Old First Mortgage Notes residing in any
jurisdiction in which the making of the Exchange Offer or the acceptance thereof
would not be in compliance with the laws of such Old First Mortgage Notes
jurisdiction.
The Company will not pay any fees or commissions to brokers, dealers or
other persons for soliciting exchanges of Old First Mortgage Notes pursuant to
the Exchange Offer. The Company will, however, upon request, reimburse you for
customary clerical and mailing expenses incurred by you in forwarding any of the
enclosed materials to your clients. The Company will pay or cause to be paid any
transfer taxes payable on the transfer of Old First Mortgage Notes to it, except
as otherwise provided in Instruction 6 of the Letter of Transmittal.
2
<PAGE>
Questions and requests for assistance with respect to the Exchange Offer or
for copies of the Prospectus and Letter of Transmittal may be directed to the
Exchange Agent at its address set forth in the Prospectus or at (860) 244-1817.
Very truly yours,
SHEFFIELD STEEL CORPORATION
NOTHING CONTAINED HEREIN OR IN THE ENCLOSED DOCUMENTS SHALL CONSTITUTE YOU
OR ANY OTHER PERSON THE AGENT OF THE COMPANY, OR ANY AFFILIATE THEREOF, OR
AUTHORIZE YOU OR ANY OTHER PERSON TO MAKE ANY STATEMENTS OR USE ANY DOCUMENT ON
BEHALF OF ANY OF THEM IN CONNECTION WITH THE OFFER OTHER THAN THE ENCLOSED
DOCUMENTS AND THE STATEMENTS CONTAINED THEREIN.
<PAGE>
Exhibit 99.4
Offer to Exchange up to $110,000,000 of its
11 1/2% Series B First Mortgage Notes Due 2005
for any and all of its outstanding
11 1/2% Series A First Mortgage Notes Due 2005
of
SHEFFIELD STEEL CORPORATION
- --------------------------------------------------------------------------------
THE EXCHANGE OFFER WILL EXPIRE AT 5:00 P.M., NEW YORK CITY TIME ON __________,
1998 (THE "INITIAL EXPIRATION DATE"), UNLESS EXTENDED.
- --------------------------------------------------------------------------------
To Our Clients:
Enclosed for your consideration is a Prospectus, dated ____________, 1998
(as the same may be amended from time to time, the "Prospectus"), and a Letter
of Transmittal (the "Letter of Transmittal") relating the offer by Sheffield
Steel Corporation (the "Company") to exchange (the "Exchange Offer") its 11 1/2%
Series B First Mortgage Notes due 2005 (the "New First Mortgage Notes") for an
equal principal amount of its 11 1/2% Series A First Mortgage Notes due 2005
(the "Old First Mortgage Notes") upon the terms and conditions set forth in the
Prospectus and in the related Letter of Transmittal. As set forth in the
Prospectus, the terms of the New First Mortgage Notes are identical in all
material respects to the Old First Mortgage Notes, except for certain transfer
restrictions relating to the Old First Mortgage Notes and except that the New
First Mortgage Notes will not contain certain provisions relating to an increase
in the interest rate which were included in the Old First Mortgage Notes under
certain circumstances relating to the timing of the Exchange Offer. The
Exchange Offer is subject to certain customary conditions. See "The Exchange
Offer" in the Prospectus. The Old First Mortgage Notes may be tendered only in
integral multiples of $1,000.
The material is being forwarded to you as the beneficial owner of Old First
Mortgage Notes carried by us for your account or benefit but not registered in
your name. An exchange of any Old First Mortgage Notes may only be made by us
as the registered Holder and pursuant to your instructions. Therefore, the
Company urges beneficial owners of Old First Mortgage Notes registered in the
name of a broker, dealer, commercial bank, trust company or other nominee to
contact such Holder promptly if they wish to exchange Old First Mortgage Notes
in the Exchange Offer.
Accordingly, we request instructions as to whether you wish us to exchange
any or all such Old First Mortgage Notes held by us for your account or benefit,
pursuant to the terms and conditions set forth in the Prospectus and Letter of
Transmittal. We urge you to read carefully the Prospectus and Letter of
Transmittal before instructing us to exchange your Old First Mortgage Notes.
<PAGE>
Your instructions to us should be forwarded as promptly as possible in
order to permit us to exchange Old First Mortgage Notes on your behalf in
accordance with the provisions of the Exchange Offer. THE EXCHANGE OFFER
EXPIRES AT 5:00 P.M., NEW YORK CITY TIME, ON _____________, 1998, UNLESS
EXTENDED. With respect to the Exchange Offer, "Expiration Date" means the
Initial Expiration Date, or if the Exchange Offer is extended, the latest time
and date to which the Exchange Offer is so extended by the Company. Tender of
Old First Mortgage Notes may be withdrawn at any time prior to 5:00 p.m., New
York City time, on the Expiration Date.
Your attention is directed to the following:
1. The Exchange Offer is for the exchange of $1,000 principal amount
of the New First Mortgage Notes for each $1,000 principal amount of the Old
First Mortgage Notes, of which $110,000,000 aggregate principal amount of
the Old First Mortgage Notes was outstanding as of ______________, 1998.
The terms of the New First Mortgage Notes are identical in all material
respects to the Old First Mortgage Notes, except for certain transfer
restrictions relating to the Old First Mortgage Notes and except that the
New First Mortgage Notes will not contain certain provisions relating to an
increase in the interest rate which were included in the Old First Mortgage
Notes under certain circumstances relating to the timing of the Exchange
Offer.
2. THE EXCHANGE OFFER IS SUBJECT TO CERTAIN CONDITIONS. SEE "THE
EXCHANGE OFFER - CONDITIONS" IN THE PROSPECTUS.
3. The Exchange Offer and withdrawal rights will expire at 5:00 p.m.,
New York City time, on ___________, 1998, unless extended.
4. The Company has agreed to pay the expenses of the Exchange Offer.
5. Any transfer taxes incident to the transfer of Old First Mortgage
Notes from the tendering Holder to the Company will be paid by the Company,
except as provided in the Prospectus and the Letter of Transmittal.
The Exchange Offer is not being made to, nor will exchanges be accepted
from or on behalf of, holders of Old First Mortgage Notes residing in any
jurisdiction in which the making of the Exchange Offer or acceptance thereof
would not be in compliance with the laws of such jurisdiction.
If you wish us to exchange any or all of your Old First Mortgage Notes held
by us for your account or benefit, please so instruct us by completing,
executing and returning to us the instruction form that appears below. THE
ACCOMPANYING LETTER OF TRANSMITTAL IS FURNISHED TO YOU FOR INFORMATIONAL
PURPOSES ONLY AND MAY NOT BE USED BY YOU TO EXCHANGE OLD FIRST MORTGAGE NOTES
HELD BY US AND REGISTERED IN OUR NAME FOR YOUR ACCOUNT OR BENEFIT.
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<PAGE>
INSTRUCTIONS
The undersigned acknowledge(s) receipt of your letter and the enclosed
material referred to therein relating to the Exchange Offer of Sheffield Steel
Corporation.
This will instruct you to exchange the aggregate principal amount of Old
First Mortgage Notes indicated below (or, if no aggregate principal amount is
indicated below, all Old First Mortgage Notes) held by you for the account or
benefit of the undersigned, pursuant to the terms of and conditions set forth in
the Prospectus and the Letter of Transmittal.
- --------------------------------------------------------------------------------
AGGREGATE PRINCIPAL AMOUNT OF OLD FIRST MORTGAGE NOTES TO BE EXCHANGED
$ *
- --------------------------------------------------------------------------------
* I (we) understand that if I (we) ---------------------------------------
sign these instruction forms ---------------------------------------
without indicating an aggregate Signature(s)
principal amount of Old First
Mortgage Notes in the space above, ---------------------------------------
all Old First Mortgage Notes held ---------------------------------------
by you for my (our) account will ---------------------------------------
be exchanged. ---------------------------------------
(Please print name(s) and address here)
Dated: , 1998
---------------------------
---------------------------------------
(Area Code and Telephone Number)
---------------------------------------
(Taxpayer Identification and Social
Security Number)
- ---------------------
* Unless otherwise indicated, it will be assumed that all of your Old First
Mortgage Notes are to be exchanged.
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