<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended January 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to __________
Commission file number: 33-67532
SHEFFIELD STEEL CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 74-2191557
(State or other (I.R.S. Employer
jurisdiction of incorporation) identification No.)
220 North Jefferson Street
Sand Springs, OK 74063
(Address of principal executive offices)
(918) 245-1335
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X No
--- ---
At the date of this filing, there were 3,573,940 shares of the Registrant's
$.01 par value Common Stock outstanding. The aggregate market value of voting
stock held by nonaffiliates is unknown as the Registrant's stock is not traded
on an established public trading market.
<PAGE>
SHEFFIELD STEEL CORPORATION
FORM 10-Q
Index
<TABLE>
<CAPTION>
Page
----
<S> <C>
Part I. Financial Information
Item 1. Financial Statements
Consolidated Condensed Balance Sheets -
April 30, 1999 and January 31, 2000 3
Consolidated Condensed Statements of Operations -
Three and nine month periods ended January 31, 1999 and 2000 4
Consolidated Condensed Statements of Cash Flows -
Nine months ended January 31, 1999 and 2000 5
Notes to Consolidated Condensed Financial Statements 6-7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations 8-13
Part II. Other Information
Item 1. Legal Proceedings 14
Item 4. Submission of Matters to a Vote of Security Holders 14
Item 6. Exhibits and Reports on Form 8-K 14
Signature 15
</TABLE>
2
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Balance Sheets
(In thousands)
(Unaudited)
April 30, January 31,
Assets 1999 2000
------ ---- ----
Current assets:
Cash and cash equivalents $ 86 69
Accounts receivable,
less allowance for doubtful accounts of $658
at April 30, 1999 and $833 at January 31, 2000 19,943 20,940
Inventories 44,034 47,977
Other current assets 4,839 4,633
-------- -------
Total current assets 68,902 73,619
Property, plant and equipment, net 68,310 66,585
Intangible assets, net 10,011 9,558
Other assets, net 3,626 3,287
Deferred income tax asset 1,712 1,849
-------- -------
$152,561 154,898
======== =======
Liabilities and Stockholders' Deficit
-------------------------------------
Current liabilities:
Current portion of long-term debt $ 2,885 2,616
Accounts payable 14,878 14,113
Accrued interest payable 5,362 2,145
Accrued liabilities 6,455 7,788
-------- -------
Total current liabilities 29,580 26,662
Long-term debt, excluding current portion 122,710 128,588
Accrued post-retirement benefit costs 12,380 13,265
Other liabilities 1,088 956
-------- -------
Total liabilities 165,758 169,471
-------- -------
Stockholders' deficit:
Common stock 35 36
Additional paid-in capital 2,024 2,872
Accumulated deficit (14,202) (16,387)
-------- -------
Total stockholders' deficit (12,143) (13,479)
Less loans to stockholders 1,054 1,094
-------- -------
(13,197) (14,573)
-------- -------
$152,561 154,898
======== =======
See accompanying notes to consolidated condensed financial statements.
3
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Operations
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
January 31, January 31,
----------------------- ------------------------
1999 2000 1999 2000
------- ------ ------- -------
<S> <C> <C> <C> <C>
Sales $34,720 39,545 118,389 124,997
Cost of sales 26,684 31,269 91,600 95,879
------- ------ ------- -------
Gross profit 8,036 8,276 26,789 29,118
Selling, general and administrative expense 3,624 3,811 11,062 11,728
Depreciation and amortization expense 1,989 2,086 5,743 6,245
Postretirement benefit expense other than pensions 594 496 2,054 1,788
Litigation settlement - - (2,200) (2,326)
------- ------ ------- -------
Operating income 1,829 1,883 10,130 11,683
Other expense:
Interest expense, net 3,731 3,807 10,869 11,215
Other (4) 5 26 153
------- ------ ------- -------
3,727 3,812 10,895 11,368
------- ------ ------- -------
Income (loss) from operations before
income taxes (1,898) (1,929) (765) 315
Income tax expense - - - -
------- ------ ------- -------
Net income (loss) $(1,898) (1,929) (765) 315
======= ====== ======= =======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
4
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Consolidated Condensed Statements of Cash Flows
(In thousands)
(Unaudited)
<TABLE>
<CAPTION>
Nine Months Ended
January 31,
------------------------------------
1999 2000
---- ----
<S> <C> <C>
Cash flows from operating activities:
Net income (loss) $ (765) 315
Adjustments to reconcile net income (loss) to net cash
(used in) provided by operating activities:
Depreciation and amortization 5,987 6,488
Loss (gain) on sale of assets held for sale (23) 118
Accrual of postretirement benefits other than pensions,
net of cash paid 1,441 885
Changes in assets and liabilities, net of effects from
acquisition of business (17,584) (7,653)
-------- ------
Net cash (used in) provided by operating activities (10,944) 153
-------- ------
Cash flows from investing activities:
Capital expenditures (4,805) (4,042)
Acquisition of business, net of cash acquired (2,635) -
Proceeds from sale of assets held for sale and equipment 34 182
-------- ------
Net cash used in investing activities (7,406) (3,860)
-------- ------
Cash flows from financing activities:
Net increase in long-term debt 16,387 5,609
Dividends paid - (2,500)
Other (553) 581
-------- ------
Net cash provided by financing activities 15,834 3,690
-------- ------
Net decrease in cash (2,516) (17)
Cash and cash equivalents at beginning of period 2,590 86
-------- ------
Cash and cash equivalents at end of period $ 74 69
======== ======
Supplemental disclosure of cash flow information
- ------------------------------------------------
Cash paid during the period for interest $ 13,621 14,189
======== ======
Cash paid during the period for income taxes $ - 138
======== ======
</TABLE>
See accompanying notes to consolidated condensed financial statements.
5
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements
January 31, 1999 and 2000
(In thousands)
(Unaudited)
1) Basis of Presentation and Summary of Accounting Policies
The consolidated financial statements of Sheffield Steel Corporation (the
Company, which may be referred to as we, us or our) 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), Wellington Industries, Inc.
(Wellington) since October 7, 1998 and Sand Springs Railway Company (the
Railway). HMK Enterprises, Inc. (HMK) owns approximately 90% of our currently
issued and outstanding common stock. All material intercompany transactions and
balances have been eliminated in consolidation. Our primary business is the
production of concrete reinforcing bar, fence posts, and a range of hot rolled
bar products including rounds, flats and squares. Our products are sold
throughout the continental United States. We operate in a single operating
segment providing steel products and services to the steel manufacturing and
fabricating industry.
These consolidated condensed interim financial statements have been prepared by
us without audit, according to the rules and regulations of the Securities and
Exchange Commission and reflect all adjustments that we believe were necessary
for a fair statement of the results for the interim periods. All adjustments
made were normal recurring accruals. We suggest that these interim financial
statements are read in conjunction with the consolidated financial statements
and notes contained in our Form 10-K for the year ended April 30, 1999.
Operating results for the quarter and nine months ended January 31, 2000 are not
necessarily indicative of the results that we expect for the year ending April
30, 2000.
2) Inventories
The components of inventories are as follows:
April 30, January 31,
1999 2000
---- ----
Raw materials and storeroom supplies $ 12,408 10,501
Work in process 13,390 15,911
Finished goods 18,236 21,565
-------- -------
$ 44,034 47,977
======== =======
6
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
Notes to Consolidated Condensed Financial Statements, Continued
3) Long-term Debt
Long-term debt is comprised of the following:
April 30, January 31,
1999 2000
---- ----
First mortgage notes $ 110,000 110,000
Revolving credit agreement 6,285 13,421
Railway term loan 1,000 2,000
Railway revolving credit agreement 620 7
Equipment notes 4,931 3,916
Notes payable 2,759 1,860
--------- --------
125,595 131,204
Less current portion 2,885 2,616
--------- --------
$ 122,710 128,588
========= ========
On January 5, 2000, we renewed our Railway Credit Agreement with a bank. The
Agreement is comprised of two notes; a $2.0 million term loan with $0.5 million
principal payments due annually with the final payment due February 1, 2004, and
a $1.0 million line of credit maturing February 1, 2002. The notes are secured
by the assets and capital stock of the Railway. Interest is computed at prime
plus 3/4% and is payable quarterly.
4) Litigation Settlement
We were party to a lawsuit with several other steel manufacturers against
certain manufacturers of graphite electrodes related to price fixing within the
electrode industry. We recognized approximately $2.3 million related to
settlements reached this fiscal year ($2.2 million in fiscal '99) with certain
of the defendents. With respect to the current fiscal year settlement, we have
received approximately $1.3 million in cash and the remainder is secured by a
letter of credit and included in accounts receivable.
7
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
ITEM 2 Management's Discussion and Analysis of
Financial Condition and Results of Operations
---------------------------------------------
The following discussion should be read in conjunction with our
Consolidated Condensed Financial Statements and notes included in this Form
10-Q.
Results of Operations
The results of operations are dependent on the level of construction,
infrastructure spending, oil and gas, agribusiness, and general economic
activity in the U.S. Our sales are seasonal with the third fiscal quarter
generally being weaker than the rest of the year. The major cost components of
our products are steel scrap and other raw materials, energy, labor, warehousing
and handling, and freight costs.
Our collective bargaining agreement with the United Steelworkers of America
(the Union), which covers approximately 300 hourly-paid production and
maintenance employees in Sand Springs, expired on March 1, 2000. We reached a
tentative agreement with the Union effective March 2, 2000, through March 1,
2004, which was ratified by the union on March 1, 2000. The Union agreement
provides for an increase in hourly wages of $1.35 over four years and minor
changes to certain benefits.
The following table provides information regarding the historical results
of operations (in thousands) for the quarters ended January 31, 1999 and 2000:
Three Months Ended January 31,
----------------------------------------------
1999 2000
---------------------- ----------------------
Operating Results: Net Sales % of Sales Net Sales % of Sales
---------- ---------- --------- ----------
Sales $ 34,720 100.0% 39,545 100.0%
Cost of sales 26,684 76.9% 31,269 79.1%
------ ------
Gross Profit 8,036 23.1% 8,276 20.9%
Selling and administrative 3,624 10.4% 3,811 9.6%
Depreciation and amortization 1,989 5.7% 2,086 5.3%
Postretirement benefit expense 594 1.7% 496 1.3%
Litigation settlement - - - -
------ ------
Operating income 1,829 5.3% 1,883 4.8%
Interest expense, net 3,731 10.7% 3,807 9.6%
Other (4) 0.0% 5 0.0%
------ ------
Loss from operations before
income taxes (1,898) (5.5%) (1,929) (4.9%)
Income tax expense - - - -
------ ------
Net loss $ (1,898) (5.5%) (1,929) (4.9%)
====== =====
8
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
The following table provides information regarding the historical shipment
levels and average selling prices per ton:
Three Months Ended January 31,
------------------------------
1999 2000
------- -------
Tons shipped:
Hot Rolled Bars 32,035 40,726
Rebar 34,565 42,768
Fabricated Products 15,981 17,080
------- -------
Total finished products 82,581 100,574
Billets 3,393 6,621
------- -------
Total tons shipped 85,974 107,195
======= =======
Price per ton:
Hot Rolled Bars $ 475 429
Rebar 298 285
Fabricated Products 498 471
Billets 192 205
Average price per ton shipped 404 369
Average production cost per ton 310 292
Three Months Ended January 31, 2000 As Compared To Three Months Ended January
31, 1999
Sales. Sales for the third quarter of fiscal 2000 were $39.5 million.
Shipments increased in comparison to the same quarter in the prior year, while
pricing generally decreased as summarized below:
. In comparison to the third quarter of fiscal 1999, pricing of our hot
rolled bar products in Joliet has been impacted by market conditions with prices
decreasing approximately 5%. Hot rolled bar shipments from Sand Springs
increased 92% over the same period in the prior year, but pricing decreased
approximately 10%. The increase in shipments was due to improved sales of
products that support certain industries such as oil field equipment,
transportation and consumer products. In addition, in the same period in the
prior year, our sales were impacted by service centers and original equipment
manufacturers reducing inventories due to market uncertainties.
. In comparison to the third quarter of fiscal 1999, rebar shipments
increased 24% while pricing decreased 5%. Shipments increased due to strong
construction markets, infrastructure spending, favorable weather conditions and
our improved inventory position.
. Finished goods prices are down in comparison to this quarter in fiscal 1999
in part due to competitive market conditions and reductions in steel scrap raw
material costs. However, during the second quarter of fiscal 2000, our scrap raw
material costs began to increase and this has had an adverse effect on cost of
sales in the third fiscal quarter. Moderate price increases have been announced
and in some cases implemented for certain products; however, in the short-term,
we do
9
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
not expect to be able to increase sales prices by an amount sufficient to offset
the cost increases and our margins will be adversely affected.
. Billet shipments increased 95% over the same quarter in the prior year in
response to stronger market conditions. The average selling price of billets
increased 6.6% because billet pricing is related to scrap raw material costs.
Cost of Sales and Expenses. Average product cost per ton decreased to $292 in
the third quarter of fiscal 2000 from $310 in the third quarter of fiscal 1999
primarily due to decreases in steel scrap raw material costs. This decrease was
partially offset by higher costs associated with finished goods product mix and
higher operating costs. We also produced a higher percentage of hot rolled bar
product in the Sand Springs rolling mill this quarter in comparison to the same
quarter in the prior year.
Nine Months Ended January 31, 2000 As Compared To Nine Months Ended January 31,
1999
The following table provides information regarding the historical results of
operations (in thousands) for the nine months ended January 31, 1999 and 2000:
Nine Months Ended January 31,
--------------------------------------------
1999 2000
--------------------- ---------------------
Operating Results: Net Sales % of Sales Net Sales % of Sales
--------- ---------- --------- ----------
Sales $ 118,389 100.0% 124,997 100.0%
Cost of sales 91,600 77.4% 95,879 76.7%
--------- --------
Gross Profit 26,789 22.6% 29,118 23.3%
Selling and administrative 11,062 9.3% 11,728 9.4%
Depreciation and amortization 5,743 4.9% 6,245 5.0%
Postretirement benefit expense 2,054 1.7% 1,788 1.4%
Litigation settlement (2,200) (1.9%) (2,326) (1.9%)
--------- --------
Operating income 10,130 8.6% 11,683 9.3%
Interest expense, net 10,869 9.2% 11,215 9.0%
Other 26 0.0% 153 0.1%
--------- --------
Income (loss) from operations
before income taxes (765) (0.6%) 315 0.3%
Income tax expense - - - -
--------- --------
Net income (loss) $ (765) (0.6%) 315 0.3%
========= ========
10
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
The following table provides information regarding the historical shipment
levels and average selling prices per ton:
Nine Months Ended January 31,
-----------------------------
1999 2000
-------- -------
Tons shipped:
Hot Rolled Bars 115,642 117,826
Rebar 123,606 141,461
Fabricated Products 43,030 51,759
-------- --------
Total finished products 282,278 311,046
Billets 15,809 29,632
-------- --------
Total tons shipped 298,087 340,678
======== ========
Price per ton:
Hot Rolled Bars $ 465 439
Rebar 302 287
Fabricated Products 504 490
Billets 215 186
Average price per ton shipped 397 367
Average production cost per ton 307 281
Sales. Sales for the nine months ended January 31, 2000 were $125.0 million.
Shipments increased in comparison to the same period in the prior year, while
pricing generally decreased as summarized below:
. In comparison to the nine months ended January 31, 1999, shipments and
pricing of our hot rolled bar products in Joliet have been impacted by market
conditions with shipments decreasing approximately 5% and pricing decreasing 4%.
Hot rolled bar shipments from Sand Springs increased 53% over the same period in
the prior year excluding sales to Wellington, which was acquired in October
1998, from the prior year number. We have seen some improvement in hot rolled
bar sales that support certain industries such oil field equipment; however,
agricultural equipment sales continue to lag.
. Rebar shipments rebounded due to our favorable inventory position in
comparison to the nine months ended January 31, 1999. In the prior year, we had
very low inventories due to the rolling mill outage at the Sand Springs Facility
related to the Shear Line Project completed in the fourth quarter of fiscal
1998.
. Finished goods prices are down in comparison to the nine month period ended
January 31, 1999, in part due to reductions in steel scrap raw material costs.
During the second quarter of fiscal 2000, our scrap raw material costs began to
increase which is having an adverse effect on cost of sales. Moderate price
increases have been announced and in some cases implemented for certain
products; however, in the short-term, we do not expect to be able to increase
sales prices by an amount sufficient to offset the cost increases and our
margins will be adversely affected.
11
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
. In October 1998, we purchased Wellington, a railroad track spike
manufacturer, which increased our sales of fabricated products and improved
overall average selling prices.
Cost of Sales and Expenses. Average product cost per ton decreased to $281 in
the nine month period ended January 31, 2000 from $307 in the same period in the
prior year primarily due to decreases in steel scrap raw material costs. This
decrease was partially offset by higher costs associated with finished goods
product mix and higher operating costs.
Selling, general and administrative expenses increased approximately $0.7
million or 6% over the first nine months of fiscal 1999, primarily due to
employment costs as well as the acquisition of Wellington in October 1998.
During fiscal 1999, we were parties in a lawsuit with several other steel
manufacturers against certain graphite electrodes manufacturers related to price
fixing within the electrode industry. During the second quarter of fiscal 1999,
we recorded approximately $2.2 million related to this lawsuit. In the first
quarter of fiscal 2000, we recorded an additional $2.3 million from different
defendants, of which $1.3 million was received during the first quarter of
fiscal 2000.
Liquidity and Capital Resources
As of January 31, 2000, we had long-term indebtedness of $131.2 million and
approximately $25 million of additional borrowing availability under our
revolving credit agreements. We continue to comply with all of our loan
covenants. Borrowings under our revolving credit agreements bear interest at a
floating rate. To the extent that interest rates and amounts outstanding under
the revolving credit agreements increase, there will be corresponding increases
in expenses. In addition to borrowings under the revolving credit agreements, we
have historically used cash flow from operations and equipment financing
agreements to fund our investing activities, including capital expenditures.
Cash flow provided by operating activities was approximately $0.2 million
for the nine month period ended January 31, 2000, as compared with cash flow
used in operating activities of approximately $10.9 million for the nine month
period ended January 31, 1999. Improvement in cash flow from operating
activities is a result of our improved operating performance. Cash used in
operating activities in the prior year also included amounts to re-build
inventory after the completion of the Shear Line Project. Cash used in investing
activities in the nine months ended January 31, 2000 was approximately $3.7
million, consisting of capital expenditures partially offset by the sale of
assets held for sale. Capital expenditures consisted of normal capital projects
to sustain and improve existing operations. For the nine month period ended
January 31, 2000, cash provided by financing activities consisted of increased
borrowings under the revolving credit agreement and the Railway Credit Agreement
offset by dividends paid and other financing activities.
12
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
We have entered into a $10 million operating lease for a new reheat furnace
for the Sand Springs rolling mill. The lease term is five years and contains an
option to purchase the equipment at fair market value at the end of the lease
term.
Earnings before interest, taxes, depreciation, amortization, and the
non-cash portion of the post-retirement expense (EBITDA) was approximately $4.1
million for the quarter ended January 31, 2000, compared to approximately $4.3
million for the same quarter in the prior year. For the nine months ended
January 31, 2000, EBITDA was $16.5 million compared to $15.1 million in nine
months ended January 31, 1999. We have excluded the electrode litigation
settlement in all EBITDA calculations. We believe that EBITDA is a valuable
measure of our operating cash flow and we consider it an indicator of our
ability to meet interest payments and fund capital expenditures. 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.
Our cash flow from operating activities and borrowings under our revolving
credit facilities are expected to be sufficient to fund capital improvements and
meet any near-term working capital requirements. We estimate that our annual
amount of necessary maintenance capital expenditures is approximately $3
million. On a long-term basis, we have significant debt service obligations. Our
ability to satisfy these obligations and to secure adequate capital resources in
the future will be dependent on our ability to generate adequate operating cash
flow. We expect that our cash flow from operations and borrowing availability
under the revolving credit facilities will be sufficient to service the First
Mortgage Notes and other investing activities. This will be dependent on our
overall operating performance and is subject to general business, financial and
other factors affecting us and others in the steel industry, as well as
prevailing economic conditions, certain of which are beyond our control. The
leveraged position we are in and the restrictive covenants we have in our bond
Indenture and the revolving credit facilities could significantly limit our
ability to withstand competitive pressures or adverse economic conditions.
Year 2000 Compliance
We recognized the Year 2000 (Y2K) Information Technology issue in 1986 and
began to address the problem with the re-design of our internal information
systems. In early 1998, we created a formal Y2K Task Force with executive
oversight to examine Y2K issues as they pertained to areas outside internal
information systems including information systems infrastructure, desktop
applications, manufacturing and distribution, product compliance and supply
chain. To date, we have experienced no significant problems and we do not
anticipate any significant problems related to the Y2K issue.
13
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
PART II. OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
We are not a party to any significant pending legal proceedings other than
litigation incidental to our business that we believe will not materially
affect our financial position or results of operations. Such claims against us
are ordinarily covered by insurance. We can give no assurance, however, that
insurance will be available in the future at reasonable rates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
A. Exhibits
See exhibit index.
B. Reports on Form 8-K
No reports on Form 8-K were filed during the third quarter ended January 31,
2000.
14
<PAGE>
SHEFFIELD STEEL CORPORATION AND SUBSIDIARIES
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report on Form 10-Q to be signed on its behalf
by the undersigned thereunto duly authorized.
SHEFFIELD STEEL CORPORATION
Date: March 9, 2000 /s/ Robert W. Ackerman
------------- ----------------------
Robert W. Ackerman, Chairman
and Chief Executive Officer
Date: March 9, 2000 /s/ Stephen R. Johnson
------------- -----------------------
Stephen R. Johnson, Vice President
and Chief Financial Officer
15
<PAGE>
Exhibit Index
Exhibit No. Description Page No.
- ----------- ----------- --------
10.38 Second Restated Credit Agreement, dated January 5,
2000 between Sand Springs Railway Company and Bank
of Oklahoma, N.A. 17
27 Financial Data Schedule
<PAGE>
Exhibit 10.38
SECOND RESTATED CREDIT AGREEMENT
This Second Restated Credit Agreement is dated as of January 5, 2000, by
and among SAND SPRINGS RAILWAY COMPANY, an Oklahoma corporation ("Borrower"),
and BANK OF OKLAHOMA, NATIONAL ASSOCIATION, a national banking association
("Bank").
RECITALS
A. Reference is made to the Restated Credit Agreement dated April 23,
1991, as amended May 31, 1992, September 24, 1993, November 4, 1994, July 31,
1996, July 31, 1997, and July 31, 1998 (the "Existing Credit Agreement"),
currently by and between Borrower and Bank, pursuant to which exists a
$2,000,000 Term Loan, with a current outstanding balance of $500,000, and a
$1,500,000 revolving line of credit.
B. Borrower and Bank hereby intend to (i) restate the Existing Credit
Agreement in its entirety, (ii) renew and readvance $1,504,000 under the
$2,000,000 Term Loan, (iii) renew and decrease the $1,500,000 revolving line of
credit to $1,000,000, and (iv) restate certain other terms and conditions as set
forth below.
AGREEMENT
For valuable consideration received, it is agreed as follows:
A. DEFINED TERMS. As used in this Agreement, the following terms have the
-------------
following meanings (terms defined in the singular to have the same meaning when
used in the plural and vice versa).
B.
1. Accounting Terms. All accounting terms not specifically defined
----------------
herein shall be construed in accordance with GAAP consistent with those
applied in the preparation of the financial statements referred to in
Section 6.9, and all financial data submitted pursuant to this Agreement
shall be prepared in accordance with such principles.
1. "Affiliate" means any Person: (i) which directly or indirectly
---------
controls, or is controlled by, or is under common control with, Borrower;
(ii) which directly or indirectly beneficially owns or holds five percent
(5%) or more of any class of voting stock of either Borrower; or (iii) five
percent (5%) or more of the voting stock of which is directly or indirectly
beneficially owned or held by either Borrower. The term "control" means the
possession, directly or indirectly, of the power to direct or cause the
direction
<PAGE>
of the management and policies of a Person, whether through the ownership
of voting securities, by contract, or otherwise.
1. "Agreement" means this Second Restated Credit Agreement, as amended,
---------
supplemented, or modified from time to time.
2. "Assignment Amendments" means that certain Amendment Two to Assignment
---------------------
of Transportation Agreement ("Assignment of Transportation Agreement"), and
that certain Amendment Two to Assignment of User Contracts ("Assignment of
User Contracts"), both of even date herewith and between Borrower and Bank,
in form and content as set forth on Schedule "1.4(a)" and Schedule "1.4(b)"
----------------- -----------------
attached hereto.
1. "Borrowing Resolutions" means certified Resolutions from the Secretary
---------------------
of Borrower, in form and content as set forth on Schedule "1.5" attached
--------------
hereto.
1. "Business Day" means any day other than a Saturday, Sunday, or other
------------
day on which commercial banks in Oklahoma are authorized or required to
close under the laws of the State of Oklahoma.
1. "Capital Lease" means all leases which have been or should be
-------------
capitalized on the books of the lessee in accordance with GAAP.
1. "Certificates of Good Standing" means a Certificate of Good Standing
-----------------------------
issued by the Secretary of State of incorporation for the Borrower and such
other states in which Borrower does business and is required to domesticate
or otherwise register, indicating that Borrower is in good standing with
the laws of such state(s).
1. "Code" means the Internal Revenue Code of 1986, as amended from time
----
to time, and the regulations and published interpretations thereof.
1. "Collateral" means all property in which Bank is intended to have a
----------
security interest, as described in Section 3.
1. "Commitment" means the Bank's obligation to make loans to the Borrower
----------
pursuant to this Agreement.
1. "Commitment Fee" means the amount payable by Borrower to Bank from the
--------------
date hereof to the Termination Date, computed at a rate equal to one-
quarter percent (1/4%) per annum on the average daily amount of the unused
portion of the $1,000,000 Revolving Line, payable quarterly. Such
Commitment Fee shall be payable by a debit to the general deposit account
at Bank in such amount on or before the fifteenth (15th) day after the end
of each calendar quarter. For the purposes of this Section, Borrower hereby
authorizes and appoints Bank to make such debit.
<PAGE>
1. "Commonly Controlled Entity" means an entity, whether or not
--------------------------
incorporated, which is under common control with the Borrower within the
meaning of Section 414(b) or 414(c) of the Code.
1. "Debt" means, including but not limited to: (i) indebtedness or
----
liability for borrowed money; (ii) obligations evidenced by bonds,
debentures, notes, or other similar instruments; (iii) obligations for the
deferred purchase price of property or services (including trade
obligations); (iv) obligations under letters of credit; (v) obligations
under acceptance facilities; (vi) all guaranties, endorsements (other than
for collection or deposit in the ordinary course of business), and other
contingent obligations to purchase, to provide funds for payment, to supply
funds to invest in any Person or entity, or otherwise to assure a creditor
against loss; and (vii) obligations secured by any Liens, whether or not
the obligations have been assumed.
1. "EBITDA" shall mean Net Income plus interest expense, depreciation
------
expense, amortization expense, non cash expense associated with FAS 106 and
any income tax expense, in accordance with GAAP, consistently applied.
1. "ERISA" means the Employee Retirement Income Security Act of 1974, as
-----
amended from time to time, and the regulations and published
interpretations thereof.
1. "GAAP" means generally accepted accounting principles in the United
----
States, applied on a consistent basis.
1. "Initial Default" means any of the events specified in Section 9,
---------------
whether or not any requirement for the giving of notice, the lapse of time,
or both, or any other condition has been satisfied.
1. "Lien" means any mortgage, pledge, hypothecation, assignment, deposit
----
arrangement, encumbrance, lien (statutory or other), or preference,
priority or other security agreement or preferential arrangement of any
kind or nature whatsoever (including, without limitation, any conditional
sale or other title retention agreement, any financing lease having
substantially the same economic effect as any of the foregoing, and the
filing of any financing statement under the Uniform Commercial Code or
comparable law of any jurisdiction in respect of any of the foregoing.)
1. "Loan" means advances under the $1,000,000 Revolving Line or the
----
$2,000,000 Term Loan.
1. "Loan Documents" means this Agreement, the Notes, the Mortgage, the
--------------
Mortgage Amendment, the Security Agreement, the Security Agreement
Amendment, the Pledge Agreement, the Pledge Agreement Amendment, the
Assignment of Transportation Agreement, the Assignment of User Contracts,
the instruments said amendments amend, any financing statements and all
other instruments, documents or agreements required under this Agreement.
<PAGE>
1. "Matured Default" means any of the events specified in Section 9,
---------------
provided that any requirement for the giving of notice, the lapse of time,
or both, or any other condition has been satisfied.
1. "Mortgage Amendment" means, separately and collectively, the Third
------------------
Amendment to Mortgage and Security Agreement, in form and content as set
forth on Schedule "1.23-A" attached hereto, and the Fourth Amendment to
-----------------
Mortgage and Security Agreement, in form and content as set forth on
Schedule "1.23-B" attached hereto, which amend the two Real Estate Mortgage
-----------------
and Security Agreements (separately and collectively, "Mortgage") both
dated December 10, 1987, and both recorded with the Interstate Commerce
Commission ("ICC"), the Oklahoma Secretary of State and the Tulsa County
Clerk.
1. "Multiemployer Plan" means a Plan described in Section 4001(a)(3) of
------------------
ERISA.
1. "Bank of America (formerly NationsBank) Facility" means that certain
-----------------------------------------------
credit facility extended by NationsBank to Sheffield Steel under that
certain Receivable and Inventory Financing Agreement dated January 16,
1992, as amended, between Bank of America and Sheffield Steel.
1. "Net Worth" means total assets, as determined in accordance with GAAP,
---------
less loans and advances to other Persons, less Total Liabilities.
1. "Notes" means, separately and collectively, the $2,000,000 Term Note
-----
and the $1,000,000 Line Note.
1. "Obligations" means the Obligations defined in Section 3.
-----------
1. "Oklahoma City" means Sheffield Steel Corporation -- Oklahoma City, a
-------------
Delaware corporation.
1. "$1,000,000 Line Note" shall mean the $1,000,000 Promissory Note in
--------------------
form and content as set forth on Schedule "1.30" attached hereto.
--------------
1. "Opinion of Borrower's Counsel" means a legal opinion from Borrower's
-----------------------------
legal counsel including, without limitation, the opinions relating to
Borrower and this loan transaction as set forth on Schedule "1.31" attached
--------------
hereto.
1. "PBGC" means the Pension Benefit Guaranty Corporation or any entity
----
succeeding to any or all of its functions under ERISA.
1. "Permitted Liens" means, as to Borrower and all Subsidiaries:
---------------
(1) Liens in favor of the Bank;
<PAGE>
(2) Liens for taxes or assessments or other government charges or
levies if not yet due and payable or, if due and payable or, if they are
being contested in good faith by appropriate proceedings and for which
appropriate reserves are maintained;
(3) Liens imposed by law, such as mechanics', materialmen's,
landlords', warehousemen's, and carriers' liens, and other similar Liens,
securing obligations incurred in the ordinary course of business which are
not past due for more than thirty (30) days or which are being contested in
good faith by appropriate proceedings and for which appropriate reserves
have been established;
(4) Liens under workers' compensation, unemployment insurance, Social
Security, or similar legislation;
(5) Liens, deposits, or pledges to secure the performance of bids,
tenders, contracts (other than contracts for the payment of money), leases
(permitted under the terms of this Agreement), public or statutory
obligations, surety, stay, appeal, indemnity, performance or other similar
bonds, or other similar obligations arising in the ordinary course of
business;
(6) The liens described on Schedule "1.33(6)";
------------------
(7) Judgment and other similar liens arising in connection with court
proceedings, provided the execution or other enforcement of such Liens is
effectively bonded, stayed and the claims secured thereby are being
actively contested in good faith and by appropriate proceedings;
(8) Easements, rights-of-way, restrictions, and other similar
encumbrances which, in the aggregate, do not materially interfere with the
occupation, use and enjoyment by the Borrower of the property or assets
encumbered thereby in the normal course of its business or materially
impair the value of the property subject thereto; and
(9) Purchase-money liens on any property hereafter acquired or the
assumption of any lien on property existing at the time of such acquisition
(and not created in contemplation of such acquisition), or a lien incurred
in connection with any conditional sale or other title retention agreement
or a Capital Lease; provided that:
-------------
(a) Any property subject to any of the foregoing is acquired by
the Borrower or any subsidiary in the ordinary course of its business;
and
<PAGE>
(b) Each such lien shall attach only to the property so acquired
and fixed improvements thereon.
1. "Person" means an individual, partnership, corporation, business
------
trust, joint stock company, trust, unincorporated association, joint
venture, governmental authority, or other entity of whatever nature.
1. "Plan" means any pension plan which is covered by Title IV of ERISA
----
and in respect of which the Borrower or a Commonly Controlled Entity is an
"employer" as defined in Section 3(5) of ERISA.
1. "Pledge Agreement Amendment" means that certain Amendment Two to
--------------------------
Pledge Agreement of even date herewith between Bank and Sheffield Steel, in
form and content as set forth on Schedule "1.36" attached hereto which
---------------
amends the Pledge Agreement ("Pledge Agreement") dated December 10, 1987.
1. "Pledge Resolutions" means certified Resolutions from the Secretary of
------------------
Sheffield Steel, in form and content as set forth on Schedule "1.37"
---------------
attached hereto.
1. "Principal Office" means the Bank's main office located at Seven East
----------------
Second Street, Tulsa, Oklahoma, 74172.
1. "Prohibited Transaction" means any transaction set forth in Section
----------------------
406 of ERISA or Section 4975 of the Code.
1. "Railroad" means Borrower's short-line railroad in Tulsa County,
--------
Oklahoma.
1. "Reportable Event" means any of the events set forth in Section 4043
----------------
of ERISA.
1. "Security Agreement" means the Security Agreement and other Collateral
--------------------
documents described in Section 3.
1. "Security Agreement Amendment" means the Amendment to Security
----------------------------
Agreements, of even date herewith, amending those two (2) certain Security
Agreements dated December 10, 1987 between Borrower and Bank, in form and
content as set forth on Schedule "1.43" attached hereto.
---------------
1. "Sheffield Steel" means Sheffield Steel Corporation, a Delaware
---------------
corporation.
1. "Subsidiary" means any corporation of which shares of stock having
----------
ordinary voting power (other than stock having such power only by reason of
the happening of a contingency) to elect a majority of the board of
directors or other
<PAGE>
managers of such corporation are at the time owned, or the management of
which is otherwise controlled, directly or indirectly through one or more
intermediaries, or both, by the Borrower.
1. "Termination Date" means August 31, 2001.
----------------
1. "Total Liabilities" means total liabilities of Borrower, determined in
-----------------
accordance with GAAP.
1. "Transportation Agreement" means the Transportation Agreement dated
------------------------
January 1, 1988 between Borrower and Sheffield Steel.
1. "$2,000,000 Term Loan Fee" means a fee equal to 1/4% of the $2,000,000
------------------------
Term Loan, or $5,000.00.
1. "$2,000,000 Term Note" shall mean the $2,000,000 Promissory Note in
--------------------
form and content as set forth on Schedule "1.50" attached hereto.
---------------
1. "UCC" shall mean the Uniform Commercial Code of the State of Oklahoma.
---
1. "UCC-1 Chattel Check" means a UCC Information and/or Copy Request as
-------------------
to Borrower from the Chattel Records Division of the Oklahoma County Clerk,
and from any other office deemed necessary or advisable by Bank, which
chattel checks must evidence no conflicting security interests, except the
Permitted Liens.
A. AMOUNT AND TERMS OF THE LOANS.
-----------------------------
B.
1. $2,000,000 Term Loan. Subject to the terms and conditions of this
--------------------
Agreement, the Bank agrees to loan Borrower $2,000,000, to be further
evidenced by the $2,000,000 Term Note. The purpose of the advance under the
$2,000,000 Term Note is to fund distributions to Sheffield Steel.
1. $1,000,000 Revolving Line. Subject to the terms and conditions of this
-------------------------
Agreement, and so long as no Initial Default or Matured Default has
occurred, Bank agrees to loan to Borrower such amounts up to $1,000,000 as
Borrower may request from time to time on or before the maturity of the
$1,000,000 Line Note. In the event Bank shall make advances in excess of
$1,000,000, any such advance shall, nevertheless, be secured by all
Collateral. Within the limits set forth in this Section 2.2, Borrower may
borrow, repay and reborrow at any one time and from time to time.
1. Notice and Manner of Borrowing. The Borrower shall give the Bank at
------------------------------
least one (1) Business Day's notice of any Loans under this Agreement,
specifying the date and amount thereof. Such notice shall be in writing or
via telephone (with voice verification by the appropriate officer), no
later than 10:00 a.m. (Tulsa time) on the date
<PAGE>
of such Loan and upon fulfillment of the applicable conditions, the Bank
will make such Loan available to the Borrower in immediately available
funds by crediting the amount thereof to the following account with the
Bank: Account styled Sand Springs Railway Company No. 209906613.
A. SECURITY. As security for any and all indebtedness, obligations or
--------
liabilities of every kind and description of Borrower to Bank, including,
without limitation, all advances and Loans evidenced by the Notes, and any other
advances or loans made pursuant to this Agreement or any other instrument,
document, agreement executed and/or delivered by Borrower to Bank in connection
herewith, including any extensions, renewals or changes in form of any of the
Notes, and any other obligations or liabilities now existing or hereafter
arising, direct or indirect, absolute or contingent, joint and/or several,
howsoever created or obtained (separately and collectively, the "Obligations"),
Borrower grants to Bank the following liens and security interests and also
agrees as follows:
B.
1. A first and prior security interest in all assets of Borrower,
excluding its rights in certain real estate which are non-assignable, but
including (without limitation) its rights in all other real estate and all
its machinery and equipment, rolling stock, accounts, inventory, contracts
(including, without limitation, the Transportation Agreement, as
hereinafter defined), general intangibles, chattel paper, monies in the
Lockbox (as hereinafter defined), all the issued and outstanding capital
stock of Borrower and all proceeds and products of the foregoing. All the
foregoing other than Borrower's rights in real estate shall sometimes be
referred to hereinafter as the "Security Property", and the Security
Property, together with the real estate, shall sometimes be referred to
hereinafter as the "Collateral".
1. Borrower also agrees to execute and deliver all financing statements
or other instruments, documents or agreements required by Bank in order to
effectuate the intent of the parties in connection herewith, including
without limitation documents necessary for proper perfection as deemed
necessary and/or advisable by Bank and legal counsel.
A. CONDITIONS PRECEDENT.
--------------------
B.
1. Closing. The closing shall occur when all conditions described in
-------
this Section 4.1 have been satisfied.
a) Borrower shall execute and /or deliver to Bank the
following:
A. This Agreement;
B. Borrowing Resolutions;
C. Certificate of Good Standing;
<PAGE>
D. $1,000,000 Line Note;
E. $2,000,000 Term Note;
F. Opinion of Borrower's Counsel;
G. Amendment Two to Security Agreements;
H. Amendment Two to Pledge and Security Agreement;
I. Pledge Resolutions;
J. Amendment Two to Assignment of Transportation Agreement;
K. Amendment Two to Assignment of User Contracts;
L. Chattel Check;
M. Financing Statement;
N. Third Amendment to Real Estate Mortgage and Security
Agreement;
O. Fourth Amendment to Real Estate Mortgage and Security
Agreement;
P. $2,000,000 Term Loan Fee of $5,000;
Q. Completion of all schedules to this Agreement;
R. Any other instruments, documents or agreements reasonably
requested by Bank in connection herewith.
a) The following statements shall be true and correct.
A. The representations and warranties contained in this
Agreement and the other Loan Documents shall be true and correct;
and
B. No Initial Default or Matured Default has occurred and is
continuing or will occur as a result of the execution, delivery
and/or performance by Borrower under any of the Loan Documents.
a) The Bank shall have received such other approvals, opinions,
instruments, documents and/or agreements which it may reasonably request.
<PAGE>
A. REPRESENTATIONS AND WARRANTIES. The Borrower represents and warrants to
------------------------------
the Bank that:
B.
1. Incorporation, Good Standing, and Due Qualification. Borrower is a
---------------------------------------------------
corporation duly incorporated, validly existing, and in good standing under
the laws of the State in which it is incorporated; has the corporate power
and authority to own its assets and to transact the business in which it is
now engaged or proposed to be engaged; and is duly qualified as a foreign
corporation and in good standing under the laws of each other jurisdiction
in which such qualification is required.
1. Corporate Power and Authority. The execution, delivery, and
-----------------------------
performance by Borrower of the Loan Documents have been duly authorized by
all necessary corporate action and do not and will not (1) require any
consent or approval of the stockholders or otherwise (including
governmental or from a lender to Sheffield Steel and Oklahoma City) which
has not been given; (2) contravene Borrower's charter or bylaws; (3)
violate any provision of any law, rule, regulation (including, without
limitation, Regulations U and X of the Board of Governors of the Federal
Reserve System), order, writ, judgment, injunction, decree, determination,
or award presently in effect having applicability to Borrower; (4) result
in a breach of or constitute a default under any indenture or loan or
credit agreement or any other agreement, lease, or instrument to which
Borrower is a party or by which it or its properties may be bound or
affected; (5) result in, or require, the creation or imposition of any
lien, upon or with respect to any of the properties now owned or hereafter
acquired by Borrower; or (6) cause Borrower to be in default under any such
law, rule, regulation, order, writ, judgment, injunction, decree,
determination, or award or any such indenture, agreement, lease, or
instrument.
1. Legally Enforceable Agreement. This Agreement is, and each of the
-----------------------------
other Loan documents when delivered under this Agreement will be, legal,
valid, and binding obligations of Borrower, enforceable against Borrower in
accordance with their respective terms, except to the extent that such
enforcement may be limited by applicable bankruptcy, insolvency, and other
similar laws affecting creditors' rights generally.
1. Financial Statements. Any balance sheets and related statements of
--------------------
income and retained earnings of Borrower and other financial data which
have been furnished to Bank to induce Bank to make the Loan are complete
and correct and fairly present the financial condition of Borrower at such
dates and the results of the operations of Borrower for the periods covered
by such statements, all in accordance with GAAP consistently applied
(subject to year-end adjustments in the case of the interim financial
statements), and there has been no material adverse change in the condition
(financial or otherwise), business or operations of Borrower. There are no
liabilities of Borrower, fixed or contingent, which are material but not
reflected in such financial statements or in the notes thereto, other than
liabilities arising in the ordinary course of business. No information,
exhibit, or report furnished by the Borrower to the Bank in connection with
the negotiation of this Agreement contains any material misstatement of
fact or omits to
<PAGE>
state a material fact or any fact necessary to make the statement contained
therein not materially misleading.
1. Labor Disputes and Acts of God. Neither the business nor the
------------------------------
properties of Borrower is affected by any fire, explosion, accident,
strike, lockout or other labor dispute, drought, storm, hail, earthquake,
embargo, act of God or other casualty (whether or not covered by
insurance), materially adversely affecting such business or the operation
of Borrower.
1. Other Agreements. Borrower is not a party to any indenture, loan,
----------------
or credit agreement, or to any lease or other agreement or instrument, or
subject to any charter or corporate restriction, which could have a
material adverse effect on the business, properties, assets, operations, or
condition, financial or otherwise, of Borrower or the ability of Borrower
to carry out its obligations under the Loan Documents. Borrower is not in
material default in any respect in the performance, observance, or
fulfillment of any of the obligations, covenants, or conditions contained
in any agreement or instrument material to its business to which it is a
party.
1. Litigation. There is no pending or threatened action or proceeding
----------
against or affecting Borrower before any court, governmental agency or
arbitrator, which may, in any one case or in the aggregate, materially
adversely affect the financial condition, operations, properties, or
business of Borrower or the ability of Borrower to perform its obligations
under the Loan Documents. Any litigation which does exist is set forth in
detail satisfactory to Bank on Schedule "5.7" hereto, but Borrower
--------------
represents to Bank that such litigation does not violate this Section 5.7.
1. Ownership and Liens. Borrower has title to, or valid leasehold
-------------------
interests in, all of its properties and assets, real and personal,
including the properties and assets and leasehold interest reflected in the
financial statements referred to in Section 5.4, and none of the properties
and assets owned by Borrower, and none of its leasehold interests, are
subject to any lien, except the Permitted Liens.
1. ERISA. Borrower is in compliance in all material respects with all
-----
applicable provisions of ERISA. Neither a Reportable Event nor a Prohibited
Transaction has occurred and is continuing with respect to any Plan; no
notice of intent to terminate a Plan has been filed, nor has any Plan been
terminated; no circumstances exist which constitute grounds entitling the
PBGC to institute proceedings to terminate, or appoint a trustee to
administer, a Plan, nor has the PBGC instituted any such proceedings;
neither Borrower nor any Commonly Controlled Entity has completely or
partially withdrawn from a Multiemployer Plan; Borrower and each Commonly
Controlled Entity have met their minimum funding requirements under ERISA
with respect to all of their Plans and the present value of all vested
benefits under each Plan exceeds the fair market value of all Plan assets
allocable to such benefits, as determined on the most recent valuation date
of the Plan and in accordance with the provisions of ERISA; and neither
<PAGE>
Borrower nor any Commonly Controlled Entity has incurred any liability to
the PBGC under ERISA.
1. Operation of Business. Borrower possesses all licenses, permits,
---------------------
franchises, patents, copyrights, trademarks, and trade names, or rights
thereto, to conduct its business substantially as now conducted and as
presently proposed to be conducted, and Borrower is not in violation of any
valid rights of others with respect to any of the foregoing.
1. Taxes. Borrower has filed all tax returns (federal, state and local)
-----
required to be filed and have paid all taxes, assessments, and governmental
charges and levies thereon to be due, including interest and penalties.
1. Debt. Schedule "5.12" is a complete and correct list of all credit
---- ---------------
agreements, indentures, purchase agreements, guaranties, Capital Leases,
and other investments, agreements, and arrangements presently in effect
providing for or relating to extensions of credit (including agreements and
arrangements for the issuance of letters of credit or for acceptance
financing) in respect of which Borrower is in any manner directly or
contingently obligated; and the maximum principal or face amounts of the
debt in question, which are outstanding and which can be outstanding, are
correctly stated, and all liens of any nature given or agreed to be given
as security therefor are correctly described or indicated in such Schedule.
With regard to any guaranty or other contingent obligation of Borrower,
Borrower shall promptly notify Bank in the event any such obligation
becomes non-contingent.
1. Environment. Borrower has duly complied with, and its business,
-----------
operations, assets, equipment, property, leaseholds, or other facilities
are in compliance with, the provisions of all federal, state, and local
environmental, health and safety laws, codes and ordinances, and all rules
and regulations promulgated thereunder. Borrower has been issued and will
maintain all required federal, state, and local permits, licenses,
certificates and approvals relating to (1) air emissions; (2) discharges to
surface or groundwater; (3) noise emissions; (4) solid or liquid waste
disposal; (5) the use, generation, storage, transportation or disposal or
toxic or hazardous substances or wastes (intended hereby and hereafter to
include any and all such materials listed in any federal, state, or local
law, code or ordinance, and all rules and regulations promulgated
thereunder as hazardous or potentially hazardous); or (6) other
environmental, health or safety matters. Borrower has not received notice
of, nor to its best knowledge knows of or suspects, facts which might
constitute any violations of any federal, state or local environmental,
health, or safety laws, codes or ordinances, and any rules or regulations
promulgated thereunder with respect to its business, operations, assets,
equipment, property, leaseholds, or other facilities. To Borrower's best
knowledge, there has been no emission, spill, release, or discharge into or
upon (1) the air; (2) soils, or any improvements located thereon; (3)
surface water or groundwater; or (4) the sewer, septic system or waste
treatment, storage or disposal system servicing the premises, of any toxic
or hazardous substances or wastes at or from the premises; and accordingly
the premises
<PAGE>
of the Borrower is free of all such toxic or hazardous substances or
wastes. Except as disclosed in writing to Bank, there has been no
complaint, order, directive, claim, citation, or notice by any governmental
authority or any person or entity with respect to (1) air emissions; (2)
spills, releases, or discharges to soils or improvements located thereon,
surface water, groundwater or the sewer, septic system or waste treatment,
storage or disposal systems servicing the premises; (3) noise emissions;
(4) solid or liquid waste disposal; (5) the use, generation, storage,
transportation, or disposal of toxic or hazardous substances or waste; or
(6) other environmental, health, or safety matters affecting Borrower or
its business, operations, assets, equipment, property, leaseholds, or other
facilities. Borrower has no indebtedness, obligation, or liability,
absolute or contingent, matured or not matured, with respect to the
storage, treatment, cleanup or disposal of any solid wastes, hazardous
wastes or other toxic or hazardous substances (including without limitation
any such indebtedness, obligation, or liability with respect to any current
regulation, law, or statute regarding such storage, treatment, cleanup or
disposal).
1. Transportation Agreement. The execution and performance by Borrower
------------------------
of the Transportation Agreement:
(a) does not contravene any statute, rule or regulation or any
contractual or governmental restriction binding upon it; and
(b) does not require any consent or approval (including governmental)
which has not been given.
1. Railroad. The railway trackage included in the Railroad is situated
--------
in part upon the real estate described in Schedule "5.15(a)" attached
------------------
hereto which is held by Borrower in fee title (subject to matters of record
as of the date hereof) and in part upon the real estate described in
Schedule "5.15(b)" attached hereto which is held by Borrower pursuant to
------------------
leases, rights-of-way agreements, licenses, permits and easements (subject
to matters of record as of the date hereof). The Borrower has good and
defensible right to use all said real estate for railroad purposes in the
manner now being used. Such real estate and trackage is contiguous. All
such real estate and trackage and related switches and other facilities are
free and clear of all mortgages, liens, pledges, equities, charges,
conditional sale or other title retention agreements and assessments. The
real estate described in Schedule "5.15(c)" attached hereto was conveyed to
------------------
Borrower by instruments containing provisions prohibiting assignment or
which cause Borrower's interest in the real estate covered thereby to
revert to the grantor thereof upon assignment. To the best of its
knowledge, no other instrument conveying to Borrower an interest in real
estate which is mortgaged to Bank contains any such provision. No liens,
claims or encumbrances have attached to the real estate on which the
railway trackage included in the Railroad is situated since the Mortgages
were filed of record.
A. AFFIRMATIVE COVENANTS. So long as any Note shall remain unpaid or the
---------------------
Bank shall have any Commitment under this Agreement, Borrower will comply with
the following:
<PAGE>
B.
1. Maintenance of Existence. Preserve and maintain its corporate
------------------------
existence and good standing in the states in which it does business, and
qualify and remain qualified as a foreign corporation in each jurisdiction
in which such qualification is required.
1. Maintenance of Records. Keep adequate records and books of account, in
----------------------
which complete entries will be made in accordance with GAAP consistently
applied, reflecting all financial transactions.
1. Maintenance of Properties. Maintain, keep, and preserve all of its
-------------------------
properties (tangible and intangible) necessary or useful in the proper
conduct of its business in good working order and condition, ordinary wear
and tear excepted.
1. Lockbox. Upon the request of Bank, Borrower shall establish and
-------
maintain a lockbox in Bank pursuant to an agreement in form and substance
satisfactory to Bank which shall provide, in part, that: (a) Borrower shall
deposit all checks and other instruments with respect to its notes, chattel
paper or accounts receivable in the form received by them in the lockbox,
(b) unless otherwise directed by Bank, Borrower shall direct its debtors
and customers including, without limitation, Sheffield Steel and Oklahoma
City, to make all payments in respect to their accounts receivable directly
to the lockbox at Bank, (c) Bank shall deposit all items received by it to
accounts designated by the Bank for the Borrower, provided no Matured
Default shall have occurred and be continuing, and (d) if a Matured Default
shall have occurred and be continuing, all such payments may be applied to
the Indebtedness, at such times and in such order as Bank may elect.
1. Conduct of Business. Continue to engage in an efficient and
-------------------
economical manner in a business of the same general type as conducted by it
on the date of this Agreement.
1. Maintenance of Insurance. Borrower will keep or cause to be kept
------------------------
adequately insured by financially sound and reputable insurers its plant,
equipment, motor vehicles, and all other property of a character usually
insured by businesses engaged in the same or similar businesses. Upon
demand by the Bank, any insurance policies covering the Collateral shall be
endorsed to provide for payment of losses to the Bank as its interest may
appear, to provide that such policies may not be canceled, reduced or
affected in any manner for any reason without thirty days prior notice to
the Bank, and to provide for any other matters which the Bank may
reasonably require; and such insurance shall be against fire, casualty and
any other hazards normally insured against and shall be in the amount of
the full value (less a reasonable deductible not to exceed amounts
customary in the industry for similarly situated businesses and properties)
of the property insured. The Borrower shall at all times maintain adequate
insurance against damage to persons or property, which insurance shall be
by financially sound and reputable insurers and shall, without limitation,
provide the following coverages: comprehensive general
<PAGE>
liability (including, without limitation, coverage, where applicable,
damage caused by explosion, broad form property damage coverage, broad form
coverage for contractually independent contractors), worker's compensation,
products liability and automobile liability.
1. Compliance with Laws. Comply in all material respects with all
--------------------
applicable laws, rules, regulations, and orders, such compliance to
include, without limitation, paying before the same become delinquent all
taxes, assessments, and governmental charges imposed upon it or upon its
property.
1. Right of Inspection. At any reasonable time and from time to time,
-------------------
and following twenty-four (24) hours prior written notice, permit the Bank
or any agent or representative thereof, to reasonably examine and make
copies of and abstracts from the records and books of account of, and visit
the properties of, Borrower, and to discuss the affairs, finances, and
accounts of Borrower with any of its officers and directors and Borrower's
independent accountants. Bank contemplates conducting at least semi-annual
field audits of the Borrower's property.
1. Reporting Requirements. Furnish to Bank in form and detail
----------------------
satisfactory to Bank, and in such numbers of copies as Bank may request:
a) Quarterly Financial Statements. As soon as available and in any
------------------------------
event within forty-five (45) days after the end of the first three (3)
fiscal quarters of Borrower, Sheffield Steel and Oklahoma City:
(a) Unaudited balance sheets as of the end of each such quarter,
prepared in accordance with GAAP, consistent applied, with respect to
each of said corporations; and
(b) Unaudited statements of income for each such quarter setting
forth in detail, in each case, figures in comparative form for the
corresponding periods of the previous fiscal year, prepared in
accordance with GAAP, consistently applied, with respect to each of
said corporations.
a) Annual Financial Statements. As soon as available and in any
---------------------------
event within one hundred twenty (120) days after the end of each fiscal
year of Borrower, Sheffield Steel and Oklahoma City, audited balance
sheets as of the end of such fiscal year, statements of income and
retained earnings of Borrower for such fiscal year, audited statements
of income for such year and audited statements of shareholders' equity
and changes in financial position for such year, setting forth, in each
case, figures in comparative form for the previous fiscal year.
<PAGE>
a) Concurrently with the furnishing of Borrower's quarterly audited
statements pursuant to Section 6.9.1, there shall be furnished to Bank a
separate certificate of Borrower's president or chief financial officer,
stating that:
(a) Borrower's statements were prepared in conformity with GAAP
on a basis consistently applied, and fairly present the financial
condition of Borrower; and
(b) That Borrower has kept, observed, and fulfilled all its
obligations under the Note and this Agreement, and is not at that time
in default in the observance, performance or fulfillment of any such
obligations, or if Borrower shall be in default, specifying in said
certificate any such default and the nature, period of existence and
status thereof.
a) Concurrently with the furnishing of Borrower's annual audited
statements pursuant to Section 6.9.2, there shall be furnished to Bank a
separate certificate of the firm of independent certified public
accountants (which firm shall be nationally recognized) which prepared
Borrower's statements, stating that:
(a) Borrower's statements were prepared in conformity with GAAP
on a basis consistently applied, and fairly present the financial
condition of Borrower;
(b) That a review of the activities of Borrower for the period
covered by the financial statements has been made under his
supervision with a view to determining whether Borrower has kept,
observed, performed and fulfilled all its obligations under the Note
and this Agreement; and
(c) That Borrower has kept, observed, and fulfilled all its
obligations under the Note and this Agreement, and is not at that time
in default in the observance, performance or fulfillment of any such
obligations, or if Borrower shall be in default, specifying in said
certificate any such default and the nature, period of existence and
status thereof. Such certificate shall not be qualified or limited
because of restricted or limited examination by such accountants of
any material portion of Borrower's records.
a) Certificate of No Default. Within twenty (20) days after the end
-------------------------
of each of the quarters of each fiscal year of Borrower a certificate of
the chief financial officer of Borrower (a) certifying that to the best
of his knowledge no Initial Default or Matured Default has occurred and
is continuing, or if an Initial Default or Matured Default has occurred
and is continuing, a statement as to the nature thereof and the action
which is proposed to be taken with respect thereto,
<PAGE>
and (b) with computations demonstrating compliance with the covenants
contained in Section 8.;
a) Notice of Litigation. Promptly after the commencement thereof,
--------------------
notice of all actions, suits, and proceedings before any court or
governmental department, commission, board, bureau, agency, or
instrumentality, domestic or foreign, affecting Borrower, which, if
determined adversely to Borrower, could have a material adverse effect
on the financial condition, properties, or operations of Borrower and/or
where the amount involved either in any case or in the aggregate is
$50,000 or more;
a) Notice of Initial Defaults and Matured Defaults. As soon as
-----------------------------------------------
possible and in any event within five (5) days after the occurrence of
each Initial Default or Matured Default, a written notice setting forth
the details of such Initial Default or Matured Default and the action
which is proposed to be taken by the Borrower with respect thereto;
a) ERISA Reports. As soon as possible, and in any event within
-------------
thirty (30) days after Borrower knows or has reason to know that any
circumstances exist that constitute grounds entitling the PBGC to
institute proceedings to terminate a Plan subject to ERISA with respect
to Borrower or any commonly controlled Entity, and promptly but in any
event within two (2) Business Days of receipt by the Borrower or any
Commonly Controlled Entity of notice that the PBGC intends to terminate
a Plan or appoint a trustee to administer the same, and promptly but in
any event within five (5) Business Days of the receipt of notice
concerning the imposition of withdrawal liability with respect to
Borrower or any Commonly Controlled Entity, the Borrower will deliver to
the Bank a certificate of the chief financial officer of the Borrower
setting forth all relevant details and the action which the Borrower
proposes to take with respect thereto;
a) Reports to Other Creditors. Promptly after the furnishing
--------------------------
thereof, copies of any statement or report furnished to any other party
pursuant to the terms of any indenture, loan, credit, or similar
agreement and not otherwise required to be furnished to the Bank
pursuant to any other clause of this Section 6.;
a) Proxy Statements, etc. Promptly after the sending or filing
---------------------
thereof, copies of all proxy statements, financial statements, and
reports which Borrower sends to its stockholders, and copies of all
regular, periodic, and special reports, and all registration statements
which Borrower files with the Securities and Exchange Commission or any
governmental authority which may be substituted therefor, or with any
national securities exchange; and
<PAGE>
a) General Information. Such other information respecting the
-------------------
condition or operations, financial or otherwise, of Borrower as the Bank
may from time to time reasonably request.
1. Environment. Be and remain in material compliance with the provisions
-----------
of all federal, state, and local environmental, health and safety laws,
codes and ordinances, and all rules and regulations issued thereunder;
notify the Bank immediately of any notice of a hazardous discharge or
environmental complaint received from any governmental agency or any other
party; notify the Bank immediately of any hazardous discharge from or
affecting its premises; promptly contain and remove the same, in compliance
with all applicable laws; promptly pay any fine or penalty assessed in
connection therewith; permit the Bank to inspect the premises, to conduct
tests thereon, and to inspect all books, correspondence, and records
pertaining thereto; and at the Bank's request, and at Borrower's expense,
provide a report of a qualified environmental engineer, satisfactory in
scope, form, and content to the Bank, and such other and further assurances
reasonably satisfactory to the Bank that the condition has been corrected.
1. Operating Accounts. Maintain its primary operating accounts at Bank.
------------------
1. Title Opinion. Deliver to Bank, no later than thirty (30) days
-------------
following Borrower's receipt of the Mortgage Amendment, as recorded, the
written opinion of a firm of attorneys selected by Borrower and
satisfactory to Bank stating that no liens, claims or encumbrances, other
than the Mortgage Amendments, have attached to the real estate described on
Schedule "6.12" hereto since the Mortgages were recorded.
---------------
1. Sheffield Steel Certificate. On September 1 of each year, deliver to
---------------------------
Bank a certificate signed by the President or Chief Financial Officer of
Sheffield Steel in form and content as set forth on Schedule "6.13"
---------------
attached hereto.
1. Fifteen Days' Notice. Give Bank written notice of the occurrence of a
--------------------
non-payment default under the Bank of America Facility (as hereinafter
defined) which is not cured or waived within the applicable cure period
therefor, if any, no later than fifteen (15) days after the end of any such
cure period or, if there is no such cure period, no later than fifteen (15)
days after the occurrence of such default; and give Bank written notice of
any payment default under the Bank of America Facility no later than
fifteen (15) days after the stated due date of said payment.
1. Thirty Days' Notice. Give Bank written notice of any of the following
-------------------
at least thirty (30) days prior to the proposed occurrence thereof:
(a) The transfer of a majority of the issued and outstanding stock of
Borrower, Sheffield Steel and Oklahoma City;
(b) The transfer of the voting rights of any of the issued and
outstanding capital stock of Borrower, Sheffield Steel and Oklahoma
City;
<PAGE>
(c) The sale, transfer, assignment, lease or other conveyance of
all or substantially all the assets of Borrower, Sheffield Steel and
Oklahoma City; and
(d) The merger or consolidation of Borrower, Sheffield Steel and
Oklahoma City into any other corporation, or any other reorganization
or similar transaction requiring the issuance or exchange of any such
corporation's capital stock;
Provided, however, to the extent the provisions of Section 6.9.7 and 6.15
shall be in conflict, this Section 6.15 shall control. The notice required
by this Section 6.15 shall be accompanied by such information as may be
reasonably required for Bank to evaluate the effect of the occurrence of
the event described in such notice.
1. Labor Dispute. Promptly give written notice to Bank of any labor
-------------
controversy resulting in, or threatening to result in, a strike which would
affect Borrower, Sheffield Steel and Oklahoma City of which Borrower has
knowledge.
1. Further Assurances. Promptly cure any defects in the issuance of the
------------------
Note and the execution of this Agreement, the other Loan Documents, and any
other instruments or documents referred to or mentioned herein. Borrower
will immediately execute and deliver to Bank upon request all such other
and further instruments as may be reasonably desired by Bank from time to
time in compliance with or in accomplishment of the covenants and
agreements of Borrower made in this Agreement, the other Loan Documents and
such other instruments and documents referred to or mentioned herein, or to
further evidence and more fully describe the Collateral to correct any
omission in any Loan Document or any exhibits thereto, or to perfect any
security interests or liens, to make any recordings, to file any notices,
or to obtain any consents, all as may be necessary or appropriate in
connection therewith.
A. NEGATIVE COVENANTS. So long as any Notes shall remain unpaid or the Bank
------------------
shall have any Commitment under this Agreement or any letter of credit issued in
connection herewith, Borrower will not:
B.
1. Negative Pledge. Create, incur, permit or suffer to exist any Liens
---------------
upon any of its assets or properties, now owned or hereafter acquired,
except for the Permitted Liens.
1. Debt. Create, incur, assume, or suffer to exist any Debt, except:
---- ------
(1) Indebtedness arising out of this Agreement;
(2) Purchase money indebtedness not to exceed $500,000 in the
aggregate for any given fiscal year;
<PAGE>
(3) Current liabilities for taxes and assessments incurred in the
ordinary course of business;
(4) Indebtedness in respect of current accounts payable or accrued
(other than for borrowed funds or purchase money obligations) and
incurred in the ordinary course of business, provided that all such
--------
liabilities, accounts and claims shall be promptly paid and discharged
when due or in conformity with customary trade terms;
(5) Debt described in Schedule "5.12" but no voluntary prepayment,
---------------
renewals, extensions, or refinancings thereof;
(6) Unsecured non-Bank Debt in addition to the debt described in
Schedule "5.12" not to exceed $100,000 for the Borrower in the
---------------
aggregate in any given fiscal year;
(7) Accounts payable to trade creditors for goods or services which
are not past due more than ninety (90) days from the billing date, in
each case incurred in the ordinary course of business, as presently
conducted, and paid within the specified time, unless contested in
good faith and by appropriate proceedings; and
1. Mergers, etc. Wind up, liquidate or dissolve itself, reorganize, merge
------------
or consolidate with or into, or convey, sell, assign, transfer, lease, or
otherwise dispose of (whether in one transaction or in a series of
transactions) all or substantially all of its assets (whether now owned or
hereafter acquired) to any Person.
1. Leases. Without Bank's prior written consent, create, incur, assume,
------
or suffer to exist, any obligation as lessee for the rental or hire of any
real or personal property, except (1) leases existing on the date of this
Agreement and any extensions or renewals thereof and (2) leases (other than
Capital Leases) which do not in the aggregate require Borrower to make
payments (including taxes, insurance, maintenance, and similar expenses
which the Borrower is required to pay under the terms of any lease) in any
fiscal year of Borrower in excess of Fifty Thousand and no/100ths Dollars
($50,000). Bank agrees not to unreasonably withhold its consent and will
endeavor to respond within ten (10) days to Borrower's request therefor.
1. Sale and Leaseback. Sell, transfer, or otherwise dispose of any real
------------------
or personal property to any Person and thereafter directly or indirectly
lease back the same or similar property.
1. Dividends. Declare or pay any dividends; or purchase, redeem, retire,
---------
or otherwise acquire for value any of its capital stock now or hereafter
outstanding; or make any distribution of assets to its stockholders as such
whether in cash, assets, or in obligations of the Borrower; or allocate or
otherwise set apart any sum for the payment of
<PAGE>
any dividend or distribution on, or for the purchase, redemption, or
retirement of any shares of its capital stock; or make any distribution by
reduction of capital or otherwise in respect of any shares of its capital
stock. Notwithstanding the provisions of this Section 7.6, Borrower may pay
dividends to Sheffield Steel in an amount not to exceed seventy-five
percent (75%) of Borrower's Net Income for any fiscal year.
1. Sale of Assets. Sell, lease, assign, transfer, or otherwise dispose
--------------
of, any of its now owned or hereafter acquired assets (including, without
limitation, shares of stock, receivables, and leasehold interests), except:
(1) inventory disposed of or leased in the ordinary course of business; (2)
the sale or other disposition of assets no longer used or useful in the
conduct of its business; and (3) treasury stock.
1. Guaranties, etc. Assume, guaranty, endorse, or otherwise be or become
---------------
directly or contingently responsible or liable (including, but not limited
to, an agreement to purchase any obligation, stock, assets, goods, or
services, or to supply or advance any funds, assets, goods, or services, or
an agreement to maintain or cause such Person to maintain a minimum working
capital net worth, or otherwise to assure the creditors of any Person
against loss), for obligations of any Person, except guaranties by
endorsement of negotiable instruments for deposits or collection or similar
transactions in the ordinary course of business.
1. Transactions with Affiliates. Enter into any transaction, including,
----------------------------
without limitation, the purchase, sale, or exchange of property or the
rendering of any service, with any Affiliate, except in the ordinary course
of and pursuant to the reasonable requirements of Borrower's business and
upon fair and reasonable terms no less favorable to the Borrower than would
obtain in a comparable arm's-length transaction with a Person not an
Affiliate.
1. Compensation. Pay salaries, bonuses, fees or other compensation to its
------------
officers or to other Persons performing services to it, substantially in
excess of amounts paid by comparable businesses for similar services.
1. Receivables. Not permit receivables owing to it by Sheffield Steel and
-----------
Oklahoma City to remain outstanding (as measured in average days
outstanding) longer than those owing by third parties to Borrower without
commencement of collection proceedings.
1. Advances. Make or permit to exist any loans or, except in the ordinary
--------
course of business, make advances or extend credit to any Person.
B. FINANCIAL COVENANTS. So long as any Notes shall remain unpaid or the
-------------------
Bank shall have any Commitment under this Agreement, Borrower shall comply with
the following on a consolidated basis:
C.
1. Leverage Ratio. Maintain at all times a ratio of Total Liabilities to
--------------
Net Worth of not greater than 2.0 to 1.
<PAGE>
1. Fiscal Year. Not change its fiscal year end.
-----------
1. Fixed Charge Coverage Ratio. Borrower shall maintain a Fixed Charge
---------------------------
Coverage Ratio of not less than 1.75 to 1.0. The Fixed Charge Coverage
Ratio of Borrower shall be determined as of the end of each fiscal quarter
of Borrower. The term `Fixed Charge Coverage Ratio' means, at the time any
determination thereof is made, the ratio of Borrower EBIDTA divided by (i)
interest payments to Bank for the four fiscal quarters ending upon the date
upon which such determination is being made, plus (ii) the aggregate amount
of principal payments due under all indebtedness of Borrower during the
four fiscal quarters of Borrower ending on the date upon which such
determination is being made, plus (iii) all rental payments of Borrower.
1. Minimum Net Worth. Maintain at all times a minimum Net Worth of not
-----------------
less than Three Million Dollars ($3,000,000).
1. Capital Expenditures. Not make Capital Expenditures for the
--------------------
acquisition, construction, expansion or improvement of Fixed Assets
(whether owned or leased or otherwise) which in the aggregate, would exceed
Three Hundred Thousand Dollars ($300,000) in any fiscal year of Borrower,
or commit for any such Capital Expenditure which, if made in the applicable
period for delivery and payment, would result in expenditures in excess of
Three Hundred Thousand Dollars ($300,000) in any fiscal year of Borrower.
For purposes of this Section 8.5, "Fixed Assets" shall mean assets used in
the production or sale of other assets or services and which have a useful
life longer than a single accounting period, including (without limitation)
capitalized leases.
1. Bank of America Facility. Maintain at all times excess availability
------------------------
on the NationsBank Facility in an amount not less than the aggregate
principal balance outstanding under the Notes.
A. EVENTS OF DEFAULT.
-----------------
B.
1. Events of Default. If any of the following events shall occur:
-----------------
(1) Borrower should fail to pay the principal of, or interest on, the
Notes, or any amount of a commitment or other fee within five (5) days as
and when due and payable;
(2) Any representation or warranty made or deemed made by Borrower in
this Agreement or the Security agreement or which is contained in any
certificate, document, opinion, or financial or other statement furnished
at any time under or in connection with any Loan Document shall prove to
have been incorrect, incomplete, or misleading in any material respect on
or as of the date made or deemed made;
<PAGE>
(3) Borrower shall fail to perform or observe any term, covenant, or
agreement contained in this Agreement or any Loan Documents which
continues uncured for ten (10) business days following written notice
thereof;
(4) Borrower shall (a) fail to pay any indebtedness for borrowed
money (other than the Notes) or any interest or premium thereon, when due
(whether by scheduled maturity, required prepayment, acceleration,
demand, or otherwise); or (b) fail to perform or observe any term,
covenant, or condition on its part required to be performed or observed
under any agreement or instrument relating to any such indebtedness, when
required to be performed or observed, if the effect of such failure to
perform or observe is to accelerate, or to permit the acceleration of,
after the giving of any applicable notice or passage of time, or both,
the maturity of such indebtedness, whether or not such failure to perform
or observe shall be waived by the holder of such indebtedness, or any
such indebtedness shall be declared to be due and payable, or required to
be prepaid (other than by a regularly scheduled required prepayment),
prior to the stated maturity thereof;
(5) Borrower, Sheffield Steel and Oklahoma City (a) shall generally
not pay, or shall be unable to pay, or shall admit in writing its
inability to pay its debts as such debts become due; or (b) shall make an
assignment for the benefit of creditors, or petition or apply to any
tribunal for the appointment of a custodian, receiver, or trustee for it
or a substantial part of its assets; or (c) shall commence any proceeding
under any bankruptcy, reorganization, arrangement, readjustment of debt,
dissolution, or liquidation law or statute of any jurisdiction, whether
now or hereafter in effect; or (d) shall have had any such petition or
application filed or any such proceeding commenced against it in which an
order for relief is entered or an adjudication or appointment is made,
and which remains undismissed for a period of thirty (30) days or more;
or (e) shall take any corporate action indicating its consent to,
approval of, or acquiescence in any such petition, application,
proceeding, or order for relief or the appointment of a custodian,
receiver, or trustee for all or any substantial part of its properties;
or (f) shall suffer such custodianship, receivership, or trusteeship to
continue undischarged for a period of thirty (30) days or more.
(6) One or more judgments, decrees, or orders for the payment of
money in excess of One Hundred Thousand and no/100ths Dollars
($100,000.00) in the aggregate shall be rendered against Borrower, and
such judgments, decrees, or order shall continue unsatisfied and in
effect for a period of twenty (20) consecutive days without being
vacated, discharged, satisfied, or stayed or bonded pending appeal;
(7) The collateral documents shall at any time after their execution
and delivery and for any reason cease (a) to create a valid and perfected
first priority security interest in and to the property purported to be
subject to such
<PAGE>
Collateral documents; or (b) to be in full force and effect or shall be
declared null and void, or the validity or enforceability thereof shall
be contested by Borrower, or Borrower shall deny it has any further
liability or obligation under the Collateral documents, or Borrower shall
fail to perform any of its obligations under the Collateral documents and
such failure continues for ten (10) business days after written notice
thereof; or the Guaranty Agreements are declared null and void, or the
validity or enforceability thereof shall be contested, or liability
thereunder is denied;
(8) Any of the following events shall occur or exist with respect to
Borrower and any commonly Controlled Entity under ERISA: any Reportable
Event shall occur; complete or partial withdrawal from any Multiemployer
Plans shall occur; any Prohibited Transaction shall occur; a notice of
intent to terminate a Plan shall be filed, or a Plan shall be terminated;
or circumstances shall exist which constitute grounds entitling the PBGC
to institute proceedings to terminate a Plan, or the PBGC shall institute
such proceedings; and in each case above, such event or condition,
together with all other events or conditions, if any, could subject
Borrower to any tax, penalty, or other liability which in the aggregate
may exceed One Hundred Thousand and no/100ths Dollars ($100,000.00); or
(9) If the Bank receives its first notice of a hazardous discharge or
an environmental complaint from a source other than Borrower, and the
Bank does not receive notice (which may be given in oral form, provided
same is followed with all due dispatch by written notice by Certified
Mail, Return Receipt Requested) of such hazardous discharge or
environmental complaint from Borrower within twenty-four (24) hours of
the time the Bank first receives said notice from a source other than
Borrower; or if any federal, state, or local agency asserts or creates a
Lien upon any or all of the assets, equipment, property, leaseholds, or
other facilities of the Borrower by reason of the occurrence of a
hazardous discharge or an environmental complaint; or if any federal,
state, or local agency asserts a claim against Borrower and/or its
assets, equipment, property, leaseholds, or other facilities for damages
or cleanup costs relating to a hazardous discharge or an environmental
complaint; provided, however, that such claim shall not constitute a
default if, within five (5) Business Days of the occurrence giving rise
to the claim, (a) the Borrower can prove to the Bank's satisfaction that
the Borrower has commenced and is diligently pursuing either: (i) a cure
or correction of the event which constitutes the basis for the claim, and
continues diligently to pursue such cure or correction to completion or
(ii) proceedings for an injunction, a restraining order, or other
appropriate relief preventing such agency or agencies from asserting such
claim, which relief is granted within ten (10) Business Days of the
occurrence giving rise to the claim and the injunction, order, or relief
is not thereafter resolved or reversed on appeal; and (b) in either of
the foregoing events, the Borrower has posted a bond, letter of credit,
or other security satisfactory in form, substance, and amount to both the
<PAGE>
Bank and the agency or entity asserting the claim to secure the proper
and complete cure or correction of the event which constitutes the basis
for the claim.
In any such event, and provided that such event is not cured within any
applicable notice and cure period, the Bank may, (a) declare its obligation to
make loans to be terminated, whereupon the same shall forthwith terminate;
and/or (b) declare the outstanding Notes, all interest thereon, and all other
amounts payable under this Agreement to be forthwith due and payable, whereupon
the Notes, all such interest, and all such amounts shall become and be forthwith
due and payable, without presentment, demand, protest, or further notice of any
kind, all of which are hereby expressly waived by the Borrower. Additionally,
the Bank is hereby authorized at any time and from time to time, without further
notice to Borrower (any such notice being expressly waived by the Borrower), to
set off and apply any and all deposits (general or special, time or demand,
provisional or final) at any time held and other indebtedness at any time owing
by the Bank to or for the credit or the account of the Borrower against any and
all of the obligations of the Borrower now or hereafter existing under this
Agreement or the Notes or other Loan Documents, irrespective of whether or not
the Bank shall have made any demand under this Agreement or the Notes or such
other Loan document and although such obligations may be unmatured. The rights
of the Bank under this Section are in addition to other rights and remedies
(including, without limitation, other rights of setoff) which the Bank may have,
in this Agreement, any other loan document or at law or equity, including
without limitation the right to accelerate the Notes upon the occurrence of a
Matured Default.
A. MISCELLANEOUS.
-------------
B.
1. Amendments, etc. No amendment, modification, termination, or waiver
---------------
of any provision of any Loan Document to which the Borrower is a party, nor
consent to any departure by the Borrower from any Loan Document to which it
is a party, shall in any event be effective unless the same shall be in
writing and signed by the Bank, and then such waiver or consent shall be
effective only in the specific instance and for the specific purpose for
which given.
1. Notices, etc. All notices, consents, waivers, and other communications
------------
under this Agreement must be in writing and will be deemed to have been
duly given when (a) delivered by hand (with written confirmation of
receipt), (b) sent by telecopier (with written confirmation of receipt),
provided that a copy is mailed by registered mail, return receipt
requested, or (c) when received by the addressee, if sent by a nationally
recognized overnight delivery service (receipt requested), in each case to
the appropriate addresses and telecopier numbers set forth below (or to
such other addresses and telecopier numbers as a party may designate by
notice to the other parties):
<PAGE>
If to the Borrower:
SAND SPRINGS RAILWAY COMPANY
c/o Sheffield Steel Corporation
220 N. Jefferson St.
Sand Springs, Oklahoma 74063
Attention: Robert W. Ackerman, President
Facsimile: (918) 241-6595
If to Bank:
BANK OF OKLAHOMA, N.A.
P.O Box 2300
Tulsa, Oklahoma 74192
Attention: Chris Young, Assistant Vice President
Facsimile: (918) 588-6880
or at such other address as shall be designated by such party in a written
notice to the other party complying as to delivery with the terms of this
Section 10.2. Except as is otherwise provided in this Agreement, all such
notices and communications shall be effective when deposited in the mails
addressed as aforesaid, except that notices for advances to the Bank
pursuant to the provisions of (S)2.4 shall not be effective until received
by the Bank.
1. Setoff, Etc. Any indebtedness owing from Bank to Borrower, including
-----------
(without limitation) any general or special deposit account, may be set off
or otherwise applied by Bank under a general lien covering such
indebtedness which is hereby granted on any indebtedness of liability of
Borrower under the Note or this Agreement to Bank, at any time and from and
after the occurrence of the Event of Default, either before or after
maturity, and without demand or notice to anyone. It is understood that
Bank may sell participations in loans made hereunder. Bank agrees to give
Borrower written notice of any such participation that is sold for a period
in excess of fifteen (15) days.
1. No Waiver. No failure or delay on the part of the Bank in exercising
---------
any right, power or remedy hereunder shall operate as a waiver thereof, nor
shall any single or partial exercise of any such right, power, or remedy
preclude any other or further exercise thereof or the exercise of any other
right, power, or remedy hereunder. The rights and remedies provided herein
are cumulative, and are not exclusive of any other rights, powers,
privileges, or remedies, now or hereafter existing, at law or in equity or
otherwise.
1. Successors and Assigns. This Agreement shall be binding upon and inure
----------------------
to the benefit of the Borrower and the Bank and their respective successors
and assigns, except that the Borrower may not assign or transfer any of its
rights under any
<PAGE>
Loan Document to which the Borrower is a party without the prior written
consent of the Bank.
1. Costs, Expenses and Taxes. The Borrower agrees to pay on demand all
-------------------------
costs and expenses incurred by the Bank in connection with the preparation,
execution, delivery, filing, and initial administration of the Loan
Documents, including without limitation the fees of Riggs, Abney, Neal,
Turpen, Orbison & Lewis, and of any amendment, modification, or supplement
to the Loan Documents, including, without limitation, the fees and out-of-
pocket expenses of counsel for the Bank, incurred in connection with
advising the Bank as to its rights and responsibilities hereunder. The
Borrower also agrees to pay all such costs, expenses and fees, including
court costs, incurred in connection with enforcement of the Loan Documents,
or any amendment, modification, or supplement thereto, whether by
negotiation, legal proceedings, or otherwise. In addition, the Borrower
shall pay any and all stamp and other taxes (but not mortgage registration
taxes where local law prohibits Borrower from doing so) and fees payable or
determined to be payable in connection with the execution, delivery,
filing, and recording of any of the Loan Documents and the other documents
to be delivered under any such Loan Documents, and agrees to hold the Bank
harmless from and against any and all liabilities with respect to or
resulting from any delay in paying or omission to pay such taxes and fees.
This provision shall survive termination of this Agreement.
1. Integration. This Agreement and the Loan Documents contain the entire
-----------
agreement between the parties relating to the subject matter hereof and
supersede all prior and contemporaneous oral statements and writings with
respect thereto.
1. Indemnity. The Borrower hereby agrees to defend, indemnify, and hold
---------
the Bank harmless from and against any and all claims, damages, judgments,
penalties, costs, and expenses (including attorney fees and court costs now
or hereafter arising from the aforesaid enforcement of this clause) arising
directly or indirectly from the activities of the Borrower, its
predecessors in interest, or third parties with whom they have a
contractual relationship, or arising directly or indirectly from the
violation of any environmental protection, health or safety law, whether
such claims are asserted by any governmental agency or any other Person.
This indemnity shall survive termination of this Agreement.
1. Governing Law. This Agreement and the Notes shall be governed by, and
-------------
construed in accordance with, the laws of the State of Oklahoma.
1. Severability of Provisions. Any provision of any Loan Documents which
--------------------------
is prohibited or unenforceable in any jurisdiction shall, as to such
jurisdiction, be ineffective to the extent of such prohibition or
unenforceability without invalidating the remaining provisions of such Loan
Document or affecting the validity or enforceability of such provision in
any other jurisdiction.
<PAGE>
1. Headings. Article and Section headings in the Loan Documents are
--------
included in such Loan Documents for the convenience of reference only and
shall not constitute a part of the applicable Loan Documents for any other
purpose.
1. Jury Trial Waiver. THE BORROWER HEREBY WAIVES TRIAL BY JURY IN ANY
-----------------
ACTION, PROCEEDING, CLAIM, OR COUNTERCLAIM, WHETHER IN CONTRACT OR TORT, AT
LAW OR IN EQUITY, ARISING OUT OF OR IN ANY WAY RELATED TO THIS AGREEMENT OR
THE LOAN DOCUMENTS. BORROWER ALSO SUBMITS ITSELF AND OTHERWISE CONSENTS TO
THE JURISDICTION AND VENUE OF THE TULSA COUNTY DISTRICT COURT OR FEDERAL
DISTRICT COURT (NORTHERN DISTRICT OF OKLAHOMA), WHICHEVER COURT IS SELECTED
BY BANK IN ITS SOLE DISCRETION, AS TO ANY DISPUTES OR OTHER MATTERS ARISING
OUT OF OR IN CONNECTION HEREWITH.
1. Conflicts. To the extent any conflict exists under any of the Loan
---------
Documents, this Credit Agreement shall be controlling.
IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be
executed by their respective officers thereunto duly authorized, as of the date
first above written.
"Borrower"
SAND SPRINGS RAILWAY COMPANY
By/s/ Robert W. Ackerman
---------------------------
Robert W. Ackerman, President
"Bank"
BANK OF OKLAHOMA, N.A.
By/s/ Chris T. Young
---------------------------
Chris T. Young, Assistant Vice President
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> APR-30-2000
<PERIOD-START> MAY-01-1999
<PERIOD-END> JAN-31-2000
<CASH> 69
<SECURITIES> 0
<RECEIVABLES> 21,773
<ALLOWANCES> 833
<INVENTORY> 47,977
<CURRENT-ASSETS> 73,619
<PP&E> 66,585
<DEPRECIATION> 0
<TOTAL-ASSETS> 154,898
<CURRENT-LIABILITIES> 26,662
<BONDS> 128,588
0
0
<COMMON> 36
<OTHER-SE> (13,515)
<TOTAL-LIABILITY-AND-EQUITY> 154,898
<SALES> 124,997
<TOTAL-REVENUES> 124,997
<CGS> 95,879
<TOTAL-COSTS> 95,879
<OTHER-EXPENSES> 6,245
<LOSS-PROVISION> 175
<INTEREST-EXPENSE> 11,215
<INCOME-PRETAX> 315
<INCOME-TAX> 0
<INCOME-CONTINUING> 315
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315
<EPS-BASIC> 0
<EPS-DILUTED> 0
</TABLE>
