<PAGE> 1
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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 MARCH 31, 1998
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 1-11126-60
J&L SPECIALTY STEEL, INC.
(Exact name of registrant as specified in its charter)
PENNSYLVANIA 25-1564186
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
P.O. BOX 3373
ONE PPG PLACE, PITTSBURGH, PA 15230-3373
(Address of principal executive offices) (Zip code)
412-338-1600
(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 |_|
Number of shares of Common Stock outstanding as of April 30, 1998: 38,763,000
================================================================================
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J&L SPECIALTY STEEL, INC.
SEC FORM 10-Q
Quarter Ended March 31, 1998
Index
Page No.
PART I. FINANCIAL INFORMATION --------
Item 1. Financial Statements
Condensed Consolidated Statements
of Income 3
Condensed Consolidated Balance Sheets 4
Condensed Consolidated Statements of
Cash Flows 5
Notes to Condensed Consolidated
Financial Statements 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results
of Operations 8
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 11
Signature 12
2
<PAGE> 3
PART I. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(dollars in thousands, except per share data)
(unaudited)
Three Months Ended
March 31,
--------------------------
1998 1997
-------- ---------
Trade sales, net $135,880 $165,095
Cost of products sold 138,072 148,001
Depreciation and amortization expenses 8,733 5,920
Selling, general and administrative expenses 4,895 5,001
Research and technology expense 1,463 1,567
Unusual item - (5,907)
-------- --------
Operating income (loss) (17,283) 10,513
Interest expense 4,050 715
Interest income (32) (35)
Other (income) expense, net (88) (41)
-------- --------
Income (loss) before income taxes (21,213) 9,874
Income tax expense (benefit) (6,797) 4,833
-------- --------
Net income (loss) $(14,416) 5,041
======== ========
Earning (loss) per common share:
Basic $ (.37) $ .13
======== ========
Diluted $ (.37) $ .13
======== ========
The accompanying notes are an integral part of these financial statements.
3
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J&L SPECIALTY STEEL, INC.
CONSOLIDATED BALANCE SHEETS
(dollars in thousands, except per share data)
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1998 1997
----------- ------------
(unaudited)
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 552 $ 1,186
Trade receivables, less allowances of
$3,892 and $3,883, respectively 61,169 61,392
Inventories 157,285 151,115
Income tax receivable 12,131 3,743
Deferred income taxes 10,193 9,366
Prepaid expenses and other current assets 896 1,093
-------- --------
Total current assets 242,226 227,895
-------- --------
Property, plant and equipment, net of accumulated depreciation
of $112,154 and $105,137, respectively 331,550 338,062
Goodwill, net of accumulated amortization
of $70,716 and $69,082, respectively 210,298 211,932
Deferred income taxes 270 4,569
Other noncurrent assets 10,006 9,933
-------- --------
Total assets $794,350 $792,391
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Trade accounts payable $ 73,232 $ 76,679
Construction accounts payable 13,880 15,288
Accrued employee compensation and benefits 18,328 21,136
Other accrued liabilities 24,887 23,860
Short-term debt 18,134 23,319
-------- --------
Total current liabilities 148,461 160,282
-------- --------
Long-term debt 252,353 222,583
Postretirement benefits liability 54,584 53,473
Other noncurrent liabilities 20,199 19,547
Shareholders' equity:
Preferred stock (par value $.01 per share; 2,000,000 shares
authorized, no shares issued and outstanding) - -
Common stock (par value $.01 per share; 100,000,000 shares
authorized, 38,763,000 shares issued and outstanding) 388 388
Additional paid-in capital 312,252 311,823
Retained earnings 7,697 25,989
Unearned compensation (1,584) (1,694)
-------- --------
Total shareholders' equity 318,753 336,506
-------- --------
Total liabilities and shareholders' equity $794,350 $792,391
======== ========
</TABLE>
The accompanying notes are an integral part of these financial statements.
4
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J&L SPECIALTY STEEL, INC.
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(dollars in thousands)
(unaudited)
Three Months Ended
March 31,
-----------------------
1998 1997
--------- ---------
Cash flows from operating activities:
Net cash provided (used) by operating activities $(20,771) $ 867
-------- --------
Cash flows from investing activities:
Capital expenditures (581) (25,197)
-------- --------
Net cash used by investing activities (581) (25,197)
-------- --------
Cash flows from financing activities:
Borrowings on lines of credit, net 24,800 27,300
Borrowings of industrial development notes, net (215) 1,319
Common stock dividends paid (3,867) (3,867)
-------- --------
Net cash provided by financing activities 20,718 24,752
-------- --------
Net increase (decrease) in cash and cash equivalents (634) 422
Cash and cash equivalents at beginning of period 1,186 499
-------- --------
Cash and cash equivalents at end of period $ 552 $ 921
======== ========
Supplemental disclosures of cash flow information:
Cash paid (refunded) during the period for:
Interest $ 4,547 $ 2,624
Income taxes (2,911) 452
The accompanying notes are an integral part of these financial statements.
5
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J&L SPECIALTY STEEL, INC.
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
NOTE 1 FINANCIAL STATEMENTS
The information contained in these financial statements and notes for the
quarter ended March 31, 1998, should be read in conjunction with the audited
financial statements and notes contained in the J&L Specialty Steel, Inc. Annual
Report and Form 10-K for the year ended December 31, 1997. The accompanying
unaudited Condensed Consolidated Financial Statements of J&L Specialty Steel,
Inc. (the "Company") have been prepared in accordance with generally accepted
accounting principles and the rules and regulations of the Securities and
Exchange Commission. The condensed interim statements do not include all of the
information and footnotes required for complete financial statements. It is
management's opinion that all adjustments (including all normal recurring
adjustments) considered necessary for a fair presentation have been made;
however, results for the interim period are not necessarily indicative of
results to be expected for the full year.
NOTE 2 INVENTORIES
Inventories are stated at the lower of cost or market. Raw materials in all
levels of inventory are valued using the last in, first out ("LIFO") method. The
remaining costs of work-in-process and finished goods inventories are valued
using the specific identification cost method.
March 31, December 31,
Inventories consisted of the following: 1998 1997
- --------------------------------------- --------- -----------
Raw materials $ 15,923 $ 18,621
Work-in-process 113,126 107,572
Finished goods 33,644 40,270
--------- ---------
Total inventories at current cost 162,693 166,463
Less allowance to reduce current cost
values to LIFO basis (5,408) (15,348)
--------- ---------
Total inventories $ 157,285 $ 151,115
========= =========
NOTE 3 UNUSUAL ITEM
In January 1997, the Company reached a settlement with a third-party vendor
concerning a commercial dispute relating to the quality of certain material
purchased by the Company. As a result of this settlement, the Company received a
$5.9 million cash payment.
6
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NOTE 4 EARNINGS PER SHARE
The first quarter 1998 basic earnings per share was calculated using 38,763,000
weighted average shares. Due to the net loss for the quarter, there were no
reconciling dilutive securities, as the 890,000 outstanding options to purchase
common stock would have been antidilutive had they been exercised. These
options, with exercise prices ranging from $12.00 to $16.94 per share, expire
during 2003 through 2006. The following is a reconciliation of the basic and
diluted earnings per share computations for the first quarter of 1997:
Three Months Ended
March 31, 1997
--------------------------------------
Net Earnings Per
Income Shares Share
------ ---------- -----
Basic Earnings per Share $5,041 38,670,000 $.13
Effect of Dilutive Securities:
Common Stock Options - 1,981 -
------ ---------- ----
Diluted Earnings per Share $5,041 38,671,981 $.13
====== ========== ====
NOTE 5 NEW ACCOUNTING PRONOUNCEMENT
In the first quarter of 1998, the Company adopted Statement of Financial
Accounting Standards No. 130, "Reporting Comprehensive Income," ("SFAS No.
130"), which establishes standards for the reporting and display of
comprehensive income in financial statements. Comprehensive income is defined as
the change in equity during a period from transactions and other events and
circumstances from nonowner sources. SFAS No. 130 had no impact on the Company's
financial statements, as no items of other comprehensive income were recorded in
the accompanying interim financial statements.
7
<PAGE> 8
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
Following is management's discussion and analysis of financial condition which
provides information with respect to the results of operations of the Company
for the three-month periods ended March 31, 1998 and 1997, respectively. This
discussion should be read in connection with the information in the unaudited
Condensed Consolidated Financial Statements and the notes pertaining thereto.
RESULTS OF OPERATIONS
Net sales decreased to $135.9 million in the first quarter of 1998 from $165.1
million in the first quarter of 1997. This 17.7% reduction in net sales was due,
in part, to a significant decrease in selling prices as the domestic stainless
steel market continues to experience severe downward pricing pressure on
commodity grade stainless steel. The Company's average stainless steel selling
price was 9.3% or $165 per ton lower in the first quarter of 1998 versus the
first quarter of 1997, and $73 per ton or 4.3% lower compared to the fourth
quarter of 1997. Shipments for the first quarter of 1998 were 84,214 tons, down
from the 92,761 tons shipped in the first quarter of 1997, despite a slight
increase in cold rolled stainless steel shipments.
Excluding Direct Roll Anneal and Pickle ("DRAP") Line commissioning costs, cost
of products sold decreased from $1,581 per ton in the first quarter of last year
to $1,568 per ton in the first quarter of 1998, primarily due to lower raw
material costs. DRAP Line commissioning costs in the first quarter of 1998 were
$6.0 million or $71 per ton, versus $1.4 million or $15 per ton in the first
quarter of 1997. Commissioning costs are expected to decline as direct shipments
from the DRAP Line increase.
Depreciation and amortization expenses increased $2.8 million from the first
quarter of 1997 primarily as a result of depreciation expense on the DRAP Line
that was placed into service in the fourth quarter of 1997.
Included in operating income in the first quarter of 1997 is a pretax gain of
$5.9 million. In January 1997, the Company reached a settlement with an
unrelated, third-party vendor concerning a commercial dispute relating to the
quality of certain material purchased by the Company. As a result of this
settlement, the Company received a $5.9 million cash payment.
Interest expense increased by $3.3 million in the first quarter of 1998 compared
to the first quarter of 1997 due to interest no longer being capitalized on the
DRAP Line project and to an increase in outstanding debt. In the first quarter
of 1997, $2.4 million of interest was capitalized.
8
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The income tax benefit of $6.8 million on the 1998 first quarter pretax loss was
limited by the amortization of the purchase accounting adjustment, primarily
goodwill, not being deductible for income tax purposes. The 49% effective income
tax rate for the first quarter of 1997 was higher than statutory income tax
rates due to the goodwill amortization and other purchase accounting
adjustments, which are not deductible for income tax purposes.
Due to the items described above, net loss for the first quarter of 1998 was
$14.4 million or $.37 per share, compared with net income of $5.0 million or
$.13 per share for the quarter ended March 31, 1997. The after tax effect of the
one-time gain included in the first quarter of 1997 was $.09 per share. The
startup costs of the DRAP Line reduced 1998 first quarter earnings by $.10 per
share as compared to a $.02 per share reduction in the first quarter of 1997.
LIQUIDITY AND CAPITAL RESOURCES
Net borrowings of $24.6 million were used to meet operating activity
requirements of $20.8 million, capital expenditures of $.6 million, and a
dividend payment of $3.9 million on January 21, 1998. The Company's
debt-to-total capitalization ratio at March 31, 1998 was 45.9%, up from 42.2% at
December 31, 1997.
Working capital increased $26.2 million from the prior year end to $93.8 million
as of March 31, 1998. The increase in working capital was primarily due to an
increase in income tax receivable, higher inventories, lower accounts payable
and lower short-term borrowings.
In addition to the $3.9 million dividend mentioned above, on February 20, 1998,
the Company declared a quarterly cash dividend of $.10 per share. This dividend
was paid on April 22, 1998 to shareholders of record as of the close of business
on April 8, 1998.
The Company believes that cash flow provided by operating activities and amounts
available from financial sources will enable it to satisfy planned capital
expenditures and other cash requirements for the foreseeable future. Currently,
the most significant financial restriction or covenant found in both the
Company's revolving credit agreement and term loan agreement provides for a put
option at the discretion of any of the banks if the Company's consolidated
tangible net worth, as defined therein, is less than $100 million at the end of
any fiscal quarter in 1998. As of March 31, 1998, the Company's consolidated
tangible net worth, as defined in these agreements, was $120.8 million.
9
<PAGE> 10
OTHER MATTERS
J&L has joined with three other producers of stainless steel plate in coils and
several steel industry labor unions in filing an antidumping duty petition and a
parallel countervailing duty petition with the U.S. Department of Commerce and
the U.S. International Trade Commission. These actions charge certain named
countries with dumping coiled plate in the United States or being unfairly aided
by foreign government subsidies. The petitions request antidumping and
countervailing duties ranging up to 52.69%. These coiled plate cases will only
affect a modest portion of the Company's product mix.
Note: This report contains forward-looking statements. Use of the words
"outlook," "anticipates," "believes," "estimate," "expect" and similar
statements represent the Company's current judgment on what the future holds.
While the Company believes the forward-looking statements to be reasonable, a
number of important factors could cause actual results to differ materially from
those projected. Notably, the new DRAP Line utilizes novel technology which
could result in unforeseen startup expense or delays. Furthermore, in the event
the Company's operating margins or selling prices deteriorate and there are
substantial adverse changes in financial markets, the Company can not be certain
that cash flow from operating activities and amounts available from financial
sources will satisfy its future cash requirements.
10
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PART II. OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS
10.1 Documents relating to short term uncommitted bank
lines of credit, including: (i) $10 million Comerica
Bank; (ii) $20 million Mellon Bank, N.A., (iii) $16
million Bank Nationale de Paris, New York Branch; and
(iv) $10 million Credit Lyonnais, New York Branch.
27.1 Financial Data Schedule
(b) REPORTS ON FORM 8-K
None
11
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Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
J&L SPECIALTY STEEL, INC.
(Registrant)
May 15, 1998 /s/ KIRK F. VINCENT
--------------------
Kirk F. Vincent
Executive Vice President, Finance and
Administration and Chief Financial Officer
(Principal financial officer and
duly authorized signatory)
12
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EXHIBIT INDEX
-------------
EXHIBIT NO. DESCRIPTION
- ----------- -----------
10.1 Documents relating to short term uncommitted bank lines of
credit, including: (i) $10 million Comerica Bank; (ii) $20
million Mellon Bank, N.A., (iii) $16 million Bank
Nationale de Paris, New York Branch; and (iv) $10 million
Credit Lyonnais, New York Branch.
27.1 Financial Data Schedule
<PAGE> 1
Exhibit 10.1
TAX I.D. No. 25-1564186
PROMISSORY NOTE
$10,000,000.00 Detroit, Michigan
December 31, 1997
On or before June 30, 1998, FOR VALUE RECEIVED, the undersigned, J&L
SPECIALTY STEEL, INC., a Pennsylvania corporation (herein called the "Company"),
promises to pay to the order of COMERICA BANK, a Michigan banking corporation
(herein called "Bank"), at the principal office of Bank at Comerica Tower at
Detroit Center, 500 Woodward Avenue, Detroit, Michigan 48226, or at such other
office as Bank notifies Company in writing from time to time, in lawful currency
of the United States of America, the sum of TEN MILLION DOLLARS ($10,000,000.00)
or so much of said sum as has been advanced and is then outstanding hereunder,
together with interest thereon as hereinafter set forth.
This Note is a note under which Advances, repayments and new Advances
may be made from time to time, provided that Bank shall not be obligated to make
any Advance hereunder (notwithstanding anything expressed or implied herein or
elsewhere to the contrary), and the Bank, at any time and from time to time,
without notice, and in its sole and absolute discretion, may refuse to make
Advances to Company hereunder without incurring any liability whatsoever and
without in any way affecting Company's liability hereunder for all amounts
advanced. Advances hereunder may be requested in Company's discretion by
telephonic notice to Bank or by submission to Bank of a Request for Advance in
form annexed hereto as Exhibit "A". Any Advance requested by telephonic notice
shall be confirmed by Company that same day by submission to Bank by telefax or
first class mail of the written Request for Advance aforementioned. Company
acknowledges that if Bank makes an Advance based on a telephonic request, it
shall be for Company's convenience and all risks involved in the use of such
procedure shall be borne by Company, and Company expressly agrees to indemnify
and hold Bank harmless therefor. Bank shall have no duty to confirm the
authority of anyone requesting an advance by telephone.
Each Prime-based Advance outstanding under this Note shall bear
interest at the Prime-based Rate, and each Quoted Rate Advance outstanding under
this Note shall bear interest at the applicable Quoted Rate. Each Advance
hereunder shall be payable upon the repayment date therefor, which repayment
date shall not be later than the maturity date of this Note, as set forth above.
Interest shall be computed on a daily basis using a year of 360 days and shall
be assessed for the actual number of days elapsed, and in such computations,
effect shall be given to any change in the interest rate as a result of any
change in the Prime-based Rate on the date of each such change in the
Prime-based Rate. Interest on each Prime-based Advance shall be payable monthly
on the last Business Day of each month, and, in the case of Quoted Rate
Advances, on the respective repayment date therefor; provided, however, if such
repayment date is more than thirty (30) days after the date of any such Quoted
Rate Advance, interest thereon shall also be payable at intervals of thirty (30)
days from the date of such Advance.
<PAGE> 2
The amount, applicable interest rate, and repayment date of each
Advance shall be noted on Bank's books and records, which books and records will
be conclusive evidence thereof: provided, however, any failure on the part of
Bank to make any such notation shall not relieve Company of its obligations to
repay Bank all amounts owing under this Note in accordance with the terms
hereof.
If Company makes any payment of principal with respect to any Quoted
Rate Advance on any day other than the applicable repayment date therefor
(whether voluntarily, by acceleration, or otherwise), or if Company fails to
borrow a Quoted Rate Advance after notice has been given by Company to Bank in
accordance with the terms of this Note requesting such Advance and Bank has
agreed to make such Quoted Rate Advance, or if Company fails to make any payment
of principal or interest in respect of any Quoted Rate Advance when due, Company
shall reimburse Bank, on demand, for any resulting loss, cost or expense
incurred by Bank as a result thereof, including, without limitation, any such
loss, cost or expense incurred in obtaining, liquidating, employing or
redeploying deposits from third parties, whether or not Bank shall have funded
or committed to fund such Advance. Calculation of any amounts payable to Bank
under this paragraph shall be made as though Bank shall have actually funded or
committed to fund the relevant Quoted Rate Advance through the purchase of an
underlying deposit in an amount equal to the amount of such Advance and having a
maturity date comparable to the applicable repayment date of such Quoted Rate
Advance; provided, however, Bank may fund any Quoted Rate Advance in any manner
it deems fit and the foregoing assumption shall be utilized only for the purpose
of the calculation of amounts payable under this paragraph.
Until such time that all indebtedness of Company to Bank under this
Note shall be paid and satisfied in full, Company covenants and agrees with Bank
as follows:
(a) Subject to the following proviso, each of the covenants set forth under
Articles V and VI of that certain Credit Agreement and that certain
Term Loan Agreement, each dated as of June 30, 1997, among Company,
various lenders from time to time parties thereto, Mellon Bank, N.A.,
as Agent, and Credit Lyonnais New York Branch, as Syndication Agent,
and Morgan Guaranty Trust Company of New York, as Documentation Agent
(herein, together with any amendments thereto, together called the
"Credit Agreements"), are hereby incorporated by reference as fully set
forth herein, mutatis mutandis; provided, however, after the date on
which both of the Credit Agreements shall have terminated and Company
shall have no further liabilities, obligations or indebtedness
thereunder, then, until such time that all indebtedness of Company to
Bank under this Note shall have been paid and satisfied in full,
Company will not (i) consolidate with or merge into any other
corporation (unless Company is the surviving corporation thereof and no
Default shall have occurred and be continuing hereunder), or (ii)
convey, sell, lease, transfer or otherwise dispose of, or create,
assume or suffer to exist any lien or encumbrance on, all or
substantially all of its assets; and
2
<PAGE> 3
(b) Company shall provide Bank with prompt written notice of the occurrence
or existence of any Default hereunder, or any event or condition which,
with passage of time or the giving of notice, or both, would constitute
a Default hereunder.
Upon the occurrence and during the continuance of any Default, Bank may
declare this Note and all unpaid principal, interest and other amounts owing by
Company to Bank hereunder to be immediately due and payable, without
presentment, demand, protest, or further notice of any kind, all of which are
hereby expressly waived by Company, and an action therefor shall immediately
accrue.
Upon the occurrence and during the continuance of any Default, Bank may
at any time and from time to time, without notice to Company (any requirement
for such notice being expressly waived by Company), set off and apply against
any and all of the indebtedness of Company to Bank any and all deposits (general
or special. time or demand, provisional or final) at any time held and other
indebtedness at any time owing by Bank to or for the credit or the account of
Company and any property of Company from time to time in possession of Bank,
irrespective of whether or not Bank shall have made any demand hereunder and
although such obligations may be contingent and unmatured. The rights of Bank
under this paragraph are in addition to other rights and remedies (including,
without limitation, other rights of setoff) which Bank may otherwise have.
Upon the occurrence and during the continuance of any Default
hereunder, (a) interest on all outstanding Prime-based Advances shall be payable
at a per annum rate of two percent (2%) above the Prime-based Rate, and (b)
interest on any outstanding Quoted Rate Advances shall be payable until the
respective repayment date for each such Advance at a per annum rate equal to the
greater of two percent (2%) above (i) the applicable Quoted Rate, or (ii) the
Prime-based Rate, and after such repayment date, at a per annum rate equal to
two percent (2%) above the Primebased Rate, which interest, in any case, shall
be payable upon demand.
All payments under this Note shall be in immediately available United
States funds, without setoff or counterclaim.
Company agrees to reimburse the Bank, or any other holder or owner of
this Note, for any and all reasonable out-of-pocket costs and expenses
(including, without limit. court costs, legal expenses and reasonable attorneys'
fees, whether or not suit is instituted, and, if suit is instituted, whether at
the trial court level, appellate level, in a bankruptcy, probate or
administrative proceeding or otherwise) incurred in collecting or attempting to
collect this Note or the Indebtedness or incurred in any other matter or
proceeding relating to this Note or the Indebtedness, except to the extent that
any such costs or expenses result primarily from the gross negligence or willful
misconduct of Bank.
Company acknowledges and agrees that there are no contrary agreements,
oral or written, establishing a term of this Note and agree that the terms and
conditions of this Note may not be
3
<PAGE> 4
amended, waived or modified except in a writing signed by a duly authorized
officer of the Bank expressly stating that the writing constitutes an amendment,
waiver or modification of the terms of this Note. If any provision of this Note
is unenforceable in whole or part for any reason, the remaining provisions shall
continue to be effective. THIS NOTE SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF MICHIGAN.
This Note shall bind the Company and the Company's respective
successors and assigns.
For purposes of this Note, the following terms will have the following
meanings:
"Advance" means a borrowing requested by Company and made by Bank under
this Note in accordance with the terms hereof, and shall include a Prime-based
Advance and a Quoted Rate Advance.
"Business Day" means any day, other than a Saturday, Sunday or holiday,
on which Bank is open for all or substantially all of its commercial banking
business in Detroit, Michigan.
"Default" means the occurrence or existence of any one of the
following:
(a) Company shall fail to pay the principal or interest under any
Advance or shall fail to pay any other amount owing by Company to
Bank under this Note when due in accordance with the terms hereof,
and such failure shall continue for a period of three (3) Business
Days after notice thereof has been given by Bank to Company;
(b) any representation, warranty, certification or statement made or
deemed to have been made by Company herein or in any certificate,
financial statement or other document or agreement delivered to
Bank pursuant hereto shall prove to be untrue in any material
respect when made or deemed made;
(c) Company shall fail to observe or perform any covenant or agreement
of Company set forth in (a)(i) or (ii) set forth in the third full
paragraph commencing on page 2 of this Note; or Company shall fail
to observe or perform any condition, covenant or agreement of
Company set forth in any loan or security agreement or other
agreement with Bank, other than as provided in subparagraph (a)
above or under the Credit Agreements described in subparagraph (d)
below, and Company shall fail to cure such failure within any
grace or cure period provided with respect thereto;
(d) the occurrence or existence of any Put Event or any Event of
Default under either of the Credit Agreements at any time prior to
the termination or expiration thereof;
(e) Company shall fail to perform any of its direct or indirect
obligations for the payment of any indebtedness in excess of Five
Million Dollars ($5,000,000.00)
4
<PAGE> 5
(other than indebtedness described in subparagraph (a) or (d)
above) when due (whether at scheduled maturity or upon
acceleration, demand or otherwise), or if Company shall default
under any agreement or instrument relating to such indebtedness if
the effect of such default is to accelerate the maturity of such
indebtedness;
(f) Company shall (i) commence a voluntary case or other proceedings
seeking liquidation, reorganization or other relief with respect
to itself or its debts under any bankruptcy, insolvency or other
similar law now or hereafter in effect or seeking the appointment
of a trustee, receiver, liquidator, custodian or other similar
official of it or any substantial part of its assets, or shall
consent to any such relief or to the appointment of or taking
possession by any such official in an involuntary case or other
proceeding commenced against it, or shall make a general
assignment for the benefit of creditors, or shall fail generally
to pay its debts as they become due, or shall take any corporate
action to authorize any of the foregoing; (ii) suffer the
Commencement of an involuntary case or other proceeding seeking
liquidation, reorganization or other relief with respect to itself
or its debts under any bankruptcy, insolvency or other similar law
now or hereafter in effect or seeking the appointment of a
trustee, receiver, liquidator. custodian or other similar official
of it or any substantial part of its assets, and such involuntary
case or other proceedings shall not be controverted by appropriate
proceedings within thirty (30) days or shall remain undismissed
and unstayed for a period of sixty (60) days; or (iii) suffer the
entry of an order for relief or be adjudicated bankrupt or
insolvent under the bankruptcy, insolvency or similar laws of any
competent jurisdiction;
(g) if any final non-appealable judgment or judgments for the payment
of money in excess of Three Million Dollars ($3,000,000.00),
individually or in the aggregate, shall be rendered against
Company and Company shall not have satisfied the same or caused
execution thereof to be stayed within thirty (30) days.
"Prime-based Advance" means an Advance which bears interest at the
Prime-based Rate.
"Prime-based Rate" means a per annum interest rate which is equal to
the greater of (a) the Prime Rate, or (b) the rate of interest equal to the sum
of one-percent (1%) plus the rate of interest equal to the average of the rates
on overnight Federal funds transactions with members of the Federal Reserve
System arranged by Federal funds brokers (the "Overnight Rates"), as published
by the Federal Reserve Bank of New York or, if the Overnight Rates are not so
published for any day, the average of the quotations for the Overnight Rates
received by Bank from three (3) Federal funds brokers of recognized standing
selected by Bank, as the same may be changed from time to time.
5
<PAGE> 6
"Prime Rate" means the per annum rate of interest established by Bank
from time to time as its prime rate, which rate may not necessarily be Bank's
lowest rate for loans.
"Quoted Rate" means a per annum rate of interest, other than the
Prime-based Rate, which is quoted by Bank and accepted by Company as the
applicable interest rate with respect to a Quoted Rate Advance hereunder.
"Quoted Rate Advance" means an Advance which bears interest at a Quoted
Rate.
COMPANY AND THE BANK ACKNOWLEDGE THAT THE RIGHT TO TRIAL BY JURY IS A
CONSTITUTIONAL ONE, BUT THAT IT MAY BE WAIVED. EACH PARTY, AFTER CONSULTING (OR
HAVING HAD THE OPPORTUNITY TO CONSULT) WITH COUNSEL OF THEIR CHOICE, KNOWINGLY
AND VOLUNTARILY, AND FOR THEIR MUTUAL BENEFIT, WAIVES ANY RIGHT TO TRIAL BY JURY
IN THE EVENT OF LITIGATION REGARDING THE PERFORMANCE OR ENFORCEMENT OF, OR IN
ANY WAY RELATED TO, THIS NOTE OR THE INDEBTEDNESS.
No delay or failure of Bank in exercising any right, power or
privilege hereunder shall affect such right, power or privilege, nor shall any
single or partial exercise thereof preclude any further exercise thereof, or the
exercise of any other power, right or privilege. The rights of Bank under this
Agreement are cumulative and not exclusive of any right or remedies which Bank;
would otherwise have, whether by other instrument, by law or otherwise.
J&L SPECIALTY STEEL, INC.
By: /s/ K. F. Vincent
-----------------
K. F. Vincent
Its: Executive Vice President,
Finance and Administration and
Chief Financial Officer
6
<PAGE> 7
EXHIBIT "A"
REQUEST FOR ADVANCE
TO: COMERICA BANK (the "Bank")
The undersigned hereby requests a *_________ Advance, or confirms such
a request made by telephone, under a Promissory Note dated ________________,
1997, in the principal amount of Ten Million Dollars ($10,000,000.00) (the
"Note") made by the undersigned to the Bank, pursuant to the following terms:
Advance Amount: $___________
Quoted Rate (if applicable): ______% per annum
Advance Date:_______________, 19__
Repayment Date:_______________, 19__
The proceeds of this Advance shall be or have been deposited to the Account
No.________________of the undersigned with the Bank or as follows:______________
__________________________________.
The undersigned warrants and certifies that no condition exists or
event has occurred which constitutes or, with the running of time or the giving
of notice, or both, would constitute, a Default under the Note or any other
agreement or instrument of the undersigned with the Bank, and the undersigned
further warrants and certifies that the making of the Advance requested hereby
shall not violate any of the terms, conditions or provisions of either of the
Credit Agreements referenced in the Note.
Capitalized terms used but not otherwise defined herein shall have the
meanings ascribed to them in the Note.
Dated this __________ day of __________, 19__.
J & L SPECIALTY STEEL, INC.
By: _______________________
Its: ______________________
*Insert as applicable: "Prime-based" or "Quoted Rate".
<PAGE> 8
MELLON BANK
Mellon Bank, N.A.
Mellon Bank Center
Pittsburgh, PA 15258-0001
November 13, 1995
Mr. E. Gregory Foltz
Treasurer
J&L Specialty Steel, Inc.
One PPG Place
P.O. Box 3373
Pittsburgh PA 15230-3373
Dear Greg:
We are pleased to inform you that Mellon Bank, N.A. (the "Bank") is making
available to J&L Specialty Steel, Inc., ("J&L") an uncommitted (as offered/as
available) line of credit in the amount of $20,000,000. This line is available
at the Bank's discretion and is subject to decrease or cancellation without
prior notice at any time.
Borrowings under the line may be for working capital and other general corporate
purposes, not to exceed 90 days in duration; however, they may not be used for
mergers, acquisitions or recapitalization financing. Furthermore, borrowings are
to be evidenced by the enclosed promissory note form and are subject to the
terms and conditions contained therein.
Notices of borrowings, payments or principal and interest, etc. should be sent
to the attention of the Loan Administration Division, Three Mellon Bank Center,
Room 2304, Pittsburgh, PA. 15259, c/o Rhonda Ashbaugh.
I have also enclosed a form of Secretary Certificate with the applicable
resolution of the predecessor of J&L attached. If this arrangement is acceptable
to J&L, please arrange to have the necessary signatures affixed below and on the
Secretary's Certificate and the Promissory Note and return the original
documents to me.
<PAGE> 9
E. Gregory Foltz
November 13, 1995
Page 2
This letter supersedes any previous advisement letters.
Sincerely,
/s/ R. K. JAMES
- ---------------
R. K. James
Vice President
RKJ/mes
Enclosures
ACCEPTED BY:
J&L SPECIALTY STEEL, INC.
By: /s/ KIRK F. VINCENT Date 11/22/95
------------------- --------------
(Signature)
Name: Kirk F. Vincent
---------------
Title: Vice President-Finance and Law
------------------------------
<PAGE> 10
MASTER PROMISSORY NOTE
$20,000,000
Pittsburgh, Pennsylvania
Date: November 13,1995
FOR VALUE RECEIVED, the undersigned, J&L Specialty Steel, Inc., a Pennsylvania
corporation (the "Borrower"), promises to pay to the order of Mellon Bank, N.A.
(the "Bank") the principal sum of Twenty Million Dollars ($20,000,000) or, if
less, the aggregate unpaid principal balance of all advances (each herein called
an "Advance" and collectively called the "Advances") together with interest
thereon as hereinafter provided, made by the Bank to the Borrower under a
discretionary line of credit (the "Line of Credit") established by the Bank for
the benefit of the Borrower which Line of Credit is subject to review and
decrease or cancellation by the Bank in its sole discretion and without prior
notice from time to time.
PAYMENTS OF PRINCIPAL AND INTEREST. The unpaid principal balance of each Advance
shall be payable on such date (the "Maturity Date") as shall be agreed upon by
the Bank and the Borrower on or prior to the date such Advance is made. The
unpaid principal balance of each Advance shall bear interest from and including
the date thereof until its Maturity Date at the rate established for the term of
the Advance, which rate may be fixed or floating based upon a predetermined
margin above or below a stated market index offered rate by the Bank in its sole
discretion and accepted by Borrower at the time of borrowing (the "As-Offered
Rate") on the basis of a 360 day year and actual days elapsed. Interest on
Advances shall be payable on such Maturity Date. Each Advance shall bear
interest after its Maturity Date until paid, payable on demand, at a rate per
annum which shall be the Bank's Prime Rate as announced from time to time, such
interest rate to change automatically as of the effective date of each change in
the Prime Rate.
EVENTS OF DEFAULT; REMEDIES. The following are events of default hereunder: (1)
failure of the Borrower to make any payment of principal or interest on this
Promissory Note and such failure shall continue for such a period of three (3)
business days after notice thereof is given by Bank to Company, or (2) the
Borrower shall become insolvent or unable to pay its debts as they mature or
bankruptcy, insolvency, reorganization, arrangement, readjustment, composition,
liquidation, dissolution or similar proceedings are instituted by or against the
Borrower under any bankruptcy, insolvency or similar law now or hereafter in
effect, and, with respect to proceedings commenced against the Borrower, such
proceedings shall remain undismissed and unstayed for a period of 30 consecutive
days, or (3) the Borrower shall use the proceeds of any Advance to finance any
merger, acquisition, recapitalization or other corporate reorganization or any
kind or nature involving the Borrower or any Subsidiary of the Borrower; or (4)
the Borrower or any Subsidiary of the Borrower: (a) shall default in any payment
of any obligation in respect of Indebtedness in principal amount of $5,000,000
or more beyond any period of grace with respect
<PAGE> 11
thereto, or (b) shall default in the observance of any covenant, term or
condition by which such obligations are created, secured or evidenced, if the
effect of such default is to cause the holders of such obligations or their
agents, to cause all or part of such obligations to become due before its or
their stated maturity, provided, that such default described in (a) or (b)
above, (i) has not been cured within the applicable cure period, if any, and
(ii) in the good faith judgment of the Bank such default is not being contested
by the Borrower in good faith and by appropriate proceedings. If an event of
default under (1) or (2) shall occur, the unpaid principal balance of this
Promissory Note and accrued interest hereon shall automatically be and become
due and payable without further notice, demand, presentment or protest, all of
which are expressly waived. If an event of default under (3) or (4) shall occur,
the Bank may declare the unpaid principal balance of this Promissory Note and
accrued interest hereon to be forthwith due and payable and the same shall
thereupon be due and payable without further notice, demand, protest or
presentment, all of which are expressly waived. As used herein, the term
"Indebtedness" shall mean all obligations for borrowed money, all obligations
representing the deferred purchase price of property, obligations which are
evidenced by notes, acceptances or other instruments, obligations secured by
liens and payable out of the proceeds or production from property now owned or
hereafter acquired, capitalized lease obligations, letter of credit obligations,
or obligations under a guaranty or similar agreement; the term "Subsidiary"
shall mean any entity which the majority of the outstanding shares of capital
stock is owned, directly or indirectly, by the Borrower.
In case this Promissory Note shall have been declared or shall have become due
and payable, the Bank or any holder of this Promissory Note shall have the
right, in addition to all other rights and remedies available to it, without
notice to the Borrower, to set-off against and to appropriate and apply to the
then unpaid balance of this Promissory Note, any funds held in any manner for
the account of the Borrower by the Bank or such holder including, without
limitation, all funds in all deposit accounts (general or special) now or
hereafter maintained by the Borrower with the Bank or such holder. In the event
of any action at law or suit in equity with respect to this Promissory Note, the
Borrower, in addition to all other sums which it may be required to pay
hereunder, will pay a reasonable sum for attorneys' fees incurred by the holder
hereof in connection with such action or suit and all other costs of collection.
PAYMENTS; PREPAYMENTS. Payments of both principal and interest hereon, whether
at scheduled maturity or by declaration, acceleration or otherwise, shall be due
and payable on the date specified for such payment at Three Mellon Bank Center,
Pittsburgh, Pennsylvania 15259, or at such other places as the holder hereof
shall designate to the Borrower in writing, in lawful money of the United States
of America and in immediately available funds.
If any payment of principal or of interest on this Promissory Note shall become
due on a day other than a day on which banks are open for business in
Pittsburgh, Pennsylvania, such payment shall be made on the next succeeding
business day and such extension of time shall in such case be included in
computing interest in connection with such payment. The Borrower may prepay all
or part of an Advance at any time, provided that the Borrower shall pay to the
Bank on demand an amount set forth in reasonable detail in a certificate of the
Bank to the Borrower (which shall be conclusive, absent manifest error), and
determined by the Bank to be sufficient to
2
<PAGE> 12
compensate Bank fully for all reinvestment or liquidation loss, cost or expense
incurred by the Bank by reason of such prepayment.
MISCELLANEOUS. Absent manifest error, the records of the Bank shall be
conclusive, so long as the Bank is the holder hereof, with respect to the date
and principal amount of each Advance, the Maturity Date thereof, the applicable
interest rate and interest accrued thereon, and date and amount of each payment
of principal and interest made by the Borrower with respect to each Advance.
This Promissory Note shall be governed by and construed in accordance with the
laws of the Commonwealth of Pennsylvania, and shall bind the Borrower, its
successors and assigns, and shall inure to the benefit of the Bank, its
successors and assigns, buy may not be assigned by the Borrower unless the
Bank's prior written consent is obtained.
The Borrower hereby waives presentment, demand, notice protest and all other
demands and notices in connection with the delivery, acceptance, performance,
default or enforcement of this Promissory Note.
J&L Specialty Steel, Inc.
By: /s/ KIRK F. VINCENT
-------------------
(Signature)
Name: Kirk F. Vincent
---------------
Title: Vice President-Finance and Law
------------------------------
<PAGE> 13
REVOLVING CREDIT NOTE
New York, New York January 23,1997
In consideration of such loans or advances ("Loan(s)") as Banque Nationale de
Paris (the Bank")from time to time may elect to make to or for the benefit or at
the request of the undersigned, the undersigned hereby promise(s) to pay on such
dates as specified in a letter* or, at the option of the holder hereof, on
demand prior thereto, to the order of Banque Nationale de Paris at its office at
499 Park Avenue, New York, New York 10022, in lawful money of the United States
of America, in immediately available funds, all Loans, plus any interest thereon
then unpaid. The unpaid balance of each Loan shall bear interest from the date
thereof until paid at such rates as specified in the Letter Agreement.
[ ] at the rate of ______% per annum
[ ] at the rate of _____% per annum above the Bank's floating prime rate. The
term "prime rate" as used herein shall mean the rate of interest
established by the New York Branch of the Bank as its prime rate, as in
effect from time to time. The prime rate is a reference rate and does not
necessarily represent the lowest or best rate actually charged to any
customer. If for whatever reason the prime rate happens to be lower than
the cost of funds to the Bank (as determined by the Bank on any one day)
plus 1-1/2% per annum, then such cost of funds plus 1-1/2% per annum shall
replace for any such day the Bank's prime rate hereunder.
Interest shall be payable as specified in the Letter Agreement.
The unpaid principal balance hereon at any time shall not exceed
$16,000,000, or such other greater amount as may be agreed upon from time to
time, and shall be equal to the aggregate amount of all Loans than made less the
aggregate amount of all payments then made thereon. The holder hereof is
authorized, but shall not be required, to sat forth in writing from time to time
on the reverse hereof (or on any continuation sheet) the date and amount of each
Loan and any payment of principal and the principal balance then unpaid hereon.
If Loans and any repayments thereof are recorded in the statements of the Bank,
and if such statements are delivered to the undersigned, then said statements
shall be conclusively presumed correct unless within sixty days of receipt
thereof by the undersigned, the undersigned notifies the Bank in writing of any
inaccuracies in the statements.
If any of the following events shall occur and be continuing: (1) if principal,
interest or any other sum payable upon any liability of the undersigned to the
holder hereof shall not be paid within 3 days after notice thereof by us that
the amount is due; (2) or if the undersigned or any guarantor hereof shall
default in the performance of any of its agreements** in any agreement with the
holder hereof or in any instrument or document delivered pursuant thereto; (3)
or it any guaranty hereof shall be revoked or for any reason shall cease to be
valid and binding on any such guarantor or the undersigned, as the case may be,
or any such guarantor or the undersigned shall so state in writing; (4) or it
any representation or warranty made or furnished to the holder hereof by or on
behalf of the undersigned or any such guarantor in writing shall prove to have
been incorrect in any material respect when made; (6) or if any indebtedness of
the undersigned or any such guarantor for borrowed money shall become due and
payable by acceleration of maturity thereof; (7) or if the undersigned or any
such guarantor shall generally not pay its debts as such debts become due, or
<PAGE> 14
shall admit in writing its inability to pay its debts generally, or shall make a
general assignment for the benefit of creditors; or any proceeding shall be
instituted by or against the undersigned or any such guarantor seeking to
adjudicate it a bankrupt or insolvent, or seeking liquidation, winding up,
reorganization, arrangement, adjustment, protection, relief, or composition of
it or its debts under any law relating to bankruptcy, insolvency or
reorganization or relief of debtors, or asking the entry of an order for relief
or the appointment of a receiver, trustee, custodian or other similar official
for it or for any substantial part of its property and, in the case of any such
proceeding instituted against it (but not instituted by it), either such
proceeding shall remain undismissed or unstayed for a period of 30 days, or any
of the actions sought in such proceeding (including, without limitation, the
entry of an order for relief against, or the appointment of a receiver, trustee,
custodian or other similar official for, it or for any substantial part of its
property) shall occur; or the undersigned or any such guarantor shall take any
corporate action to authorize any of the actions set forth above in this section
(7); or it the undersigned or any such guarantor be a partnership, in case of
the happening with respect to any partner of any of the events set forth above
in this section (7); (8) or it the undersigned or any such guarantor, if an
individual (or, if a partnership, any partner thereof), shall die or, if a
corporation, shall be dissolved or be a party to any merger or consolidation or
there shall occur a change of control of more than 50% of the combined voting
power of the outstanding securities of the undersigned or any such guarantor
subsequent to the date of this instrument without the written consent of the
holder hereof; *** then, and in every such event, this note and the present and
future indebtedness, obligations and liabilities of any kind of the undersigned
to the holder hereof, whether created directly or acquired by assignment,
whether absolute or contingent, shall, unless the holder hereof shall otherwise
elect, forthwith become and be due and payable, without demand or notice.
In addition to any other rights of the holder hereof under applicable
law, the holder hereof shall have a right of set-off against, any and all
property of the undersigned which may from time to time come into the
possession, custody or control of the holder hereof, including any credit
balance with or claim against the holder hereof, and the holder hereof may at
any time, without notice, apply the same to this note or such other liabilities,
whether due or not. The undersigned and all endorsers, guarantors and other
parties to this note waive demand for payment, presentment, protest and notice
of dishonor and any and all other notices and demands whatsoever. Failure or
delay of the holder hereof to enforce any provisions of this note shall not be
deemed a waiver of any such provision, nor shall the holder hereof be estopped
from enforcing any such provision at a later time. None of the terms or
provisions of this note may be waived, altered, modified or amended except in
writing. It an attorney is used to enforce or collect this note, the undersigned
shall be obligated to pay all costs and expenses of collection, including
reasonable attorneys' fees.
The undersigned hereby irrevocably and unconditionally: (1) submits
for itself and its property in any legal action or proceeding relating to this
instrument, or for recognition and enforcement of any judgment in respect
thereof, to the non-exclusive general jurisdiction of the Courts of the State of
New York and Courts of the United States of America for the Southern District of
New York, and Appellate Courts from any thereof; (2) consents that any such
action or proceeding may be brought in such courts, and waives any objection
that the undersigned may now or hereafter have to the venue of any such action
or proceeding in any such court or that such action or proceeding was brought in
an inconvenient court and agrees not to plead or claim the same; (3) agrees that
service of process in any such action or proceeding may be effected by mailing a
copy thereof by registered or certified mail (or any substantially similar form
of mail)
<PAGE> 15
postage prepaid to the undersigned at its address set forth under its signature
below or at such other address of which the holder hereof shall have been
notified pursuant hereto; (4) agrees that nothing herein (i) shall affect the
right of the holder hereof to effect service of process in any other manner
permitted by law or (ii) shall limit the right of the holder hereof to sue in
any other jurisdiction; (5) waives all right to trial by jury in any action,
proceeding or
* agreement dated 1/23/97, as it may be amended from time to time (the
"Letter Agreement")
** over $5,000,000
*** except in cases where the Borrower is the surviving corporation
counterclaim arising out of or in connection with this instrument; (6) waives
the right to interpose any counter-claim, set-off or defense of any nature in
any such action or proceeding relating to this instrument and waives any claim
against the holder hereof for consequential, special or punitive damages; and
(7) agrees that this instrument shall be construed according to the laws of the
State of New York, without reference to the conflicts of laws rules thereof.
The undersigned, if more than one, shall be jointly and severally liable
hereunder, and the term "undersigned" shall mean the undersigned or any one or
more of them and their heirs, executors, administrators, successors or assigns.
J&L SPECIALTY STEEL, INC.
By /s/ K. F. Vincent
-----------------
By -----------------
Address for Notices:
1 PPG Place
P. 0. Box 3373
-------------------
(Number and Street)
Pittsburgh, PA 15230
------------------------
(City, County and State)
<PAGE> 16
B A N Q U E N A T I O N A L E D E P A R I S
EXECUTIVE AND LENDING OFFICES
January 23, 1997
J&L Specialty Steel, Inc.
1 PPG Place
P.O. Box 3373
Pittsburgh, PA 15230
Gentlemen:
We are pleased to make available to you an uncommitted revolving credit
facility on the following terms:
1. Amount. We may make available to you, from time to time, in our sole
discretion, a credit facility for up to an aggregate principal amount
outstanding at any one time of sixteen million dollars ($16,000,000),
or such greater amount as we may agree upon.
2. Utilization. This facility may be used for your general corporate
purposes as follows:
(a) For borrowings in domestic dollars, you will give notice to us not
later than 12:00 noon of the value date of the borrowing,
specifying the amount, value date, and maturity. Such borrowings
may be for loans in amounts of $1,000,000 or more, payable on
demand ("Demand Loans") or for loans ranging from overnight to six
months in amounts of $1,000,000 or more ("Domestic Term Loans").
(b) Borrowings in Eurodollars may be for periods of one, two, three or
six months in amounts of $1,000,000 or more ("Eurodollar Term
Loans"). For such borrowings, you will give us at least three
Business Days' (as defined below) prior notice, specifying the
amount, value date, and maturity. If we should advise you that, in
our opinion, the Eurodollars requested are not available for the
amount, value date, and term of the requested borrowing, you will
notify us before 12:00 noon on the next Business Day either that
you withdraw your request for such Eurodollar borrowing or that
you wish the funds to be advanced for such other term for which
LIBOR may be available or to be advanced in domestic dollars. If
we should not receive said notice from you by the prescribed time,
your borrowing request will be deemed withdrawn.
(c) We may also issue standby letters of credit for up to 12 months.
<PAGE> 17
BANOUE NATIONALE DE PARIS
J&L Specialty Steel, Inc. -2- January 23, 1997
(d) All notices specified herein will be in writing (by letter or fax)
or by telephone, to be confirmed in writing, and will be deemed
given when received.
(e) As used herein, for Eurodollar borrowings, a "Business Day" will
mean any day on which banks in both New York and London are open
for business.
3. Prepayment. Demand Loans may be repaid by you at any time without
premium or penalty. For Domestic Term Loans and Eurodollar Term Loans,
borrowings may be prepaid not less than three Business Days' prior
written notice to us, provided that (i) you shall pay accrued interest
on the principal so prepaid to the date of such prepayment and (ii) you
shall reimburse us for any costs or other losses, as determined by us,
absent manifest error, which we may sustain as a result of such
prepayments.
4. Financing Charges.
(a) Demand Loans will bear interest at our floating prime rate.
(b) Domestic Term Loans will bear interest at the rate corresponding
to our cost of funds, as determined by us, for the corresponding
term and amount, plus such margins as may be mutually agreed upon
on a case by case basis. Eurodollar Term Loans will bear interest
at the London Inter-Bank Offered Rate ("LIBOR"), as determined by
us, two Business Days prior to the value dates of the loans for
the corresponding term and amount, plus the cost of any applicable
reserves and plus such margins as may be mutually agreed upon,
prior to each loan, on a case by case basis.
(c) For Demand Loans, interest will be payable monthly, at the end of
each calendar month, and on demand. For Domestic Term Loans and
Eurodollar Term Loans of three months or less, interest will be
payable at the maturity of each loan. For Domestic Term Loans and
Eurodollar Term Loans over three months, interest will be payable
every three months and at the maturity of each loan.
(d) For letters of credit, in addition to our usual charges and
expenses, we will charge issuing commissions at such rates as may
be mutually agreed upon on a case by case basis, provided,
however, that in no event will the issuing commissions be lower
than our minimum charges prevailing at the time for such letters
of credit, which minimum is currently $750. Such charges will be
payable upon the issuance of each letter of credit.
<PAGE> 18
BANOUE NATIONALE DE PARIS
J&L Specialty Steel, Inc. -3- January 23, 1997
5. Documents.
(a) As a condition precedent to your using this facility, we are to be
provided with the following documents, which are made a part
hereof and are incorporated herein by reference:
(i) Documents, as per specimens attached, to be duly executed by
you:
- Original of this letter agreement
- Corporate Resolution
- Signature Cards
- Revolving Credit Note
(b) The following documents already executed by you will continue to
remain in full force and effect and are incorporated herein by
reference and are made a part hereof:
- F.D.I.C. Acknowledgement dated November 27, 1995
- Form W-9 dated December 12, 1995
- General Credit Agreement dated November 15, 1995
6. Discharge of Liability arising from and Indemnification for
Instructions Given by Facsimile or Telex Message. You have requested
that we accept facsimile and telex message instructions that may be
sent or purportedly sent by you to us in connection with present or
future transactions between us including, but not limited to, making
payments out of, or otherwise operating any accounts you may maintain
with us, borrowing money, issuing or amending letters of credit, or
otherwise utilizing any credit facilities or other financial
accommodations that we may be extending to you. You are fully aware of
and, absent gross negligence or willful misconduct by us, accept all
risks relating to the execution by us of such facsimile or telex
instructions, including, but not limited to, those arising from errors
in transmission or comprehension or from execution by us of fraudulent
or forged instructions or instructions given by any person who does not
have the necessary powers, whether acting or purporting to act in your
name or on your behalf as an employee or agent or through powers of
attorney or otherwise. Accordingly, absent gross negligence or willful
misconduct by us, you agree to absolve and release us from all
responsibility and claims of any kind arising from our execution of, or
refusal to, execute such instructions and you irrevocably and
unconditionally agree to indemnify us and to hold us harmless against
any and all claims, demands, losses, damages, costs, reasonable
attorneys' fees and any other expenses that we
<PAGE> 19
BANOUE NATIONALE DE PARIS
J&L Specialty Steel, Inc. -4- January 23, 1997
may sustain as a result of complying with such instructions and with
this agreement.
7. Representations, Warranties, and Covenants.
(a) For each standby letter of credit to be issued by us hereunder,
you will give us written instructions enclosing the text of the
proposed standby letter of credit, signed by your duly authorized
officers for identification purposes. You hereby undertake to
reimburse us upon demand with any amount that we may have paid
under any standby letter of credit issued hereunder. In the event
of a delay between the date when we make payment to the
beneficiary of a standby letter of credit and the date when we
receive payment from you, you agree to pay us interest at our
floating prime rate plus 2-1/2% per annum on the amount we paid to
the beneficiary to the date we receive payment. You also agree to
indemnify and hold us harmless against any claims or losses of any
kind, including reasonable attorneys' fees, which we might sustain
as a result of our issuance of, or making payment under, any
standby letter of credit hereunder. It is expressly understood and
agreed that your obligations to pay us under this undertaking are
irrevocable, absolute, unconditional, and shall not be subject to
any defenses whatsoever. The letters of credit may, in our
discretion or that of our correspondent, be interpreted in
accordance with the Uniform Customs and Practice for Documentary
Credits of the International Chamber of Commerce, as adopted or
amended from time to time, or any other rules, regulations, or
customs prevailing at the place where the standby letters of
credit are available or the drafts are drawn or negotiated.
(b) You represent and warrant that this letter agreement and the other
documents which are incorporated herein have been duly authorized,
executed and delivered by you and constitute your valid, legally
binding, and enforceable obligations in accordance with their
terms.
(c) It is understood and agreed that this letter agreement shall not
be construed to commit or otherwise obligate us in any manner
whatsoever to extend any credit facilities to you. We retain the
right to decline to make any advances or to extend any other
credit facilities to you at any time without prior notice for any
reason whatsoever.
<PAGE> 20
BANOUE NATIONALE DE PARIS
J&L Specialty Steel, Inc. -5- January 23, 1997
(d) You represent, warrant and covenant that as of the date hereof,
all your current assets are free and clear of any encumbrances and
you undertake and agree, except for such operations which occur in
the ordinary course of business, not to pledge, encumber or grant
any mortgage, pledge, hypothecation, lien or security interest or
other consensual interest or encumbrance of any description in any
of your current assets, or the proceeds and products thereof,
except as provided in section 6.01 of the Credit Agreement in the
amount of $100,000,000 dated as of July 14, 1995, as amended,
among you, the lenders parties thereto from time to time, Mellon
Bank, N.A., as Agent and Credit Lyonnais Cayman Island Branch and
Morgan Guaranty Trust Company of New York, as Co-Agents.
(e) It is understood and agreed that, if Usinor Sacilor S.A. should
cease to own, directly or indirectly, at least 50.1% of your
capital stock, then at our option, all the amounts outstanding
owed to us hereunder shall become immediately due and payable upon
notice to you without presentment, demand, protest, or further
notice of any kind, all of which you hereby expressly waive.
(f) It is understood and agreed that, in addition to the events of
default mentioned in the above-mentioned General Credit Agreement,
you will be in default under this agreement in the event that you
are in default in the payment when due of any indebtedness for
borrowed money in excess of $5,000,000 in the aggregate at any one
time, provided that such default (i) has not been cured within the
applicable cure period, if any, and (ii) in our good faith
judgment such default has not been contested by you in good faith
and by appropriate proceedings.
(g) The definition of "Liabilities" in section l(b) of the General
Credit Agreement dated November 15, 1995, shall include your
obligations and liabilities under this credit facility, as it may
be amended from time to time.
(h) In the event of any inconsistency between the terms of this letter
agreement and the General Credit Agreement, the terms of this
letter agreement shall prevail.
(i) You agree to provide us with your audited annual financial
statements within 90 days after the end of each of your fiscal
years, and unaudited financial statements quarterly within 60 days
after the end of each of your fiscal quarters.
<PAGE> 21
BANOUE NATIONALE DE PARIS
J&L Specialty Steel, Inc. -6- January 23, 1997
This letter agreement replaces and supersedes our letter agreement
dated November 15, 1995, as amended on July 18, 1996 and our letter agreement
dated December 7, 1993, as amended on February 9, 1995 and January 26, 1996, and
any outstanding obligations thereunder are deemed to be incorporated in this
letter agreement.
We trust that the terms as set forth above accurately reflect our
agreement and, if so, we would appreciate it if you would indicate your
acceptance by signing and returning to us the originals of this letter and of
the attached documents, retaining the duplicates for your records.
ACCEPTED AND AGREED: Very truly yours,
J&L SPECIALTY STEEL, INC. BANQUE NATIONALE DE PARIS
By /s/ KIRK. F. VINCENT By /s/ LYNN H. WALKOFF
-------------------- -------------------
Lynn H. Walkoff
Vice President
By Kirk. F. Vincent By /s/ GWEN ABBOTT
---------------- ---------------
Vice President-Finance and Law Gwen Abbott
Assistant Vice President
<PAGE> 22
AMENDMENT NO. 3
DATED AS OF JUNE 30, 1997
TO OFFER
DATED AS OF JUNE 6, 1994
Amendment No. 3, dated as of June 30, 1997 (this "Amendment") to Offer
dated as of June 6, 1994 (as amended to the date hereof, the "Offer") between
J&L SPECIALTY STEEL, INC. (the "Borrower") and CREDIT LYONNAIS NEW YORK BRANCH
("CLNY").
WHEREAS, the Borrower has requested CLNY to extend the Expiration Date
until June 30, 1998; and
WHEREAS, CLNY is willing to agree to such extension on and subject to
the terms and conditions hereof.
NOW, THEREFORE, IT IS AGREED:
1. All terms used but not otherwise defined herein shall have the
meaning ascribed to them in the Offer.
2. As of the date of this Amendment: (a) the Expiration Date shall be
extended until June 30, 1998; (b) the Base Rate Due Date shall be no later than
June 30, 1998; and (c) the Eurorate Due Date shall be no later than September
30, 1998.
3. CLNY and Borrower acknowledge that Credit Lyonnais Cayman Island
Branch ("CLCI"), a party to the initial offer, has withdrawn from the Offer and
CLNY has assumed all the rights and obligations of CLCI under the Offer.
4. Except as expressly modified hereby, the terms and provisions of the
Offer shall remain in full force and effect and be enforceable against the
Borrower.
5. All representations and warranties in the Offer are deemed made as
of the date hereof and as of the date of each drawdown hereunder.
6. As used in the Offer (including all Exhibits thereto) and all other
instruments and documents executed in connection therewith, the term "Offer"
shall mean the Offer as amended hereby.
<PAGE> 23
2
7. This Amendment shall be governed by and construed in accordance
with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment No. 3
to be executed by their respective officers thereunto duly authorized, as of the
date first written above.
J&L SPECIALTY STEEL, INC.
By: /s/ KIRK F. VINCENT
-------------------
Name: Kirk F. Vincent
---------------
Title: Vice President-Finance and Law
------------------------------
CREDIT LYONNAIS
NEW YORK BRANCH
By: /s/ OLIVIER PERRAIN
---------------------------------
Name: Olivier Perrain
-------------------------------
Title: First Vice President
------------------------------
<PAGE> 24
PROMISSORY NOTE
(BASE RATE LOANS)
$10,000,000 June 30, 1997
FOR VALUE RECEIVED, J&L Specialty Steel, Inc. (the "Maker"), a Pennsylvania
corporation, located at One PPG Place, P.O. Box 3373, Pittsburgh, PA 15230-3373,
hereby promises to pay on demand or, if no demand is made, then on the Base Rate
Due Date, to the order of Credit Lyonnais New York Branch ("CLNY"), Credit
Lyonnais Building, 1301 Avenue of the Americas, New York, New York 10019, in
immediately available funds the principal sum of U.S. Ten Million Dollars
($10,000,000), or, if less, the aggregate unpaid principal balance of the loans
as recorded on the schedule attached hereto and made a part hereof or in
internal records of CLNY (the "Bank Records"). The Maker further promises to pay
interest on each loan evidenced hereby from its date of drawdown until paid in
full at the rate and on the dates specified in that certain Offer dated as of
June 6, 1994 for an Uncommitted Line of Credit from CLNY and Credit Lyonnais
Cayman Island Branch and accepted by the Maker (as amended from time to time,
the "Offer"). Capitalized terms not defined in this Promissory Note shall have
the meanings set forth in the Offer.
This Promissory Note shall exist contemporaneously with another promissory note
to the order of CLNY issued pursuant to the Offer; provided that the aggregate
outstanding principal amount under both such promissory notes shall not exceed
at any time $10,000,000.
The Maker hereby authorizes the holder of this Promissory Note to record from
time to time on the Bank Records appropriate notations including, without
limitation (i) the date and amount of each loan; (ii) the due date of each loan
not payable on demand or on the Base Rate Due Date; and (iii) any payment or
prepayment of principal. Such notations shall constitute conclusive evidence of
the items noted absent manifest error; provided that the failure of CLNY to make
any such notation shall not affect or limit the obligations of the Maker to
repay the loans, together with accrued interest thereon, nor affect or limit the
rights of CLNY hereunder.
Whenever any payment of principal or interest hereunder falls due on a day which
is not a Business Day, the date of payment thereof shall be the preceding
Business Day.
<PAGE> 25
2
In no event shall interest payable hereunder exceed the maximum rate permitted
by applicable law. If any payment in excess of that permitted amount is
received, such payment shall be deemed to have been made in error and shall
automatically be applied to reduce the principal balance outstanding hereunder.
This Promissory Note is referred to in, issued pursuant to the terms of, and is
entitled to the benefits of, the Offer. The Offer, among other things, contains
provisions for automatic acceleration of the amounts due hereunder absent demand
and upon the happening of certain stated events, and for prepayments on account
of principal and interest hereof upon the terms and conditions therein
specified.
The Maker hereby waives presentment, demand, notice, protest or other action of
any kind with respect to its obligations under this Promissory Note.
This Promissory Note is issued in substitution for but not in replacement of a
prior promissory note dated January 1, 1997.
This Promissory Note shall be governed by and construed in accordance with the
laws of the State of New York.
J&L SPECIALTY STEEL, INC.
By: /s/ KIRK F. VINCENT
-------------------
Kirk F. Vincent
Title: Vice President-Finance and Law
------------------------------
<PAGE> 26
PROMISSORY NOTE
(EURORATE LOANS)
$10,000,000 June 30, 1997
FOR VALUE RECEIVED, J&L Specialty Steel, Inc. (the "Maker"), a Pennsylvania
corporation, located at One PPG Place, P.O. Box 3373, Pittsburgh, PA 15230-3373,
hereby promises to pay on the Eurorate Due Date to the order of Credit Lyonnais
New York Branch ("CLNY"), Credit Lyonnais Building, 1301 Avenue of the Americas,
New York, New York 10019, in immediately available funds the principal sum of
U.S. Ten Million Dollars ($10,000,000), or, if less, the aggregate unpaid
principal balance of each loan as recorded on the schedule attached hereto and
made a part hereof or in internal records of CLNY (the "Bank Records"). Anything
contained herein to the contrary notwithstanding, each loan evidenced hereby
having a scheduled due date prior to the Eurorate Due Date shall be due and
payable on its due date recorded on the Bank Records. The Maker further promises
to pay interest on each loan evidenced hereby from its date of drawdown until
paid in full at the rates and on the dates provided in that certain Offer dated
as of June 6, 1994 for an Uncommitted Line of Credit from CLNY and Credit
Lyonnais Cayman Island Branch and accepted by the Maker (as amended from time to
time, the "Offer"). Capitalized terms not defined in this Promissory Note shall
have the meanings set forth in the Offer.
This Promissory Note shall exist contemporaneously with another promissory note
to the order of CLNY issued pursuant to the Offer; provided that the aggregate
outstanding principal amount under both such promissory notes shall not exceed
at any time $10,000,000.
The Maker hereby irrevocably authorizes the holder of this Promissory Note to
record on the Bank Records appropriate notations including, without limitation:
(i) the date and amount of each loan; (ii) the applicable interest rate; (iii)
the scheduled due date if other than the Eurorate Due Date; and (iv) any payment
or prepayment of principal. Such notations shall constitute conclusive evidence
of the items noted absent manifest error; provided that the failure of CLNY to
make any such notation shall not affect or limit the obligations of the Maker to
repay the loans together with accrued interest thereon, nor affect or limit the
rights of CLNY hereunder.
<PAGE> 27
2
Whenever any payment of principal or interest hereunder falls due on a day which
is not a Business Day, the date of payment thereof shall be the preceding
Business Day.
In no event shall interest payable hereunder exceed the maximum rate permitted
by applicable law. If any payment in excess of that permitted amount is
received, such payment shall be deemed to have been made in error and shall
automatically be applied to reduce the principal balance outstanding hereunder.
This Promissory Note is referred to in, issued pursuant to the terms of, and is
entitled to the benefits of, the Offer. The Offer, among other things, contains
provisions for automatic acceleration of the amounts due hereunder upon the
happenings of certain stated events, and for prepayments on account of principal
and interest hereof upon the terms and conditions therein specified.
The Maker hereby waives presentment, demand, notice, protest or other action of
any kind with respect to its obligations under this Promissory Note.
This Promissory Note is issued in substitution for but not in replacement of a
prior promissory note dated January 1, 1997.
This Promissory Note shall be governed by and construed in accordance with the
laws of the State of New York.
J&L SPECIALTY STEEL, INC.
By: /s/ KIRK F. VINCENT
-------------------
Kirk F. Vincent
Title: Vice President-Finance and Law
------------------------------
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the
Consolidated Balance Sheet at March 31, 1998 (Unaudited) and the Consolidated
Statement of Income for the Three Months Ended March 31, 1998 (Unaudited) and
is qualified in its entirety by reference to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 552
<SECURITIES> 0
<RECEIVABLES> 63,184
<ALLOWANCES> 3,892
<INVENTORY> 157,285
<CURRENT-ASSETS> 242,226
<PP&E> 443,703
<DEPRECIATION> 112,154
<TOTAL-ASSETS> 794,350
<CURRENT-LIABILITIES> 148,461
<BONDS> 252,353
0
0
<COMMON> 388
<OTHER-SE> 318,365
<TOTAL-LIABILITY-AND-EQUITY> 794,350
<SALES> 135,880
<TOTAL-REVENUES> 135,880
<CGS> 138,072
<TOTAL-COSTS> 138,072
<OTHER-EXPENSES> 8,733
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 4,050
<INCOME-PRETAX> (21,213)
<INCOME-TAX> (6,797)
<INCOME-CONTINUING> (14,416)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (14,416)
<EPS-PRIMARY> (.37)<F1>
<EPS-DILUTED> (.37)<F1>
<FN>
<F1>The EPS information has been prepared in accordance with SFAS No. 128, and
therefore basic and diluted EPS have been entered in place of primary and
diluted, respectively.
</FN>
</TABLE>
