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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
/X/ ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (FEE REQUIRED)
FOR THE FISCAL YEAR ENDED JUNE 30, 1996
/ / TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934 (NO FEE REQUIRED)
For the transition period from ____________________ to ____________________
Commission File Number 0-25900
REPUBLIC ENGINEERED STEELS, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 52-1635079
- - ---------------------------------------- ------------------------------------
(STATE OR OTHER JURISDICTION OF (I.R.S. EMPLOYER IDENTIFICATION NO.)
INCORPORATION OR ORGANIZATION)
410 OBERLIN ROAD, S.W.
MASSILLON, OHIO 44647
- - ---------------------------------------- ------------------------------------
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (330) 837-6000
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
None
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
Common Stock, par value $.01 per share
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 twelve (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 / /
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. / /
As of September 13, 1996 the aggregate market value of the voting stock
held by non-affiliates of the Registrant was approximately $38.7 million. For
purposes of this information the outstanding shares of Common Stock owned by
directors and executive officers of the Registrant and the ESOP were deemed to
be shares of Common Stock held by affiliates.
As of September 13, 1996 there were 19,706,578 shares of the Registrant's
Common Stock outstanding.
DOCUMENTS INCORPORATED BY REFERENCE: Certain information required to be
furnished pursuant to Part III of this Form 10-K will be set forth in, and
incorporated by reference from, the registrant's definitive proxy statement for
the annual meeting of stockholders to be held October 23, 1996, which definitive
proxy statement will be filed by the registrant with the Securities and Exchange
Commission not later than 120 days after the end of the fiscal year ended June
30, 1996.
Exhibit Index begins on page 50
This is page 1 of 58
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
ITEM PAGE
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<S> <C> <C>
1. Business......................................................................... 3
2. Properties....................................................................... 11
3. Legal Proceedings................................................................ 12
4. Submission of Matters to a Vote of Security Holders.............................. 12
5. Market for the Registrant's Common Stock and Related Stockholder Matters......... 12
6. Selected Financial Data.......................................................... 14
7. Management's Discussion and Analysis of Financial Condition and Results of
Operations....................................................................... 16
8. Financial Statements and Supplementary Data...................................... 21
9. Changes in and Disagreements of the Registrant With Accountants on Accounting and
Financial Disclosure............................................................. 44
10. Directors and Executive Officers................................................. 44
11. Executive Compensation........................................................... 44
12. Security Ownership of Certain Beneficial Owners and Management................... 44
13. Certain Relationships and Related Transactions................................... 44
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K................. 45
</TABLE>
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PART I
ITEM 1. BUSINESS
GENERAL
Republic Engineered Steels, Inc. (the "Company") is a major producer of
special bar quality ("SBQ") steel and specialty steel bars (collectively,
"Engineered Steels"). SBQ steel bars are higher quality hot-rolled and
cold-finished carbon and alloy steel bars, and specialty steels are stainless,
tool and vacuum remelted steels. Engineered Steels generally contain more alloys
than merchant quality and commodity grades of carbon and alloy steel and require
precise metallurgical content and compliance with rigorous customer quality
specifications for consistency, straightness and surface finish.
The Company believes that, on the basis of net tons shipped, it is the
leading domestic producer of SBQ steel bars and one of the top three domestic
producers of specialty steel bars. The Company produces the widest range of SBQ
products in the domestic industry, as measured by dimension, shape, process and
grade, and the Company's SBQ and specialty steel products are widely recognized
for their quality and strength. SBQ products sell for higher prices per net ton
than merchant and commodity grade bar products and, within the SBQ market, the
Company concentrates on higher-end products (i.e. ones that require greater
product sophistication and, therefore, usually carry a higher selling price per
net ton). The principal markets for SBQ steel bars are automotive, heavy
equipment manufacturing and independent forgers. Within the specialty steels
market, the Company is one of the two largest domestic producers of vacuum
remelted steels, which are used for critical aerospace and power generation
applications, and is one of a number of producers of commodity grade stainless
steel bars and tool steels.
HISTORY
The Company commenced operations in November 1989 when it purchased
substantially all of the assets of LTV Steel Company Inc.'s ("LTV Steel") Bar
Division (the "Acquisition"). Until the initial public offering (the "IPO") of
8,050,000 shares of its Common Stock, par value $.01 per share (the "Common
Stock") in April 1995, the Company had been virtually wholly-owned by its
employees through an employee common stock ownership plan ("ESOP"). The ESOP is
a defined contribution plan, designed to be invested primarily in shares of
Common Stock of the Company and intended to be qualified under Section 401(a) of
the Internal Revenue Code, which the Company maintains for the benefit of its
salaried and hourly employees. As of June 30, 1996 the ESOP held 58% of the
outstanding shares of Common Stock of the Company.
The Company is a Delaware corporation and its principal executive offices
are located at 410 Oberlin Road, S.W., Massillon, Ohio 44647, and its telephone
number at that address is (330) 837-6000. The Company has two wholly-owned
subsidiaries, Nimishillen & Tuscarawas Railway Company and The Oberlin Insurance
Company, the assets and operations of which are not material to the Company.
PRODUCTS
The principal products of the Company are SBQ hot-rolled and cold-finished
carbon and alloy bar steels produced by the Bar Products Division and stainless,
tool and vacuum remelted steel produced by the Specialty Steels Division. The
production of steel by the Company generally begins with the melting of premium
grade scrap in electric arc furnaces. After the scrap is heated, impurities are
removed from the molten steel, and alloys and other materials are added to
create the desired chemical and physical properties of the finished product. The
molten steel is then either poured into ingot molds (currently 58%), with
additions of lead and other additive materials, for subsequent processing by a
blooming mill into blooms and billets, or cast into blooms and rolled into
billets (currently 42%) at the new Cast-Roll(TM) facility. These semi-finished
products are each produced to a specified chemical composition, size and
quality. After cooling, blooms and billets are either sold as is or sent to one
of the Company's rolling mills for further processing. Semi-finished products
are manufactured for both the Specialty Steels and Bar Products Divisions in
various grades to meet
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the requirements of each Division. For a discussion of the Cast-Roll(TM)
facility, see "The Cast-Roll(TM) Facility" below.
The following table sets forth net tons shipped and price per net ton
shipped for the Company and its principal product lines for the periods
indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
--------------------------------------
1994 1995 1996
---------- ---------- --------
<S> <C> <C> <C>
Net tons shipped:
Special Bar Quality (SBQ) Hot-rolled bar products..... 715,469 667,574 588,124
Cold-finished bar products............................ 291,107 308,753 248,228
Specialty steel products.............................. 50,021 65,259 61,009
---------- ---------- --------
Total net tons shipped............................. 1,056,597 1,041,586 897,361
========= ========= ========
Selling price per net ton shipped:
Special Bar Quality (SBQ) Hot-rolled bar products..... $ 574 $ 614 $ 643
Cold-finished bar products............................ 837 876 906
Specialty steel products.............................. 1,680 1,787 2,203
Average selling price per net ton shipped............... $ 705 $ 773 $ 832
Average manufacturing cost per net ton shipped.......... 630 677 768
Average gross profit per net ton shipped................ 75 96 64
</TABLE>
Hot-Rolled Bars. Hot-rolled bars are processed from blooms and billets on
rolling mills to change the internal physical properties, size or shape of the
steel. Desirable characteristics of hot-rolled bars include internal soundness,
uniformity of chemical composition and freedom from surface imperfection. The
Company's hot-rolled bar products include rounds, squares, hexagons, coils and
flats. The Company's customers for hot-rolled bar products include manufacturers
of automotive parts, machinery and industrial equipment, independent forgers,
steel service centers and distributors. The Company's hot-rolled bars are used
in the manufacture of end-use products such as automobile cam shafts,
crankshafts, transmission gears and axles.
Cold-Finished Bars. Cold-finishing is a value-added process which improves
the physical properties of hot-rolled bars. Cold-finished bars are produced from
hot-rolled bars by cold-drawing, turning, grinding, thermal treating or a
combination of those processes. Cold-finishing allows for the manufacture of a
product with more precise size and straightness tolerances, as well as a surface
finish, that allows customers to produce more efficiently a number of end
products and often eliminates the first processing step in the customer's
manufacturing operation. The Company's cold-finished bar products include
rounds, squares, hexagons, flats and wire, all of which can be further processed
by one or more of turning, grinding or polishing. The Company's customers for
cold-finished bar products include manufacturers of automotive parts, machinery,
industrial equipment, steel service centers and distributors. The Company's
cold-finished bars are used in the manufacture of end-use products such as
automotive steering assemblies, electrical motor shafts, ball and roller
bearings, valves and hand tools.
Specialty Steels. Specialty steels include stainless steels, tool steels
and other steels produced through advanced techniques such as consumable
electrode vacuum remelting and electro-slag remelting. The remelt process
produces ultra clean steels designed to meet the most critical requirements and
the Company believes these steels are among the highest quality in the industry.
These specialty steel products are produced in rolled sizes as well as large
forged rounds, squares and other shapes. Stainless steels are used for corrosion
resistant applications such as food processing equipment, marine products, and
recreational watercraft and are primarily sold through steel service centers.
The Company produces tool steels that are engineered with specific
characteristics which enable them to form, cut, shape and shear other materials
in the manufacturing process. Tool steels are utilized in the manufacturing of
metals, plastics, pharmaceuticals, electronics, optics, paper and aluminum
extrusion. The Company's customers for tool steels are distributors, service
centers and
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other tool steel producers who market or finish the end products. The remelted
specialty products are used to produce aircraft structural parts such as landing
gear, solid rocket motor casings and aircraft engine mounts. The power
generation industry uses parts made of remelted steel in the manufacture of
steam and land-based turbines.
THE CAST-ROLL(TM) FACILITY
The Company's Cast-Roll(TM) facility is the only one of its kind in North
America and the largest and most sophisticated in the world. The Cast-Roll(TM)
facility links five proven technologies with a high level of computer control
into one continuous process. The Cast-Roll(TM) facility includes a ladle
metallurgical facility, a vacuum tank degasser and a four strand continuous
caster supplied with molten steel from the Company's electric furnaces. Cast
steel from the caster moves directly to an inline reheat furnace and then to a
rolling mill which produces SBQ billets for the Company's other rolling mills.
The Cast-Roll(TM) facility is anticipated to provide a direct cost reduction in
excess of $50 per processed ton as a result of improvement in product yields and
labor, energy and inventory efficiencies, of which approximately $5 per
processed ton was realized in the last fiscal quarter of 1996. The Company
anticipates that when the Cast-Roll(TM) facility is fully operational, which is
anticipated to occur in the first calendar quarter of 1997, the ratio of cast
semi-finished carbon and alloy steel products manufactured by the Company will
shift to 70% cast and 30% ingot (a ratio similar to that achieved by leading
engineered steels companies in Japan). Currently, 42% of such steel products are
produced at the Cast-Roll(TM) facility. The Cast-Roll(TM) facility will also
provide indirect savings to the Company's cold-finished facilities by providing
a superior quality semi-finished product that will improve the cold-finished
process yields. The Cast-Roll(TM) facility may also increase the Company's
hot-rolled bar shipping capacity, although the level of operations will be
subject to applicable environmental regulatory requirements. Currently,
approximately 67% of the product anticipated to be produced through the
Cast-Roll(TM) facility has been qualified by its customers. Until the
Cast-Roll(TM) facility receives certification for the remainder of its products,
the Company will continue to manufacture those products through the existing
ingot route. As more production is shifted to the Cast-Roll(TM) facility, the
fixed cost of operating the Cast-Roll(TM) facility will be absorbed over more
tons, and yield will be improved as additional products are certified and
sequence casting is increased, all resulting in the realization of additional
savings. However, there can be no assurance that the Cast-Roll(TM) facility will
achieve the full cost reduction that is presently anticipated.
RAW MATERIALS
Scrap Metal. The Company's major raw material is ferrous scrap metal,
which is generated principally from industrial, automotive, demolition and
railroad sources and is purchased by the Company in the open market through a
number of scrap brokers and dealers or by direct purchase. The Company purchased
approximately 33% of its scrap metal from General Motors during fiscal year
1996. The long-term demand for scrap metal and its importance to the domestic
steel industry is expected to increase as steelmakers continue to expand scrap
metal-based electric furnace capacity, with additions to or replacements of
existing integrated steel manufacturing facilities that use iron ore, coke and
limestone as their principal raw materials. The high quality of the Company's
products requires the use of premium grades of scrap metal, the supply of which
is more limited. Prices for scrap metal vary based on numerous factors,
including its quality. The Company generally has not had difficulty purchasing
adequate scrap metal of the required quality. The Company believes that adequate
supplies of scrap metal will continue to be available in sufficient quantities
for the foreseeable future. As demand for high quality scrap is increasing, so
is the effort to develop commercially viable iron substitute products. The
Company is monitoring the progress of these projects and will make a
determination of the Company's involvement once the commercial viability of iron
substitute products has been proven. The average price of scrap for fiscal year
1996 increased by 4.2% as compared to the average price of scrap for fiscal year
1995. Scrap metal represented 24.0% of the Company's total cost of product sold
in fiscal year 1996 as compared to 24.8% in fiscal year 1995. The majority of
the Company's competitors also utilize scrap as their primary raw material, so
the Company does not find itself at a competitive disadvantage insofar as scrap
cost is concerned. However, certain of the Company's competitors utilize iron
ore in their manufacturing process and, accordingly, utilize significantly lower
amounts of scrap metal than the Company.
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The following table sets forth the average cost of scrap metal per ton and
cost of scrap metal per ton as a percentage of the Company's total cost of
product sold:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Average cost of scrap metal per ton........................... $ 117 $ 123 $ 129
Percentage of cost of product sold............................ 23.9% 24.8% 24.0%
</TABLE>
The Company has attempted to protect itself from fluctuations in the price
of scrap metal by charging certain of its customers a scrap metal surcharge
based on the increase in the price of scrap metal above certain levels while,
with other customers, the Company makes a partial adjustment in its selling
price if the price of scrap metal exceeds or drops below certain levels. These
surcharges and price adjustments are determined on a monthly or quarterly basis.
Alloys and Fluxes. The Company purchases various materials such as nickel,
chrome, molybdenum, vanadium, manganese, silicon, aluminum, titanium, sulphur,
lead, lime and fluorspar for use as alloying agents and fluxing (cleansing)
materials. Since 1994, prices of many of these materials have risen sharply and
the cost stated as a percent of cost of product sold has increased from 7.4% in
1994 to 10.3% in 1996.
The following table sets forth the average cost of alloys and fluxes as a
cost per ton of product shipped and as a percentage of total cost of product
sold:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------
Alloys and Fluxes 1994 1995 1996
---- ---- ----
<S> <C> <C> <C>
Average cost per ton of product shipped.......................... $ 47 $ 64 $ 79
Percentage of cost of product sold............................... 7.4% 9.5% 10.3%
</TABLE>
The Company uses price surcharges for nickel, chrome, molybdenum and
vanadium in an attempt to protect its profit margins from the affects of
fluctuating prices on these commodities.
CUSTOMERS
The Company's principal customers are manufacturers in the automotive,
machinery, industrial equipment, machine and hand tools, and aviation and
aerospace industries, as well as independent forgers who supply finished parts
to the aforementioned industries. The Company also has significant sales to
steel service centers.
The following table sets forth the percentage of the Company's direct net
sales to various markets:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
---------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Automotive Industry............................................. 35.0% 37.1% 40.2%
Machinery, Industrial Equipment and Tools Industry.............. 18.1 18.8 19.0
Independent Forgers............................................. 17.8 15.1 13.8
Service Centers................................................. 14.2 14.0 14.0
Other........................................................... 14.9 15.0 13.0
----- ----- -----
100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
The Company's major customers include American Axle Manufacturing, Caterpillar,
Central Steel & Wire, Crucible Materials, Ford, General Motors, Jernberg
Industries, Jorgensen Steel and Aluminum, Joseph T. Ryerson & Sons, MascoTech,
Talley Metals and TRW. In fiscal year 1996, sales to American Axle Manufacturing
constituted approximately 9.2% of the Company's total net sales. Further, in
fiscal year 1996, sales to the Company's ten largest customers constituted
approximately 41% of the Company's total of net sales. Consequently, any
disruption of sales to these customers could adversely affect the Company's
results of
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operations and financial condition. In general, the Company does not have
long-term contracts with its customers; however, it has long-standing
relationships with its largest customers.
Although the Company has a nationwide customer base, almost 67% of its
shipments were to customers in the states of Indiana, Illinois, Michigan, New
York, Ohio and Pennsylvania for fiscal year 1996.
COMPETITION
The domestic steel industry is highly cyclical in nature. Domestic steel
producers suffered substantial losses in the first half of the 1980's as a
result of a number of factors, including recessionary conditions, a high level
of steel imports, the strength of the U.S. dollar against other currencies,
worldwide production overcapacity, increased domestic and international
competition, high labor costs and inefficient plants. The steel industry also
suffered heavy losses during the early 1990's as a result of a downturn in the
automotive industry, which is also highly cyclical and directly affected by,
among other things, the level of consumer confidence and general economic
conditions.
The Company competes with specialty producers and with a number of
mini-mills, certain merchant bar quality producers, and SBQ producers. Major
competitors of the Company in the specialty steels market include Carpenter
Technology, the Atlas Specialty Steels division of Rio Algoma Ltd., Latrobe
Steel Company, a subsidiary of The Timken Company ("Timken"), Slater Industries,
and Talley Metals. Major competitors of the Company in the hot-rolled bar market
include CSC Industries, Inc., Inland Steel Industries, Inc., North Star Steel
Company, Quanex Corporation (Mac Steel) and U.S. Kobe Steel, a joint venture of
USX Corporation and Kobe Steel. Major competitors of the Company in the
cold-finished bar market include Quanex Corporation (LaSalle), Corey Steel, Inc.
and Bar Technologies, Inc. ("Bar Tech") (formerly Bliss and Laughlin Industries,
Inc. ("Bliss & Laughlin")).
New entrants into the SBQ market are also expected. Bar Tech has recently
acquired Bliss & Laughlin (the second largest producer of cold finished products
in the United States) and certain assets of the former Bar, Rod and Wire
Division of Bethlehem Steel Corporation. In June 1996, Qualitech Steel
Corporation announced it had completed the financing for a $500 million
greenfield steelmaking facility. Birmingham Steel Corporation is constructing a
new continuous steelmaking facility and has recently commenced operation of a
new bar mill. All of these new entrants are expected to compete directly with
the Company over a major portion of its product line. There can be no assurance
that the Company will meet this competition successfully.
Foreign competition is a significant factor in the Engineered Steels industry.
Imports are substantially affected by fluctuations in the value of the U.S.
dollar versus certain foreign currencies. If the U.S. dollar were to strengthen
significantly against the Japanese Yen or European currencies, the price and
sales volume of the Company's products could be adversely affected. The Company
is particularly vulnerable to these currency fluctuations since its higher
priced, higher value-added products used in the manufacture of end products,
such as automobile transmissions, are more susceptible to being replaced by
imported products than other end products.
The principal methods of competition in the Company's markets are product
quality, delivery capability, service and price. Engineered Steels are
characterized by special chemistry and precise processing requirements.
Maintaining high standards of product quality while keeping production costs
competitive is essential to the Company's ability to compete in its markets. The
ability of a manufacturer to respond quickly to customer orders currently is,
and is expected to remain, important as customers continue to reduce their in-
plant raw material inventory.
When the Voluntary Restraint Arrangements program, which controlled imports
of foreign steel, expired in April 1992, a number of domestic steel companies
filed unfair trade cases against foreign manufacturers. In addition, the Company
joined with several other producers of stainless steel bars in filing an
anti-dumping case against producers of stainless steel bars from Brazil, India,
Italy, Japan and Spain. On January 31, 1995, the International Trade Commission
("ITC") determined that there was material injury to the domestic stainless
steel industry as a result of dumping from Brazil, India, Japan and Spain. The
Department of Commerce had
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previously found that no dumping occurred from Italy. The ITC's ruling resulted
in the imposition of tariffs corresponding to the dumping margins as follows:
Brazil -- 19.43%; Japan -- 61.47%; India (Grand Foundry -- 3.87%;
Mukand -- 21.02%; all others 12.45%) and Spain (Roldan -- 7.74%;
Acenor -- 62.85%; all others 25.80%). The Company joined with Timken to file an
anti-dumping case in June 1992 against Brazilian steel producers. The products
covered in the case generally fall into two categories -- finished SBQ bars and
semi-finished steel. The Department of Commerce made a final determination of
dumping margins of 19.7% in the case of finished SBQ bars and 27.0% in the case
of semi-finished steel. Despite this finding, in July 1993, the ITC made a final
determination that there was no material injury to the domestic SBQ engineered
steel industry as a result of dumping by Brazilian producers. The Company and
Timken appealed this determination to the United States Court of International
Trade, which on January 3, 1996 sustained the ITC's final determination.
PATENTS AND TRADEMARKS
The Company has the patents, trademarks and licenses necessary for the
operation of its business as now conducted. The Company does not consider its
patents and trademarks to be material to its business.
BACKLOG
The Company's backlog of orders as of June 30, 1996 was approximately $230
million compared to approximately $318 million as of June 30, 1995. Orders are
generally filled within 6 to 26 weeks of the order depending on the product,
customer needs and other production requirements. Customer orders are generally
subject to cancellation without penalty prior to shipment and actual shipments
depend on the changing production schedules of customers. Accordingly, the
Company does not believe that the amount of its backlog orders is a reliable
indication of future sales.
EMPLOYEES
As of June 30, 1996 the Company had 4,372 employees, of which 3,422 were
represented by the United Steelworkers of America AFL/CIO (the "USWA"). The
balance consisted of 896 salaried employees and 54 employees represented by two
other unions. In August 1993, the Company and the USWA completed negotiation of
a collective bargaining agreement, which expires in November 1999. Wages and
benefits provisions under the agreement are fixed until November 1996 and are
subject to further negotiation at that time. If the parties are unable to reach
an agreement as to wages and benefits at that time, wages and benefits will be
decided by binding interest arbitration; however, the employees cannot undertake
a strike and the Company cannot engage in a lockout during the entire term of
the agreement. The collective bargaining agreement contains customary
provisions, certain of which have been extended indefinitely on an evergreen
basis, and can only be changed by mutual agreement of the parties. On June 12,
1996, the USWA notified the company of its desire to open negotiation regarding
wages, benefits and payroll items. A timetable has been established wherein
negotiations will commence on September 30, 1996 and will conclude on October
25, 1996. If the parties do not reach agreement, the unresolved issues will be
submitted to the arbitrator on November 6, 1996 with a final ruling due in
January 1997.
ENVIRONMENTAL COMPLIANCE
The domestic steel industry, including the Company, is subject to a broad
range of federal, state and local environmental laws and regulations, including
those governing discharges into the air and water, the handling and disposal of
solid and hazardous wastes and the remediation of contamination associated with
the disposal of waste. The Company continuously monitors its compliance with
such environmental laws and regulations and believes that it currently is in
substantial compliance with them. The Company does not anticipate the need to
make material expenditures for environmental control measures during the next 24
months. As is the case with most steel producers, the Company could incur
significant costs related to environmental compliance, in particular those
arising from remediation costs for historical waste disposal practices at
certain of the Company's facilities. The Company currently believes that these
costs are most likely to be in the range of $13 million to $27 million over the
lives of the Company's facilities. The reserve to
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cover potential environmental liabilities, including the matters discussed
below, was approximately $20.0 million and $23.3 million as of June 30, 1996 and
1995, respectively. To the extent the Company incurs any such remediation costs,
these costs will most likely be incurred over a number of years; however, no
assurance can be given that future regulatory action regarding historical
disposal practices at certain of the Company's facilities, as well as continued
compliance with environmental requirements, will not require the Company to
incur significant costs that may have a material adverse effect on the Company's
future financial performance.
The U.S. Environmental Protection Agency ("EPA") has identified a number of
solid waste management units ("SWMUs") at the Canton (Eighth Street) Plant and
the Chicago Plant. Since the Acquisition, state environmental authorities have
conducted periodic inspections at these plants and found no significant
violations. The Company could incur significant investigation and remediation
costs in the future in connection with the SWMUs. The Company is currently
unable to predict precisely the amount or timing of the costs it may be required
to incur to investigate and remediate the SWMUs.
The Company is subject to a 1988 Consent Agreement and Final Order (the
"Final Order") with the EPA. Under the terms of the Final Order, the Company is
required to implement an approved closure plan for the electric arc furnace dust
waste pile (the "Waste Pile") at the Canton Plant (the "Closure Plan"), if so
requested by the EPA. The EPA has not made any such request; however, should the
EPA request the Company to implement the Closure Plan, the Company would incur
significant costs. The Company is currently unable to predict precisely the
amount or timing of the costs it may be required to incur should the EPA request
implementation of the Closure Plan; however, it is possible that the Company
could begin over the next twenty-four months to implement the Closure Plan
depending upon the outcome of discussions with the Ohio Environmental Protection
Agency ("Ohio EPA") which are ongoing.
The Company's Massillon Plant (Rose Avenue) became subject to a 1989
Administrative Consent Order ("ACO") with the Ohio EPA. Under the terms of the
ACO, the Company has completed a groundwater assessment plan with respect to
three areas where Kolene waste had been deposited. In August 1996, the Ohio EPA
approved a closure plan to remediate those three areas, which is being
implemented at an estimated cost of one hundred twenty-five thousand dollars
($125,000) and will result in the discontinuance of groundwater monitoring.
Notices of historical waste disposal activities at one of the two Massillon
plants and the two Canton plants were filed by LTV Steel and its predecessors
with the EPA, under Section 103(c) of the Comprehensive Environmental Response,
Compensation and Liability Act ("CERCLA"). In 1985, the Ohio EPA recommended the
Massillon Plant as a medium priority for further state investigation. In 1986,
the Ohio EPA recommended the Canton (Eighth Street) Plant as a high priority for
further state investigation. During that same year, the Ohio EPA recommended the
Canton (Harrison Avenue) Plant as a medium priority for further state
investigation and a low priority for further federal investigation. No further
investigation of historical waste disposal activities has been performed at
these plants since 1986 by any environmental authority. The Company could be
required, in the future, to incur significant costs to investigate such
historical waste disposal activities and remediate any contamination found to
exist at these plants. The Company is currently unable to predict precisely the
amount or timing of such costs.
The Company owns a seven-acre parcel of land in Canton, Ohio, commonly
referred to as "Berger Triangle," which appears on the EPA's Comprehensive
Environmental Response, Compensation and Liability Information System list. The
EPA conducted site investigations at Berger Triangle in 1990 and 1995. No
further regulatory action has been taken by any environmental authority. The
Company could incur significant investigation and remediation costs in the
future relating to Berger Triangle. However, the Company is currently unable to
predict precisely the amount or timing of any costs it may be required to incur
to investigate and remediate Berger Triangle.
The Company is currently operating the Cast-Roll(TM) facility under a
permit from the Ohio EPA which authorized installation and testing. Operating
environmental permits for the Cast-Roll(TM) facility are expected to be issued
in accordance with applicable regulatory procedures after collection and review
of necessary environmental performance information which has been delayed
primarily as a result of a malfunction of the vacuum tank degasser and the
inadequacy of the existing test protocol to accurately measure sulfur dioxide
9
<PAGE> 10
emissions from the ladle metallurgical facility. The Company is working
diligently with the equipment vendor and the Ohio EPA to resolve these problems
as soon as possible, although no deadline has been established and the Company
can give no assurance as to when or if resolution of these problems might occur.
See "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Liquidity and Capital Resources."
EXECUTIVE OFFICERS OF THE COMPANY
The following table sets forth the name, age and position with the Company
of each person who is an executive officer of the Company, as of September 1,
1996:
<TABLE>
<CAPTION>
NAME AGE POSITION
- - -------------------- ---- ---------------------------------------------------------------
<S> <C> <C>
Russell W. Maier 59 Chairman of the Board, President and Chief Executive Officer
Harold V. Kelly 65 Executive Vice President and General Counsel
James B. Riley 44 Executive Vice President and Chief Financial Officer and
Director
James T. Anderson 55 Vice President-President, Bar Products Division and Director
Stephen S. Higley 53 Vice President-President, Specialty Steels Division
Charles T. Cochran 42 Vice President-Commercial, Bar Products Division
Edward J. Blot 53 Vice President-Commercial, Specialty Steels Division
Richard S. Miller 50 Vice President-Human Resources
James D. Donohoe 53 Secretary and Associate General Counsel
John B. George 49 Treasurer
John W. Sears 51 Controller
</TABLE>
RUSSELL W. MAIER has been Chairman of the Board, President and Chief
Executive Officer of the Company since November 1989. Prior to the formation of
the Company, Mr. Maier served as the President of LTV Steel Flat Rolled and Bar
Company. Mr. Maier has been active in the steel industry since February 1960.
Mr. Maier is also a member of the Board of Directors of United National Bank and
Trust Company and Ohio Edison Company.
JAMES B. RILEY has been Executive Vice President and Chief Financial
Officer and a Director of the Company since November 1993. He was formerly Vice
President and Chief Financial Officer and a Director of the Company from 1989 to
October 1993. Prior to the formation of the Company he was the Assistant
Controller of LTV Steel and the Controller of the Bar Division of LTV Steel. Mr.
Riley has been active in the steel industry since 1975.
HAROLD V. KELLY has been Executive Vice President and General Counsel of
the Company since November 1993. He was formerly Vice President and General
Counsel of the Company from 1989 to October 1993. Prior to that time he was
Director, Federal Relations, of The LTV Corporation. Mr. Kelly has been active
in the steel industry since 1973.
JAMES T. ANDERSON has been Vice President - President, Bar Products
Division since January 1995. Prior to that time he served as Vice President and
General Manager - Bar Products Group of the Company since 1991. Mr. Anderson has
been a Director of the Company since 1989. He was formerly Vice President -
Operations for the Company from 1989 until 1991. Mr. Anderson held the same
position with the Bar Division of LTV Steel from 1986 to 1989. Mr. Anderson has
been active in the steel industry since 1967.
STEPHEN S. HIGLEY has been Vice President - President, Specialty Steels
Division since January 1995. Prior to that time he was Vice President -
Commercial of the Company since November 1989. Prior to that time he held the
same position at LTV Steel. Mr. Higley has been active in the steel industry
since 1966.
CHARLES T. COCHRAN has been Vice President, Sales and Marketing, Bar
Products Division since January, 1995. From May 1994 to January 1995 he was
General Manager, Cold-finished Bar Division. From 1985 to
10
<PAGE> 11
1994 he held various regional sales positions at LTV Steel and the Company. Mr.
Cochran has been active in the steel industry since 1976.
EDWARD J. BLOT has been Vice President, Sales and Marketing, Specialty
Steels Division since February, 1995. From March 1992 to February 1995 he was
President of Ed Blot & Associates, a business consulting firm. From 1989 to
1992, he was Vice President, Sales and Marketing of Baltimore Specialty Steels
Corporation, a subsidiary of Armco, Inc., having held various other positions
with Armco Inc. since 1966. Mr. Blot has been active in the steel industry since
1966.
RICHARD S. MILLER has been Vice President - Human Resources of the Company
since December 1992. From February 1991 until December 1992 he was General
Manager - Contract Services for the Company. From November 1989 until February
1991 he was General Manager - Continuous Improvement for the Company. Prior to
the formation of the Company, he served as Superintendent, Bar Finish/Heat Treat
for the Bar Division of LTV Steel. Mr. Miller has been active in the steel
industry since 1968.
JAMES D. DONOHOE has been the Secretary and Associate General Counsel of
the Company since November 1989. Prior to the formation of the Company, Mr.
Donohoe served as a senior attorney for The LTV Corporation. Mr. Donohoe has
been active in the steel industry since 1973.
JOHN B. GEORGE has been the Treasurer of the Company since April 1991. From
November 1989 to April 1991 he was Assistant Treasurer of the Company. Prior to
the formation of the Company, Mr. George served as Manager of Financial Analysis
for the Bar Division of LTV Steel. Mr. George has been active in the steel
industry since 1969.
JOHN W. SEARS has been the Controller of the Company since November 1989.
Prior to the formation of the Company, Mr. Sears served as Manager of Accounting
Services for the Bar Division of LTV Steel. Mr. Sears has been active in the
steel industry since 1968.
ITEM 2. PROPERTIES
As of June 30, 1996, the Company had ten operating facilities located in
six states. The aggregate floor area of these facilities was approximately 8.0
million square feet. The Company also owns trackage and railroad rolling stock
for materials movement, power generation facilities and numerous items of heavy
industrial equipment.
The following table sets forth for each of the Company's ten operating
facilities the location, size, use of the facility and shipping capacity as of,
and capacity utilization for, the fiscal year ended June 30, 1996:
<TABLE>
<CAPTION>
APPROXIMATE SHIPPING
SIZE IN CAPACITY*
THOUSANDS (TONS IN CAPACITY
LOCATION OF SQUARE FEET USE OF FACILITY THOUSANDS) UTILIZATION
- - ------------------------------------------------------ ----------------------------- ---------- -----------
<S> <C> <C> <C> <C>
Canton, Ohio (Eighth Street)............ 2,755 Primary Melting and Rolling 1040 83%
Canton, Ohio (Harrison Avenue).......... 458 Remelt/Forge/Specialty 20 50%
Massillon, Ohio (Oberlin Road).......... 667 Rolling Mill 480 79%
Massillon, Ohio (Rose Avenue)........... 553 Cold-Finished Plant 120 81%
Chicago, Illinois....................... 2,019 Rolling Mill 324 78%
Gary, Indiana (Dunes Highway)........... 266 Cold-Finished Plant 84 67%
Gary, Indiana (Seventh Avenue).......... 200 Cold-Finished Plant 55 84%
Beaver Falls, Pennsylvania.............. 176 Cold-Finished Plant 54 77%
Willimantic, Connecticut................ 89 Cold-Finished Plant 24 78%
Baltimore, Maryland..................... 642 Forge/Rolling Mill/Specialty 40 21%
-----
Total............................... 7,825
=====
<FN>
- - ---------------
* Stated tons represent the shipping capacity of the individual facility only
and do not when aggregated together represent the shipping capacity of the
Company as a whole.
</TABLE>
Raw steel is produced only at the Company's Canton facility and is usually
processed at several plants before it is considered a finished product. The
maximum annual melt capacity of the Company is approximately 1.45 million tons.
The maximum annual melt capacity of SBQ steel is 1.31 million tons and
11
<PAGE> 12
during fiscal year 1996 the Company utilized approximately 82% of its practical
SBQ capacity. The maximum annual melt capacity of specialty steels is 0.14
million tons and the Company utilized approximately 54% of its practical
specialty capacity.
The Company owns all of the above listed facilities. Although most of the
Company's facilities are at least 25 years old, the Company generally believes
that its facilities are in good operating condition and continues to spend
significant amounts on their repair and maintenance.
ITEM 3. LEGAL PROCEEDINGS
In September 1992, a lawsuit was filed against the Company in the U.S.
District Court for the Northern District of Ohio (Eastern Division) on behalf of
nineteen former Company salaried employees whose employment was terminated on
February 19, 1991. The claims asserted on behalf of each former employee are age
discrimination under both federal and state laws, breach of employment contract,
promissory estoppel and violation of Ohio public policy (by reason of age
discrimination). The relief sought for each former employee is lost pay and
fringe benefits, liquidated damages (doubling the claimed lost pay and
benefits), compensatory damages of $500,000 on each count, punitive damages of
$500,000 under the public policy count, prejudgment interest and attorneys'
fees. The Company has denied all of the claims and intends to contest them
vigorously. The Company's motion for summary judgment with respect to these
cases was partially granted on May 15, 1996, dismissing all claims of the former
employees other than the age discrimination claims. Management does not believe
that the remaining claims will have a material adverse effect upon the Company.
The Company is party to certain trade cases. It joined with Timken to file
an anti-dumping case in June 1992 against Brazilian steel producers. No material
injury to the domestic SBQ engineered steel industry was found by the ITC as a
result of dumping by Brazilian producers. The Company and Timken appealed this
determination to the United States Court of International Trade, which on
January 3, 1996 sustained the ITC's final determination. In addition, as part of
the stainless steel industry, the Company joined with several other bar steel
producers in filing an anti-dumping case against certain producers of stainless
steel bars. The ITC determined that there was material injury to the domestic
stainless steel industry as a result of such dumping, resulting in the
imposition of tariffs. See "Item 1. Business -- Competition."
The Company is involved in other legal proceedings, including various
environmental proceedings with governmental authorities, personal injury and
product liability litigation and claims by present and former employees under
federal and counterpart state anti-discrimination and other laws relating to
employment. The Company does not believe that any of these proceedings, either
individually or in the aggregate, will have a material adverse effect on the
financial condition or results of operations of the Company.
For a description of various environmental proceedings see "Environmental
Compliance," above.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
The Common Stock of the Company began trading on the Nasdaq National Market
on April 28, 1995. Prior to that time, virtually all of the issued and
outstanding Common Stock of the Company was held by the ESOP. Approximately 58%
of the outstanding shares of Common Stock of the Company are currently held by
the ESOP. For a detailed discussion of the Company's ESOP see "Item 11.
Executive Compensation."
As of September 13, 1996, there were 256 holders of record of the Company's
stock. On September 13, 1996, the last reported sales price of the Company's
Common Stock was $4.625 per share.
12
<PAGE> 13
The Company has not paid any dividends on its Common Stock in the last
three years and is restricted in the payment of cash dividends on the Common
Stock by covenants contained in certain of the Company's financing arrangements.
It is not anticipated that the Company will pay dividends on its Common Stock in
the near future.
The high and low sales prices for the Common Stock of the Company from the
date of the IPO (April 28, 1995) through fiscal year 1996 were as follows:
<TABLE>
<CAPTION>
QUARTER ENDED HIGH LOW
------------- ------ ------
<S> <C> <C>
June 30, 1995.............................................. $8.500 $6.250
September 30, 1995......................................... 8.375 6.625
December 31, 1995.......................................... 7.500 4.250
March 31, 1996............................................. 6.000 4.250
June 30, 1996.............................................. 4.625 3.250
</TABLE>
13
<PAGE> 14
ITEM 6. SELECTED FINANCIAL DATA
SELECTED CONSOLIDATED FINANCIAL DATA
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE AND PER TON AMOUNTS)
The following table sets forth the selected consolidated financial data of
the Company for each of the five fiscal years ended June 30, 1992, 1993, 1994,
1995 and 1996, respectively. The selected consolidated financial data for these
periods are derived from the audited consolidated financial statements of the
Company. The selected consolidated financial data presented herein are qualified
in their entirety by, and should be read in conjunction with, the Company's
Consolidated Financial Statements and Notes thereto appearing elsewhere in this
Report.
<TABLE>
<CAPTION>
1992 1993(2) 1994(2) 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
INCOME STATEMENT DATA:
Net sales............................... $566,141 $646,162 $744,774 $805,098 $746,174
Cost of product sold.................... 512,935 573,176 665,779 705,156 688,445
-------- -------- -------- -------- --------
Gross profit............................ 53,206 72,986 78,995 99,942 57,729
Selling, general and administrative
expenses.............................. 38,698 39,495 46,374 45,338 46,418
Special charges -- 8() Mill shutdown.... -- -- -- -- 3,890
Non-cash deferred compensation
charges............................... -- -- 330 2,070 --
Other postretirement benefits charges
(credits)(1).......................... (16,286) 7,844 10,683 14,610 13,821
Non-cash ESOP charges(3)................ 19,499 24,954 31,270 33,448 32,304
Interest expense, net(4)................ 17,839 16,953 18,478 12,499 17,424
Other charges (credits), net............ 1,845 (2,395) (538) (811) (562)
Income tax benefit...................... -- (1,404) (2,823) (2,405) (22,136)
Extraordinary gain (net of tax)......... -- -- 1,391 -- --
Cumulative effect of changes in
accounting principles................. -- 5,093 -- -- --
-------- -------- -------- -------- --------
Net loss................................ (8,389) (7,368) (23,388) (4,807) (33,430)
Preferred stock dividends paid.......... 3,767 4,957 5,733 6,042 --
-------- -------- -------- -------- --------
Net loss attributable to Common Stock... $(12,156) $(12,325) $(29,121) $(10,849) ($33,430)
======== ======== ======== ======== ========
EARNINGS PER SHARE:
Loss before cumulative effect of changes
in accounting principles and
extraordinary item(5)................. $ (0.94) $ (1.35) $ (2.35) $ (0.78) $ (1.69)
Cumulative effect of changes in
accounting principles (1993) and
extraordinary item (1994)............. -- 0.39 0.11 -- --
-------- -------- -------- -------- --------
Net loss................................ $ (0.94) $ (0.96) $ (2.24) $ (0.78) $ (1.69)
======== ======== ======== ======== ========
Weighted average shares outstanding..... 12,893 12,896 12,990 13,995 19,756
</TABLE>
14
<PAGE> 15
<TABLE>
<CAPTION>
JUNE 30, JUNE 30, JUNE 30, JUNE 30, JUNE 30,
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Cash, cash equivalents and short-term
investments........................... $ 24,007 $ 48,189 $ 62,192 $ 4,609 $ 2,074
Working capital......................... 151,556 163,491 201,016 142,264 142,180
Property, plant and equipment, net...... 149,506 142,085 169,797 309,621 331,079
Total assets............................ 393,320 408,873 501,240 610,791 640,577
Total debt.............................. 181,753 165,705 200,000 243,272 280,956
Preferred stock......................... 27,943 34,366 40,684 2 2
Total stockholders' equity (deficit).... 4,382 16,526 58,390 88,134 88,973
OTHER DATA:
Adjusted EBITDA(6)...................... 31,662 52,625 50,331 73,068 30,072
Net cash provided (used) by operating
activities............................ 7,546 55,655 30,627 57,818 6,312
Net cash provided by (used in) investing
activities............................ (3,992) (7,653) (40,577) (154,540) (45,141)
Net cash provided by (used in) financing
activities............................ (48,095) (24,878) (25,011) 39,139 36,294
Capital expenditures (includes
capitalized interest)................. 3,992 6,595 41,635 154,540 45,141
Maintenance and repairs expense......... 58,566 65,103 73,359 75,242 72,304
Depreciation and amortization........... 18,999 16,896 17,525 18,841 24,020
<FN>
- - ---------------
(1) Net periodic postretirement benefits accrued during fiscal 1992 amounted to
a credit of approximately $16,300, all of which was non-cash. The credit was
due primarily to a change in assumptions for major medical costs as many of
the Company's retirees elected to participate in LTV Steel's postretirement
benefit plans rather than in the Company's plans, such election expired in
November 1991.
(2) Excludes approximately $2,000 in wages and net periodic postretirement
benefits for June 1993 related to the Company's new collective bargaining
agreement ratified in October 1993, and a comparable compensation program
for salaried employees. This amount was accrued in the six months ended
December 31, 1993.
(3) Non-cash ESOP charges represent contributions made by the Company to the
ESOP, which are immediately returned to the Company as repayment of notes in
respect of the loans owed by the ESOP to the Company. See "Item 7.
Management's Discussion and Analysis of Financial Condition and Results of
Operations."
(4) Net of capitalized interest of $578, $8,616 and $8,491 for fiscal years
1994, 1995 and 1996, respectively.
(5) If the non-cash ESOP charges and non-cash deferred compensation charges were
excluded and a 40% effective state and federal tax rate was applied to
earnings as adjusted, earnings (loss) per share as adjusted (unaudited)
would have been $0.22, $0.13, $(0.26), $0.78 and $(0.71)for fiscal years
1992, 1993, 1994, 1995 and 1996, respectively.
(6) Management believes that Adjusted EBITDA provides meaningful information for
determining compliance with the Company's debt covenants, including interest
coverage. Adjusted EBITDA represents net income (loss) before cumulative
effect of changes in accounting principles and extraordinary items, net
interest expense, income taxes, depreciation and amortization, adjusted to
exclude non-cash postretirement benefit charges (credits), non-cash ESOP
charges and non-cash deferred compensation charges. Adjusted EBITDA does not
represent operating income or cash flow from operations as determined in
accordance with generally accepted accounting principles and does not
necessarily indicate that the Company's cash flow from operations will be
adequate to satisfy its cash needs. Adjusted EBITDA should also not be
considered as an alternative to net income as an indicator of operating
performance or to cash flow from operations as a measure of liquidity.
</TABLE>
15
<PAGE> 16
SELECTED OPERATING DATA
(AMOUNTS IN THOUSANDS, EXCEPT TONNAGE AND PER TON AMOUNTS)
The following table sets forth selected operating data of the Company for
each of the five fiscal years ended June 30, 1992, 1993, 1994, 1995 and 1996,
respectively. The selected operating data is derived from the Company's internal
management reports.
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
----------------------------------------------------
1992 1993 1994 1995 1996
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
SELECTED OPERATING DATA:
Net tons shipped............................... 795.4 935.8 1,056.6 1,041.6 897.4
Average selling price per net ton shipped...... $ 712 $ 691 $ 705 $ 773 $ 832
Average manufacturing cost per net ton
shipped...................................... 645 613 630 677 768
Average gross margin per net ton shipped....... 67 78 75 96 64
</TABLE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
GENERAL
The steel industry is highly cyclical in nature and is affected by imports,
world-wide production over-capacity, intense domestic and international
competition, as well as general economic conditions. The Company believes that a
majority of its total net sales in fiscal year 1996 were derived from products
sold directly and indirectly to the automotive industry, which also has been
highly cyclical and directly affected by, among other things, the level of
consumer confidence and general economic conditions. Commencing in fiscal year
1993, the steel industry experienced an increase in demand which enabled the
Company and other domestic steel producers to obtain price increases for many of
their major product lines. The Company announced numerous price increases in
1994 and 1995, excluding raw material surcharges, with the preponderance of the
impact commencing in January 1995. Erosion of these price increases began in the
fourth quarter of fiscal year 1996 and with the expected entry of new
competitors in the SBQ market there can be no assurance that further erosion
will not occur.
Scrap metal is the principal raw material used in the Company's products
and accounted for approximately 24% of the Company's total cost of product sold
during fiscal year 1996. The average price of scrap for fiscal year 1996
increased by 4.2% as compared to the average price of scrap for fiscal year
1995, and scrap metal represented 24.0% of the Company's total cost of product
sold in fiscal year 1996 as compared to 24.8% for fiscal year 1995. Scrap metal
prices are affected by cyclical, seasonal and other market factors. These
fluctuations in scrap metal prices affect the Company's revenues, costs and
earnings. While the Company believes that it has been generally successful in
passing on scrap metal price increases to its customers through a surcharge and
price increases in the spot market, significant increases in the price of scrap
metal coupled with significant decreases in demand for bar steel products could
adversely affect the Company's financial results. Also, quarterly results may be
affected by timing differences between the incurring of cost increases relating
to scrap metal and the partial recovery of such costs through surcharges to
customers. See "Item 1. Business -- Raw Materials."
Average manufacturing cost per ton of steel shipped has increased from $645
per ton in fiscal year 1992 to $768 per ton in fiscal year 1996. The increase
reflects a rise in the cost for raw materials from $231 per ton of product
shipped in fiscal year 1992 to $313 per ton in fiscal year 1996. As a
significant offset to these raw material cost increases the Company has
significantly increased its productivity and reduced operating costs by means of
ongoing programs that are designed, through the utilization of cost reduction
initiatives generated by its employees at all levels, to eliminate
inefficiencies and waste in its manufacturing process. These programs have
eliminated costs, currently estimated by the Company to be in excess of $63.2
million on an annualized basis since fiscal year 1992, through recycling and
waste reduction, improvement of product yields, reduction
16
<PAGE> 17
in the amount of raw materials, utilities and other inputs used in the
manufacturing process, and reduction of overhead.
ESOP charges are non-cash expenses that represent the principal repayment
of the ESOP Loans (as hereinafter defined). On a quarterly basis, the Company
makes a contribution to the ESOP to reflect certain percentages of cash
compensation received by the ESOP participants in the quarter. The ESOP Trustee
in turn utilizes the entire contribution to pay principal and interest on the
loans from the Company incurred to purchase the original twelve million shares
of the Company's Common Stock (the "ESOP Loans"). The percentage of cash
compensation utilized for calendar year 1995 was 18% and will continue at that
rate until the ESOP Loans are repaid which is anticipated to occur in fiscal
year 1998. Contributions to the ESOP are tax deductible, thereby significantly
reducing the Company's tax payments. Over the last five fiscal years, the tax
deductions relating to the ESOP were $141.4 million in total and will result in
cash savings of at least $56.6 million (assuming a 40% state and federal tax
rate), when fully realized. In addition, as the Company generates taxable net
income, the remaining ESOP tax deductions of approximately $47.7 million are
expected to result in additional cash savings of approximately $19.1 million
(assuming a 40% state and federal tax rate) in the future.
The Company follows Statement of Financial Accounting Standards No. 106,
"Accounting for Postretirement Benefits Other Than Pensions" ("SFAS 106"). As of
June 30, 1993, the Company had fully recognized a liability for the accumulated
postretirement benefit obligation ("APBO") under SFAS 106 in its consolidated
balance sheet. In connection with the Company's collective bargaining agreement
with the USWA, the Company has agreed to provide certain additional post
retirement benefits that will be amortized to expense over approximately 13
years. As of June 30, 1996, the Company's APBO is based on a discount rate of 8%
and assumes annual medical cost inflation rates ranging from 10% in 1996 to 5%
after 2003. In addition the Company's actuaries currently utilize a combination
of actual Company experience and steel industry average experience to estimate
the APBO. As the Company develops its own experience, adjustments to other
postretirement benefits ("OPEB") charges will continue to be made annually.
The Company's business is subject to some degree of seasonality. In
particular, many of the Company's customers shutdown operations for certain
periods for the maintenance of their facilities and holidays during the
Company's first two fiscal quarters of each year. In fiscal year 1996, the
Company's net sales for its first fiscal quarter and second fiscal quarter
constituted approximately 24.5% and 23.2%, respectively, of the Company's total
net sales for the fiscal year.
Capitalized interest associated with the Cast-Roll(TM) facility in fiscal
1996 was $8.5 million and $8.6 million in fiscal 1995. Commencing in the third
quarter of fiscal 1996, the Cast-Roll(TM) facility was placed in service. The
Company therefore discontinued the capitalization of all interest charges and
began recognizing depreciation charges associated with the previously
capitalized interest.
In 1989 the Company adopted an Executive Incentive Compensation Plan (the
"Executive Plan") to provide long-term incentives and rewards to the executives
and other senior managers of the Company in order to attract, motivate and
retain qualified and capable executives. The Executive Plan provided stock
appreciation rights to all unit holders based upon a predetermined "floor value"
of the Company's common stock. In connection with the IPO, participants in the
Executive Plan surrendered their units in the Executive Plan for stock options
pursuant to the 1995 Stock Option Plan. The Company recorded non-cash pre-tax
charges to earnings of $2.1 million and $0.3 million in fiscal 1995 and 1994
respectively, to reflect the cumulative appreciation of the stock appreciation
rights prior to their conversion to stock options under the 1995 Stock Option
Plan. Under current accounting guidance, the Company will no longer be required
to take any future charges against earnings in respect of the stock options
granted under the 1995 Stock Option Plan for changes in the market value of the
Company's Common Stock.
17
<PAGE> 18
RESULTS OF OPERATIONS
The following table sets forth certain consolidated income statement data
of the Company as a percentage of net sales for the periods indicated:
<TABLE>
<CAPTION>
FISCAL YEAR ENDED JUNE 30,
-----------------------------
1994 1995 1996
----- ----- -----
<S> <C> <C> <C>
Net sales........................................................... 100.0% 100.0% 100.0%
Cost of product sold................................................ 89.4 87.6 92.3
----- ----- -----
Gross profit........................................................ 10.6 12.4 7.7
Selling, general and administrative expenses........................ 6.2 5.6 6.2
Special charge - 8" Mill shutdown................................... -- -- 0.5
Non-cash deferred compensation charge............................... 0.1 0.2 --
Other postretirement benefits charges............................... 1.4 1.8 1.9
Non-cash ESOP charges............................................... 4.2 4.2 4.3
Interest expense, net............................................... 2.5 1.6 2.3
Other charges (credits), net........................................ (0.1) (0.1) (0.1)
----- ----- -----
Loss before income taxes, extraordinary gain and cumulative effect
of change in accounting principles................................ (3.7) (0.9) (7.4)
Income tax benefit.................................................. 0.4 0.3 2.9
Extraordinary gain on extinguishment of debt (net of tax)........... 0.2 -- --
Cumulative effect of changes in accounting principles............... -- -- --
----- ----- -----
Net loss............................................................ (3.1)% (0.6)% (4.5)%
===== ===== =====
</TABLE>
FISCAL YEAR ENDED JUNE 30, 1996, COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1995
FISCAL YEAR ENDED JUNE 30, 1996 COMPARED WITH
FISCAL YEAR ENDED JUNE 30, 1995
Net sales for fiscal year 1996 totaled $746.2 million on shipments of
897,361 net tons compared to fiscal year 1995 sales of $805.1 million on
shipments of 1,041,586 net tons. This decrease in net sales reflects a weaker
demand in the automotive sector coupled with a substantial overall inventory
reduction by many other customers during the July through December 1995 period.
The average selling price increased by 7.6% to $832 per net ton shipped during
fiscal year 1996 compared to $773 per ton during fiscal year 1995. The overall
price reflects increases in hot rolled, cold finished and specialty products and
an increased percentage of shipments of the higher priced value-added specialty
products.
Cost of products sold increased from 87.6% of sales to 92.3% of sales in
fiscal year 1996 versus the year ago average. The increase was due to lower
utilization rates, added costs resulting from operating three steel processing
routes instead of two during the first six months of the fiscal year while
customer approvals were being obtained for the use of products from the
Cast-Roll(TM) facility to replace the now idled vertical caster, cost penalties
associated with inclement weather during the third quarter, start-up costs
associated with the Cast-Roll(TM) facility, increased depreciation charges
associated with the new facility which was officially placed in service in
January 1996, charges relating to the shutdown of the 8" mill, steel scrap costs
which increased by 4.2% versus the prior year, and other raw material cost
increases.
Net periodic postretirement benefits accrued for fiscal year 1996 totaled
$13.8 million, $0.8 million less than the year earlier period. The decrease was
primarily the result of favorable experience during 1996. Cash payments totaled
$1.9 million and $1.2 million for years 1996 and 1995, respectively.
Non-cash ESOP charges totaled $32.3 million during fiscal year 1996, a
decrease of $1.1 million versus 1995. The decrease was a result of decreased
wages related to the lower level of business activity.
18
<PAGE> 19
Net interest expense for fiscal year 1996 totaled $17.4 million, an
increase of $4.9 million versus fiscal year 1995. The increase was a result of
higher outstanding debt and decreased interest income on lower cash reserves
throughout fiscal year 1996.
FISCAL YEAR ENDED JUNE 30, 1995, COMPARED WITH FISCAL YEAR ENDED JUNE 30, 1994
Net sales for fiscal year 1995 totaled approximately $805.1 million versus
approximately $744.8 million during fiscal 1994, an increase of 8.1%. The
increase in net sales was due primarily to general price increases on all
products, an increase in the sales of higher priced cold-finished and specialty
products, and raw material surcharges which partially recoup raw material cost
increases for scrap metal, nickel, molybdenum, chrome and vanadium. The increase
in sales revenues was partially offset by a 1.4% decrease in overall shipment
level. The decline in shipment level was a result of a decision to decrease the
purchase and processing of semi-finished steel while maintaining raw steel
production at near capacity levels.
Cost of products sold totaled approximately $705.2 million for fiscal year
1995, compared to approximately $665.8 million for fiscal year 1994, an increase
of 5.9%. The increase was primarily the result of three factors: (i) a 14.8%
increase in cost for raw materials; (ii) certain increases in employee
compensation; and (iii) an increase in the sales of higher cost, higher value
cold-finished and specialty products.
The Company's ongoing cost reduction program served to minimize the
financial impact of non-raw material cost increases while raw material cost
increases were partially offset by the Company's raw material surcharge program.
Cost of products sold as measured on a manufactured cost per net ton basis
increased from $630 in fiscal year 1994 to $677 per net ton for fiscal year
1995.
Selling, general and administrative expenses decreased to approximately
$45.3 million for fiscal 1995 from approximately $46.4 million for fiscal 1994.
The decrease reflects significant expenses incurred in fiscal year 1994 for
consulting services associated with the new collective bargaining agreement and
retroactive pay increases for non-bargained-for employees commensurate with
increases for bargained-for employees not incurred in fiscal year 1995.
The charge for net periodic postretirement benefits during fiscal 1995
totaled approximately $14.6 million versus approximately $10.7 million for
fiscal 1994. The increase is the result of additional interest costs relating to
the unfunded liability and charges due to net amortization of previously
unrecognized amounts for actuarial gains and losses and prior service cost. Cash
payments for fiscal year 1995 were approximately $1.2 million versus
approximately $0.2 million for fiscal year 1994.
The non-cash ESOP charges increased by 7.0% in fiscal 1995 versus the year
earlier period as a result of an increase in the average contribution rate from
17.5% in fiscal year 1994 to 18.0% in fiscal year 1995 and an increase in
payroll expense resulting from wage increases.
Net interest expense for fiscal year 1995 totaled approximately $12.5
million compared to approximately $18.5 million for fiscal year 1994. The net
decrease is the result of $8.6 million of capitalized interest for the
Cast-Roll(TM) facility and an increase in gross interest expense resulting from
the higher debt level associated with the construction of the Cast-Roll(TM)
facility.
LIQUIDITY AND CAPITAL RESOURCES
The Company's principal sources of liquidity consist of cash on hand, cash
flow from operations and available borrowings under a $90 million revolving
credit facility with the First National Bank of Boston (the "Revolving Credit
Facility"). Net cash provided from operating activities was $7.5 million, $55.7
million, $30.6 million, $57.8 million and $6.3 million in fiscal years 1992,
1993, 1994, 1995 and 1996, respectively. The Revolving Credit Facility is a
$90.0 million facility maturing in December 1997. As of June 30, 1996 the
Company had $83 million available under its $90.0 million Revolving Credit
Facility.
During the period from the Acquisition through September 1993, the
Company's primary focus was on improving the Company's capital structure by
reducing indebtedness. During this period, the Company repaid approximately
$119.2 million of indebtedness incurred in connection with the Acquisition. The
proceeds from
19
<PAGE> 20
the issuance in December 1993 of the $200.0 million First Mortgage Notes were
used to retire all $61.6 million of the Company's outstanding 15 1/2%
Subordinated Debentures at a discount for approximately $58.9 million and to pay
down $110.0 million of outstanding bank debt with the balance being applied
towards the cost of the Cast-Roll(TM) facility. Since January 1994, the Company
has focused on improving liquidity in order to meet its ongoing cash
requirements, including those relating to the Cast-Roll(TM) facility.
Maintenance expenses for facilities and equipment were $58.6 million, $65.1
million, $73.4 million, $75.2 million and $72.3 million for fiscal years 1992,
1993, 1994, 1995 and 1996, respectively. Capital expenditures were $4.0 million,
$6.6 million, $41.6 million, $154.5 million and $45.1 million for fiscal years
1992, 1993, 1994, 1995 and 1996, respectively. The Company expects that capital
expenditures in fiscal year 1997 will be approximately $12 million.
On October 28, 1994, the Ohio Water Development Authority (the "Authority")
issued $20.2 million of 8 1/4% Solid Waste Revenue Bonds (the "1994 Bonds") due
2014, on behalf of the State of Ohio, at 98% of face amount in connection with
the solid waste disposal facilities installed at the Cast-Roll(TM) facility.
Additionally, on June 1, 1996, the Authority issued $53.7 million of 9.0% Solid
Waste Revenue Bonds (the "1996 Bonds") due June 1, 2021 in connection with the
Cast-Roll(TM) facility. The proceeds of the 1996 Bonds were used to reduce
outstanding borrowings under the Revolving Credit Facility. As of June 30, 1996
the Company had available $2.25 million from the 1996 Bonds which is classified
as restricted cash in the accompanying consolidated balance sheet, and zero from
the 1994 Bonds.
The IPO was completed on May 5, 1995 at a price of $8.00 per share. Of the
shares of Common Stock sold to the public, the Company sold 6,895,020 shares,
the trustee of the ESOP sold 342,076 shares beneficially owned by former
employees and LTV Steel Company, Inc. sold to the underwriters the warrant which
entitled the holder thereof to purchase 812,904 shares of Common Stock for $.05
per share and the underwriters, in turn, exercised the warrant and sold 812,904
shares as part of the offering. The Company used substantially all of the net
proceeds of the IPO received by it to redeem all of the issued and outstanding
shares of its Preferred Stock (approximately $47.6 million) in May 1995 at a
redemption price of $10.10 per share (stated value of $10.00 per share plus a 1%
premium).
The Company believes that its cash on hand, cash flow provided from
operations and borrowings available under its current financing arrangements
will be sufficient to meet its liquidity needs during the next 18 months,
including working capital requirements, capital expenditures and debt service.
Although the Company believes that based upon its historical performance, it
should be able to satisfy its obligations with a combination of cash flow from
operations and appropriate refinancings, no assurance to this effect can be
given.
With its inception, the Company established a reserve of $27.1 million for
estimated environmental liabilities assumed as part of the Acquisition, which
has been reduced to $20.0 million as of June 30, 1996 due in part to lower than
anticipated spending and other adjustments of certain items covered by the
reserve. The Company believes it has sufficient resources to meet its
environmental liabilities; however, no assurance can be given that future
regulatory action regarding historical disposal practices at certain of the
Company's facilities, as well as continued compliance with environmental
requirements, will not require the Company to incur significant costs that could
have a material adverse effect on the future financial performance of the
Company. See "Item 1. Business -- Environmental Compliance."
As of June 30, 1996, the Company had a net operating loss ("NOL")
carryforward for federal income tax purposes of approximately $176 million and
an alternative minimum tax carryforward of approximately $72 million, subject to
adjustment by the Internal Revenue Service. If the Company were to undergo an
"ownership change" within the meaning of Section 382 of the U.S. Internal
Revenue Code of 1986, as amended (the "Code"), the use by the Company of its NOL
carryforwards would be subject to an annual limitation equal to the product of:
(i) the fair market value of the equity of the Company immediately before the
ownership change (subject to certain adjustments, including a reduction for
certain capital contributions made within two years before such ownership
change); and (ii) the federal long-term tax exempt rate in effect on the date of
the ownership change. Such limitation would be increased by certain built-in
gains, if any, that are recognized by the Company within five years after the
ownership change. In general, an ownership change
20
<PAGE> 21
would occur when there has been a more than 50 percentage point increase in the
amount of the Company's stock owned by its "5% shareholders" (as defined in the
Code) over the lowest percentage owned by those 5% shareholders at any time
during a three-year testing period. The consummation of the IPO by itself did
not result in an ownership change. As of June 30, 1996, the ESOP held
approximately 58% of the Common Stock of the Company. However, future sales or
other dispositions of the Common Stock, outside the control of the Company (not
expected to include distributions by the ESOP), might result in such an
ownership change. The Company has requested a ruling from the Internal Revenue
Service on the ownership change issue but as yet has not received their ruling.
IMPACTS OF ACCOUNTING PRONOUNCEMENTS
The Company's management is not aware of any current recommendations by
regulatory authorities which, if they were implemented, would have a material
effect on the liquidity, capital resources or operations of the Company.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
PAGE
----------
<S> <C>
INDEX TO FINANCIAL STATEMENTS
Independent Auditors Report........................................................ 22
Consolidated Balance Sheets June 30, 1996 and 1995................................. 23
Consolidated Statements of Income (Loss)
Years ended June 30, 1996, 1995 and 1994...................................... 25
Consolidated Statements of Shareholders' Equity
Years ended June 30, 1996, 1995 and 1994...................................... 26
Consolidated Statements of Cash Flows
Years ended June 30, 1996, 1995 and 1994...................................... 27
Notes to Consolidated Financial Statements
June 30, 1996 and 1995........................................................ 29
</TABLE>
INDEX TO FINANCIAL STATEMENT SCHEDULES
<TABLE>
<S> <C> <C>
Accountant's Report on Schedules and Consent............................. 55
II. Valuation of Qualifying Accounts......................................... 57
V. Supplementary Income Statement Information............................... 58
</TABLE>
21
<PAGE> 22
INDEPENDENT AUDITORS' REPORT
The Board of Directors
Republic Engineered Steels, Inc.:
We have audited the accompanying consolidated balance sheets of Republic
Engineered Steels, Inc. and subsidiaries as of June 30, 1996 and 1995, and the
related consolidated statements of income (loss), shareholders' equity, and cash
flows for each of the years in the three-year period ended June 30, 1996. These
consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Republic Engineered
Steels, Inc. and subsidiaries as of June 30, 1996 and 1995, and the results of
their operations and their cash flows for each of the years in the three-year
period ended June 30, 1996, in conformity with generally accepted accounting
principles.
/s/ KPMG PEAT MARWICK LLP
- - ---------------------------------------------------------
KPMG Peat Marwick LLP
Pittsburgh, PA
August 2, 1996
22
<PAGE> 23
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- -------
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents (note 17)..................................... $ 2,074 4,609
Receivables, less allowance for doubtful accounts of
$1,949 in 1996 and $1,948 in 1995 (note 5)........................... 76,712 80,466
Inventories (notes 2 and 5)............................................. 163,426 166,604
Prepaid expenses........................................................ 1,774 1,814
Deferred income taxes (note 9).......................................... 10,639 11,869
Other current assets.................................................... 278 404
-------- -------
Total current assets............................................ 254,903 265,766
Property, plant and equipment, net (notes 3 and 5)........................ 331,079 309,621
Intangibles and other assets, net (notes 4 and 5)......................... 31,097 32,865
Restricted cash (note 5).................................................. 2,250 2,539
Deferred income taxes (note 9)............................................ 21,248 --
-------- -------
$640,577 610,791
======== =======
</TABLE>
See accompanying notes to consolidated financial statements.
23
<PAGE> 24
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 30, 1996 AND 1995
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities
Accounts payable....................................................... $ 65,272 74,102
Accrued compensation and benefits...................................... 31,194 32,196
Accrued liabilities.................................................... 16,098 16,731
Accrued ESOP contribution.............................................. 159 303
Accrued income taxes (note 9).......................................... -- 170
-------- --------
Total current liabilities...................................... 112,723 123,502
Long-term debt (notes 5 and 17).......................................... 280,956 243,272
Other postretirement benefits (note 8)................................... 113,169 101,279
Defined benefit pension obligations (note 7)............................. 21,601 25,996
Environmental costs (note 16)............................................ 19,605 22,110
Other liabilities........................................................ 3,550 5,396
Deferred income taxes (note 9)........................................... -- 1,102
-------- --------
Total liabilities.............................................. 551,604 522,657
-------- --------
Shareholders' equity
Special preferred stock, $.01 par value; one share authorized, one
share issued, liquidation value of $1,500 (note 11)................. 2 2
Common stock, $.01 par value; authorized 27,000,000 shares; issued
19,707,923 shares (note 12)......................................... 197 197
Additional paid-in capital............................................. 275,270 275,270
Accumulated deficit.................................................... (138,767) (105,337)
Minimum pension liability adjustment, net of tax benefit of $863 (note
7).................................................................. -- (1,604)
-------- --------
136,702 168,528
Less receivable from Employee Stock Ownership Trust.................... 47,721 80,386
Less treasury stock, at cost, 1,345 shares............................. 8 8
-------- --------
Total shareholders' equity..................................... 88,973 88,134
Commitments and contingencies (notes 3, 7, 8, 14, 15, and 16)............
-------- --------
$640,577 610,791
======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
24
<PAGE> 25
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (LOSS)
YEARS ENDED JUNE 30, 1996, 1995, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- -------
<S> <C> <C> <C>
Net sales........................................................ $746,174 805,098 744,774
Cost of product sold (including depreciation of $20,617
in 1996, $15,317 in 1995, and $14,193 in 1994)................. 688,445 705,156 665,779
-------- ------- -------
Gross profit........................................... 57,729 99,942 78,995
Selling expenses................................................. 11,043 9,670 10,936
General and administrative expenses.............................. 35,375 35,668 35,438
Eight-inch mill shutdown charge (note 19)........................ 3,890 -- --
Other postretirement benefits charges (note 8)................... 13,821 14,610 10,683
Noncash ESOP charges............................................. 32,304 33,448 31,270
Deferred compensation (note 6)................................... -- 2,070 330
Other charges (credits), net
Interest charges............................................... 26,453 23,185 21,069
Capitalized interest (note 3).................................. (8,491) (8,616) (578)
Interest income................................................ (538) (2,070) (2,013)
Miscellaneous, net............................................. (562) (811) (538)
-------- ------- -------
113,295 107,154 106,597
-------- ------- -------
Loss before income taxes and extraordinary gain........ (55,566) (7,212) (27,602)
Income tax benefit (note 9)...................................... 22,136 2,405 2,823
-------- ------- -------
Loss before extraordinary gain......................... (33,430) (4,807) (24,779)
Extraordinary gain on extinguishment of long-term debt,
net of income tax charge of $163 in 1994 (note 5).............. -- -- 1,391
-------- ------- -------
Net loss............................................... (33,430) (4,807) (23,388)
Preferred stock dividends paid................................... -- 6,042 5,733
-------- ------- -------
Net loss attributable to common stock.................. $(33,430) (10,849) (29,121)
======== ======= =======
Weighted average shares outstanding (note 1[i]).................. 19,756 13,995 12,990
Net income (loss) per common share
Before extraordinary gain...................................... $ (1.69) (.78) (2.35)
Extraordinary gain............................................. -- -- .11
-------- ------- -------
Net loss per common share.............................. $ (1.69) (.78) (2.24)
======== ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
25
<PAGE> 26
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY
YEARS ENDED JUNE 30, 1996, 1995, AND 1994
(IN THOUSANDS)
<TABLE>
<CAPTION>
NUMBER OF SHARES
OUTSTANDING MINIMUM
------------------ SPECIAL ADDITIONAL ACCUMU- PENSION
PREFERRED COMMON PREFERRED PREFERRED COMMON PAID-IN LATED LIABILITY
STOCK STOCK STOCK STOCK STOCK CAPITAL DEFICIT ADJUSTMENT
--------- ------ --------- --------- ------ ---------- -------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Balance as of June 30, 1993.... -- 12,000 $ -- -- 120 225,280 (64,363) --
Net loss....................... -- -- -- -- -- -- (23,388) --
Preferred stock (note 10)...... 4,068 -- 40,684 -- -- -- -- --
Preferred stock dividend (note
6)........................... -- -- -- -- -- -- (6,202) --
Purchase of treasury stock,
42.311 shares................ (41) (1) -- -- -- -- -- --
ESOP loan repayment............ -- -- -- -- -- -- -- --
-------- ------ ------- ---- ---- ------- -------- ------
Balance as of June 30, 1994.... 4,027 11,999 40,684 -- 120 225,280 (93,953) --
Net loss....................... -- -- -- -- -- -- (4,807) --
Preferred stock (note 10)...... 678 -- 6,777 -- -- -- -- --
Preferred stock retired........ (126) -- (1,263) -- -- -- (71) --
Preferred treasury stock
retired...................... 41 -- -- -- -- -- -- --
Warrants purchased from LTV
(note 18).................... -- -- -- -- -- (541) (2) --
Preferred stock dividend (note
6)........................... -- -- -- -- -- -- (6,042) --
Preferred stock redeemed (notes
6 and 10).................... (4,620) -- (46,198) -- -- -- (462) --
Issued special preferred stock
(note 11).................... 1 -- -- 2 -- -- -- --
Common stock issued............ -- 8,050 -- -- 80 51,254 -- --
Common stock sold from ESOP
Trust........................ -- (342) -- -- (3) (2,549) -- --
Stock options.................. -- -- -- -- -- 1,826 -- --
Minimum pension liability
adjustment, net of tax (note
7)........................... -- -- -- -- -- -- -- (1,604)
ESOP loan repayment............ -- -- -- -- -- -- -- --
-------- ------ ------- ---- ---- ------- -------- ------
Balance as of June 30, 1995.... 1 19,707 -- 2 197 275,270 (105,337) (1,604)
Net loss....................... -- -- -- -- -- -- (33,430) --
Minimum pension liability
adjustment, net of tax (note
7)........................... -- -- -- -- -- -- -- 1,604
ESOP loan repayment............ -- -- -- -- -- -- -- --
-------- ------ ------- ---- ---- ------- -------- ------
Balance as of June 30, 1996.... 1 19,707 $ -- 2 197 275,270 (138,767) --
======== ====== ======= ==== ==== ======= ======== ======
<CAPTION>
RECEIVABLE
FROM
EMPLOYEE
STOCK TOTAL
OWNERSHIP TREASURY SHAREHOLDERS'
TRUST STOCK EQUITY
---------- -------- -------------
<S> <C> <C> <C>
Balance as of June 30, 1993.... (144,509) (2) 16,526
Net loss....................... -- -- (23,388)
Preferred stock (note 10)...... -- -- 40,684
Preferred stock dividend (note
6)........................... -- -- (6,202)
Purchase of treasury stock,
42.311 shares................ -- (453) (453)
ESOP loan repayment............ 31,223 -- 31,223
-------- ----- -------
Balance as of June 30, 1994.... (113,286) (455) 58,390
Net loss....................... -- -- (4,807)
Preferred stock (note 10)...... -- -- 6,777
Preferred stock retired........ -- -- (1,334)
Preferred treasury stock
retired...................... -- 447 447
Warrants purchased from LTV
(note 18).................... -- -- (543)
Preferred stock dividend (note
6)........................... -- -- (6,042)
Preferred stock redeemed (notes
6 and 10).................... -- -- (46,660)
Issued special preferred stock
(note 11).................... -- -- 2
Common stock issued............ -- -- 51,334
Common stock sold from ESOP
Trust........................ -- -- (2,552)
Stock options.................. -- -- 1,826
Minimum pension liability
adjustment, net of tax (note
7)........................... -- -- (1,604)
ESOP loan repayment............ 32,900 -- 32,900
-------- ----- -------
Balance as of June 30, 1995.... (80,386) (8) 88,134
Net loss....................... -- -- (33,430)
Minimum pension liability
adjustment, net of tax (note
7)........................... -- -- 1,604
ESOP loan repayment............ 32,665 -- 32,665
-------- ----- -------
Balance as of June 30, 1996.... (47,721) (8) 88,973
======== ===== =======
</TABLE>
See accompanying notes to consolidated financial statements.
26
<PAGE> 27
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- -------- -------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss...................................................... $(33,430) (4,807) (23,388)
Extraordinary gain on extinguishment of long-term debt........ -- -- (1,391)
-------- -------- -------
Loss before extraordinary gain................... (33,430) (4,807) (24,779)
Adjustments to reconcile net loss to net cash provided by
operating activities
Depreciation and amortization............................ 24,020 18,841 17,525
Provision for ESOP contribution.......................... 32,304 33,448 31,270
Interest paid-in-kind and accretion...................... -- -- 5,046
Deferred income tax benefit.............................. (21,984) (2,575) (2,823)
Change in operating assets and liabilities
Receivables, net...................................... 3,754 (7,549) (8,506)
Inventories........................................... 3,178 (13,236) (11,701)
Prepaid expense....................................... 40 (29) 312
Other current assets.................................. 126 1,100 (992)
Intangibles and other assets.......................... 349 (6,090) (23,169)
Accounts payable...................................... (6,866) 18,636 16,169
Accrued compensation and benefits..................... (784) 1,169 407
Accrued liabilities................................... 1,098 2,972 (2,432)
Accrued ESOP contribution............................. (144) 280 (122)
Accrued income taxes.................................. (177) 170 --
Other postretirement benefits......................... 11,890 13,422 10,330
Defined benefit pension obligations................... (1,928) 3,432 20,096
Environmental costs................................... (3,288) (261) (202)
Other liabilities..................................... (1,846) (1,105) 4,198
-------- -------- -------
Total adjustments................................ 39,742 62,625 55,406
-------- -------- -------
Net cash provided by operating activities........ 6,312 57,818 30,627
-------- -------- -------
Cash flows from investing activities
Net additions to property, plant and equipment,
including capitalized interest of $8,491 in 1996,
$8,616 in 1995, and $578 in 1994........................... (45,141) (154,540) (41,635)
Decrease in short-term investments............................ -- -- 1,058
-------- -------- -------
Net cash used by investing activities............ (45,141) (154,540) (40,577)
-------- -------- -------
</TABLE>
(Continued)
27
<PAGE> 28
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEARS ENDED JUNE 30, 1996, 1995, 1994
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
1996 1995 1994
-------- ------- --------
<S> <C> <C> <C>
Cash flows from financing activities
Proceeds from issuance of long-term debt...................... $ 53,700 20,200 200,000
Repayment of long-term debt................................... (16) -- (168,033)
Revolver activity, net........................................ (16,000) 23,000 --
Deferred financing costs associated with long-term debt....... (1,807) (1,163) (6,628)
Net proceeds from IPO......................................... -- 48,782 --
Redemption of preferred stock................................. -- (47,139) --
Purchase of LTV warrants...................................... -- (543) --
Preferred stock payable....................................... -- 5,643 6,178
Preferred stock dividend...................................... -- (6,042) (6,202)
Retirement of preferred stocks................................ -- (887) --
Purchase of treasury shares................................... -- -- (453)
Other financing activities, net............................... 417 (2,712) 149
-------- ------- --------
Net cash provided by financing activities............. 36,294 39,139 25,011
-------- ------- --------
Net (decrease) increase in cash and cash equivalents............ (2,535) (57,583) 15,061
Cash and cash equivalents at beginning of year.................. 4,609 62,192 47,131
-------- ------- --------
Cash and cash equivalents at end of year........................ $ 2,074 4,609 62,192
======== ======= ========
Supplemental disclosure of cash flow information
Interest paid, net of amounts capitalized..................... $ 19,801 13,820 12,920
======== ======= ========
Income taxes paid............................................. $ 25 -- --
======== ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
28
<PAGE> 29
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 1996, 1995, AND 1994
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(1) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
(a) Organization and Nature of Operations
On April 28, 1995, Republic Engineered Steels, Inc. ("Republic" or the
"Company") issued 8,050,000 shares of its common stock in an Initial Public
Offering (IPO). Prior to the IPO, the Company was owned by substantially all of
its employees through an Employee Stock Ownership Plan (ESOP). The ESOP acquired
all of the originally issued common shares of the Company on November 28, 1989
with the proceeds of two loans from the Company in the amounts of $190,000 (Loan
A) and $30,000 (Loan B), respectively, each bearing interest at ten percent per
annum. The ESOP obtains the funds to repay the loans primarily through tax
deductible contributions made by the Company to the ESOP based on annual
stipulated percentages of employee compensation or dividends. The ESOP is
repaying Loan A and Loan B (plus interest) over their respective maturity
periods. Subsequent to the IPO, the ESOP owns approximately 58 percent of the
common stock of the Company.
The Company produces a wide range of special bar quality (SBQ) hot-rolled
and cold-finished steels and specialty steel bars for the automotive, heavy
equipment manufacturing, aerospace, and power generation industries.
The Company's principal customers are manufacturers in the automotive,
machinery, industrial equipment, machine and hand tools, and aviation and
aerospace industries, as well as independent forgers who supply finished parts
to the aforementioned industries. The Company also has significant sales to
steel service centers.
Although the Company has a nationwide customer base, approximately 67
percent of its shipments for fiscal year 1996 were to customers in the states of
Indiana, Illinois, Michigan, New York, Ohio, and Pennsylvania. See also note 13.
(b) Principles of Consolidation
The consolidated financial statements include the accounts of Republic
Engineered Steels, Inc. and its wholly owned subsidiaries: The Nimishillen &
Tuscarawas Railway Company and The Oberlin Insurance Company. All significant
intercompany balances have been eliminated in consolidation.
(c) Cash Equivalents
The Company considers all short-term investments with maturities at date of
purchase of three months or less to be cash equivalents.
(d) Inventories
Inventories are carried at the lower of cost or market, with cost
determined using the last-in, first-out (LIFO) method.
(e) Property, Plant and Equipment
Property, plant and equipment is recorded at cost less depreciation
accumulated to date. Depreciation is computed on the straight-line method over
the estimated useful lives of the assets; the range of useful lives is 39 years
for buildings and 3-30 years for machinery and equipment. Accelerated methods
are used for income tax purposes.
29
<PAGE> 30
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(f) Intangibles
Intangible assets consist primarily of deferred loan and bond fees and
intangible pension assets. The deferred loan and bond fees are being amortized
on a straight-line basis over the lives of the related debt instruments.
(g) Income Taxes
The Company accounts for income taxes pursuant to the asset and liability
method. Under that method, deferred tax assets and liabilities are recognized
for the future tax consequences attributable to differences between the
financial statement carrying amounts of existing assets and liabilities and
their respective tax bases. Deferred tax assets and liabilities are measured
using enacted tax rates expected to apply to taxable income in the years in
which those temporary differences are expected to be recovered or settled, and
the effect on deferred tax assets and liabilities of a change in tax rates is
recognized in income in the period that includes the enactment date.
(h) Environmental Costs
The Company and other basic steel companies have in recent years become
subject to increasingly demanding environmental standards imposed by federal,
state, and local environmental laws and regulations. It is the policy of the
Company to endeavor to comply with applicable environmental laws and
regulations. The Company establishes a liability for an amount which the Company
believes is adequate, based on information currently available, to cover the
costs of remedial actions it will likely be required to take to comply with
existing environmental laws and regulations.
The stated amount represents an estimate of the environmental remediation
costs associated with future events triggering or confirming the costs that, in
management's judgment, are likely to occur. This estimate is based on currently
available facts, existing technology, and presently enacted laws and
regulations, and it takes into consideration the likely effects of inflation and
other societal and economic factors. The precise timing of such events cannot be
reliably determined at this time due to absence of any deadlines for remediation
under the applicable environmental laws and regulations pursuant to which such
remediation costs will be expended. No claims for recovery are netted against
the stated amount.
(i) Net Income (Loss) Per Common Share
The net income (loss) per common share computations are based upon the
weighted average number of shares of common stock outstanding during each fiscal
year.
(j) Use of Estimates
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to make estimates and
assumptions that affect the reported amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of the financial
statements and the reported amounts of revenues and expenses during the
reporting period. Actual results could differ from those estimates.
In the preparation of the consolidated financial statements, the Company
uses estimates for, among others, deferred income tax benefits, defined benefit
pension obligations, other postretirement benefit obligations, and environmental
remediation, all of which are significant to the consolidated financial
statements taken as a whole. Changes in circumstances in the near term could
have an impact on these estimates and the change in estimate could have a
material effect on the consolidated financial statements.
30
<PAGE> 31
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(k) Reclassifications
Certain previously reported amounts have been reclassified to conform to
the current reporting presentation.
(2) INVENTORIES
Inventories consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Raw materials.......................................... $ 10,401 $ 7,730
Finished and semifinished product...................... 150,711 157,061
Supplies, molds, and stools............................ 2,314 1,813
-------- --------
$163,426 $166,604
======== ========
</TABLE>
The above inventory amounts reflect LIFO reserves which decreased the value
of the inventory by $17,362 and $945 as of June 30, 1996 and 1995, respectively,
and reserves to value inventory at the lower of cost or market which decreased
the value of inventory by $730 and $920 as of June 30, 1996 and 1995,
respectively.
During fiscal 1996, inventory quantities were reduced, which resulted in a
liquidation of LIFO inventory layers carried at lower costs which prevailed in
prior years. The effect of this liquidation was to decrease cost of goods sold
by $1,831 and decrease the net loss by $1,101 or $.06 per share. There were no
significant reductions of inventories in the fiscal years ended 1995 and 1994.
Despite the gain generated by the liquidation of certain layers, product mix
shifts to higher valued products in other nonliquidated pools resulted in a net
charge to income. The net result of the gains from LIFO liquidations and the
impact of product mix shifts was a charge of $4,535 during the fourth quarter of
1996 to adjust the LIFO reserve.
(3) PROPERTY, PLANT AND EQUIPMENT
Property, plant and equipment consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Land................................................... $ 10,816 $ 10,765
Buildings.............................................. 36,575 28,384
Machinery and equipment................................ 361,648 184,908
-------- --------
409,039 224,057
Less accumulated depreciation.......................... 92,439 75,101
-------- --------
316,600 148,956
Construction in progress............................... 14,479 160,665
-------- --------
$331,079 $309,621
======== ========
</TABLE>
The Cast-Roll(TM) facility was officially placed in service January 1,
1996. Interest was capitalized on this facility through December 31, 1995.
As of June 30, 1996, the Company was committed to spend $506 on capital
expenditures.
31
<PAGE> 32
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(4) INTANGIBLES AND OTHER ASSETS
Intangibles and other assets consist of the following:
<TABLE>
<CAPTION>
JUNE 30,
-------------------
1996 1995
------- -------
<S> <C> <C>
Intangible pension asset (note 7)........................ $19,878 $21,622
Deferred loan and bond fees.............................. 12,101 10,194
Deposits................................................. 2,668 3,088
Other.................................................... 218 2,906
------- -------
34,865 37,810
Less accumulated amortization............................ 3,768 4,945
------- -------
$31,097 $32,865
======= =======
</TABLE>
The original formation fees of $2,688, classified as other intangibles,
were fully amortized as of June 30, 1995. The asset and the associated
amortization were written off during 1996.
(5) LONG-TERM DEBT
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
9% Solid Waste Revenue Bonds, Series 1996,
due June 1, 2021..................................... $ 53,700 $ --
8 1/4% Solid Waste Revenue Bonds, Series 1994,
due October 1, 2014.................................. 20,200 20,200
9 7/8% First Mortgage Notes due December 15, 2001...... 200,000 200,000
Revolving credit agreement............................. 7,000 23,000
Other.................................................. 56 72
-------- -------
280,956 243,272
Less current maturities of long-term debt.............. -- --
-------- -------
$280,956 $243,272
======== =======
</TABLE>
On June 1, 1996, the Company obtained $53,700 of financing through the
issuance of 9 percent Solid Waste Revenue Bonds, Series 1996, due June 1, 2021
in connection with the solid waste disposal facilities installed at its cast
roll process plant. These bonds were issued in addition to the Solid Waste
Revenue Bonds, Series 1994, noted below, to assist in financing the facilities.
As of June 30, 1996, the Company had available $2,250 of the $53,700, which is
classified as long-term restricted cash in the accompanying consolidated balance
sheet.
On October 28, 1994, the Company obtained $20,200 of financing through the
issuance of 8 1/4 percent Solid Waste Revenue Bonds, Series 1994, due October 1,
2014 in connection with the solid waste disposal facilities installed at the
cast roll process plant. As of June 30, 1995, the Company had available $2,539
of the $20,200, which is classified as long-term restricted cash in the
accompanying consolidated balance sheet, and which was expended during 1996.
32
<PAGE> 33
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
On December 15, 1993, the Company issued $200,000 aggregate principal
amount of 9 7/8% First Mortgage Notes due December 15, 2001 (Notes) in an
underwritten public offering. The Notes are redeemable, in whole or in part, at
the option of the Company, on or after December 15, 1998 at specified premiums
set forth therein which decline over three years. At any time before December
15, 1996, the Company may redeem a portion of the Notes with the proceeds of a
public offering of its common stock at a redemption price of 109 7/8% of the
principal amount thereof plus accrued interest, provided that at least $140
million aggregate principal amount remains outstanding. The Notes are secured by
a mortgage on substantially all of the Company's property, plant and equipment
as of December 15, 1993. Capital expenditures subsequent to that date
aggregating approximately $238,550 are not part of the security for the Notes.
The Notes contain affirmative and negative covenants including provisions for
restrictions on additional borrowings, certain investments, certain payments,
sale or disposal of assets, payment of dividends and liens, as well as change of
control provisions. The Company is in compliance with all such covenants as of
June 30, 1996.
The proceeds from the Notes were used in part to repay the balance
outstanding under the then existing revolving credit and term loan agreement and
the Company's unsecured subordinated debentures held by LTV Steel Company, Inc.
(LTV Steel). In connection with the retirement of such long-term debt, the
Company recorded an extraordinary gain of $1,391, net of income taxes in 1994.
On December 21, 1993, the Company entered into a new revolving credit
facility (Credit Agreement). This $90,000 facility has a four-year term expiring
in December 1997. As of June 30, 1996, $83,000 of the credit facility remained
available. The facility is secured by the Company's receivables, inventories,
subsidiaries' stock, short-term investments, and certain intangible assets.
Advances under the facility are limited to specified percentages of the
Company's eligible receivables and inventories.
The Credit Agreement provides up to $20,000 for letters of credit.
Borrowings under the Credit Agreement bear interest at a per annum rate equal to
the Eurodollar rate plus 2 1/2% or the Bank of Boston's Alternate Base Rate plus
1 1/4 percent, at the Company's option. These rates increase by 2% if the
Company does not meet certain financial tests. The borrowing base under the
Credit Agreement is the sum of 53% of "Eligible Inventory" up to a maximum of
$75 million and 80 percent of "Eligible Accounts Receivable." Fees of 2 1/2% per
annum on the maximum drawing amount of each standby letter of credit and 2% per
annum on the maximum drawing amount of each documentary letter of credit are
payable on the date of issuance of such letter of credit. A commitment fee of
1/2% per annum on the average daily unused amount of the facility is payable
quarterly. As of June 30, 1996 and 1995, there were no outstanding letters of
credit.
The Credit Agreement contains affirmative and negative covenants including
provisions for the maintenance of increasing levels of consolidated net worth;
requirements for minimum coverage of interest and debt service; and restrictions
on additional borrowings, capital expenditures, certain investments, stock
issuances, and the payment of dividends. The Company is in compliance with all
such covenants as of June 30, 1996.
The Company has $7,000 under the Credit Agreement due to be repaid in
fiscal 1998. Otherwise, no long-term debt matures during the next five years.
(6) BENEFIT PLANS
The Company has defined contribution pension plans that cover substantially
all employees. Company contributions to the plans are based on age and
compensation. The Company funds retirement plan contributions as accrued.
Company contributions totaled $8,683, $8,538, and $8,000 for the fiscal years
ended June 30, 1996, 1995, and 1994, respectively.
33
<PAGE> 34
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The Company's ESOP covers substantially all United Steelworkers of America
(USWA) and nonbargained-for employees of Republic. The plan is designed to
enable eligible employees to acquire a beneficial interest in the equity of the
Company held by the Employee Stock Ownership Trust (ESOP Trust). The Company
expenses ESOP contributions as made or incurred.
With the establishment of a public market for the Company's common stock in
May 1995, distributions from the ESOP Trust will be made to participants upon
request following termination of employment or after attaining age 70 1/2 if
still in active employment. Participants who are 55 years of age and have 10
years of participation under the plan may also elect to receive distributions
annually for a portion of their account balance. All distributions are in the
form of one lump sum payment of whole shares (and cash for fractional shares)
allocated to their account in the plan.
The Company has profit sharing plans covering all employees of Republic
Engineered Steels, Inc. and subsidiaries. Amounts provided to the profit
sharing pool are based on percentages of the consolidated excess cash flows of
the Company as defined in the Credit Agreement (see note 5).
Prior to May 1995, the Company had a preferred stock plan which was
established for the benefit of all USWA and nonbargained-for salaried employees
of Republic Engineered Steels, Inc. With the proceeds from the IPO, all
4,619,787.7 outstanding shares of preferred stock were redeemed and the plan was
terminated.
Prior to the redemption of the outstanding preferred stock, the Company
accrued $61 and $47 in fiscal 1995 and 1994, respectively, for preferred stock
payable to nonbargained-for salaried employees of Republic, and accrued an
additional $6,042 and $6,202, respectively, representing dividends-in-kind on
the total preferred stock payable which covers all USWA and nonbargained-for
employees of Republic. The Company issued, net, 551,362.6 and 631,865.5 shares
of preferred stock in fiscal 1995 and 1994, respectively, which included
19,963.6 and 37,035.5 of earned shares, 657,705.8 and 594,830.0 of shares issued
as dividends-in-kind as required by the plan, and $126,306.8 and $0 of treasury
shares retired, respectively.
The Company had an executive incentive plan (Executive Plan) which covered
key executives and management employees. In connection with the IPO, the board
of directors of the Company adopted the 1995 Stock Option Plan (1995 Plan),
primarily to provide substitute benefits for plan units previously granted under
the Executive Plan. The stock options, totaling 1,771,200 shares, are
exercisable after May 5, 1998 at an exercise price of $6.67 per share.
Compensation expense relating to these plans totaled $0, $2,070, and $330 for
the fiscal years ended June 30, 1996, 1995, and 1994, respectively.
(7) DEFINED BENEFIT PENSION OBLIGATIONS
In fiscal 1994, the Company established a defined benefit "floor offset"
plan which covers all USWA employees. The plan, when combined with benefits from
the Company's defined contribution pension plan and benefits from an LTV Steel
defined benefit pension plan, will provide a minimum level of pension benefits
for USWA employees. Benefits are based on a combination of employees' age and
years of service. The Company's policy is to fund this plan based on legal
requirements and tax considerations. Assets of the plan
34
<PAGE> 35
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
are currently invested in money market funds. The following table sets forth the
funded status of the plan as of June 30, 1996 and 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C> <C>
Actuarial present value of benefit obligations
Vested benefits................................................. $ 16,791 $ 19,753
======== ========
Accumulated benefit obligation.................................. $ 24,824 27,854
======== ========
Projected benefit obligation...................................... $ 23,657 26,797
Plan assets at fair value......................................... 3,224 1,859
-------- --------
Projected benefit obligation in excess of plan assets............. 20,433 24,938
Items not yet recognized in earnings
Prior service cost.............................................. (20,008) (21,622)
Net gain........................................................ 1,298 (1,409)
Adjustment required to recognize minimum liability................ 19,878 24,089
-------- --------
Accrued pension cost as reflected on the consolidated
balance sheet............................................. $ 21,601 $ 25,996
======== ========
</TABLE>
Net pension expense included in operating income for the years ended June
30, 1996, 1995, and 1994 consists of the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Service cost (benefit)...................... $(1,721) $ (909) $(1,046)
Interest cost............................... 2,113 1,561 1,985
Actual return on plan assets................ (144) (74) --
Net amortization and deferred items......... 1,567 1,334 1,614
------- ------ -------
Net periodic pension cost................... $ 1,815 $1,912 $ 2,553
======= ====== =======
</TABLE>
Actuarial assumptions used in accounting for the pension plan for the
fiscal years ended June 30, 1996, 1995, and 1994 were as follows:
<TABLE>
<S> <C>
Discount rate....................................................... 8.0%
Rate of increase in future compensation levels...................... 5.0%
Expected long-term rate of return on assets......................... 8.0%
</TABLE>
During fiscal 1995, the minimum pension liability of $24,089 exceeded
unrecognized prior service costs by $2,468 and was recorded as a $1,604 charge
to shareholders' equity, net of applicable income tax benefits of $864.
As of June 30, 1996, the minimum pension liability of $19,878 is less than
the unrecognized prior service cost; accordingly, the charge to shareholders'
equity made in fiscal 1995 of $1,604, net of applicable income taxes of $864,
has been reversed.
35
<PAGE> 36
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(8) OTHER POSTRETIREMENT BENEFITS
The Company provides postretirement health care and life insurance benefits
to substantially all employees who retire from the Company subsequent to
November 28, 1989, upon attaining the following age and years of service:
<TABLE>
<CAPTION>
AGE AT RETIREMENT YEARS OF SERVICE
- - ----------------- ----------------
<S> <C>
55 30
60 15
65 10
</TABLE>
The following table presents the plan's accumulated postretirement benefit
obligation reconciled with amounts recognized in the Company's consolidated
balance sheets:
<TABLE>
<CAPTION>
JUNE 30,
---------------------
1996 1995
-------- --------
<S> <C> <C>
Accumulated postretirement benefit obligation
Retirees................................................... $ 18,120 $ 16,959
Fully eligible active plan participants.................... 32,249 28,350
Other active plan participants............................. 81,737 77,406
-------- -------
132,106 122,715
Unrecognized prior service cost.............................. (18,937) (21,436)
-------- -------
Accrued postretirement benefits as reflected on the
consolidated balance sheets................................ $113,169 $101,279
======== =======
</TABLE>
Net periodic postretirement benefit charges (credits) recorded for the
years ended June 30, included the following components:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------- -------
<S> <C> <C> <C>
Service cost -- benefit attributed to service during the
period...................................................... $ 3,761 $ 3,260 $ 3,037
Interest cost on accumulated postretirement benefit
obligation.................................................. 10,058 9,176 8,032
Immediate recognition of change in accumulated postretirement
benefit obligation due to change in assumptions and
actuarial gain.............................................. (2,498) (325) (1,979)
Net amortization of unrecognized amounts for net gain and
prior service cost.......................................... 2,500 2,499 1,593
------- ------ ------
Net periodic postretirement benefit charges................... $13,821 $14,610 $10,683
------- ------ ------
</TABLE>
36
<PAGE> 37
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
The health care cost trend rates used in determining the accumulated
postretirement benefit obligation as of June 30, 1996 and 1995, were as follows:
<TABLE>
<CAPTION>
YEAR 1996 1995
------------------------------------------- ---- ----
<S> <C> <C>
1996....................................... 10.0% 10.0%
1997....................................... 9.0 8.0
1998....................................... 8.0 8.0
1999....................................... 7.5 6.0
2000....................................... 7.0 6.0
2001....................................... 6.5 6.0
2002....................................... 6.0 6.0
2003....................................... 5.5 6.0
2004 - 2023................................ 5.0 6.0
Thereafter................................. 5.0 5.0
</TABLE>
The health care cost trend rate assumption has a significant effect on the
amounts reported. To illustrate, increasing the health care cost trend by 1
percent would increase the accumulated postretirement benefit obligation as of
June 30, 1996 from $132,106 to $160,572 and the aggregate of the service and
interest cost components of net periodic postretirement benefit charges for 1996
from $13,819 to $17,163.
The discount rate used in determining the accumulated postretirement
benefit obligation was 8.0% as of June 30, 1996 and 1995. The discount rate used
in determining the net periodic postretirement benefit charge was 8.0% for
fiscal 1996, 1995, and 1994. The withdrawal assumptions were revised in 1996 to
meet Internal Revenue Service requirements, and health care cost trend rates
were changed as noted above, resulting in the $2,498 gain which was fully
recognized in 1996 net periodic postretirement benefit charges.
The Company's policy is to fund claims as incurred. Claims paid were
$1,486, $1,169, and $208 during the fiscal years ended June 30, 1996, 1995, and
1994, respectively. The Company also recognizes actuarial gains and losses
immediately rather than amortizing them over future years.
The Company also provides postemployment benefits to its employees in the
form of supplemental unemployment benefits, severance benefits, and disability
income benefits which are subject to the provisions of SFAS No. 112, Accounting
for Postemployment Benefits. However, in connection with the Company's
collective bargaining agreement with the USWA, the Company has agreed to perform
annual actuarial valuations; cash fund all deficiencies through a voluntary
employee benefit association as described in Section 501(c)(9) of the Internal
Revenue Code of 1986, as amended; and record the change in liability as an
expense in the current period. Therefore, the adoption of the provisions of SFAS
112 effective July 1, 1994 had no effect on the consolidated financial
statements of the Company.
(9) INCOME TAXES
Income tax benefit for the year ended June 30, 1994 is comprised solely of
deferred income taxes, whereas the net income tax benefit for fiscal years 1996
and 1995 includes a current tax (benefit) charge of ($152) and $170 due to the
federal alternative minimum tax, respectively, which is increased by a deferred
benefit of $21,984 in 1996 and offset by a deferred benefit of $2,575 in 1995.
37
<PAGE> 38
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
At present, due to net operating losses, the Company is not assessed state
income tax. The Company anticipates being assessed state income tax when certain
temporary differences reverse. Other state taxes are included in general and
administrative expenses.
The difference between the statutory U.S. federal income tax rate (35
percent in 1996 and 1995 and 34 percent in 1994) and the Company's effective tax
rate was as follows:
<TABLE>
<CAPTION>
1996 1995 1994
------- ------ -------
<S> <C> <C> <C>
Statutory federal income tax benefit............. $19,448 $2,524 $ 9,385
State and local income tax benefit............... 2,778 361 1,380
Change in valuation allowance for
deferred tax assets............................ -- 123 (7,772)
Other............................................ (90) (603) (170)
------- ------ -------
Income tax benefit.......................... $22,136 $2,405 $ 2,823
======= ====== =======
Effective book income tax benefit rate........... 39.8% 33.3% 10.2%
</TABLE>
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities are presented
below:
<TABLE>
<CAPTION>
JUNE 30,
--------------------
1996 1995
-------- -------
<S> <C> <C>
Deferred tax assets
Accounts receivable, principally due to
allowance for doubtful accounts............... $ 780 $ 779
Postretirement benefits....................... 15,667 10,671
Environmental costs........................... 7,240 8,555
Other liabilities............................. 11,992 12,680
Net operating loss carryforwards.............. 70,560 41,985
Minimum pension liability adjustment.......... -- 864
Other......................................... 971 1,243
-------- -------
Total gross deferred tax assets............ 107,210 76,777
Less valuation allowance...................... 22,863 22,863
-------- -------
Net deferred tax assets.................... 84,347 53,914
-------- -------
Deferred tax liabilities Inventory valuation.... 15,062 15,111
Plant and equipment, principally due to
differences in depreciation................ 36,901 27,488
Other......................................... 497 548
-------- -------
Total gross deferred tax liabilities....... 52,460 43,147
-------- -------
Net deferred tax asset..................... $ 31,887 $10,767
======== =======
</TABLE>
The Company had available as of June 30, 1996, net operating loss (NOL)
carryforwards, for regular federal income tax purposes, totaling approximately
$176 million ($72 million for federal alternative minimum tax purposes) with
expirations of: $45 million in year 2006; $24 million in year 2007; $12 million
in year 2008;
38
<PAGE> 39
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
$16 million in year 2009; $8 million in year 2010; and $71 million in year 2011.
The Company believes that it is more likely than not that a significant portion
of the aforementioned NOL carryforwards will be used prior to their expiration.
While the Company has incurred pretax losses of nearly $137 million during its
seven-year existence, deductible noncash ESOP contributions have totaled $168
million during that same period. Further, five of the seven years reflect
substantial income on a pretax/pre-ESOP contribution basis. The Company's
current business plan projections reflect that ESOP contributions will be fully
allocated during fiscal 1998, or seven years prior to the first year NOL
expiration date. Management also believes that future operating results will be
improved as a result of major capital improvements which are now underway
coupled with the ongoing cost reduction program which is linked to the labor
agreement. Based on the aforementioned factors, but also recognizing the
inherent uncertainties associated with forward projections, management believes
that the valuation allowance which has been established is adequate to provide
for deferred tax assets that more likely than not will not be realized during
the NOL carryforward period.
(10) PREFERRED STOCK
Prior to the redemption of the preferred stock in connection with the IPO,
there were six million shares authorized with a par value of $.01 per share and
a stated value of $10.00 per share. Dividends on the preferred stock were
payable semiannually in arrears.
On October 28, 1993, as approved by the shareholders of the Company, an
amendment was made to the Company's Certificate of Incorporation that (i)
eliminated the requirement that the Company mandatorily redeem on November 28,
2004 all of the then outstanding shares of its preferred stock, and (ii) in the
case of an optional redemption by the Company, provided for a premium of $.10
per share for shares of preferred stock redeemed after November 28, 1994 and
prior to November 28, 1995, and a premium of $.05 per share for shares of
preferred stock redeemed after November 28, 1995 and prior to November 28, 1996.
The redemption price was equal to the greater of stated value or the then
current market price plus the aforementioned applicable premium. In connection
with the IPO, the preferred stock was redeemed at the $.10 per share premium.
(11) SPECIAL PREFERRED STOCK
With the completion of the IPO, the Company issued one share of special
preferred stock to the trustee of a trust, the only asset of which is the
special preferred stock. The special preferred stock has the right to vote as a
separate class on any proposed merger or consolidation of the Company or a sale
of all or substantially all of the Company's assets and any additional issuance
of common stock of the Company subsequent to the IPO and prior to the conclusion
of the reopener negotiations in calendar 1996 (fiscal 1997) associated with the
USWA labor contract in respect of the current collective bargaining agreement
(it is anticipated that these discussions will be completed prior to December
31, 1996), other than issuances pursuant to the 1995 Plan (note 6). The
agreement with respect to the trust for the special preferred stock will provide
that the trustee of such trust will vote the share of special preferred stock as
instructed by ESOP participants on a one share/one vote basis. Except as
provided above, the special preferred stock has no voting power. The special
preferred stock is redeemable by the Company for $1.5 at such time as the ESOP
(and/or other benefit arrangement[s]) holds less than 25% of the issued and
outstanding shares of common stock.
The special preferred stock is not entitled to receive any dividends. The
special preferred stock is entitled to a liquidation preference of $.01 per
share. The special preferred stock may not be transferred without the consent of
the Company.
39
<PAGE> 40
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(12) COMMON STOCK
As of June 30, 1996, there were 27,000,000 authorized shares and 19,707,923
shares issued and outstanding of the Company's common stock (Common Stock), of
which 11,554,352 shares are held by the ESOP Trust.
Holders of Common Stock are entitled to one vote per share on all matters
submitted to a vote of the stockholders. Shares of Common Stock held by the ESOP
Trust may be voted only by the ESOP trustee. The ESOP provides that the
administrative committee is required to solicit instructions of the participants
in the ESOP and to direct the ESOP trustee to vote the shares of Common Stock
held by the ESOP Trust in accordance with the votes of the participants.
The Company has not paid dividends on its Common Stock during the last
three fiscal years and does not presently anticipate paying any dividends in the
foreseeable future. The Company intends to reinvest earnings (if any) in the
development and expansion of its business. Also, the payment of cash dividends
on its Common Stock is restricted by covenants contained in certain of the
Company's financing arrangements. The payment of dividends in the future will be
at the sole discretion of the board of directors and will depend upon the
Company's profitability, financial condition, capital needs, future prospects,
legal restrictions on the payment of dividends in financing agreements, and
other factors deemed relevant by the board of directors.
The holders of Common Stock are not entitled to any preemptive right to
subscribe for, purchase, or receive any new or additional shares of capital
stock of the Company. Upon the liquidation, dissolution, or winding up of the
Company, the holders of shares of the Common Stock are entitled to receive
ratably the net assets of the Company available after the payment of all debts
and other liabilities and subject to the rights of the holder of the special
preferred stock.
(13) CONCENTRATIONS OF CREDIT RISK
There was one customer to whom sales represented approximately 9%, 9% and
15% of total sales for the fiscal years ended June 30, 1996, 1995, and 1994,
respectively. The decreased concentration for 1995 is the result of the sale of
certain operations of this customer, with the Company's sales activity
continuing with the successor company. A majority of the Company's business is
directly or indirectly related to the automobile industry.
(14) LEASE COMMITMENTS
Minimum rental payments due under noncancelable operating leases are
estimated to be as follows:
<TABLE>
<CAPTION>
YEAR ENDING JUNE 30,
---------------------------------------------------
<S> <C>
1997.......................................... $1,317
1998.......................................... 817
1999.......................................... 391
2000.......................................... 232
Thereafter.................................... --
------
$2,757
======
</TABLE>
Rent expense was approximately $4,118, $4,199, and $4,509 for the
fiscal years ended June 30, 1996, 1995, and 1994, respectively.
40
<PAGE> 41
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
(15) LITIGATION
In September 1992, a lawsuit was filed against the Company in the U.S.
District Court for the Northern District of Ohio (Eastern Division) on behalf of
19 former Company salaried employees whose employment was terminated on February
19, 1991. The claims asserted on behalf of each former employee are age
discrimination under both federal and state laws, breach of employment contract,
promissory estoppel, and violation of Ohio public policy (by reason of age
discrimination). The relief sought for each former employee is lost pay and
fringe benefits, liquidated damages (doubling the claimed lost pay and
benefits), compensatory damages of $500 on each count, punitive damages of $500
under the public policy count, prejudgment interest, and attorneys' fees. The
Company has denied all of the claims and intends to contest them vigorously. The
Company's motion for summary judgment with respect to these cases was partially
granted on May 15, 1996, dismissing all claims of the former employees other
than the age discrimination claims. Management does not believe that the
remaining claims will have a material adverse effect upon the Company.
The Company is involved in other legal proceedings, including various
environmental proceedings with governmental authorities, product liability
litigation, and claims by present and former employees under federal and
counterpart state anti-discrimination and other laws relating to employment. The
Company does not believe that any of these proceedings, either individually or
in the aggregate, will have a material adverse effect on the consolidated
financial condition or results of operations of the Company.
(16) ENVIRONMENTAL COMPLIANCE
The Company is subject to a broad range of federal, state, and local
environmental laws and regulations, including those governing discharges into
the air and water, the handling and disposal of solid and hazardous wastes, and
the remediation of contamination associated with the disposal of waste. The
Company continuously monitors its compliance with such environmental laws and
regulations and, accordingly, believes that it is currently in substantial
compliance with such laws and regulations. The Company does not anticipate the
need to make material expenditures for environmental control measures during the
next 24 months. As is the case with most steel producers, the Company could
incur significant costs related to environmental compliance, in particular those
arising from remediation costs for historical waste disposal practices at
certain of the Company's facilities. The Company believes that these costs are
most likely to be in the range of $13,000 to $27,000 over the lives of the
Company's facilities. This range represents the estimated aggregate cost to
resolve the environmental contingencies. The Company does not anticipate any
third-party recoveries. The reserve to cover potential current and noncurrent
environmental liabilities was $20.0 million and $23.3 million as of June 30,
1996 and 1995, respectively.
The reserve has been established and is monitored based on continuing
reviews of the reserve, each matter comprising the reserve, and whether any new
matters should be included in the reserve, using currently available information
relative to enacted laws and regulations and existing technology. These reviews
are performed periodically by an in-house committee comprised of representatives
experienced in environmental matters from the environmental, law, operating, and
accounting departments in consultation with outside legal and technical experts,
as necessary. During the fourth quarter of fiscal 1996, such reserves were
reduced by $3.2 million representing a change in estimate as a result of
favorable experiences to date in certain matters (see note 19).
(17) DISCLOSURES ABOUT THE FAIR VALUE OF FINANCIAL INSTRUMENTS
Fair value estimates are made at a specific point in time, based on
relevant market information and information about the financial instrument.
These estimates are subjective in nature and involve uncertainties
41
<PAGE> 42
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
and matters of significant judgment; therefore, they cannot be determined with
precision. Changes in assumptions could significantly affect the estimates.
- CASH EQUIVALENTS -- The carrying amount approximates fair value because
of the short-term maturity of these instruments.
- LONG-TERM DEBT -- The fair value of the First Mortgage Notes classified
under long-term debt (see note 5), based on quoted market values, was
approximately $186,000 as of June 30, 1996. The Company estimates that
the fair value of the 8 1/4% Solid Waste Revenue Bonds, Series 1994, and
the 9% Solid Waste Revenue Bonds, Series 1996, was approximately $19,170
and $53,700, respectively, as of June 30, 1996. The Company also
estimates the fair value of the Revolving Credit Agreement debt to be
$7,000 as of June 30, 1996.
(18) WARRANT PURCHASE AGREEMENT
On May 13, 1994, the Company entered into an agreement with LTV Steel
covering a certain warrant, assented to by the Pension Benefit Guaranty
Corporation (PBGC), which warrant was pledged to the PBGC and held in trust for
the benefit of certain LTV Steel pension plans. Such agreement (Warrant Purchase
Agreement) provided for the purchase by the Company of the warrant which
entitled the holder thereof to purchase, subject to the provisions of the
warrant, 903,226 shares of the Company's common stock (warrant shares). The
purchase price for any portion of the warrant was established by the Warrant
Purchase Agreement at $6.00 per warrant share. The Company was contractually
required to purchase the warrant for 903,226 warrant shares in equal
installments at six-month intervals beginning September 30, 1994 over a five-
year period, subject to extensions and limitations. Several contingencies also
existed which limited any purchases to be made by the Company. On September 30,
1994, the Company purchased the first installment of 90,322 warrant shares at
$6.00 per share. In connection with the IPO in May 1995, LTV Steel sold to the
underwriters the warrant which entitled the holder thereof to purchase the
remaining 812,904 shares of common stock for $.05 per share and the
underwriters, in turn, exercised the warrant and sold 812,904 shares as part of
the IPO. As part of this transaction, the Warrant Purchase Agreement was
terminated.
(19) QUARTERLY FINANCIAL INFORMATION (UNAUDITED)
<TABLE>
<CAPTION>
QUARTERLY PERIODS IN 1996
-----------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $183,005 $172,926 $197,749 $192,494
Gross profit............................... 18,339 16,607 8,962 13,821
Net loss attributable to common stock...... (4,779) (5,404) (15,012) (8,235)
Net loss per common share.................. (0.24) (0.27) (0.76) (0.42)
</TABLE>
<TABLE>
<CAPTION>
QUARTERLY PERIODS IN 1995
-----------------------------------------------
1ST QTR. 2ND QTR. 3RD QTR. 4TH QTR.
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Net sales.................................. $182,895 $189,670 $217,952 $214,581
Gross profit............................... 18,125 22,683 26,764 32,370
Net income (loss).......................... (10,144) (872) 995 5,214
Preferred stock dividends paid............. 1,693 1,715 1,829 805
Net income available (loss attributable) to
common stock............................. (11,837) (2,587) (834) 4,409
Net income (loss) per common share......... (.92) (.20) (.07) .25
</TABLE>
42
<PAGE> 43
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS -- (CONTINUED)
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
During the fourth quarters of 1996 and 1995, the Company recorded LIFO
reserve adjustments representing a charge of $4,535 in 1996 ($.13 per share) and
$3,304 in 1995 ($.24 per share).
During the fourth quarter of 1996, the Company concluded its valuation of
the cost of postretirement benefits other than pensions (SFAS No. 106). As a
result, the Company changed its estimate of postretirement benefit charges for
1996 and recorded an adjustment to reduce expense by $2,497 ($.13 per share) in
the fourth quarter of 1996.
The Company revised its estimates of certain liabilities during the fourth
quarter of 1996, resulting in a credit to operations of $4,870 ($.25 per share).
These changes in estimate included a reduction of the environmental cost of
$3,170 based on actual experience to date and obtaining certain permits from the
Ohio EPA, and a reduction of other liabilities in the amount of $1,700 due to
the results of actual spending on major maintenance projects.
During the third quarter of 1996, the Company provided $3,890 ($.20 per
share) for the shutdown of its eight-inch mill.
43
<PAGE> 44
ITEM 9. CHANGES IN AND DISAGREEMENTS OF THE REGISTRANT WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The information required to be furnished pursuant to this item with respect
to Directors of the Company will be set forth under the caption "Election of
Directors" in the registrant's proxy statement (the "Proxy Statement") to be
furnished to stockholders in connection with the solicitation of proxies by the
Company's Board of Directors for use at the 1996 Annual Meeting of Stockholders
to be held on October 23, 1996, and is incorporated herein by reference, and the
information with respect to Executive Officers is set forth, pursuant to General
instruction G on Form 10-K, under Part I of this Report.
The information required to be furnished pursuant to this item with respect
to compliance with Section 16(a) of the Securities Exchange Act of 1934 will be
set forth under the caption "Section 16(a) Beneficial Ownership Reporting
Compliance" in the Proxy Statement and is incorporated herein by reference.
ITEM 11. EXECUTIVE COMPENSATION
The information required to be furnished pursuant to this item will be set
forth under the caption "Executive Compensation" in the Company's Proxy
Statement and is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required to be furnished pursuant to this item will be set
forth under the captions "Voting Securities" and "Security Ownership of
Management" of the Proxy Statement, and is incorporated herein by reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
None.
44
<PAGE> 45
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The following documents are filed as part of this report:
(1) Financial Statements
--------------------
Audited financial statements and supplementary data required by this item
are presented and listed in Part II, Item 8.
(2) Financial Statement Schedules
-----------------------------
A list of financial statement schedules required to be filed as part of
this report is presented in Part II, Item 8.
(3) Executive Compensation Arrangements
-----------------------------------
-- 1989 Executive Incentive Compensation Plan (a)
-- 1995 Stock Option Plan (b)
-- Amended and Restated Employee Common Stock Ownership Plan (b)
-- Amendment No.1 to Amended and Restated Employee Common Stock
Ownership Plan (b)
-- Employee Common Stock Ownership Plan Trust Agreement (a)
-- Amendment No. 1 to Employee Common Stock Ownership Plan Trust
Agreement (b)
-- Salaried Employees' Termination Plan, as amended, effective as of
October 26, 1995 (c)
-- Employment Agreement, dated as of November 28, 1989, between
Russell W. Maier and the Company (a)
(a) Incorporated by reference to similarly numbered exhibits to the
registrant's Registration Statement, No. 33-70578 on Form S-1,
as amended, filed with the Securities and Exchange Commission on
December 13, 1993.
(b) Incorporated by reference to similarly numbered exhibits to the
registrant's Registration Statement No. 33-89686 on Form S-1, as
amended, filed with the Securities and Exchange Commission on
February 23, 1995.
(c) Filed herewith as Exhibit 10.24.
- - ---------------
(4) Exhibits
--------
<TABLE>
<S> <C> <C>
3.1 -- Restated Certificate of Incorporation of the Company.(4)
3.2 -- By-Laws of the Company.(4)
4.1 -- Form of Indenture between the Company and Bankers Trust Company, as
trustee.(1)
4.2 -- Form of Mortgage (relating to Exhibit 4.1).(1)
4.3 -- Form of Security Agreement (relating to Exhibit 4.1).(1)
4.4 -- Securities Agreement, dated as of November 28, 1989, between LTV Steel
and the Company. (1)
10.1 -- Revolving Credit Facility between The First National Bank of Boston
and the Company, dated December 21, 1993 (the "Revolving Credit
Facility").(1)
10.1 (a) -- Amendment No. 1 to the Revolving Credit Facility, dated as of May 17,
1994.(4)
10.1 (b) -- Amendment No. 2 to the Revolving Credit Facility, dated as of October
19, 1994.(4)
10.1 (c) -- Form of Amendment No. 3 to the Revolving Credit Facility.(4)
10.1 (d) -- Amendment No. 5 to the Revolving Credit Facility, dated as of June 1,
1996.*
</TABLE>
45
<PAGE> 46
(4) Exhibits (Cont'd)
<TABLE>
<S> <C> <C>
10.2 -- Republic Engineered Steels, Inc. Amended and Restated Employee Common
Stock Ownership Plan, effective as of January 1, 1994.(4)
10.2 (a) -- Form of Amendment No. 1 to the Amended and Restated Republic
Engineered Steels, Inc. Employee Common Stock Ownership Plan.(4)
10.3 -- Republic Engineered Steels, Inc. Employee Common Stock Ownership Plan
Trust Agreement.(1)
10.3 (a) -- Form of Amendment No. 1 to the Republic Engineered Steels, Inc.
Employee Common Stock Ownership Plan Trust Agreement.(4)
10.4 -- Loan Agreement for ESOP Loan A.(1)
10.5 -- Loan Agreement for ESOP Loan B.(1)
10.6 -- Republic Engineered Steels, Inc. Amended and Restated Preferred Stock
Plan, effective as of January 1, 1994.(4)
10.7 -- Republic Engineered Steels, Inc. Preferred Stock Plan Trust
Agreement.(1)
10.8 -- Republic Engineered Steels, Inc. 1989 Executive Incentive Compensation
Plan.(1)
10.9 -- Warrant held by LTV to purchase 903,226 shares of Common Stock of the
Company.(1)
10.10 -- Agreement between the Company and the United Steelworkers of America,
dated June 1, 1993.(1)
10.11 -- Employment Agreement, dated as of November 28, 1989, between Russell
W. Maier and the Company.(1)
10.12(a) -- Employment Agreement, dated as of November 28, 1989, between James T.
Anderson and the Company.(1)
10.12(b) -- Employment Agreement Termination Agreement, dated November 2, 1995,
between James T. Anderson and the Company.*
10.13(a) -- Employment Agreement, dated as of November 28, 1989, between Stephen
S. Higley and the Company.(1)
10.13(b) -- Employment Agreement Termination Agreement, dated November 2, 1995,
between Stephen S. Higley and the Company.*
10.14(a) -- Employment Agreement, dated as of November 28, 1989, between Harold V.
Kelly and the Company.(1)
10.14(b) -- Employment Agreement Termination Agreement, dated November 2, 1995,
between Harold V. Kelly and the Company.*
10.15(a) -- Employment Agreement, dated as of November 28, 1989, between James B.
Riley and the Company.(1)
10.15(b) -- Employment Agreement Termination Agreement, dated November 2 ,1995,
between James B. Riley and the Company.*
10.16 -- Warrant Purchase Agreement, dated May 13, 1994, between the Company
and LTV Steel.(2)
10.17(a) -- Trust Indenture, dated as of October 1, 1994, between Bank One,
Columbus, NA, Columbus, Ohio (the "Trustee") and the Ohio Water
Development Authority (the "Authority").(3)
10.17(b) -- Trust Indenture, dated as of June 1, 1996, between the Trustee and the
Authority.*
10.18(a) -- Loan Agreement, dated as of October 1, 1994, between the Company and
the Authority.(3)
</TABLE>
46
<PAGE> 47
(4) Exhibits (Cont'd)
--------
<TABLE>
<C> <C> <S>
10.18(b) -- Loan Agreement, dated as of June 1, 1996, between the Company and the
Authority.*
10.19(a) -- Project Note, dated October 1, 1994, in the amount of $20,200,000.00
issued by the Company to the Trustee.(3)
10.19(b) -- Project Note, dated June 1, 1996, in the amount of $53,700,000.00
issued by the Company to the Trustee.*
10.20(a) -- Project Bond, dated as of October 1, 1994, issued by the Authority in
connection with the Project.(3)
10.20(b) -- Project Bond, dated as of June 1, 1996, issued by the Authority in
connection with the Project.*
10.21 -- Form of 1995 Stock Option Plan.(4)
10.22 -- Form of SPS Trust Agreement, to be entered into between the Company
and the trustee of the Special Preferred Stock Trust.(4)
10.23 -- Pioneer Agreement, dated May 3, 1995, by and between the Company and
the USWA.(5)
10.24 -- Salaried Employees Termination Plan, as amended, effective as of
October 26, 1995.*
12.1 -- Ratio of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of the Company.(1)
23.1 -- Consent of KPMG Peat Marwick LLP.*
27 -- Financial Data Schedule*
<FN>
- - ---------------
* Filed herewith.
(1) Incorporated by reference to similarly numbered exhibits to the
registrant's Registration Statement, No. 33-70578 on Form S-1, as
amended, filed with the Securities and Exchange Commission on
December 13, 1993.
(2) Incorporated by reference to similarly numbered exhibits to the
registrant's Annual Report on Form 10-K for the fiscal year ended
June 30, 1994.
(3) Incorporated by reference to similarly numbered exhibits to the
registrant's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1994.
(4) Incorporated by reference to similarly numbered exhibits to the
registrants Registration Statement No. 33-89686 on Form S.1, as
amended, filed with the Securities and Exchange Commission on
February 23, 1995.
(5) Incorporated by reference to similarly numbered exhibits to the
registrants Quarterly Report on Form 10-Q for the quarter ended
March 31, 1995.
</TABLE>
- - ---------------
(b) Reports on Form 8-K
-------------------
The Company filed the following Current Report on Form 8-K:
A Current Report on Form 8-K, filed with the Securities and Exchange
Commission on July 1, 1996, in respect of a Press Release issued by the
Company on June 27, 1996 in connection with the sale of $53.7 million of
tax-exempt solid waste revenue bonds issued by the Ohio Water Development
Authority.
47
<PAGE> 48
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED.
REPUBLIC ENGINEERED STEELS, INC.
By: /s/ Russell W. Maier
---------------------------------
Russell W. Maier
Chairman of the Board, President
and Chief Executive Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REGISTRATION STATEMENT HAS BEEN SIGNED BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ----------------------------------- ----------------------------------- --------------------
<C> <S> <C>
/s/ Russell W. Maier Chairman of the Board, President September 23, 1996
- - ----------------------------------- and Chief Executive Officer
Russell W. Maier
/s/ James B. Riley Executive Vice President, Chief September 23, 1996
- - ----------------------------------- Financial Officer and Director
James B. Riley (Chief Accounting Officer)
/s/ James T. Anderson Vice President and President, Bar September 23, 1996
- - ----------------------------------- Products Division and Director
James T. Anderson
/s/ Sam Camens Director September 23, 1996
- - -----------------------------------
Sam Camens
/s/ Carol A. Cartwright Director September 23, 1996
- - -----------------------------------
Carol A. Cartwright
/s/ Richard F. Celeste Director September 23, 1996
- - -----------------------------------
Richard F. Celeste
/s/ Wayne A. Hardy Director September 23, 1996
- - -----------------------------------
Wayne A. Hardy
/s/ Rudy Kogut Director September 23, 1996
- - -----------------------------------
Rudy Kogut
/s/ Douglas M. Lawson Director September 23, 1996
- - -----------------------------------
Douglas M. Lawson
</TABLE>
48
<PAGE> 49
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- - ----------------------------------- ----------------------------------- --------------------
<S> <C> <C>
/s/ Martin Manley Director September 23, 1996
- - -----------------------------------
Martin Manley
/s/ Walter C. Meck Director September 23, 1996
- - -----------------------------------
Walter C. Meck
/s/ John J. Richards Director September 23, 1996
- - -----------------------------------
John J. Richards
/s/ William J. Williams Director September 23, 1996
- - -----------------------------------
William J. Williams
</TABLE>
49
<PAGE> 50
EXHIBIT INDEX
(4) Exhibits PAGE
--------
<TABLE>
<C> <S>
3.1 -- Restated Certificate of Incorporation of the Company.(4)
3.2 -- By-Laws of the Company.(4)
4.1 -- Form of Indenture between the Company and Bankers Trust Company, as
trustee.(1)
4.2 -- Form of Mortgage (relating to Exhibit 4.1).(1)
4.3 -- Form of Security Agreement (relating to Exhibit 4.1).(1)
4.4 -- Securities Agreement, dated as of November 28, 1989, between LTV Steel and
the Company.(1)
10.1 -- Revolving Credit Facility between The First National Bank of Boston and the
Company, dated December 21, 1993 (the "Revolving Credit Facility").(1)
10.1 (a) -- Amendment No. 1 to the Revolving Credit Facility, dated as of May 17,
1994.(4)
10.1 (b) -- Amendment No. 2 to the Revolving Credit Facility, dated as of October 19,
1994.(4)
10.1 (c) -- Form of Amendment No. 3 to the Revolving Credit Facility.(4)
10.1 (d) -- Amendment No. 5 to the Revolving Credit Facility, dated as of June 1,
1996.*
10.2 -- Republic Engineered Steels, Inc. Amended and Restated Employee Common Stock
Ownership Plan, effective as of January 1, 1994.(4)
10.2 (a) -- Form of Amendment No. 1 to the Amended and Restated Republic Engineered
Steels, Inc. Employee Common Stock Ownership Plan.(4)
10.3 -- Republic Engineered Steels, Inc. Employee Common Stock Ownership Plan Trust
Agreement.(1)
10.3 (a) -- Form of Amendment No. 1 to the Republic Engineered Steels, Inc. Employee
Common Stock Ownership Plan Trust Agreement.(4)
10.4 -- Loan Agreement for ESOP Loan A.(1)
10.5 -- Loan Agreement for ESOP Loan B.(1)
10.6 -- Republic Engineered Steels, Inc. Amended and Restated Preferred Stock Plan,
effective as of January 1, 1994.(4)
10.7 -- Republic Engineered Steels, Inc. Preferred Stock Plan Trust Agreement.(1)
10.8 -- Republic Engineered Steels, Inc. 1989 Executive Incentive Compensation
Plan.(1)
10.9 -- Warrant held by LTV to purchase 903,226 shares of Common Stock of the
Company.(1)
10.10 -- Agreement between the Company and the United Steelworkers of America, dated
June 1, 1993.(1)
10.11 -- Employment Agreement, dated as of November 28, 1989, between Russell W.
Maier and the Company.(1)
10.12(a) -- Employment Agreement, dated as of November 28, 1989, between James T.
Anderson and the Company.(1)
10.12(b) -- Employment Agreement Termination Agreement, dated November 2, 1995, between
James T. Anderson and the Company.*
10.13(a) -- Employment Agreement, dated as of November 28, 1989, between Stephen S.
Higley and the Company.(1)
10.13(b) -- Employment Agreement Termination Agreement, dated November 2, 1995, between
Stephen S. Higley and the Company.*
10.14(a) -- Employment Agreement, dated as of November 28, 1989, between Harold V.
Kelly and the Company.(1)
10.14(b) -- Employment Agreement Termination Agreement, dated November 2, 1995, between
Harold V. Kelly and the Company.*
10.15(a) -- Employment Agreement, dated as of November 28, 1989, between James B. Riley
and the Company.(1)
</TABLE>
50
<PAGE> 51
(4) Exhibits (Cont'd) PAGE
--------
<TABLE>
<C> <S>
10.15(b) -- Employment Agreement Termination Agreement, dated November 2, 1995, between
James B. Riley and the Company.*
10.16 -- Warrant Purchase Agreement, dated May 13, 1994, between the Company and LTV
Steel.(2)
10.17(a) -- Trust Indenture, dated as of October 1, 1994, between Bank One, Columbus,
NA, Columbus, Ohio (the "Trustee") and the Ohio Water Development Authority
(the "Authority").(3)
10.17(b) -- Trust Indenture, dated as of June 1, 1996, between the Trustee and the
Authority.*
10.18(a) -- Loan Agreement, dated as of October 1, 1994, between the Company and the
Authority.(3)
10.18(b) -- Loan Agreement, dated as of June 1, 1996, between the Company and the
Authority.*
10.19(a) -- Project Note, dated October 1, 1994, in the amount of $20,200,000.00 issued
by the Company to the Trustee.(3)
10.19(b) -- Project Note, dated June 1, 1996, in the amount of $53,700,000.00 issued by
the Company to the Trustee.*
10.20(a) -- Project Bond, dated as of October 1, 1994, issued by the Authority in
connection with the Project.(3)
10.20(b) -- Project Bond, dated as of June 1, 1996, issued by the Authority in
connection with the Project.*
10.21 -- Form of 1995 Stock Option Plan.(4)
10.22 -- Form of SPS Trust Agreement, to be entered into between the Company and the
trustee of the Special Preferred Stock Trust.(4)
10.23 -- Pioneer Agreement, dated May 3, 1995, by and between the Company and the
USWA.(5)
10.24 -- Salaried Employees Termination Plan, as amended, effective as of October 26,
1995.
12.1 -- Ratio of Earnings to Fixed Charges.*
21.1 -- Subsidiaries of the Company.(1)
23.1 -- Consent of KPMG Peat Marwick LLP.*
27 -- Financial Data Schedule
<FN>
- - ---------------
* Filed herewith.
(1) Incorporated by reference to similarly numbered exhibits to the registrant's
Registration Statement, No. 33-70578 on Form S-1, as amended, filed with the
Securities and Exchange Commission on December 13, 1993.
(2) Incorporated by reference to similarly numbered exhibits to the registrant's
Annual Report on Form 10-K for the fiscal year ended June 30, 1994.
(3) Incorporated by reference to similarly numbered exhibits to the registrant's
Quarterly Report on Form 10-Q for the quarter ended September 30, 1994.
(4) Incorporated by reference to similarly numbered exhibits to the registrants
Registration Statement No. 33-89686 on Form S.1, as amended, filed with the
Securities and Exchange Commission on February 23, 1995.
(5) Incorporated by reference to similarly numbered exhibits to the registrants
Quarterly Report on Form 10-Q for the quarter ended March 31, 1995.
</TABLE>
51
<PAGE> 1
Exhibit 10.1(d)
AMENDMENT NO. 5
TO
AMENDED AND RESTATED REVOLVING CREDIT AGREEMENT
This Amendment (the "Amendment"), dated as of June 19, 1996 among
Republic Engineered Steels, Inc., a Delaware corporation (the "Borrower"), The
First National Bank of Boston, and Security Pacific Business Credit Inc.
(collectively, the "Banks") and The First National Bank of Boston, as agent for
the Banks (the "Agent"), amends the Amended and Restated Revolving Credit
Agreement dated as of December 21, 1993, as amended by Amendment No. 1, dated
as of May 17, 1994, Amendment No. 2 dated as of October, 1994, Amendment No. 3,
dated as of April 25, 1995, and Amendment No. 4, dated as of March 29, 1996,
among the Borrower, the Banks and the Agent (as so amended and as may be
further amended and in effect from time to time, the "Credit Agreement").
WHEREAS, the Borrower, the Banks and the Agent are parties to the Credit
Agreement; and
WHEREAS, the Borrower has requested that the Banks and the Agent make
certain amendments to the Credit Agreement and the Banks and the Agent are
agreeable thereto upon the terms and conditions described herein;
NOW, THEREFORE, in consideration of the foregoing premises, the parties
hereby agree as follows:
1. AMENDMENT TO CREDIT AGREEMENT. Section 9.1 of the Credit
Agreement is hereby amended by deleting clause (p) and restating it in its
entirety as follows:
(p) Indebtedness of the Borrower to the Ohio Water Development
Authority in respect of (i) up to $25,000,000 aggregate principal
amount of Solid Waste Revenue Bonds to be issued by the Ohio Water
Development Authority and bearing interest at a rate not to exceed 8.5
percent per annum and having a maturity of not less than 20 years, in
connection with the acquisition by the Borrower of certain solid waste
facilities to be located at the Borrower's new continuous cast direct
billet process plant in Canton, Ohio, and incurred under the terms of
the Loan Agreement, Note and Indenture substantially in the form
delivered to the Banks prior to the effectiveness of Amendment No. 2 to
the Credit Agreement, and (ii) up to $55,000,000 aggregate principal
amount of State of Ohio Solid Waste Revenue Bonds, Series 1996, to
be issued by the Ohio Water Development Authority and bearing interest
at a rate not to exceed 10.0 percent per annum and having a maturity of
not less than 15 years, in connection with the financing and
refinancing of a portion of the costs of the Borrower's solid waste
disposal facilities to be installed in its Canton, Ohio plant, and
incurred under the terms of the Loan Agreement, Project Note and
Indenture, substantially in the form delivered to the Banks prior to
the effectiveness of Amendment No. 5 to the Credit Agreement (the
"OWDA", Series 1996 Bond Financing"), and in the case of each Loan
Agreement, Note and Indenture referred to each of the clauses (i) and
(ii) above, such documents shall
<PAGE> 2
-2-
not be amended in a manner affecting the rights or obligations of the
Borrower thereunder without the consent of the Majority Banks, which
consent, in the case of amendments which do not affect maturity,
interest rate, payment terms, tighten covenants, create additional
obligations on the borrower or require the provisions of any
collateral security or guaranty, will not ureasonably be withheld.
2. CONDITIONS TO EFFECTIVENESS. The effectiveness of this Amendment No.
5 shall be conditioned upon the satisfaction of the following conditions
precedent:
2.1 DELIVERY OF DOCUMENTS. (a) The Borrower shall have delivered to the
Agent, contemporaneously with the execution hereof, the following, in form and
substance satisfactory to the Banks:
(i) this Amendment signed by the Borrower;
(ii) certified copies of any necessary resolutions of the Borrower
approving this Amendment No. 5 and the other documents referred to herein
together with Officer's Certificates as to the incumbency and true signatures
of officers; and
(iii) evidence satisfactory to the Banks that the Indebtedness
described herein is permitted under the terms of the First Mortgage Note
Indenture.
(b) Each Bank shall have delivered to the Agent this Amendment, signed
by such Bank.
2.2 LEGALITY OF TRANSACTION. No change in applicable law shall have
occurred as a consequence of which it shall have become and continue to be
unlawful on the date this Amendment is to become effective (a) for the Agent or
any Bank to perform any of its obligations under any of the Loan Documents or
(b) for the Borrower to perform any of its agreements or obligations under any
of the Loan Documents.
2.3 PERFORMANCE. The Borrower shall have duly and properly performed,
complied with and observed in all material respects its covenants, agreements
and obligations contained in the Loan Documents required to be performed,
complied with or observed by it on or prior to the date this Amendment is to
become effective. No event shall have occurred on or prior to the date this
Amendment is to become effective and to be continuing, and no condition shall
exist on the date this Amendment is to become effective which constitutes a
Default or Event of Default under any of the Loan Documents.
2.4 PROCEEDINGS AND DOCUMENTS. All corporate, governmental and other
proceedings in connection with the transactions contemplated by this Amendment
and all instruments and documents incidental thereto shall be in the form and
substance reasonably satisfactory to the Agent and the Agent shall have
received all such counterpart originals or certified or other copies of all
such instruments and documents as the Agent shall have reasonably requested.
3. CONDITION SUBSEQUENT. Immediately upon receipt by the Borrower of
the proceeds of the OWDA, Series 1996 Bond Financing, the Borrower shall pay to
the Agent the
<PAGE> 3
-3-
net proceeds of such Financing (excluding up to $5,000,000 deposited in escrow
to be used for additional payments to be made by the Borrower to contractors in
connection with the Borrower's solid waste facilities) for application to and
repayment of the outstanding amount of the Revolving Credit Loans.
4. REPRESENTATIONS AND WARRANTIES. The Borrower hereby represents and
warrants to the Bank as follows:
(a) The representations and warranties of the Borrower contained in the
Credit Agreement, as amended hereby, were true and correct in all material
respects when made and continue to be true and correct in all material respects
on the date hereof, except that the financial statements referred to therein
shall be the financial statements of the Borrower most recently delivered to the
Agent, and except as such representations and warranties are affected by the
transactions contemplated hereby;
(b) The execution, delivery and performance by the Borrower of this
Amendment and the consummation of the transactions contemplated hereby; (i) are
within the corporate powers of the Borrower and have been duly authorized by all
necessary corporate action on the part of the Borrower, (ii) do not require any
approval, consent of, or filing with, any governmental agency or authority, or
any other person, association or entity, which bears on the validity of this
Amendment and which is required by law or the regulation or rule of any agency
or authority, or other person, association or entity, (iii) do not violate any
provisions of any order, writ, judgment, injunction, decree, determination or
award presently in effect in which the Borrower is named, or any provision of
the charter documents or by-laws of the Borrower, (iv) do not result in any
breach of or constitute a default under any agreement or instrument to which the
Borrower is a party or to which it or any of its properties are bound,
including without limitation any indenture, loan or credit agreement, lease,
debt instrument or mortgage, except for such breaches and defaults which would
not have a material adverse effect on the Borrower and its subsidiaries taken
as a whole, and (v) do not result in or require the creation or imposition of
any mortgage, deed of trust, pledge or encumbrance of any nature upon any of the
assets or properties of the Borrower; and
(c) This Amendment, the Credit Agreement as amended hereby, and the
other Loan Documents constitute the legal, valid and binding obligations of the
Borrower, enforceable against the Borrower in accordance with their respective
terms, provided that (i) enforcement may be limited by applicable bankruptcy,
insolvency, reorganization, moratorium or similar laws of general application
affecting the rights and remedies of creditors, and (ii) enforcement may be
subject to general principles of equity, and the availability of the remedies
of specific performance and injunctive relief may be subject to the discretion
of the court before which any proceeding for such remedies may be brought.
5. NO OTHER AMENDMENTS. Except as expressly provided in this Amendment,
all of the terms and conditions of the Credit Agreement, the Notes and other
Loan Documents shall remain in full force and effect.
6. EXECUTION IN COUNTERPARTS. This Amendment may be executed in any
number of counterparts and by each party on a separate counterpart, each of
which when so executed and delivered shall be an original, but all of which
together shall constitute one instrument. In.
<PAGE> 4
-4-
proving this Amendment, it shall not be necessary to produce or account for
more than one such counterpart signed by the party against whom enforcement is
sought.
7. EFFECTIVE DATE. Subject to the satisfaction of the conditions
precedent set forth in Section 2 hereof, this Amendment shall be deemed to be
effective as of the date hereof.
IN WITNESS WHEREOF, the Borrower, the Banks and the Agent have duly
executed this Amendment as of the date first above written.
REPUBLIC ENGINEERED STEELS, INC.
By: /s/ James B. Riley
-------------------------------------
Title: Exec. VP-CFO
THE FIRST NATIONAL BANK
OF BOSTON, individually and as Agent
By: /s/ Elizabeth A. Ruth
-------------------------------------
Title: VICE PRESIDENT
SECURITY PACIFIC BUSINESS CREDIT INC.
By: /s/ Steve Friedlander
-------------------------------------
Title: VICE PRESIDENT
<PAGE> 1
Exhibit 10.12(b)
[LOGO] REPUBLIC
Engineered Steels
Russell W. Maier
Chairman and
Chief Executive Officer November 2, 1995
James T. Anderson
President - Bar Products Division
Dear Jim:
On October 26, 1995, the Board of Directors upon the recommendation of
the Compensation Committee approved a special severance program for executive
officers, other than the CEO, in lieu of employment contracts. Accordingly,
the Board of Directors proposes that your employment contract be terminated
effective immediately, at which time you would become immediately eligible to
participate in the special severance program.
Under the special severance program, Executive Officers with two or
more years of service as an executive officer who are terminated without cause
will be provided continued benefits at the same level provided to salaried
employees under the existing Termination Plan for salaried employees, as well
as continued salary, for a period of one-year from the date employment is
terminated. If the terminated executive is re-employed during the one-year
period, severance payments would be reduced by any salary received from the new
employer.
Your agreement to terminate your employment contract in no way affects
your employment with Republic as a salaried employee. As such, you are
entitled to participate in all employee benefit plans, practices and programs
maintained by Republic and made available to other salaried employees
including, without limitation, all pension, profit sharing, vacation, savings,
medical, hospitalization, disability, life and travel accident insurance
plans. This is the same benefits protection currently provided to you under
your employment contract.
If you agree to the foregoing, please so signify by signing and
returning to me the enclosed copy of this letter.
Sincerely,
/s/ Russell W. Maier
Russell W. Maier
AGREED TO:
/s/ James T. Anderson
- - ----------------------
James T. Anderson
REPUBLIC ENGINEERED STEELS, INC.
410 OBERLIN ROAD SW/ MASSILLON, OH 44647
<PAGE> 1
Exhibit 10.13(b)
[LOGO] REPUBLIC
Engineered Steels
Russell W. Maier
Chairman and
Chief Executive Officer November 2, 1995
Stephen S. Higley
President - Specialty Steels Division
Dear Steve:
On October 26, 1995, the Board of Directors upon the recommendation of
the Compensation Committee approved a special severance program for executive
officers, other than the CEO, in lieu of employment contracts. Accordingly,
the Board of Directors proposes that your employment contract be terminated
effective immediately, at which time you would become immediately eligible to
participate in the special severance program.
Under the special severance program, Executive Officers with two or
more years of service as an executive officer who are terminated without cause
will be provided continued benefits at the same level provided to salaried
employees under the existing Termination Plan for salaried employees, as well
as continued salary, for a period of one-year from the date employment is
terminated. If the terminated executive is re-employed during the one-year
period, severance payments would be reduced by any salary received from the new
employer.
Your agreement to terminate your employment contract in no way affects
your employment with Republic as a salaried employee. As such, you are
entitled to participate in all employee benefit plans, practices and programs
maintained by Republic and made available to other salaried employees
including, without limitation, all pension, profit sharing, vacation, savings,
medical, hospitalization, disability, life and travel accident insurance
plans. This is the same benefits protection currently provided to you under
your employment contract.
If you agree to the foregoing, please so signify by signing and
returning to me the enclosed copy of this letter.
Sincerely,
/s/ Russell W. Maier
Russell W. Maier
AGREED TO:
/s/ Stephen S. Higley
- - ----------------------
Stephen S. Higley
REPUBLIC ENGINEERED STEELS, INC.
410 OBERLIN ROAD SW/ MASSILLON, OH 44647
<PAGE> 1
Exhibit 10.14(b)
[LOGO] REPUBLIC
Engineered Steels
Russell W. Maier
Chairman and
Chief Executive Officer November 2, 1995
Harold V. Kelly
Executive Vice President
and General Counsel
Dear Harold:
On October 26, 1995, the Board of Directors upon the recommendation of
the Compensation Committee approved a special severance program for executive
officers, other than the CEO, in lieu of employment contracts. Accordingly,
the Board of Directors proposes that your employment contract be terminated
effective immediately, at which time you would become immediately eligible to
participate in the special severance program.
Under the special severance program, Executive Officers with two or
more years of service as an executive officer who are terminated without cause
will be provided continued benefits at the same level provided to salaried
employees under the existing Termination Plan for salaried employees, as well
as continued salary, for a period of one-year from the date employment is
terminated. If the terminated executive is re-employed during the one-year
period, severance payments would be reduced by any salary received from the new
employer.
Your agreement to terminate your employment contract in no way affects
your employment with Republic as a salaried employee. As such, you are
entitled to participate in all employee benefit plans, practices and programs
maintained by Republic and made available to other salaried employees
including, without limitation, all pension, profit sharing, vacation, savings,
medical, hospitalization, disability, life and travel accident insurance
plans. This is the same benefits protection currently provided to you under
your employment contract.
If you agree to the foregoing, please so signify by signing and
returning to me the enclosed copy of this letter.
Sincerely,
/s/ Russell W. Maier
Russell W. Maier
AGREED TO:
/s/ Harold V. Kelly
- - ----------------------
Harold V. Kelly
REPUBLIC ENGINEERED STEELS, INC.
410 OBERLIN ROAD SW/ MASSILLON, OH 44647
<PAGE> 1
Exhibit 10.15(b)
[LOGO] REPUBLIC
Engineered Steels
Russell W. Maier
Chairman and
Chief Executive Officer November 2, 1995
James Burns Riley
Executive Vice President
& Chief Financial Officer
Dear Jim:
On October 26, 1995, the Board of Directors upon the recommendation of
the Compensation Committee approved a special severance program for executive
officers, other than the CEO, in lieu of employment contracts. Accordingly,
the Board of Directors proposes that your employment contract be terminated
effective immediately, at which time you would become immediately eligible to
participate in the special severance program.
Under the special severance program, Executive Officers with two or
more years of service as an executive officer who are terminated without cause
will be provided continued benefits at the same level provided to salaried
employees under the existing Termination Plan for salaried employees, as well
as continued salary, for a period of one-year from the date employment is
terminated. If the terminated executive is re-employed during the one-year
period, severance payments would be reduced by any salary received from the new
employer.
Your agreement to terminate your employment contract in no way affects
your employment with Republic as a salaried employee. As such, you are
entitled to participate in all employee benefit plans, practices and programs
maintained by Republic and made available to other salaried employees
including, without limitation, all pension, profit sharing, vacation, savings,
medical, hospitalization, disability, life and travel accident insurance
plans. This is the same benefits protection currently provided to you under
your employment contract.
If you agree to the foregoing, please so signify by signing and
returning to me the enclosed copy of this letter.
Sincerely,
/s/ Russell W. Maier
Russell W. Maier
AGREED TO:
/s/ James B. Riley
- - ----------------------
James B. Riley
REPUBLIC ENGINEERED STEELS, INC.
410 OBERLIN ROAD SW/ MASSILLON, OH 44647
<PAGE> 1
================================================================================
EXHIBIT 10.17(b)
TRUST INDENTURE
between
OHIO WATER DEVELOPMENT AUTHORITY
and
BANK ONE, COLUMBUS, NA, as Trustee
------------------------------
$53,700,000
State of Ohio
Solid Waste Revenue Bonds, Series 1996
(Republic Engineered Steels, Inc. Project)
------------------------------
Dated
as of
June 1, 1996
================================================================================
Squire, Sanders & Dempsey
Bond Counsel
<PAGE> 2
<TABLE>
<CAPTION>
INDEX
(This Index is not a part of the Indenture
but rather is for convenience of reference only)
PAGE
----
<S> <C>
Preambles............................................................................................ 1
Granting Clauses..................................................................................... 2
ARTICLE I
DEFINITIONS
Section 1.01 Definitions................................................................... 4
Section 1.02 Interpretation................................................................ 10
Section 1.03 Captions and Headings......................................................... 10
ARTICLE II
AUTHORIZATION AND TERMS OF
PROJECT BONDS; ADDITIONAL BONDS
Section 2.01 Authorized Amount of Bonds.................................................... 11
Section 2.02 Issuance of Project Bonds..................................................... 11
Section 2.03 Delivery of Project Bonds..................................................... 12
Section 2.04 Issuance and Delivery of Additional Bonds..................................... 12
ARTICLE III
TERMS OF BONDS GENERALLY
Section 3.01 Form of Bonds................................................................. 14
Section 3.02 Variable Terms................................................................ 14
Section 3.03 Execution and Authentication of Bonds......................................... 14
Section 3.04 Source of Payment of Bonds.................................................... 15
Section 3.05 Payment and Ownership of Bonds................................................ 15
Section 3.06 Transfer and Exchange of Bonds................................................ 16
Section 3.07 Mutilated, Lost, Wrongfully Taken or Destroyed
Bonds....................................................................... 17
Section 3.08 Cancellation of Bonds......................................................... 18
Section 3.09 Special Agreement with Holders................................................ 18
ARTICLE IV
REDEMPTION OF BONDS
Section 4.01 Terms of Redemption of Project Bonds.......................................... 19
Section 4.02 Partial Redemption............................................................ 20
Section 4.03 Authority's Election to Redeem................................................ 20
Section 4.04 Notice of Redemption.......................................................... 20
Section 4.05 Payment of Redeemed Bonds..................................................... 21
Section 4.06 Variation of Redemption Provisions............................................ 21
</TABLE>
i
<PAGE> 3
<TABLE>
<CAPTION>
PAGE
----
ARTICLE V
PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT
<S> <C> <C>
Section 5.01 Creation of Project Fund...................................................... 22
Section 5.02 Disbursements from and Records of Project Fund................................ 22
Section 5.03 Completion of the Project..................................................... 22
Section 5.04 Creation of Bond Fund......................................................... 23
Section 5.05 Investment of Bond Fund, Project Fund and Rebate
Fund........................................................................ 23
Section 5.06 Moneys to be Held in Trust.................................................... 24
Section 5.07 Nonpresentment of Bonds....................................................... 24
Section 5.08 Repayment to the Company from the Bond Fund................................... 24
Section 5.09 Creation of Rebate Fund....................................................... 24
ARTICLE VI
THE TRUSTEE, REGISTRAR, PAYING AGENTS AND
AUTHENTICATING AGENTS
Section 6.01 Trustee's Acceptance and Responsibilities..................................... 27
Section 6.02 Certain Rights and Obligations of the Trustee................................. 28
Section 6.03 Fees, Charges and Expenses of Trustee, Registrar,
Paying Agents and Authenticating Agents..................................... 30
Section 6.04 Intervention by Trustee....................................................... 31
Section 6.05 Successor Trustee............................................................. 31
Section 6.06 Representations, Agreements and Covenants of Trustee.......................... 31
Section 6.07 Resignation by the Trustee.................................................... 31
Section 6.08 Removal of the Trustee........................................................ 32
Section 6.09 Appointment of Successor Trustee.............................................. 32
Section 6.10 Adoption of Authentication.................................................... 33
Section 6.11 Registrars.................................................................... 33
Section 6.12 Designation and Succession of Paying Agents................................... 34
Section 6.13 Designation and Succession of Authenticating
Agents...................................................................... 35
Section 6.14 Dealing in Bonds.............................................................. 36
ARTICLE VII
DEFAULT PROVISIONS AND REMEDIES OF
TRUSTEE AND HOLDERS
Section 7.01 Defaults; Events of Default................................................... 37
Section 7.02 Notice of Default............................................................. 37
Section 7.03 Acceleration.................................................................. 38
Section 7.04 Other Remedies; Rights of Holders............................................. 38
Section 7.05 Right of Holders to Direct Proceedings........................................ 39
Section 7.06 Application of Moneys......................................................... 39
Section 7.07 Remedies Vested in Trustee.................................................... 40
Section 7.08 Rights and Remedies of Holders................................................ 40
</TABLE>
ii
<PAGE> 4
<TABLE>
<CAPTION>
PAGE
----
<S> <C> <C>
Section 7.09 Termination of Proceedings.................................................... 41
Section 7.10 Waivers of Events of Default.................................................. 41
ARTICLE VIII
SUPPLEMENTAL INDENTURES
Section 8.01 Supplemental Indentures Generally............................................. 43
Section 8.02 Supplemental Indentures Not Requiring Consent
of Holders.................................................................. 43
Section 8.03 Supplemental Indentures Requiring Consent of
Holders..................................................................... 44
Section 8.04 Consent of Company............................................................ 45
Section 8.05 Authorization to Trustee; Effect of Supplement................................ 46
Section 8.06 Opinion of Counsel............................................................ 46
Section 8.07 Modification by Unanimous Consent............................................. 46
ARTICLE IX
DEFEASANCE
Section 9.01 Release of Indenture.......................................................... 47
Section 9.02 Payment and Discharge of Bonds................................................ 47
Section 9.03 Survival of Certain Provisions................................................ 48
ARTICLE X
COVENANTS AND AGREEMENTS
OF THE AUTHORITY
Section 10.01 Covenants and Agreements of the Authority..................................... 49
Section 10.02 Observance and Performance of Covenants
Agreements, Authority and Actions........................................... 49
Section 10.03 Enforcement of Authority's Obligations........................................ 50
ARTICLE XI
AMENDMENTS TO AGREEMENT
AND NOTES
Section 11.01 Amendments Not Requiring Consent of Holders................................... 51
Section 11.02 Amendments Requiring Consent of Holders....................................... 51
ARTICLE XII
MEETINGS OF HOLDERS
Section 12.01 Purposes of Meetings.......................................................... 52
Section 12.02 Call of Meetings.............................................................. 52
Section 12.03 Voting........................................................................ 52
Section 12.04 Meetings...................................................................... 52
Section 12.05 Miscellaneous................................................................. 53
</TABLE>
iii
<PAGE> 5
<TABLE>
<CAPTION>
PAGE
----
ARTICLE XIII
MISCELLANEOUS
<S> <C> <C>
Section 13.01 Limitation of Rights.......................................................... 54
Section 13.02 Severability.................................................................. 54
Section 13.03 Notices....................................................................... 54
Section 13.04 Suspension of Mail............................................................ 54
Section 13.05 Payments Due on Saturdays, Sundays and Holidays............................... 55
Section 13.06 Instruments of Holders........................................................ 55
Section 13.07 Priority of this Indenture.................................................... 56
Section 13.08 Extent of Covenants; No Personal Liability.................................... 56
Section 13.09 Binding Effect................................................................ 56
Section 13.10 Counterparts.................................................................. 56
Section 13.11 Majority of Bondholders....................................................... 56
Section 13.12 Governing Law................................................................. 56
Section 13.13 Continuing Disclosure......................................................... 56
Signatures........................................................................................... 57
</TABLE>
Exhibit A - Bond Form
iv
<PAGE> 6
TRUST INDENTURE
THIS TRUST INDENTURE dated as of June 1, 1996, is made by and
between the Ohio Water Development Authority, a body politic and corporate, duly
organized and existing under and by virtue of the laws of the State of Ohio and
Bank One, Columbus, NA, a national banking association duly organized and
validly existing under the laws of the United States of America, with its
principal place of business located in Columbus, Ohio, as Trustee under the
circumstances summarized in the following recitals (the capitalized terms not
defined in the recitals and granting clauses being used therein as defined in
Article I hereof):
A. Pursuant to and in accordance with the Constitution and the
laws of the State, including without limitation, Section 13 of Article VIII,
Ohio Constitution and the Act, the Authority has determined to issue and sell
the Project Bonds in the aggregate principal amount of $53,700,000 and to loan
the proceeds to be derived from the sale thereof to the Company to assist in the
financing of the Project to be undertaken by the Company, such Project
constituting a "solid waste facility" within the meaning of the Act;
B. The Project Bonds and any Additional Bonds will be secured by
this Indenture, and the Authority is authorized to execute and deliver this
Indenture and to do or cause to be done all acts provided or required herein to
be performed on its part;
C. All acts and conditions required to happen, exist and be
performed precedent to and in the issuance of the Project Bonds and the
execution and delivery of this Indenture have happened, exist and have been
performed, or at the delivery of the Project Bonds will exist, will have
happened and will have been performed (i) to make the Project Bonds, when
issued, delivered and authenticated, valid obligations of the Authority in
accordance with the terms thereof and hereof and (ii) to make this Indenture a
valid, binding and legal trust agreement for the security of the Bonds in
accordance with its terms; and
D. The Trustee has accepted the trusts created by this
Indenture, and in evidence thereof has joined in the execution hereof;
<PAGE> 7
NOW, THEREFORE, THIS INDENTURE WITNESSETH, that to secure the
payment of Bond Service Charges on the Bonds according to their true intent and
meaning, to secure the performance and observance of all of the covenants,
agreements, obligations and conditions contained therein and herein, and to
declare the terms and conditions upon and subject to which the Bonds are and are
intended to be issued, held, secured and enforced, and in consideration of the
premises and the acceptance by the Trustee of the trusts created herein and of
the purchase and acceptance of the Project Bonds by the Holders, and for other
good and valuable consideration, the receipt of which is acknowledged, the
Authority has executed and delivered this Indenture and absolutely assigns
hereby to the Trustee, and to its successors in trust, and its and their
assigns, all right, title and interest of the Authority in and to (i) the
Revenues, including, without limitation, all Loan Payments and other amounts
receivable by or on behalf of the Authority under the Agreement in respect of
repayment of the Loan, and (ii) the Agreement, except for the Unassigned
Authority's Rights,
TO HAVE AND TO HOLD unto the Trustee and its successors in that
trust and its and their assigns forever;
BUT IN TRUST, NEVERTHELESS, and subject to the provisions
hereof,
(a) except as provided otherwise herein, for the equal
and proportionate benefit, security and protection of all
present and future Holders of the Bonds issued or to be issued
under and secured by this Indenture,
(b) for the enforcement of the payment of the principal
of and interest and any premium on the Bonds, when payable,
according to the true intent and meaning thereof and of this
Indenture, and
(c) to secure the performance and observance of and
compliance with the covenants, agreements, obligations, terms
and conditions of this Indenture,
in each case, without preference, priority or distinction, as to lien or
otherwise, of any one Bond over any other by reason of designation, number, date
of the Bonds or of authorization, issuance, sale, execution, authentication,
delivery or maturity thereof, or otherwise, so that each Bond and all Bonds
shall have the same right, lien and privilege under this Indenture and shall be
secured equally and ratably hereby, it being intended that the lien and security
of this Indenture shall take effect from the date hereof, without regard to the
date of the actual issue, sale or disposition of the Bonds, as though upon that
date all of the Bonds were actually issued, sold and delivered to purchasers for
value; PROVIDED, HOWEVER, that
(i) if the principal of the Bonds and the interest due or
to become due thereon together with any premium required by
redemption of any of the Bonds prior to maturity shall be well
and truly paid, at the times and in the manner to which
reference is made in the Bonds, according to the true intent and
meaning thereof, or the outstanding Bonds shall have been paid
and discharged in accordance with Article IX hereof, and
(ii) if all of the covenants, agreements, obligations,
terms and conditions of the Authority under this Indenture shall
have been kept, performed and observed and there shall have been
paid to the Trustee, the Registrar, the Paying Agents and the
Authenticating Agents all sums of money due or to become due to
them in accordance with the terms and provisions hereof,
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this Indenture and the rights assigned hereby shall cease, determine and be
void, except as provided in Section 9.03 hereof with respect to the survival of
certain provisions hereof; otherwise, this Indenture shall be and remain in full
force and effect.
It is declared that all Bonds issued hereunder and secured
hereby are to be issued, authenticated and delivered, and that all Revenues
assigned hereby are to be dealt with and disposed of under, upon and subject to,
the terms, conditions, stipulations, covenants, agreements, obligations, trusts,
uses and purposes provided in this Indenture. The Authority has agreed and
covenanted, and agrees and covenants with the Trustee and with each and all
Holders, as follows:
(Balance of page intentionally left blank)
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ARTICLE I
DEFINITIONS
SECTION 1.01. DEFINITIONS. In addition to the words and terms
defined elsewhere in this Indenture or by reference to the Agreement, unless the
context or use clearly indicates another meaning or intent:
"Act" means Chapter 6123, Ohio Revised Code, as enacted and
amended from time to time.
"Additional Bonds" means bonds which may be issued under Section
2.04 of this Indenture.
"Additional Notes" means any nonnegotiable promissory note or
notes, in addition to the Project Note, delivered by the Company to the Trustee
in connection with the issuance of Additional Bonds, as provided in the
Agreement.
"Agreement" means the Loan Agreement dated as of the same date
as this Indenture, between the Authority and the Company, as amended or
supplemented from time to time.
"Authenticating Agent" means the Trustee and the Registrar for
the series of Bonds and any bank, trust company or other Person designated as an
Authenticating Agent for such series of Bonds by or in accordance with Section
6.13 of this Indenture, each of which shall be a transfer agent registered in
accordance with Section 17A(c) of the Securities Exchange Act of 1934, as
amended.
"Authority" means the Ohio Water Development Authority, a body
politic and corporate, duly organized and validly existing under and by virtue
of the laws of the State.
"Authorized Company Representative" means the person designated
at the time pursuant to the Agreement to act on behalf of the Company.
"Authorized Official" means the Executive Director, Chairman or
Vice-Chairman of the Authority.
"Bond Counsel" means an attorney or firm of attorneys of
nationally recognized standing on the subject of municipal bonds selected by the
Company and approved by the Trustee.
"Bond Fund" means the Bond Fund created in Section 5.04 hereof.
"Bond Legislation" means (a) when used with reference to the
Project Bonds, the legislation providing for their issuance and approving the
Agreement, this Indenture and related matters; (b) when used with reference to
an issue of Additional Bonds, the legislation providing for the issuance of the
Project Bonds, to the extent applicable, and the legislation providing for the
issuance of the Additional Bonds and approving any amendment or supplement to
the Agreement, any Supplemental Indenture and related matters; and (c) when used
with reference to Bonds when Additional Bonds are outstanding, the legislation
providing for the issuance of the Project Bonds and the legislation providing
for the issuance of the then outstanding and the then to be issued Additional
Bonds; in each case as amended or supplemented from time to time.
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"Bond Service Charges" means, for any period or payable at any
time, the principal of, premium, if any and interest on the Bonds for that
period or payable at that time whether due at maturity or upon acceleration or
redemption.
"Bonds" means the Project Bonds and any Additional Bonds.
"Book entry form" or "book entry system" means a form or system,
as applicable, under which (i) physical Bond certificates in fully registered
form are registered only in the name of a Depository or its nominee as
Bondholder, with the physical Bond certificates held by and "immobilized" in the
custody of the Depository and (ii) the ownership of beneficial interests in
Bonds may be transferred only through the book entry system maintained by
entities other than the Authority or the Trustee.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to the Code and Sections of the Code include relevant
applicable regulations (including temporary regulations) and proposed
regulations thereunder and under the Internal Revenue Code of 1954, as amended,
and any successor provisions to those Sections, regulations or proposed
regulations.
"Company" means Republic Engineered Steels, Inc., a corporation
for profit duly organized and validly existing under the laws of the State of
Delaware and qualified to do business in the State of Ohio, and its lawful
successors and assigns, to the extent permitted by the Agreement.
"Continuing Disclosure Agreement" means the Continuing
Disclosure Agreement dated as of June 1, 1996, given by the Company, as amended
or supplemented from time to time.
"Depository" means any securities depository that is a clearing
agency under federal law operating and maintaining, with its participants or
otherwise, a book entry system to record ownership of book entry interests in
Bonds, and to effect transfers of book entry interests in Bonds in book entry
form, and includes and means initially The Depository Trust Company (a limited
purpose trust company), New York, New York.
"Determination of Taxability" means, with respect to the Project
Bonds, (i) the receipt by the Trustee of an opinion of Bond Counsel, (ii) the
receipt by the Trustee of notice of the issuance of a published or private
ruling of the Internal Revenue Service, (iii) the receipt by the Trustee of
notice of the issuance of a technical advice memorandum by the National Office
of the Internal Revenue Service, or (iv) the receipt by the Trustee of notice of
a final decision by any court of competent jurisdiction in the United States, to
the effect that the interest payable on any Project Bond is includable in the
gross income for federal income tax purposes of a Holder thereof; provided that
in each instance that interest is so includable other than because the Holder is
a "substantial user" of the Project or a "related person" thereof, as those
terms are used in Section 147(a) of the Code, and, provided further, that no
decision by any court or decision, ruling or technical advice by an
administrative authority shall constitute a Determination of Taxability unless
the Holder involved in the proceeding or action giving rise to such decision,
ruling or technical advice gave the Company and the Trustee prompt notice of the
commencement thereof and offered the Company the opportunity to control the
defense thereof, provided the Company agreed to pay all expenses of such
defense; and, as to any series of Additional Bonds, any Determination of
Taxability defined in the applicable Bond Legislation or Supplemental Indenture.
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<PAGE> 11
"DTC" means The Depository Trust Company (a limited purpose
trust company), New York, New York.
"DTC Participant" means any participant contracting with DTC
under a book entry system and includes brokers and dealers, banks and trust
companies and clearing corporations.
"Eligible Investments" means
(i) obligations issued or guaranteed by the United States
of America or by any Person controlled or supervised by and
acting as an instrumentality of the United States of America
pursuant to authority granted by Congress;
(ii) obligations maturing, or having an option to put,
within one year from the date of purchase issued by any state or
political subdivision thereof if such obligations or their
underlying support have been given at the time of investment, at
least an Aa3 and P-1 rating or the equivalent thereof by Moody's
Investors Service, Inc. of New York, New York ("Moody's") or an
AA- and A-1 rating or the equivalent thereof by Standard &
Poor's Ratings Group ("Standard & Poor's");
(iii) commercial paper issued by industrial or finance
companies which is rated at the time of investment, either P-1
and A-1 or an equivalent by Moody's and by Standard & Poor's;
(iv) bankers' acceptances drawn on and accepted by
commercial banks and certificates of deposit issued by any bank
or trust company or national banking association, including the
Trustee or any commercial bank affiliated with the Trustee,
organized under the laws of the United States of America or any
state thereof or issued by New York, New York branches of major
foreign banks, having in each case a reported common
stockholders' equity of at least $100,000,000 in dollars of the
United States of America or the equivalent thereof;
(v) repurchase agreements fully secured by obligations
of the type specified in (i)-(iv) above;
(vi) variable rate commercial paper notes (master notes)
maintained by the Trustee of those companies whose commercial
paper is rated, at the time of investment, either P-1 or A-1 or
an equivalent to the highest rating, respectively, by Moody's
and Standard & Poor's;
(vii) U.S. dollar time deposits with Canadian Charter
banks having a reported common stockholders' equity of at least
$100,000,000 in dollars of the United States of America or the
equivalent thereof;
(viii) shares or certificates in any short-term
investment fund, including one which is maintained by the
Trustee, which invests solely in obligations the interest on
which is excluded from gross income for federal income tax
purposes; and
(ix) money market mutual funds, including money market
funds offered by the Trustee or one of its affiliates, provided
that such funds are invested solely in obligations or securities
described in clauses (i) through (viii) above.
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<PAGE> 12
provided, however, that any such investment or deposit is not prohibited by
applicable law and provided further that any investment or deposit described
above does not constitute a "prohibited payment" within the meaning of Temporary
Treasury Regulations Section 1.103-15AT(d)(6), or any successor provision
thereof. Investments or deposits in certificates of deposit or pursuant to
investment contracts shall not be made without compliance, at or prior to such
investment or deposit, with the requirements of Temporary Treasury Regulations
Section 1.103-15AT(d)(6)(ii) and (iii) respectively, or with any successor
provisions thereto.
"Event of Default" means an Event of Default hereunder.
"Holder" or "Holder of a Bond" means the Person in whose name a
Bond is registered on the Register.
"Indenture" means this Trust Indenture, dated as of June 1,
1996, between the Authority and the Trustee, as amended or supplemented from
time to time.
"Interest Payment Date" or "Interest Payment Dates" means, as to
the Project Bonds, June 1 and December 1 of each year, commencing December 1,
1996, and as to Additional Bonds, each date or those dates designated as an
Interest Payment Date or Dates in the form of bond for which provision is made
in the applicable Supplemental Indenture or Bond Legislation.
"Loan" means the loan by the Authority to the Company of the
proceeds received from the sale of the Bonds.
"Loan Payments" means the amounts required to be paid by the
Company in repayment of the Loan pursuant to the provisions of the Notes and
Section 4.1 of the Agreement.
"Notes" means the Project Note and any Additional Notes.
"Notice Address" means:
(a) As to the Authority: Ohio Water Development Authority
State of Ohio
88 East Broad Street
Suite 1300
Columbus, Ohio 43215-3516
Attention: Executive Director
(b) As to the Company: Republic Engineered Steels, Inc.
410 Oberlin Road SW
Massillon, Ohio 44647
Attention: Vice President and
Chief Financial
Officer
(c) As to the Trustee: Bank One, Columbus, NA
100 East Broad Street, 8th Floor
Columbus, Ohio 43271-0181
Attention: Corporate Trust Bond
Administration -
Republic Engineered
Steels, Inc.
Project, Series 1996
or such different address notice of which has been given under Section 13.03
hereof.
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<PAGE> 13
"Original Purchaser" means, as to the Project Bonds, the Person
or Persons identified as the purchaser or purchasers in the Purchase Agreement
and, as to Additional Bonds, the Person or Persons identified as the purchaser
or purchasers in the applicable Purchase Agreement.
"Outstanding Bonds", "Bonds outstanding" or "outstanding" as
applied to Bonds mean, as of the applicable date, all Bonds which have been
authenticated and delivered, or which are being delivered by the Trustee under
this Indenture, except:
(a) Bonds cancelled upon surrender, exchange or transfer, or
cancelled because of payment or redemption on or prior
to that date;
(b) Bonds, or the portion thereof, for the payment,
redemption or purchase for cancellation of which
sufficient money has been deposited and credited with
the Trustee or any Paying Agents on or prior to that
date for that purpose (whether upon or prior to the
maturity or redemption date of those Bonds); provided,
that if any of those Bonds are to be redeemed prior to
their maturity, notice of that redemption shall have
been given or arrangements satisfactory to the Trustee
shall have been made for giving notice of that
redemption, or waiver by the affected Holders of that
notice satisfactory in form to the Trustee shall have
been filed with the Trustee;
(c) Bonds, or the portion thereof, which are deemed to have
been paid and discharged or caused to have been paid and
discharged pursuant to the provisions of this Indenture;
and
(d) Bonds in lieu of which others have been authenticated
under Section 3.07 of this Indenture.
"Paying Agent" means any bank or trust company designated as a
Paying Agent by or in accordance with Section 6.12 of this Indenture.
"Person" or words importing persons mean firms, associations,
partnerships (including without limitation, general and limited partnerships),
joint ventures, societies, estates, trusts, corporations, limited liability
companies, public or governmental bodies, other legal entities and natural
persons.
"Predecessor Bond" of any particular Bond means every previous
Bond evidencing all or a portion of the same debt as that evidenced by the
particular Bond. For the purposes of this definition, any Bond authenticated and
delivered under Section 3.07 of this Indenture in lieu of a lost, stolen or
destroyed Bond shall be deemed, except as otherwise provided in Section 3.07, to
evidence the same debt as the lost, stolen or destroyed Bond.
"Project" means the Project defined and described in the
Agreement, constituting a "development project" as defined in the Act.
"Project Bonds" means the $53,700,000 State of Ohio Solid Waste
Revenue Bonds, Series 1996 (Republic Engineered Steels, Inc. Project) of the
Authority authorized in Section 3 of the Bond Legislation and Section 2.02
hereof.
"Project Fund" means the Project Fund created in Section 5.01
hereof.
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<PAGE> 14
"Project Note" means the promissory note of the Company, dated
as of the same date as the Project Bonds initially issued, in the form attached
to the Agreement as Exhibit A and in the principal amount of $53,700,000
evidencing the obligation of the Company to make Loan Payments.
"Project Purposes" means acquiring, constructing, installing,
equipping or improving real and personal property comprising "solid waste
facilities" as defined in the Act, or any other use which may be permitted under
the Act.
"Purchase Agreement" means, as to the Project Bonds, the
Underwriting Agreement dated June __, 1996 between the Authority and the
Original Purchaser and approved by the Company, and as to any Additional Bonds,
the Bond Purchase Agreement provided for in the Bond Legislation providing for
the issuance of the Additional Bonds.
"Rebate Fund" means the Rebate Fund created in Section 5.09
hereof.
"Register" means the books kept and maintained by the Registrar
for registration and transfer of Bonds pursuant to Section 3.06 hereof.
"Registrar" means, as to the Project Bonds, Bank One, Columbus,
NA, Columbus, Ohio, until a successor Registrar shall have become such pursuant
to applicable provisions of this Indenture and as to any series of Additional
Bonds, the bank, trust company or other Person designated as such by or pursuant
to the applicable Bond Legislation or Supplemental Indenture; each Registrar
shall be a transfer agent registered in accordance with Section 17(A)(c) of the
Securities Exchange Act of 1934.
"Regular Record Date" means, with respect to any Project Bond,
the close of business on the May 15 and November 15 next preceding an Interest
Payment Date applicable to that Project Bond and, with respect to any Additional
Bond, the close of business on the fifteenth day of the calendar month next
preceding an Interest Payment Date applicable to that Additional Bond.
"Revenues" means (a) the Loan Payments, (b) all other moneys
received or to be received by the Authority or the Trustee in respect of
repayment of the Loan, including without limitation, all moneys and investments
in the Bond Fund, (c) any moneys and investments in the Project Fund, and (d)
all income and profit from the investment of the foregoing moneys. The term
"Revenues" does not include any moneys or investments in the Rebate Fund.
"Special Record Date" means, with respect to any Bond, the date
established by the Trustee in connection with the payment of overdue interest on
that Bond pursuant to Section 3.05 hereof.
"State" means the State of Ohio.
"Supplemental Indenture" means any indenture supplemental to
this Indenture entered into between the Authority and the Trustee in accordance
with Article VIII hereof.
"Trustee" means Bank One, Columbus, NA, Columbus, Ohio, until a
successor Trustee shall have become such pursuant to the applicable provisions
of this Indenture, and thereafter, "Trustee" shall mean the successor Trustee.
"Unassigned Authority's Rights" means Unassigned Authority's
Rights as defined in the Agreement.
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<PAGE> 15
SECTION 1.02. INTERPRETATION. Any reference herein to the
Authority or to any member or officer thereof includes entities or officials
succeeding to their respective functions, duties or responsibilities pursuant to
or by operation of law or lawfully performing their functions.
Any reference to a section or provision of the Constitution of
the State or the Act, or to a section, provision or chapter of the Ohio Revised
Code, or to any statute of the United States of America, includes that section,
provision or chapter as amended, modified, revised, supplemented or superseded
from time to time; provided, that no amendment, modification, revision,
supplement or superseding section, provision or chapter shall be applicable
solely by reason of this paragraph, if it constitutes in any way an impairment
of the rights or obligations of the Authority, the Holders, the Trustee, the
Registrar or the Company under this Indenture, the Bond Legislation, the Bonds,
the Agreement or the Notes or any other instrument or document entered into in
connection with any of the foregoing, including without limitation, any
alteration of the obligation to pay Bond Service Charges in the amount and
manner, at the times, and from the sources provided in the Bond Legislation and
this Indenture, except as permitted herein.
Unless the context indicates otherwise, words importing the
singular number include the plural number, and vice versa. The terms "hereof",
"hereby", "herein", "hereto", "hereunder", "hereinafter" and similar terms refer
to this Indenture; and the term "hereafter" means after, and the term
"heretofore" means before, the date of this Indenture. Words of any gender
include the correlative words of the other genders, unless the sense indicates
otherwise.
SECTION 1.03. CAPTIONS AND HEADINGS. The captions and headings
in this Indenture are solely for convenience of reference and in no way define,
limit or describe the scope or intent of any Articles, Sections, subsections,
paragraphs, subparagraphs or clauses hereof.
(End of Article I)
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<PAGE> 16
ARTICLE II
AUTHORIZATION AND TERMS OF
PROJECT BONDS; ADDITIONAL BONDS
SECTION 2.01. AUTHORIZED AMOUNT OF BONDS. No Bonds may be issued
under the provisions of this Indenture except in accordance with this Article.
The total authorized principal amount of Project Bonds which shall be issued
under the provisions of this Indenture is $53,700,000. The Authority may issue,
sell and deliver one or more series of Additional Bonds for the purposes, upon
satisfaction of the conditions and in the manner provided herein.
SECTION 2.02. ISSUANCE OF PROJECT BONDS. It is determined to be
necessary to, and the Authority shall, issue, sell and deliver $53,700,000
principal amount of Project Bonds for the Project Purposes. The Project Bonds
shall be designated "Solid Waste Revenue Bonds, Series 1996 (Republic Engineered
Steels, Inc. Project)"; shall be issuable, unless a supplemental indenture shall
have been executed and delivered pursuant to Section 8.02(h) hereof, only in
fully registered form, substantially as set forth in Exhibit A to this
Indenture; shall be numbered in such manner as determined by the Trustee in
order to distinguish each Project Bond from any other Project Bond; shall be in
the denominations of $100,000 or any multiple of $5,000 in excess thereof; shall
be dated as of June 1, 1996; and shall bear interest from the most recent date
to which interest has been paid or duly provided for or, if no interest has been
paid or duly provided for, from their date. Interest on the Bonds shall be
computed on the basis of a 360-day year consisting of twelve 30-day months.
The Project Bonds shall mature on June 1, 2021 and shall bear
interest at the rate of 9.00% per annum, payable on each Interest Payment Date.
The Project Bonds shall originally be issued solely in book
entry form to a Depository to be held in a book entry system and: (i) such
Project Bonds shall be registered in the name of Cede & Co., or any other
nominee of the Depository, as Bondholder, and immobilized in the custody of the
Depository; (ii) there shall, unless otherwise requested by the Depository, be a
single Project Bond representing the entire aggregate principal amount of such
Project Bonds; and (iii) such Project Bonds shall not be transferable or
exchangeable, except for transfer to another Depository or another nominee of a
Depository without further action by the Authority as set forth in the
succeeding paragraphs of this Section. Beneficial owners will not receive
physical delivery of Project Bond certificates except as hereinafter provided.
With respect to Project Bonds registered in the name of Cede &
Co., as nominee of DTC, the Authority, the Company, the Original Purchaser and
the Trustee shall have no responsibility or obligation to any DTC Participant or
to any Person on whose behalf any DTC Participant holds an interest in the
Project Bonds. Without limiting the immediately preceding sentence, neither the
Authority, the Company, the Original Purchaser, nor the Trustee shall have any
responsibility or obligation with respect to (i) the accuracy of the records of
DTC, Cede & Co. or any DTC participant with respect to any ownership interest in
the Project Bonds, (ii) the delivery to any DTC Participant or any other Person,
other than a registered owner of the Project Bonds, as shown on the registration
books, of any notice which is required or permitted to be given to registered
owners under the terms of this Indenture, or (iii) the payment to any DTC
Participant or any other Person, other than a registered owner of the Project
Bonds, as shown on the Register, of any amount with respect to principal of or
premium, if any, or interest on the Project Bonds.
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<PAGE> 17
If any Depository determines not to continue to act as a
Depository for the Project Bonds held in a book entry system by providing notice
to the Authority or Trustee (said notice to be provided not less than 30 days
prior to the date it is to become effective) or the Depository is removed or
replaced as provided herein, the Authority may attempt to have established a
securities depository/book entry system relationship with another Depository
under this Indenture. The Authority may remove or replace the Depository upon
the written request of the Company, upon 30 days' written notice to the
Depository and the Trustee. If the Authority does not or is unable to replace
the Depository, the Authority and the Trustee, after the Trustee has made
provision for notification of the owners of book entry interests by appropriate
notice to the then Depository, shall permit withdrawal of the Project Bonds from
the Depository and shall authenticate and deliver Project Bond certificates in
fully registered form to the assignees of the Depository or its nominee. If the
event is not the result of Authority action or inaction (including action at the
request of the Company), such withdrawal, authentication and delivery shall be
at the cost and expense (including costs of printing or otherwise preparing, and
delivering, such replacement Project Bonds) of those Persons requesting that
authentication and delivery. Such replacement Project Bonds shall be in
denominations of $100,000 or any multiple of $5,000 in excess thereof.
The Trustee and the Authority shall enter into a letter of
representation with DTC to implement the book-entry only system of Project Bond
registration described above, if necessary.
SECTION 2.03. DELIVERY OF PROJECT BONDS. Upon the execution and
delivery of this Indenture, and satisfaction of the conditions established by
the Authority and in the Purchase Agreement for delivery of the Project Bonds,
the Authority shall execute the Project Bonds and deliver them to the Trustee.
Thereupon, the Trustee shall authenticate the Project Bonds and deliver them to,
or on the order of, the Original Purchaser thereof, as directed by the Authority
in accordance with this Section 2.03.
Before the Trustee delivers any Project Bonds, the Trustee shall
have received a request and authorization to the Trustee on behalf of the
Authority, signed by the Authorized Official, to authenticate and deliver the
Project Bonds to, or on the order of, the Original Purchaser upon payment to the
Trustee of the amount specified therein (including without limitation, any
accrued interest), which amount shall be deposited as provided in Sections 5.01
and 5.04 hereof.
SECTION 2.04. ISSUANCE AND DELIVERY OF ADDITIONAL BONDS. At the
request of the Company, the Authority may issue Additional Bonds from time to
time for any purpose permitted by the Act.
Those Additional Bonds shall be on a parity with the Project
Bonds and any Additional Bonds theretofore or thereafter issued and outstanding
as to the assignment to the Trustee of the Authority's right, title and interest
in the Revenues and the Agreement to provide for payment of Bond Service Charges
on the Bonds; provided, that nothing herein shall prevent payment of Bond
Service Charges on any series of Additional Bonds from (i) being otherwise
secured and protected from sources or by property or instruments not applicable
to the Project Bonds and any one or more series of Additional Bonds, or (ii) not
being secured or protected from sources or by property or instruments applicable
to the Project Bonds or one or more series of Additional Bonds.
Before the Trustee shall authenticate and deliver any Additional
Bonds, the Trustee shall receive the following items:
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<PAGE> 18
1. Original executed counterparts of any amendments or
supplements to the Agreement and the Indenture entered into in connection with
the issuance of the Additional Bonds, which are necessary or advisable, in the
opinion of Bond Counsel, to provide that the Additional Bonds will be issued in
compliance with the provisions of this Indenture.
2. One or more Additional Notes, as required by the Agreement,
in an aggregate principal amount equal to the aggregate principal amount of the
Additional Bonds.
3. A copy of the written request from the Company to the
Authority for issuance of the Additional Bonds.
4. A copy of the Bond Legislation, certified by the
Secretary-Treasurer of the Authority.
5. A request and authorization to the Trustee on behalf of the
Authority, signed by the Authorized Official, to authenticate and deliver the
Additional Bonds to, or on the order of, the Original Purchaser thereof upon
payment to the Trustee of the amount specified therein (including without
limitation, any accrued interest), which amount shall be deposited as provided
in the applicable Bond Legislation or Supplemental Indenture.
6. The written opinion of counsel, who may be counsel for the
Authority, reasonably satisfactory to the Trustee, to the effect that: (i) the
documents submitted to the Trustee in connection with the request then being
made comply with the requirements of this Indenture; (ii) the issuance of the
Additional Bonds has been duly authorized; (iii) all filings required to be made
under Section 10.01 of this Indenture have been made; and (iv) all conditions
precedent to the delivery of the Additional Bonds have been fulfilled.
7. A written opinion of Bond Counsel (who also may be the
counsel to which reference is made in paragraph 6), to the effect that: (i) when
executed for and in the name and on behalf of the Authority and when
authenticated and delivered by the Trustee, those Additional Bonds will be valid
and legal special obligations of the Authority in accordance with their terms
and will be secured hereunder equally and on a parity with all other Bonds at
the time outstanding hereunder as to the assignment to the Trustee, subject to
the terms hereof, of the Authority's right, title and interest in the Revenues
and the Agreement to provide for payment of Bond Service Charges on the Bonds;
and (ii) the issuance of the Additional Bonds will not cause the interest on the
Bonds outstanding immediately prior to that issuance to be included in the gross
income of the Holders for federal income tax purposes.
8. A written opinion of counsel to the Company, reasonably
satisfactory to the Trustee, to the effect that the amendments or supplements to
the Agreement and any Additional Notes have been duly authorized, executed and
delivered by the Company, and that the Agreement, as amended or supplemented,
and any Additional Notes constitute legal, valid and binding obligations of the
Company, enforceable in accordance with their respective terms, subject to
exceptions reasonably satisfactory to the Trustee for bankruptcy, insolvency and
similar laws and the application of equitable principles.
When (i) the documents listed above have been received by the
Trustee, and (ii) the Additional Bonds have been executed and authenticated, the
Trustee shall deliver the Additional Bonds to or on the order of the Original
Purchaser thereof, but only upon payment to the Trustee of the specified amount
(including without limitation, any accrued interest) set forth in the request
and authorization to which reference is made in paragraph 5 above.
(End of Article II)
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<PAGE> 19
ARTICLE III
TERMS OF BONDS GENERALLY
SECTION 3.01. FORM OF BONDS. The Bonds, the certificate of
authentication and the form of assignment shall be substantially in the
respective forms thereof set forth in Exhibit A to this Indenture with, in the
case of Additional Bonds, any omissions, insertions and variations which may be
authorized or permitted by the Bond Legislation authorizing, or the Supplemental
Indenture entered into in connection with, those Additional Bonds, all
consistent with this Indenture.
All Bonds, unless a Supplemental Indenture shall have been
executed and delivered pursuant to Section 8.02(h) hereof, shall be in fully
registered form, and, except as provided in Section 3.05 hereof, the Holder of a
Bond shall be regarded as the absolute owner thereof for all purposes of this
Indenture.
The Bonds of one series shall bear any designations which may be
necessary or advisable to distinguish them from Bonds of any other series. The
Bonds shall be negotiable instruments in accordance with the Act, and shall
express the purpose for which they are issued and any other statements or
legends which may be required by law. Each Bond of the same series shall be of a
single maturity, unless the Trustee shall approve the authentication and
delivery of a Bond of more than one maturity.
SECTION 3.02. VARIABLE TERMS. Subject to the provisions of this
Indenture, each series of Bonds shall be dated, shall mature in the years and
the amounts, shall bear interest at the rate or rates per year, shall be payable
on the dates, shall have the Registrar, Paying Agents and Authenticating Agents,
shall be of the denominations, shall be subject to redemption on the terms and
conditions and shall have any other terms which are set forth or provided for in
this Indenture in the case of the Project Bonds, and in this Indenture, the
applicable Bond Legislation and the Supplemental Indenture, in the case of any
issue of Additional Bonds.
SECTION 3.03. EXECUTION AND AUTHENTICATION OF BONDS. Unless
otherwise provided in the applicable Bond Legislation or Supplemental Indenture,
each Bond shall be signed by the Chairman and Vice Chairman and attested to by
the Secretary-Treasurer of the Authority in their official capacities (provided
that any or all of those signatures may be facsimiles) and shall bear the seal
of the Authority or a facsimile thereof. In case any officer whose signature or
a facsimile of whose signature shall appear on any Bond shall cease to be that
officer before the issuance of the Bond, his signature or the facsimile thereof
nevertheless shall be valid and sufficient for all purposes, the same as if he
had remained in office until that time. Any Bond may be executed on behalf of
the Authority by an officer who, on the date of execution is the proper officer,
although on the date of the Bond that person was not the proper officer.
No Bond shall be valid or become obligatory for any purpose or
shall be entitled to any security or benefit under this Indenture unless and
until a certificate of authentication, substantially in the form set forth in
Exhibit A to this Indenture, has been signed by the Trustee or by any
Authenticating Agent for that series on behalf of the Trustee. The
authentication by the Trustee or by an Authenticating Agent upon any Bond shall
be conclusive evidence that the Bond so authenticated has been duly
authenticated and delivered hereunder and is entitled to the security and
benefit of this Indenture. The certificate of the Trustee or an Authenticating
Agent may be executed by any person authorized by the Trustee or Authenticating
Agent, but it shall
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<PAGE> 20
not be necessary that the same authorized person sign the certificates of
authentication on all of the Bonds of a series.
SECTION 3.04. SOURCE OF PAYMENT OF BONDS. To the extent provided
in and except as otherwise permitted by this Indenture, (i) the Bonds shall be
special obligations of the Authority and the Bond Service Charges thereon shall
be payable equally and ratably solely from the Revenues, (ii) the payment of
Bond Service Charges on the Bonds shall be secured by the assignment hereunder
of Revenues and of the Agreement and by this Indenture, and (iii) payments due
on the Bonds also shall be secured by the Notes delivered by the Company to the
Trustee pursuant to the Agreement; provided, that payment of Bond Service
Charges on any series of Additional Bonds may be otherwise secured and protected
from sources or by property or instruments not applicable to the Project Bonds
and any one or more series of Additional Bonds, or not secured and protected
from sources or by property or instruments applicable to the Project Bonds or
one or more series of Additional Bonds. Notwithstanding anything to the contrary
in the Bond Legislation, the Bonds or this Indenture, the Bonds do not and shall
not represent or constitute a debt or pledge of the faith and credit of the
Authority or of the State or of any political subdivision thereof and the
Holders shall have no right to have taxes levied by the General Assembly of the
State or by the taxing authority of any political subdivision of the State for
the payment of Bond Service Charges. The Bonds shall contain on the face thereof
a statement to that effect and that the Bonds are payable solely from the
Revenues. Nothing herein or in the Agreement, however, shall be deemed to
prohibit the Authority, of its own volition, from using to the extent that it is
authorized by law to do so any other resources for the fulfillment of any of the
terms, conditions or obligations of this Indenture, the Bond Legislation or any
of the Bonds.
SECTION 3.05. PAYMENT AND OWNERSHIP OF BONDS. Bond Service
Charges shall be payable in lawful money of the United States of America without
deduction for the services of the Trustee or any Paying Agent. Subject to the
provisions of Section 3.09 of this Indenture, principal of and interest and any
premium on the Bonds shall be payable, without deduction for the services of any
Paying Agent, (a) on any Bond held in a book entry system (i) in the case of
principal of and any premium on such Bond, by check or wire transfer delivered
or transmitted to the Depository or its authorized representative when due, upon
presentation and surrender of such Bond at the principal corporate trust office
of the Trustee or at the office, designated by the Trustee, of any other Paying
Agent, except as otherwise provided pursuant to an agreement under Section 3.09
hereof, and (ii) in the case of interest on such Bond, delivered or transmitted
on any Interest Payment Date to the Depository or its nominee that was the
Bondholder of that Bond at the close of business on the Regular Record Date
applicable to that Interest Payment Date; and (b) on any Bond not in a book
entry system, in any coin or currency of the United States of America which, at
the time of payment, is legal tender for the payment of public and private debts
(i) in the case of principal and any premium of such Bond, when due, upon
presentation and surrender of such Bond at the principal corporate trust office
of the Trustee or at the office, designated by the Trustee, of any other Paying
Agent and (ii) in the case of interest on such Bond, on each Interest Payment
Date by check mailed on that date to the address of the person entitled thereto
as such address appears on the Bond Register. If and to the extent, however,
that the Authority shall fail to make payment or provision for payment of
interest on any Bond on any Interest Payment Date, that interest shall cease to
be payable to the Person who was the Holder of that Bond (or of one or more
Predecessor Bonds) as of the applicable Regular Record Date, and, when moneys
become available for payment of the interest, (x) the Trustee shall, pursuant to
Section 7.06(d), establish a Special Record Date for the payment of that
interest which shall be not more than 15 nor fewer than 10 days prior to the
date of the proposed payment, and (y) the Trustee shall cause notice of the
proposed payment and of the Special Record Date to be mailed by first class
mail, postage prepaid, to each Holder at its address as it appears on the
Register not fewer than 10 days prior to the
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<PAGE> 21
Special Record Date and, thereafter, the interest shall be payable to the
Persons who are the Holders of the Bonds (or their respective Predecessor Bonds)
at the close of business on the Special Record Date.
Subject to the foregoing, each Bond delivered under this
Indenture upon transfer thereof, or in exchange for or in replacement of any
other Bond, shall carry the rights to interest accrued and unpaid, and to accrue
on that Bond, or which were carried by that Bond.
Except as provided in this Section 3.05 and in the first
paragraph of Section 3.07 hereof, (i) the Holder of any Bond shall be deemed and
regarded as the absolute owner thereof for all purposes of this Indenture, (ii)
payment of or on account of the Bond Service Charges on any Bond shall be made
only to or upon the order of that Holder or its duly authorized attorney in the
manner permitted by this Indenture, and (iii) neither the Authority, the
Trustee, the Registrar nor any Paying Agent or Authenticating Agent shall, to
the extent permitted by law, be affected by notice to the contrary. All of those
payments shall be valid and effective to satisfy and discharge the liability
upon that Bond, including without limitation, the interest thereon, to the
extent of the amount or amounts so paid.
So long as Cede & Co. or other nominee of DTC or any other
Depository is the Holder of the Bonds, references herein to the Holders of the
Bonds will mean Cede & Co. or such other nominee and will not mean the
beneficial owners. Payments made by the Trustee to a Depository or its nominee
under this Indenture shall satisfy the Authority's obligations hereunder and the
Company's obligations under the Agreement and the Notes, to the extent of the
payments so made. Beneficial owners will not be, and will not be considered by
the Authority or the Trustee to be, and will not have any rights as, Holders of
Bonds hereunder.
SECTION 3.06. TRANSFER AND EXCHANGE OF BONDS. So long as any of
the Bonds remain outstanding, the Authority will cause books for the
registration and transfer of Bonds, as provided in this Indenture, to be
maintained and kept at the designated office of the Registrar.
Unless otherwise provided in the applicable Bond Legislation or
Supplemental Indenture, and subject to the limitations set forth in Section 2.02
hereof with respect to Bonds held in a book entry system, Bonds may be
exchanged, at the option of their Holder, for Bonds of the same series and of
any authorized denomination or denominations in an aggregate principal amount
equal to the unmatured and unredeemed principal amount of, and bearing interest
at the same rate and maturing on the same date or dates as, the Bonds being
exchanged. The exchange shall be made upon presentation and surrender of the
Bonds being exchanged at the designated office of the Registrar or at the
designated office of any Authenticating Agent for that series of Bonds, together
with an assignment duly executed by the Holder or its duly authorized attorney
in any form which shall be satisfactory to the Registrar or the Authenticating
Agent, as the case may be.
Subject to the limitations set forth in Section 2.02 hereof with
respect to Bonds held in a book entry system, any Bond may be transferred upon
the Register, upon presentation and surrender thereof at the designated office
of the Registrar or the designated office of any Authenticating Agent for the
series thereof, together with an assignment duly executed by the Holder or its
duly authorized attorney in any form which shall be satisfactory to the
Registrar or the Authenticating Agent, as the case may be. Upon transfer of any
Bond and on request of the Registrar or the Authenticating Agent, the Authority
shall execute in the name of the transferee, and the Registrar or the
Authenticating Agent, as the case may be, shall authenticate and deliver, a new
Bond or Bonds of the same series, of any authorized denomination or
denominations in an aggregate principal amount equal to the unmatured and
unredeemed
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<PAGE> 22
principal amount of, and bearing interest at the same rate and maturing on the
same date or dates as, the Bonds presented and surrendered for transfer.
In all cases in which Bonds shall be exchanged or transferred
hereunder, the Authority shall execute, and the Registrar or any Authenticating
Agent, as the case may be, shall authenticate and deliver, Bonds in accordance
with the provisions of this Indenture. The exchange or transfer shall be made
without charge; provided, that the Authority and the Registrar or the
Authenticating Agent, as the case may be, may make a charge for every exchange
or transfer of Bonds sufficient to reimburse them for any tax or excise required
to be paid with respect to the exchange or transfer. Such reimbursement shall be
paid by the Holder before a new Bond is delivered.
All Bonds issued upon any transfer or exchange of Bonds shall be
the valid obligations of the Authority, evidencing the same debt, and entitled
to the same benefits under this Indenture, as the Bonds surrendered upon
transfer or exchange. Neither the Authority, the Registrar nor any
Authenticating Agent, as the case may be, shall be required to make any exchange
or transfer of a Bond during a period beginning at the opening of business 15
days before the day of the mailing of a notice of redemption of Bonds and ending
at the close of business on the day of such mailing or to transfer or exchange
any Bonds selected for redemption, in whole or in part.
In case any Bond is redeemed in part only, on or after the
redemption date and upon presentation and surrender of the Bond, the Authority,
subject to the provisions of Section 3.09 hereof, shall cause execution of, and
the Registrar or any Authenticating Agent for the series of that Bond shall
authenticate and deliver, a new Bond or Bonds of the same series in authorized
denominations in an aggregate principal amount equal to the unmatured and
unredeemed portion of, and bearing interest at the same rate and maturing on the
same date or dates as, the Bond redeemed in part, within the next succeeding
ninety days.
For purposes of this Section the Trustee shall establish the
designated office of the Registrar and the Authenticating Agent.
SECTION 3.07. MUTILATED, LOST, WRONGFULLY TAKEN OR DESTROYED
BONDS. If any Bond is mutilated, lost, wrongfully taken or destroyed, in the
absence of written notice to the Authority or the Registrar that a lost,
wrongfully taken or destroyed Bond has been acquired by a bona fide purchaser,
the Authority shall execute, and the Registrar shall authenticate and deliver, a
new Bond of like date, maturity and denomination and of the same series as the
Bond mutilated, lost, wrongfully taken or destroyed; provided, that (i) in the
case of any mutilated Bond, the mutilated Bond first shall be surrendered to the
Registrar, and (ii) in the case of any lost, wrongfully taken or destroyed Bond,
there first shall be furnished to the Authority, the Company, the Trustee and
the Registrar evidence of the loss, wrongful taking or destruction satisfactory
to the Trustee, together with indemnity satisfactory to the Authorized Company
Representative, the Trustee, the Registrar and the Authorized Official.
If any lost, wrongfully taken or destroyed Bond shall have
matured, instead of issuing a new Bond, the Authorized Company Representative
may direct the Trustee to pay that Bond without surrender thereof upon the
furnishing of satisfactory evidence and indemnity as in the case of issuance of
a new Bond. The Authority, the Registrar and the Trustee may charge the Holder
of a mutilated, lost, wrongfully taken or destroyed Bond their reasonable fees
and expenses in connection with their actions pursuant to this Section.
Every new Bond issued pursuant to this Section by reason of any
Bond being mutilated, lost, wrongfully taken or destroyed (i) shall constitute,
to the extent of the outstanding
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<PAGE> 23
principal amount of the Bond lost, mutilated, taken or destroyed, an additional
contractual obligation of the Authority, regardless of whether the mutilated,
lost, wrongfully taken or destroyed Bond shall be enforceable at any time by
anyone and (ii) shall be entitled to all of the benefits of this Indenture
equally and proportionately with any and all other Bonds issued and outstanding
hereunder.
All Bonds shall be held and owned on the express condition that
the foregoing provisions of this Section are exclusive with respect to the
replacement or payment of mutilated, lost, wrongfully taken or destroyed Bonds
and, to the extent permitted by law, shall preclude any and all other rights and
remedies with respect to the replacement or payment of negotiable instruments or
other investment securities without their surrender, notwithstanding any law or
statute to the contrary now existing or enacted hereafter.
SECTION 3.08. CANCELLATION OF BONDS. Any Bond surrendered
pursuant to this Article for the purpose of payment or retirement or for
exchange, replacement or transfer shall be cancelled upon presentation and
surrender thereof to the Registrar, the Trustee or any Paying Agent or
Authenticating Agent. Any Bond cancelled by the Trustee or a Paying Agent or
Authenticating Agent shall be transmitted promptly to the Registrar by the
Trustee, Paying Agent or Authenticating Agent.
The Authority, or the Company on behalf of the Authority, may
deliver at any time to the Registrar for cancellation any Bonds previously
authenticated and delivered hereunder, which the Authority or the Company may
have acquired in any manner whatsoever. All Bonds so delivered shall be
cancelled promptly by the Registrar. Certification of the surrender and
cancellation shall be made to the Authority, the Company and the Trustee by the
Registrar at least once each calendar year. Unless otherwise directed by the
Authority, cancelled Bonds shall be retained and stored by the Registrar for a
period of two years after their cancellation. Those cancelled Bonds shall be
destroyed by the Registrar by shredding or incineration two years after their
cancellation or at any earlier time directed by the Authority. The Registrar
shall provide certificates describing the destruction of cancelled Bonds to the
Authority, the Company and the Trustee.
SECTION 3.09. SPECIAL AGREEMENT WITH HOLDERS. Notwithstanding
any provision of this Indenture or of any Bond to the contrary, with the
approval of the Company, the Trustee may enter into an agreement with any Holder
providing for making all payments to that Holder of principal of and interest
and any premium on that Bond or any part thereof (other than any payment of the
entire unpaid principal amount thereof) at a place and in a manner other than as
provided in this Indenture and in the Bonds, without presentation or surrender
of the Bonds, upon any conditions which shall be satisfactory to the Trustee and
the Company; provided, that payment in any event shall be made to the Person in
whose name a Bond shall be registered on the Register, with respect to payment
of principal and premium, on the date such principal and premium is due, and,
with respect to the payment of interest, as of the applicable Regular Record
Date or Special Record Date, as the case may be.
The Trustee will furnish a copy of each of those agreements,
certified to be correct by an officer of the Trustee, to the Registrar, the
Authority and the Company. Any payment of principal, premium or interest
pursuant to such an agreement shall constitute payment thereof pursuant to, and
for all purposes of, this Indenture.
(End of Article III)
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<PAGE> 24
ARTICLE IV
REDEMPTION OF BONDS
SECTION 4.01. TERMS OF REDEMPTION OF PROJECT BONDS. The Project
Bonds are subject to redemption prior to stated maturity as follows:
(a) EXTRAORDINARY OPTIONAL REDEMPTION. The Project Bonds are
subject to redemption by the Authority in the event of the exercise by the
Company of its option to direct that redemption upon the occurrence of any of
the events described in Section 6.2 of the Agreement, (a) at any time in whole,
or (b) on any Interest Payment Date in part in the event of condemnation of part
of the Project, as provided in Section 6.2 of the Agreement, in each case, at a
redemption price of 100 percent of the principal amount redeemed, plus interest
accrued to the redemption date.
(b) MANDATORY REDEMPTION UPON A DETERMINATION OF TAXABILITY.
Upon the occurrence of a Determination of Taxability resulting from (i) a
failure by the Company to observe its agreement contained in Section 5.7 of the
Agreement or (ii) the inaccuracy of any representation or warranty by the
Company in the Agreement, the Project Bonds are subject to mandatory redemption
from the proceeds of the Company paying advance Loan Payments pursuant to
Sections 4.1 and 6.3 of the Agreement in an amount which, together with any
moneys available in the Bond Fund for such purpose, equal the redemption price
hereinafter set forth. Following such a Determination of Taxability, the Project
Bonds shall be redeemed by the Authority, either in whole or in part in such
principal amount that the interest payable on the Project Bonds remaining
outstanding after such partial redemption would not, in the opinion of Bond
Counsel, be includable in the gross income of the Holders thereof, at a
redemption price of 100% of the outstanding principal amount thereof, together
with accrued interest to the redemption date, at the earliest practicable date
selected by the Trustee, after consultation with the Company, but in no event
later than 180 days following receipt by the Company from any Holder or the
Trustee of notice of a Determination of Taxability. The Trustee shall promptly
notify the Company upon receipt of notice of a Determination of Taxability.
All of the Project Bonds selected as provided above in this
Section 4.01(b) shall be redeemed by the Authority on the date determined
pursuant to the preceding paragraph of this Section 4.01(b), except that (i)
Bonds previously selected for redemption pursuant to optional redemption
provisions on or prior to that mandatory redemption date shall be retired on
their optional redemption date pursuant to optional redemption provisions, and
(ii) Bonds maturing prior to that mandatory redemption date, but after selection
of the mandatory redemption date, shall be retired on their maturity date, and
Bonds for the payment or redemption of which sufficient moneys or investments
are held by the Trustee as provided in Section 9.02 of this Indenture shall be
redeemed on the redemption date selected as provided in the preceding paragraph
of this Section 4.01(b), or paid at earlier optional redemption or maturity, in
accordance with this paragraph and not otherwise.
(c) OPTIONAL REDEMPTION. Unless previously redeemed, the Project
Bonds are subject to redemption on or after June 1, 2006, in whole on any date
or in part on any Interest Payment Date, at the option of the Authority, upon
the direction of the Company, at redemption prices equal to the following
percentages of the principal amount redeemed, plus in each case interest accrued
to the redemption date:
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<PAGE> 25
REDEMPTION PERIOD (DATES INCLUSIVE) REDEMPTION PRICE
----------------------------------- ----------------
June 1, 2006 through May 31, 2007 102%
June 1, 2007 through May 31, 2008 101%
June 1, 2008 and thereafter 100%
SECTION 4.02. PARTIAL REDEMPTION. If fewer than all of the
outstanding Bonds of a series that are stated to mature on different dates are
called for redemption at one time, those Bonds which are called shall be called
in inverse order of the maturities of the Bonds of that series to be redeemed.
If fewer than all of the Bonds of a single maturity are to be redeemed, the
selection of Bonds to be redeemed, or portions thereof in amounts of $100,000 or
any integral multiple thereof, shall be made by lot by the Trustee in any manner
which the Trustee may determine. In the case of a partial redemption of Bonds by
lot when Bonds of denominations greater than $100,000 are then outstanding, each
$100,000 unit of face value of principal thereof shall be treated as though it
were a separate Bond of the denomination of $100,000; provided, however, that no
$100,000 unit of face value shall be called for redemption if after such
redemption the Holder of that $100,000 unit of face value shall be the Holder of
a Bond in a denomination of less than $100,000. If it is determined that one or
more, but not all of the $100,000 units of face value represented by a Bond are
to be called for redemption, then upon notice of redemption of a $100,000 unit
or units, the Holder of that Bond shall surrender the Bond to the Trustee (a)
for payment of the redemption price of the $100,000 unit or units of face value
called for redemption (including without limitation, the interest accrued to the
date fixed for redemption and any premium), and (b) for issuance, without charge
to the Holder thereof, of a new Bond or Bonds of the same series, of any
authorized denomination or denominations in an aggregate principal amount equal
to the unmatured and unredeemed portion of, and bearing interest at the same
rate and maturing on the same date as, the Bond surrendered.
SECTION 4.03. AUTHORITY'S ELECTION TO REDEEM. Except in the case
of redemption pursuant to any mandatory sinking fund requirements or pursuant to
other mandatory redemption provisions, Bonds shall be redeemed only by written
notice from the Authority to the Trustee, given at the direction of the Company,
or by written notice from the Company to the Trustee on behalf of the Authority.
That notice shall specify the redemption date and the principal amount of each
maturity of Bonds to be redeemed, and shall be given at least 45 days prior to
the redemption date or such shorter period as shall be acceptable to the
Trustee. In the event that notice of redemption shall have been given by the
Trustee to the Holders as provided in Section 4.04 hereof, there shall be
deposited with the Trustee on or prior to the redemption date, funds which, in
addition to any other moneys available therefor and held by the Trustee, will be
sufficient to redeem at the redemption price thereof, plus interest accrued to
the redemption date, all of the redeemable Bonds for which notice of redemption
has been given.
SECTION 4.04. NOTICE OF REDEMPTION. The notice of the call for
redemption of Bonds shall identify (i) by designation, letters, numbers or other
distinguishing marks, the Bonds or portions thereof to be redeemed, (ii) the
redemption price to be paid, (iii) the date fixed for redemption, and (iv) the
place or places where the amounts due upon redemption are payable. The notice
shall be given by the Trustee on behalf of the Authority by mailing a copy of
the redemption notice by first class mail, postage prepaid, at least 30 days
prior to the date fixed for redemption, to the Holder of each Bond subject to
redemption in whole or in part at the Holder's address shown on the Register on
the fifteenth day preceding that mailing to the Holder of each Project Bond
subject to redemption at the Holder's address shown on the Register on the
fifteenth day preceding the sending of that notice. Failure to receive notice by
mailing or any defect in that notice regarding any Bond, however, shall not
affect the validity of the proceedings for the redemption of any other Bond.
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<PAGE> 26
If at the time of mailing of notice of an optional redemption of
Bonds there has not been deposited with the Trustee moneys sufficient to redeem
all Bonds called for redemption, such notice may state that it is conditional
upon the deposit of moneys sufficient for the redemption with the Trustee not
later than the opening of business on the redemption date, and such notice will
be of no effect unless such moneys are so deposited.
So long as Cede & Co., as nominee of DTC, is the Holder of the
Project Bonds, all notices of redemption will be sent only to Cede & Co., and
delivery of notices of redemption to any DTC Participant shall be solely the
responsibility of DTC.
SECTION 4.05. PAYMENT OF REDEEMED BONDS. If (a) unconditional
notice of redemption has been duly mailed or sent in the manner provided in
Section 4.04 hereof, or duly waived by the Holders of all Bonds called for
redemption, or (b) conditional notice of redemption has been duly mailed or sent
in the manner provided in Section 4.04 hereof, or waived, and the redemption
moneys have been deposited with the Trustee, then in either case, the Bonds and
portions thereof called for redemption shall become due and payable on the
redemption date, and upon presentation and surrender thereof at the place or
places specified in that notice, shall be paid at the redemption price, plus
interest accrued to the redemption date.
If money for the redemption of all of the Bonds and portions
thereof to be redeemed, together with interest accrued thereon to the redemption
date, is held by the Trustee or any Paying Agent on the redemption date, so as
to be available therefor on that date and if notice of redemption has been
deposited in the mail as aforesaid, then from and after the redemption date
those Bonds and portions thereof called for redemption shall cease to bear
interest and no longer shall be considered to be outstanding hereunder. If those
moneys shall not be so available on the redemption date, or that notice shall
not have been deposited in the mail as aforesaid, those Bonds and portions
thereof shall continue to bear interest, until they are paid, at the same rate
as they would have borne had they not been called for redemption.
All moneys deposited in the Bond Fund and held by the Trustee or
a Paying Agent for the redemption of particular Bonds shall be held in trust for
the account of the Holders thereof and shall be paid to them, respectively, upon
presentation and surrender of those Bonds.
SECTION 4.06. VARIATION OF REDEMPTION PROVISIONS. The provisions
of this Article IV, insofar as they apply to issuance of any series of
Additional Bonds, may be varied by the Supplemental Indenture providing for that
series.
(End of Article IV)
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<PAGE> 27
ARTICLE V
PROVISIONS AS TO FUNDS,
PAYMENTS, PROJECT AND AGREEMENT
SECTION 5.01. CREATION OF PROJECT FUND. There is created by the
Authority and ordered maintained as a separate account (except when invested as
provided hereinafter) in the custody of the Trustee, a trust fund designated
"Ohio Water Development Authority - Republic Engineered Steels, Inc. Project
Fund, Series 1996". Unless otherwise set forth in the applicable Bond
Legislation or Supplemental Indenture relating to the issuance of a series of
Additional Bonds, the proceeds of the sale of the Bonds shall be deposited by
the Trustee in the Project Fund, except that any proceeds representing accrued
interest shall be deposited in the Bond Fund pursuant to Section 5.04 hereof.
If the unexpended proceeds of a prior issue of Bonds remain in
any account in the Project Fund upon the issuance of any Additional Bonds, the
Trustee shall establish additional separate subaccounts within the Project Fund,
for accounting purposes, for the deposit of the proceeds of the issue of
Additional Bonds in accordance with this Section. Pending disbursement pursuant
to the Agreement, the moneys and Eligible Investments to the credit of the
Project Fund shall constitute a part of the Revenues assigned to the Trustee as
security for the payment of the Bond Service Charges.
SECTION 5.02. DISBURSEMENTS FROM AND RECORDS OF PROJECT FUND.
Moneys in the Project Fund shall be disbursed in accordance with the provisions
of the Agreement. The Trustee shall cause to be kept and maintained adequate
records pertaining to the Project Fund and all disbursements therefrom. If
requested by the Authority or the Company, after the Project has been completed
and a certificate of payment of all costs is filed as provided in Section 5.03
hereof, the Trustee shall file copies of the records pertaining to the Project
Fund and disbursements therefrom with the Authority and the Company. Unless
otherwise provided in the applicable Bond Legislation or Supplemental Indenture,
this Section shall apply to the disbursement of the proceeds of any issue of
Additional Bonds.
SECTION 5.03. COMPLETION OF THE PROJECT. The completion of the
Project and payment of all costs and expenses incident thereto shall be
evidenced by the filing with the Trustee of
(i) the certificate of the Authorized Company
Representative required by Section 3.6 of the Agreement, and
(ii) a certificate signed by the Authorized Company
Representative stating that all obligations and costs in
connection with the Project and payable out of the Project Fund
have been paid and discharged, except for amounts retained by
the Trustee as provided under the Agreement for the payment of
costs of the Project not then due and payable.
As soon as practicable after the filing with the Trustee of the certificate to
which reference is made in clause (ii) above, any balance remaining in the
Project Fund (other than the amounts retained by the Trustee as described in the
preceding sentence) shall be deposited or applied in accordance with the
direction of the Authorized Company Representative pursuant to Section 3.4 of
the Agreement. Unless otherwise provided in the applicable Bond Legislation or
Supplemental Indenture, this Section shall apply to any additional property
financed with the proceeds of any issue of Additional Bonds.
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SECTION 5.04. CREATION OF BOND FUND. There is created by the
Authority and ordered maintained as a separate account (except when invested as
hereinafter set forth) in the custody of the Trustee a trust fund to be
designated "Ohio Water Development Authority Republic Engineered Steels, Inc.
Revenue Bond Fund". Unless otherwise set forth in the applicable Bond
Legislation or Supplemental Indenture relating to the issuance of a series of
Additional Bonds, there shall be deposited in the Bond Fund (and credited, if
required by this Indenture or the Agreement, to appropriate accounts therein),
from the proceeds of the sale of the Bonds, any accrued interest paid by the
Original Purchaser.
The Bond Fund (and accounts therein for which provision is made
in this Indenture or in the Agreement) and the moneys and Eligible Investments
therein shall be used solely and exclusively for the payment of Bond Service
Charges as they become due at stated maturity, by redemption or pursuant to any
mandatory sinking fund requirements, all as provided herein and in the
Agreement; provided, that no part thereof shall be used to redeem any Bonds
prior to maturity, except as may be provided otherwise herein or in the
Agreement.
The Trustee shall transmit to any Paying Agents, as appropriate,
from moneys in the Bond Fund applicable thereto, amounts sufficient to make
timely payments of principal of and any premium on the Bonds to be made by those
Paying Agents and then due and payable. The Authority authorizes and directs the
Trustee to cause withdrawal of moneys from the Bond Fund which are available for
the purpose of paying, and are sufficient to pay, the principal of and any
premium on the Bonds as they become due and payable (whether at stated maturity,
by redemption or pursuant to any mandatory sinking fund requirements), for the
purposes of paying or transferring moneys to the Paying Agents which are
necessary to pay such principal and premium.
As provided in the Agreement, and as evidenced and to be
evidenced by the Notes, Bond Service Charges shall be payable, as they become
due, (i) in the first instance from the Loan Payments to be made directly by the
Company to the Trustee pursuant to the terms of the Agreement and to be
deposited in the Bond Fund, (ii) if those Loan Payments are not made or if
moneys then on deposit in the Bond Fund and available for that purpose are not
sufficient to pay the Bond Service Charges, from other Revenues to the extent
then available, and (iii) from any other source lawfully available to the
Trustee, including without limitation, proceeds from the sale or liquidation of
any collateral then assigned or pledged to the Trustee.
SECTION 5.05. INVESTMENT OF BOND FUND, PROJECT FUND AND REBATE
FUND. Moneys in the Bond Fund, the Project Fund and the Rebate Fund shall be
invested and reinvested by the Trustee in Eligible Investments at the oral
request, confirmed in writing within five business days, or at the written
request of the Authorized Company Representative, subject to the requirement of
Sections 2.2(j) and 3.7 of the Agreement. At no time shall any funds
constituting gross proceeds of the Bonds be used in any manner as would
constitute failure of compliance with Section 148 of the Code. Investments of
moneys in the Bond Fund shall mature or be redeemable at the option of the
Trustee at the times and in the amounts necessary to provide moneys to pay Bond
Service Charges as they become due at stated maturity or by redemption. Each
investment of moneys in the Project Fund shall mature or be redeemable at such
time as may be necessary to make payments from the Project Fund. The Trustee
shall not be liable for any potential losses due to investments made on behalf
of the Company.
Subject to any directions from the Authorized Company
Representative with respect thereto, from time to time, the Trustee may sell
those investments and reinvest the proceeds therefrom in Eligible Investments
maturing or redeemable as aforesaid. Any of those investments may be purchased
from or sold to the Trustee, the Registrar, an Authenticating Agent or a Paying
Agent, or any bank, trust company or savings and loan association affiliated
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with any of the foregoing. The Trustee shall sell or redeem investments, at the
best price reasonably obtainable, credited to the Bond Fund to produce
sufficient moneys applicable hereunder to and at the times required for the
purposes of paying Bond Service Charges when due as aforesaid, and shall do so
without necessity for any order on behalf of the Authority and without
restriction by reason of any order. An investment made from moneys credited to
the Bond Fund or the Project Fund shall constitute part of that respective Fund,
and each respective Fund shall be credited with all proceeds of sale and income
from investment of moneys credited thereto. For purposes of this Indenture,
those investments shall be valued at face amount or market value, whichever is
less.
SECTION 5.06. MONEYS TO BE HELD IN TRUST. Except where moneys
have been deposited with or paid to the Trustee pursuant to an instrument
restricting their application to particular Bonds, all moneys required or
permitted to be deposited with or paid to the Trustee or any Paying Agent under
any provision of this Indenture, the Agreement or the Notes, and any investments
thereof, shall be held by the Trustee or that Paying Agent in trust. Except for
(i) moneys deposited with or paid to the Trustee or any Paying Agent for the
redemption of Bonds, notice of the redemption of which shall have been duly
given, and (ii) moneys held by the Trustee pursuant to Section 5.07 hereof, all
moneys described in the preceding sentence held by the Trustee or any Paying
Agent shall be subject to the lien hereof while so held.
SECTION 5.07. NONPRESENTMENT OF BONDS. In the event that any
Bond shall not be presented for payment when the principal thereof becomes due
in whole or in part, either at stated maturity, by redemption or pursuant to any
mandatory sinking fund requirements, or a check or draft for interest is
uncashed, if moneys sufficient to pay the principal then due of that Bond or of
such check or draft shall have been made available to the Trustee for the
benefit of its Holder, all liability of the Authority to that Holder for such
payment of the principal then due of the Bond or of such check or draft
thereupon shall cease and be discharged completely. Thereupon, it shall be the
duty of the Trustee upon the request of the Company to hold those moneys,
without liability for interest to the Holders thereof, who shall be restricted
thereafter exclusively to those moneys for any claim of whatever nature on its
part under this Indenture or on, or with respect to, the principal then due of
that Bond or of such check or draft.
Any of those moneys which shall be so held by the Trustee, and
which remain unclaimed by the Holder of a Bond not presented for payment or
check or draft not cashed for a period of five years after the due date thereof,
shall be paid to the Company free of any trust or lien, upon a request in
writing by the Company. Thereafter, the Holder of that Bond shall look only to
the Company for payment and then only to the amounts so received by the Company
without any interest thereon, and the Trustee shall not have any responsibility
with respect to those moneys.
SECTION 5.08. REPAYMENT TO THE COMPANY FROM THE BOND FUND.
Except as provided in Section 5.07 hereof, any amounts remaining in the Bond
Fund (i) after all of the outstanding Bonds shall be deemed paid and discharged
under the provisions of this Indenture, and (ii) after payment of all fees,
charges and expenses of the Trustee, including counsel fees and expenses the
Registrar and any Paying Agents or Authenticating Agents and of all other
amounts required to be paid under this Indenture, the Agreement and the Notes,
shall be paid to the Company to the extent that those amounts are in excess of
those necessary to effect the payment and discharge of the outstanding Bonds.
SECTION 5.09. CREATION OF REBATE FUND. There is created by the
Authority and ordered maintained as a separate deposit account in the custody of
the Trustee a fund to be designated "Ohio Water Development Authority - Republic
Engineered Steels, Inc. Rebate Fund." Any provision hereof to the contrary
notwithstanding, amounts credited to the Rebate
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Fund shall be free and clear of any lien hereunder. A separate account shall be
created in the Rebate Fund for each series of Bonds.
Within five days after the end of each Bond Year for each series
of Bonds and within five days after the payment in full of all Outstanding Bonds
of each series, the Company, pursuant to Section 3.10 of the Agreement, shall
calculate the amount of Excess Earnings as of the end of that Bond Year or the
date of such final payment. The Company shall notify the Trustee in writing of
that amount and the Trustee shall notify the Company in writing of the amount
then on deposit in the applicable account in the Rebate Fund. If the amount then
on deposit in the Rebate Fund is in excess of the Excess Earnings, the Trustee
shall forthwith pay that excess amount to the Company. If the amount then on
deposit in the Rebate Fund is less than the Excess Earnings, the Company shall,
within five days after the Company's receipt of the aforesaid notice from the
Trustee, pay to the Trustee for deposit in the Rebate Fund an amount sufficient
to cause such account to contain an amount equal to the Excess Earnings.
Within 30 days after the end of the fifth Bond Year and every
fifth Bond Year thereafter, the Trustee, acting on behalf of the Authority and
at the direction of the Company, shall pay to the United States in accordance
with Section 148(f) of the Code from the moneys then on deposit in the Rebate
Fund an amount equal to 90% (or such greater percentage not in excess of 100% as
the Company may direct the Trustee to pay) of the Excess Earnings for that
series of Bonds to the end of such fifth Bond Year (less the amount of Excess
Earnings, if any, previously paid to the United States pursuant to this Section
5.09). Within 60 days after the payment in full of all Outstanding Bonds of each
series, the Trustee, acting on behalf of the Authority, shall pay to the United
States in accordance with Section 148(f) of the Code from the moneys then on
deposit in the Rebate Fund an amount equal to 100% of the Excess Earnings for
that series of Bonds to the date of such payment (less the amount of Excess
Earnings, if any, previously paid to the United States pursuant to this Section
5.09) and any moneys remaining in the applicable account in the Rebate Fund
following such payment shall be paid to the Company.
The Trustee shall be entitled to rely on the calculations made
pursuant to this Section 5.09 and shall not be responsible for any loss or
damage resulting from any action taken or omitted to be taken in reliance upon
these calculations.
The Trustee shall keep and make available to the Company such
records concerning the investments of the gross proceeds of the Bonds of each
series and the investments of earnings from those investments as may be
requested by the Company in order to enable the Company to make the aforesaid
computations as are required under Section 148(f) of the Code.
If all the gross proceeds of the Bonds of any series, within the
meaning of Section 148(f) of the Code, are expended for the governmental purpose
for which that series of Bonds were issued within six months of the date of
issuance of that series of Bonds, and it is not anticipated that any other gross
proceeds will arise during the remainder of the term of the Bonds of that
series, the provisions of this Section 5.09 and of Section 3.10 of the Agreement
shall be applicable only to such subsequent proceeds, if any, that actually do
arise during the term of the Bonds of that series. Furthermore, if all of the
gross proceeds of the Bonds of any series are invested at all times only in
obligations of any state, or political subdivision thereof, the interest on
which is excluded from gross income for federal income tax purposes, the
provisions of this Section 5.09 and of Section 3.10 of the Agreement shall not
be applicable to the Bonds.
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As used in this Section 5.09:
"Bond Year" means, during the period while the Bonds of any
series remain outstanding, any annual period commencing on the anniversary date
of the original issuance and delivery of the Bonds of that series, with the
earliest Bond Year commencing with that original date and the last Bond Year
commencing on the anniversary date of such original date, preceding or falling
on the date of payment in full of all outstanding Bonds of that series.
"Computation Date" means the last day of each Bond Year for each
series of Bonds and the date on which the payment in full of all Outstanding
Bonds of any series is made.
"Excess Earnings" means as of each Computation Date an amount
equal to the sum of (i) plus (ii) where:
(i) is the excess of:
(a) the aggregate amount earned from the date of
issuance of the Bonds of that series on all nonpurpose
investments in which gross proceeds of the Bonds of that
series are invested (other than investments attributable
to Excess Earnings described in this clause (i))
including any gain or deducting any loss from disposition
of nonpurpose investment, over
(b) the amount that would have been earned if
those nonpurpose investments (other than amounts
attributable to an excess described in this clause (i))
had been invested at a rate equal to the yield on the
Bonds of that series; and
(ii) is any income attributable to the excess described
in clause (i) of this definition.
The foregoing sums shall be determined in accordance with
Section 148(f) of the Code. As used herein, the terms "gross proceeds",
"nonpurpose investments" and "yield" have the meanings assigned to them for
purposes of Section 148(f) of the Code.
(End of Article V)
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ARTICLE VI
THE TRUSTEE, REGISTRAR, PAYING AGENTS
AND AUTHENTICATING AGENTS
SECTION 6.01. TRUSTEE'S ACCEPTANCE AND RESPONSIBILITIES. The
Trustee accepts the trusts imposed upon it by this Indenture, and agrees to
observe and perform those trusts, but only upon and subject to the terms and
conditions set forth in this Article, to all of which the parties hereto and the
Holders agree.
(a) Prior to the occurrence of a default or an Event of Default
(as defined in Section 7.01 hereof) of which the Trustee has been notified, as
provided in paragraph (f) of Section 6.02 hereof, or of which by that paragraph
the Trustee is deemed to have notice, and after the cure or waiver of all
defaults or Events of Default which may have occurred,
(i) the Trustee undertakes to perform only those duties
and obligations which are set forth specifically in this
Indenture, and no duties or obligations shall be implied to the
Trustee; and
(ii) in the absence of bad faith on its part, the Trustee
may rely conclusively, as to the truth of the statements and the
correctness of the opinions expressed therein, upon certificates
or opinions furnished to the Trustee and conforming to the
requirements of this Indenture; but in the case of any such
certificates or opinions which by any provision hereof are
required specifically to be furnished to the Trustee, the
Trustee shall be under a duty to examine the same to determine
whether or not they conform to the requirements of this
Indenture.
(b) In case a default or an Event of Default has occurred and is
continuing hereunder (of which the Trustee has been notified, or is deemed to
have notice), the Trustee shall exercise those rights and powers vested in it by
this Indenture and shall use the same degree of care and skill in their
exercise, as a prudent man would exercise or use under the circumstances in the
conduct of his own affairs.
(c) No provision of this Indenture shall be construed to relieve
the Trustee from liability for its own grossly negligent action, its own grossly
negligent failure to act, or its own willful misconduct, except that
(i) this Subsection shall not be construed to affect the
limitation of the Trustee's duties and obligations provided in
subparagraph (a)(i) of this Section or the Trustee's right to
rely on the truth of statements and the correctness of opinions
as provided in subparagraph (a)(ii) of this Section;
(ii) the Trustee shall not be liable for any error of
judgment made in good faith by any one of its officers, unless
it shall be established that the Trustee was grossly negligent
in ascertaining the pertinent facts;
(iii) the Trustee shall not be liable with respect to any
action taken or omitted to be taken by it in good faith in
accordance with the direction of the Holders of not less than a
majority (or the Holders of not less than 25%, as may be
required by the provisions of this Indenture for Trustee action)
in principal amount of the Bonds then outstanding relating to
the time, method and place of
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conducting any proceeding for any remedy available to the
Trustee, or exercising any trust or power conferred upon the
Trustee, under this Indenture; and
(iv) no provision of this Indenture shall require the
Trustee to expend or risk its own funds or otherwise incur any
financial liability in the performance of any of its duties
hereunder, or in the exercise of any of its rights or powers if
it shall have reasonable grounds for believing that repayment of
such funds or adequate indemnity against such risk or liability
is not reasonably assured to it.
(d) Whether or not therein expressly so provided, every
provision of this Indenture relating to the conduct or affecting the liability
of or affording protection to the Trustee shall be subject to the provisions of
this Section 6.01.
SECTION 6.02. CERTAIN RIGHTS AND OBLIGATIONS OF THE TRUSTEE.
Except as otherwise provided in Section 6.01 hereof:
(a) The Trustee (i) may execute any of the trusts or powers
hereof and perform any of its duties by or through attorneys, agents, receivers
or employees (but shall be answerable therefor only in accordance with the
standard specified above), (ii) shall be entitled to the advice of counsel
concerning all matters of trusts hereof and duties hereunder, and (iii) may pay
reasonable compensation in all cases to all of those attorneys, agents,
receivers and employees reasonably employed by it in connection with the trusts
hereof. The Trustee may act upon the opinion or advice of any attorney (who may
be the attorney or attorneys for the Authority or the Company) approved by the
Trustee in the exercise of reasonable care. The Trustee shall not be responsible
for any loss or damage resulting from any action taken or omitted to be taken in
good faith in reliance upon that opinion or advice.
(b) Except for its certificate of authentication on the Bonds,
the Trustee shall not be responsible for:
(i) any recital in this Indenture or in the Bonds,
(ii) the validity, priority, recording, rerecording,
filing or refiling of this Indenture or any Supplemental
Indenture,
(iii) any instrument or document of further assurance or
collateral assignment,
(iv) any financing statements, amendments thereto or
continuation statements,
(v) insurance of the Project or collection of insurance
moneys,
(vi) the validity of the execution by the Authority of
this Indenture, any Supplemental Indenture or instruments or
documents of further assurance,
(vii) the sufficiency of the security for the Bonds
issued hereunder or intended to be secured hereby,
(viii) the value of or title to the Project, or
(ix) the maintenance of the security hereof.
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<PAGE> 34
The Trustee shall not be bound to ascertain or inquire as to the observance or
performance of any covenants, agreements or obligations on the part of the
Authority or the Company under the Agreement except as set forth hereinafter;
but the Trustee may require of the Authority or the Company full information and
advice as to the observance or performance of those covenants, agreements and
obligations. Except as otherwise provided in Section 7.04 hereof, the Trustee
shall have no obligation to observe or perform any of the duties of the
Authority under the Agreement.
(c) The Trustee shall not be accountable for the application by
the Company or any other Person of the proceeds of any Bonds authenticated or
delivered hereunder.
(d) The Trustee shall be protected, in the absence of bad faith
on its part, in acting upon any notice, request, consent, certificate, order,
affidavit, letter, telegram or other paper or document reasonably believed by it
to be genuine and correct and to have been signed or sent by the proper Person
or Persons. Any action taken by the Trustee pursuant to this Indenture upon the
request or authority or consent of any Person who is the Holder of any Bonds at
the time of making the request or giving the authority or consent, shall be
conclusive and binding upon all future Holders of the same Bond and of Bonds
issued in exchange therefor or in place thereof.
(e) As to the existence or nonexistence of any fact for which
the Authority may be responsible or as to the sufficiency or validity of any
instrument, document, report, paper or proceeding, the Trustee, in the absence
of bad faith on its part, shall be entitled to rely upon a certificate signed on
behalf of the Authority by an authorized officer thereof as sufficient evidence
of the facts recited therein. Prior to the occurrence of a default or Event of
Default hereunder of which the Trustee has been notified, as provided in
paragraph (f) of this Section, or of which by that paragraph the Trustee is
deemed to have notice, the Trustee may accept a similar certificate to the
effect that any particular dealing, transaction or action is necessary or
expedient; provided, that the Trustee in its discretion may require and obtain
any further evidence which it deems to be necessary or advisable; and, provided
further, that the Trustee shall not be bound to secure any further evidence. The
Trustee may accept a certificate of the officer, or an assistant thereto, having
charge of the appropriate records, to the effect that legislation has been
enacted by the Authority in the form recited in that certificate, as conclusive
evidence that the legislation has been duly adopted and is in full force and
effect.
(f) The Trustee shall not be required to take notice, and shall
not be deemed to have notice, of any default or Event of Default hereunder,
except Events of Default described in paragraphs (a) and (b) of Section 7.01
hereof, unless the Trustee shall be notified specifically of the default or
Event of Default in a written instrument or document delivered to it by the
Authority or by the Holders of at least 25 percent of the aggregate principal
amount of Bonds then outstanding. In the absence of delivery of a notice
satisfying those requirements, the Trustee may assume conclusively that there is
no default or Event of Default, except as noted above.
(g) At any reasonable time, the Trustee and its duly authorized
agents, attorneys, experts, engineers, accountants and representatives (i) may
inspect and copy fully all books, papers and records of the Authority pertaining
to the Project and the Bonds, and (ii) may make any memoranda from and in regard
thereto as the Trustee may desire.
(h) The Trustee shall not be required to give any bond or surety
with respect to the execution of these trusts and powers or otherwise in respect
of the premises.
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<PAGE> 35
(i) Notwithstanding anything contained elsewhere in this
Indenture, the Trustee may demand any showings, certificates, reports, opinions,
appraisals and other information, and any corporate action and evidence thereof,
in addition to that required by the terms hereof, as a condition to the
authentication of any Bonds or the taking of any action whatsoever within the
purview of this Indenture, if the Trustee deems it to be desirable for the
purpose of establishing the right of the Authority to the authentication of any
Bonds or the right of any Person to the taking of any other action by the
Trustee; provided, that the Trustee shall not be required to make that demand.
(j) Before taking action hereunder pursuant to Section 6.04 or
Article VII hereof (with the exception of any action required to be taken under
Section 7.02 hereof), the Trustee may require that a satisfactory indemnity bond
be furnished to it for the reimbursement of all expenses which it may incur and
to protect it against all liability by reason of any action so taken, except
liability which is adjudicated to have resulted from its gross negligence or
willful default. The Trustee may take action without that indemnity, and in that
case, the Company shall reimburse the Trustee for all of the Trustee's expenses
pursuant to Section 6.03 hereof.
(k) Unless otherwise provided herein, all moneys received by the
Trustee under this Indenture shall be held in trust for the purposes for which
those moneys were received, until those moneys are used, applied or invested as
provided herein; provided, that those moneys need not be segregated from other
moneys, except to the extent required by this Indenture or by law. The Trustee
shall not have any liability for interest on any moneys received hereunder,
except to the extent expressly provided herein or agreed with the Authority or
the Company.
(l) Any legislation by the Authority, and any opinions,
certificates and other instruments and documents for which provision is made in
this Indenture, may be accepted by the Trustee, in the absence of bad faith on
its part, as conclusive evidence of the facts and conclusions stated therein and
shall be full warrant, protection and authority to the Trustee for its actions
taken hereunder.
SECTION 6.03. FEES, CHARGES AND EXPENSES OF TRUSTEE, REGISTRAR,
PAYING AGENTS AND AUTHENTICATING AGENTS. The Trustee, the Registrar and any
Paying Agents or Authenticating Agents shall be entitled to payment or
reimbursement or both by the Company as provided in the Agreement for customary
fees for services rendered hereunder (which fees shall not be limited by any
provision of law relating to a trustee of an express trust) and all advances,
counsel fees and other expenses reasonably and necessarily made or incurred in
connection with such services as provided in the Agreement. The Trustee, the
Registrar and any Paying Agents or Authenticating Agents shall be entitled to
payment and reimbursement, but only from the Additional Payments (as defined in
the Agreement) by the Company pursuant to the Agreement or from moneys available
therefor (other than Revenues except as provided in Section 7.06 hereof), for
their customary fees, and reasonable expenses and charges before any
distribution therefrom on the Bonds. The Company shall provide the Trustee with
the amount and account from which any Additional Payments are to be made.
When the Trustee incurs expenses or renders services after the
occurrence of an Event of Default described in Section 7.01 hereof, the expenses
and compensation for services are intended to constitute expenses of
administration under any bankruptcy law.
The Company may, without creating a default hereunder or under
the Agreement, contest in good faith with due diligence the amount of any such
fees, charges or expenses to be paid pursuant to this Section.
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In the event that the Trustee is replaced by a successor Trustee
in accordance with the provisions of Section 6.09 hereof, the provisions of this
Article VI providing for indemnity or reimbursement for the Trustee's expenses
pursuant to this Section 6.03 shall survive and remain applicable to the
predecessor Trustee for the period of time during which such predecessor Trustee
acted in such capacity.
SECTION 6.04. INTERVENTION BY TRUSTEE. The Trustee may intervene
on behalf of the Holders, and shall intervene if requested to do so in writing
by the Holders of at least 25 percent of the aggregate principal amount of Bonds
then outstanding, in any judicial proceeding to which the Authority or the
Company is a party and which in the opinion of the Trustee and its counsel has a
substantial bearing on the interests of Holders of the Bonds. The rights and
obligations of the Trustee under this Section are subject to the approval of
that intervention by a court of competent jurisdiction. The Trustee may require
that a satisfactory indemnity bond be provided to it in accordance with Sections
6.01 and 6.02 hereof before it takes action hereunder.
SECTION 6.05. SUCCESSOR TRUSTEE. Anything herein to the
contrary notwithstanding,
(a) any corporation or association (i) into which the
Trustee may be converted or merged, (ii) with which the Trustee
or any successor to it may be consolidated, or (iii) to which it
may sell or transfer its assets and trust business as a whole or
substantially as a whole, or any corporation or association
resulting from any such conversion, merger, consolidation, sale
or transfer, IPSO FACTO, shall be and become successor Trustee
hereunder and shall be vested with all of the title to the whole
property or trust estate hereunder; and
(b) that corporation or association shall be vested
further, as was its predecessor, with each and every trust,
property, remedy, power, right, duty, obligation, discretion,
privilege, claim, demand, cause of action, immunity, estate,
title, interest and lien expressed or intended by this Indenture
to be exercised by, vested in or conveyed to the Trustee,
without the execution or filing of any instrument or document or
any further act on the part of any of the parties hereto.
Any successor Trustee, however, shall be a trust company or a bank having the
powers of a trust company and shall have a reported capital and surplus of not
less than $50,000,000.
SECTION 6.06. REPRESENTATIONS, AGREEMENTS AND COVENANTS OF
TRUSTEE. The Trustee hereby represents that it is a national banking association
duly organized and validly existing under the laws of the United States of
America, in good standing and duly authorized to exercise the trust powers under
this Indenture, and that it has an unimpaired reported capital and surplus of
not less than $50,000,000. The Trustee covenants that it will take such action,
if any, as is necessary to remain in good standing and duly authorized to
exercise corporate trust powers and that it will maintain an unimpaired reported
capital and surplus of not less than $50,000,000.
SECTION 6.07. RESIGNATION BY THE TRUSTEE. The Trustee may resign
at any time from the trusts created hereby by giving 60 days written notice of
the resignation to the Authority, the Company, the Registrar, any Paying Agents
and Authenticating Agents and the Original Purchaser of each series of Bonds
then outstanding and by mailing 45 days written notice of the resignation to the
Holders as their names and addresses appear on the Register at the close of
business fifteen days prior to the mailing. The resignation shall take effect
upon the appointment of a successor Trustee.
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SECTION 6.08. REMOVAL OF THE TRUSTEE. The Trustee may be removed
at any time by an instrument or document or concurrent instruments or documents
in writing delivered to the Trustee, with copies thereof mailed to the
Authority, the Registrar, any Paying Agents and Authenticating Agents and the
Company, and signed by or on behalf of the Holders of not less than a majority
in aggregate principal amount of the Bonds then outstanding, or if no Event of
Default under the Indenture or the Agreement or event which with the giving of
notice or the passage of time would cause an Event of Default under the
Indenture or Agreement has occurred and is continuing, at the written request of
the Company, by filing with the Trustee an instrument or instruments in writing
appointing a successor.
The Trustee also may be removed at any time for any breach of
trust or for acting or proceeding in violation of, or for failing to act or
proceed in accordance with, any provision of this Indenture with respect to the
duties and obligations of the Trustee by any court of competent jurisdiction
upon the application of the Authority or the Holders of not less than 20 percent
in aggregate principal amount of the Bonds then outstanding under this
Indenture.
SECTION 6.09. APPOINTMENT OF SUCCESSOR TRUSTEE. If (i) the
Trustee shall resign, shall be removed, shall be dissolved, or shall become
otherwise incapable of acting hereunder, (ii) the Trustee shall be taken under
the control of any public officer or officers, (iii) a receiver shall be
appointed for the Trustee by a court, then a successor Trustee shall be
appointed by the Authorized Official, with the written consent of the Company,
or (iv) the Trustee shall have an order for relief entered in any case commenced
by or against it under the federal bankruptcy laws or commence a proceeding
under any federal or state bankruptcy, insolvency, reorganization or similar
law, or have such a proceeding commenced against it and either have an order of
insolvency or reorganization entered against it or have the proceeding remain
undismissed and unstayed for 90 days; provided, that if a successor Trustee is
not so appointed within ten days after (a) a notice of resignation or an
instrument or document of removal is received by the Authority, as provided in
Sections 6.07 and 6.08 hereof, respectively, or (b) the Trustee is dissolved,
taken under control, becomes otherwise incapable of acting or a receiver is
appointed, in each case, as provided above, then, so long as the Authorized
Official shall not have appointed a successor Trustee, the Holders of a majority
in aggregate principal amount of Bonds then outstanding may designate a
successor Trustee by an instrument or document or concurrent instruments or
documents in writing signed by or on behalf of those Holders. If no appointment
of a successor Trustee shall be made pursuant to the foregoing provisions of
this Section within 20 days, the Holder of any Bond outstanding hereunder or any
retiring Trustee may apply to any court of competent jurisdiction to appoint a
successor Trustee. Such court may thereupon, after such notice, if any, as such
court may deem proper and prescribe, appoint a successor Trustee.
Every successor Trustee appointed pursuant to this Section (i)
shall be a trust company or a bank having the powers of a trust company (ii)
shall be duly authorized to exercise trust powers under this Indenture, (iii)
shall have a reported capital and surplus of not less than $50,000,000, and (iv)
shall be willing to accept the trusteeship under the terms and conditions of
this Indenture.
Every successor Trustee appointed hereunder shall execute and
acknowledge, and shall deliver to its predecessor, the Authority and the
Company, an instrument or document in writing accepting the appointment.
Thereupon, without any further act, the successor shall become vested with all
of the trusts, properties, remedies, powers, rights, duties, obligations,
discretions, privileges, claims, demands, causes of action, immunities, estates,
titles, interests and liens of its predecessor. Upon the written request of its
successor, the Authority or the Company, the predecessor Trustee (i) shall
execute and deliver an instrument or document transferring to its successor all
of the trusts, properties, remedies, powers, rights, duties,
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obligations, discretions, privileges, claims, demands, causes of action,
immunities, estates, titles, interests and liens of the predecessor Trustee
hereunder, and (ii) shall take any other action necessary to duly assign,
transfer and deliver to its successor all property (including without
limitation, all securities and moneys) held by it as Trustee after payment of
remaining fees and expenses, including counsel fees. Should any instrument or
document in writing from the Authority be requested by any successor Trustee for
vesting and conveying more fully and certainly in and to that successor the
trusts, properties, remedies, powers, rights, duties, obligations, discretions,
privileges, claims, demands, causes of action, immunities, estates, titles,
interests and liens vested or conveyed or intended to be vested or conveyed
hereby in or to the predecessor Trustee, the Authority shall execute,
acknowledge and deliver that instrument or document.
In the event of a change in the Trustee, the predecessor Trustee
shall cease to be custodian of any moneys which it may hold pursuant to this
Indenture and shall cease to be Registrar, Authenticating Agent and a Paying
Agent for any of the Bonds, to the extent it served in any of those capacities.
The successor Trustee shall become custodian and, if applicable, Registrar,
Authenticating Agent and a Paying Agent.
SECTION 6.10. ADOPTION OF AUTHENTICATION. In case any of the
Bonds shall have been authenticated, but shall not have been delivered, any
successor Trustee, Registrar or Authenticating Agent may adopt the certificate
of authentication of any predecessor Trustee, Registrar or Authenticating Agent
and may deliver those Bonds so authenticated as provided herein. In case any
Bonds shall not have been authenticated, any successor Trustee, Registrar or
Authenticating Agent may authenticate those Bonds either in the name of any
predecessor or in its own name. In all cases, the certificate of authentication
shall have the same force and effect as provided in the Bonds or in this
Indenture with respect to the certificate of authentication of the predecessor
Trustee, Registrar or Authenticating Agent.
SECTION 6.11. REGISTRARS.
(a) SUCCESSION. Anything herein to the contrary notwithstanding,
any corporation or association (i) into which a Registrar may be converted or
merged, (ii) with which a Registrar or any successor to it may be consolidated,
or (iii) to which it may sell or transfer its assets as a whole or substantially
as a whole, or any corporation or association resulting from any such
conversion, merger, consolidation, sale or transfer, IPSO FACTO, shall be and
become successor Registrar to that Registrar hereunder and shall be vested with
each and every power, right, duty, obligation, discretion and privilege
expressed or intended by this Indenture to be exercised by or vested in the
predecessor Registrar, without the execution or filing of any instrument or
document or any further act on the part of any of the parties hereto.
(b) RESIGNATION. A Registrar may resign at any time by giving
written notice of its resignation to the Authority, the Company, the Trustee,
the Original Purchaser of each series of Bonds then outstanding for which it is
Registrar, and to each Paying Agent and Authenticating Agent for those series of
Bonds, at least 60 days before the resignation is to take effect. The
resignation shall take effect immediately, however, upon the appointment of a
successor Registrar, if the successor Registrar is appointed and accepts that
appointment before the time stated in the notice.
(c) REMOVAL. The Registrar may be removed at any time by an
instrument or document or concurrent instruments or documents in writing
delivered to the Registrar, with copies thereof mailed to the Authority, the
Trustee and the Company, and signed by or on behalf of the Holders of not less
than a majority in aggregate principal amount of the Bonds then outstanding.
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(d) APPOINTMENT OF SUCCESSORS. If (i) a Registrar shall resign,
shall be removed, shall be dissolved, or shall become otherwise completely
incapable of acting hereunder, (ii) a Registrar shall be taken under the control
of any public officer or officers, (iii) a receiver shall be appointed for a
Registrar by a court, or (iv) a Registrar shall have an order for relief entered
in any case commenced by or against it under the federal bankruptcy laws or
commence a proceeding under any federal or state bankruptcy, insolvency,
reorganization or similar law, or have such a proceeding commenced against it
and either have an order of insolvency or reorganization entered against it or
have the proceeding remain undismissed and unstayed for ninety days, then a
successor Registrar shall be appointed by the Authorized Official, with the
written consent of the Company and the Trustee; provided, that if a successor
Registrar is not so appointed within ten days after (a) a notice of resignation
or an instrument or document of removal is received by the Authority, as
provided above, or (b) the Registrar is dissolved, taken under control, becomes
otherwise incapable of acting or a receiver is appointed, in each case, as
provided above, then, if the Authorized Official shall not have appointed a
successor Registrar, the Trustee or the Holders of a majority in aggregate
principal amount of Bonds then outstanding may designate a successor Registrar
by an instrument or document or concurrent instruments or documents in writing
signed by the Trustee, or in the case of the Holders, by or on behalf of those
Holders.
Every successor Registrar appointed hereunder shall execute and
acknowledge, and shall deliver to its predecessor, the Authority, the Trustee
and the Company, an instrument or document in writing accepting the appointment.
Thereupon, without any further act, the successor shall become vested with all
of the properties, remedies, powers, rights, duties, obligations, discretions,
privileges, claims, demands, causes of action, immunities, titles and interests
of its predecessor. Upon the written request of its successor, the Authority or
the Company, a predecessor Registrar (i) shall execute and deliver an instrument
or document transferring to its successor all of the properties, remedies,
powers, rights, duties, obligations, discretions, privileges, claims, demands,
causes of action, immunities, titles and interests of it as predecessor
Registrar hereunder, and (ii) shall take any other action necessary to duly
assign, transfer and deliver to its successor all property and records
(including without limitation, the Register and any cancelled Bonds) held by it
as Registrar after payment of fees and expenses. Should any instrument or
document in writing from the Authority be requested by any successor Registrar
for vesting and conveying more fully and certainly in and to that successor the
properties, remedies, powers, rights, duties, obligations, discretions,
privileges, claims, demands, causes of action, immunities, titles and interests
vested or conveyed or intended to be vested or conveyed hereby in or to a
predecessor Registrar, the Authority shall execute, acknowledge and deliver that
instrument or document.
SECTION 6.12. DESIGNATION AND SUCCESSION OF PAYING AGENTS. The
Trustee shall be a Paying Agent for the Bonds, and, with the consent of the
Authority, the Trustee may appoint a Paying Agent or Agents with power to act on
its behalf and subject to its direction in the payment of Bond Service Charges
on any series of Bonds. Any Paying Agent shall be a trust company or a bank
having the powers of a trust company and shall have a reported capital and
surplus of not less than $25,000,000. It is the responsibility of the Trustee to
establish the duties and responsibilities of any Paying Agent for the purposes
of this Indenture, to the extent not specified herein.
Any corporation or association with or into which any Paying
Agent may be merged or converted or with which it may be consolidated, or any
corporation or association resulting from any merger, consolidation or
conversion to which any Paying Agent shall be a party, or any corporation or
association succeeding to the trust business of any Paying Agent, shall be the
successor of that Paying Agent hereunder, if that successor corporation or
association is otherwise eligible hereunder, without the execution or filing of
any paper or any
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further act on the part of the parties hereto or the Paying Agent or that
successor corporation or association.
Any Paying Agent may at any time resign by giving written notice
of resignation to the Trustee, to the Registrar and to the Company. The Trustee
may at any time terminate the agency of any Paying Agent by giving written
notice of termination to such Paying Agent, to the Registrar and to the Company.
Upon receiving such a notice of resignation or upon such a termination, or in
case at any time any Paying Agent shall cease to be eligible under this Section,
the Trustee may appoint a successor Paying Agent. The Trustee shall give written
notice of appointment of a successor Paying Agent to the Company, the Authority
and the Registrar and shall mail, within ten days after that appointment, notice
thereof to all Holders as their names and addresses appear on the Register on
the date of that appointment.
The Trustee shall pay to any Paying Agent from time to time
reasonable compensation as authorized in Section 6.03 hereof for its services,
and the Trustee shall be entitled to be reimbursed for such payments, subject to
Section 6.03 hereof.
The provisions of Section 3.05 and Subsection 6.02(d) shall be
applicable to any Paying Agent.
SECTION 6.13. DESIGNATION AND SUCCESSION OF AUTHENTICATING
AGENTS. With the consent of the Authority and the Company, the Trustee may
appoint an Authenticating Agent or Agents, in addition to the Registrar, with
power to act on its behalf and subject to its direction in the authentication
and delivery of Bonds in connection with transfers and exchanges under Sections
3.06 and 4.02 hereof. For all purposes of this Indenture, the authentication and
delivery of Bonds by an Authenticating Agent pursuant to this Section shall be
deemed to be authentication and delivery of those Bonds "by the Trustee".
Any corporation or association with or into which any
Authenticating Agent may be merged or converted or with which it may be
consolidated, or any corporation or association resulting from any merger,
consolidation or conversion to which any Authenticating Agent shall be a party,
or any corporation or association succeeding to the trust business of any
Authenticating Agent, shall be the successor of that Authenticating Agent
hereunder, if that successor corporation or association is otherwise eligible
hereunder, without the execution or filing of any paper or any further act on
the part of the parties hereto or the Authenticating Agent or such successor
corporation.
Any Authenticating Agent may at any time resign by giving
written notice of resignation to the Trustee, to the Registrar and to the
Company. The Trustee may at any time terminate the agency of any Authenticating
Agent by giving written notice of termination to such Authenticating Agent, to
the Registrar and to the Company. Upon receiving such a notice of resignation or
upon such a termination, or in case at any time any Authenticating Agent shall
cease to be eligible under this Section, the Trustee may appoint a successor
Authenticating Agent. The Trustee shall give written notice of appointment of a
successor Authenticating Agent to the Company, the Authority and the Registrar
and shall mail, within ten days after that appointment, notice thereof to all
Holders as their names and addresses appear on the Register on the date of that
appointment.
The Trustee shall pay to any Authenticating Agent from time to
time reasonable compensation for its services, and the Trustee shall be entitled
to be reimbursed for such payments, subject to Section 6.03 hereof.
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The provisions of Section 3.05 and Subsections 6.02(b), (c),
(d), (h) and (i) shall be applicable to any Authenticating Agent.
SECTION 6.14. DEALING IN BONDS. The Trustee, a Registrar, a
Paying Agent and an Authenticating Agent, their affiliates, and any directors,
officers, employees or agents thereof, in good faith, may become the owners of
Bonds secured hereby with the same rights which it or they would have hereunder
if the Trustee, the Registrar, Paying Agents or Authenticating Agents did not
serve in those capacities.
(End of Article VI)
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ARTICLE VII
DEFAULT PROVISIONS AND REMEDIES
OF TRUSTEE AND HOLDERS
SECTION 7.01. DEFAULTS; EVENTS OF DEFAULT. The occurrence of any
of the following events is defined as and declared to be and to constitute an
Event of Default hereunder:
(a) Payment of any interest on any Bond shall not be made
when and as that interest shall become due and payable and the
continuation of such failure for a period of more than five days
thereafter;
(b) Payment of the principal of or any premium on any
Bond shall not be made when and as that principal or premium
shall become due and payable, whether at stated maturity, by
redemption, pursuant to any mandatory sinking fund requirements,
by acceleration or otherwise;
(c) Failure by the Authority to observe or perform any
other covenant, agreement or obligation on its part to be
observed or performed contained in this Indenture or in the
Bonds, which failure shall have continued for a period of 60
days after written notice, by registered or certified mail, to
the Authority and the Company specifying the failure and
requiring that it be remedied, which notice may be given by the
Trustee in its discretion and shall be given by the Trustee at
the written request of the Holders of not less than 25 percent
in aggregate principal amount of Bonds then outstanding;
(d) The occurrence and continuance of an event of
default as defined in Section 7.1 of the Agreement.
The term "default" or "failure" as used in this Article means
(i) a default or failure by the Authority in the observance or performance of
any of the covenants, agreements or obligations on its part to be observed or
performed contained in this Indenture or in the Bonds, or (ii) a default or
failure by the Company under the Agreement, in either case, exclusive of any
period of grace or notice required to constitute a default or failure an Event
of Default, as provided above or in the Agreement.
SECTION 7.02. NOTICE OF DEFAULT. If an Event of Default shall
occur, the Trustee shall give written notice of the Event of Default, by
registered or certified mail, to the Authority, the Company, the Registrar or
any Paying Agent and Authenticating Agent and the Original Purchaser of each
series of Bonds, within ten days after the Trustee has knowledge of the Event of
Default. If an Event of Default occurs of which the Trustee has notice pursuant
to Section 6.02(f) of this Indenture, the Trustee shall give written notice
thereof, within thirty days after the Trustee's receipt of notice of its
occurrence, to the Holders of all Bonds then outstanding as shown by the
Register at the close of business fifteen days prior to the mailing of that
notice; provided, that except in the case of a default in the payment of the
principal of or any premium or interest on any Bond or in the payment of any
mandatory sinking fund redemption requirement, the Trustee shall be protected in
withholding such notice if and so long as the board of directors, the executive
committee or a trust committee of directors or responsible officers of the
Trustee in good faith determine that the withholding of notice to the Holders is
in the interests of the Holders.
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SECTION 7.03. ACCELERATION. Upon the occurrence of any Event of
Default, as defined in Section 7.01 (other than an Event of Default, as defined
in paragraph (c) of Section 7.01), the Trustee may (but shall not be obligated
to) declare, and upon the written request of the Holders of not less than 25
percent in aggregate principal amount of Bonds then outstanding the Trustee
shall declare, by a notice in writing delivered to the Company, the principal of
all Bonds then outstanding (if not then due and payable), and the interest
accrued thereon, to be due and payable immediately. Upon that declaration, that
principal and interest shall become and be due and payable immediately. Interest
on the Bonds shall accrue to the date determined by the Trustee for the tender
of payment to the Holders pursuant to that declaration; provided, that interest
on any unpaid principal of Bonds outstanding shall continue to accrue from the
date determined by the Trustee for the tender of payment to the Holders of those
Bonds.
The provisions of the preceding paragraph are subject, however,
to the condition that if, at any time after declaration of acceleration and
prior to the entry of a judgment in a court for enforcement hereunder (after an
opportunity for hearing by the Authority and the Company),
(a) all sums payable hereunder (except the principal of
and interest on Bonds which have not reached their stated
maturity dates but which are due and payable solely by reason of
that declaration of acceleration), plus interest to the extent
permitted by law on any overdue installments of interest at the
rate borne by the Bonds in respect of which the default shall
have occurred, shall have been duly paid or provision shall have
been duly made therefor by deposit with the Trustee or Paying
Agents, and
(b) all existing Events of Default shall have been cured,
then and in every case, the Trustee shall waive the Event of
Default and its consequences and shall rescind and annul that
declaration. No waiver or rescission and annulment shall extend
to or affect any subsequent Event of Default or shall impair any
rights consequent thereon.
SECTION 7.04. OTHER REMEDIES; RIGHTS OF HOLDERS. With or without
taking action under Section 7.03 hereof, upon the occurrence and continuance of
an Event of Default, the Trustee may pursue any available remedy to enforce the
payment of Bond Service Charges or the observance and performance of any other
covenant, agreement or obligation under this Indenture, the Agreement or any of
the Notes or any other instrument providing security, directly or indirectly,
for the Bonds.
If, upon the occurrence and continuance of an Event of Default,
the Trustee is requested so to do by the Holders of at least 25 percent in
aggregate principal amount of Bonds outstanding, the Trustee (subject to the
provisions of Sections 6.01 and 6.02 and particularly subparagraph 6.01(c)(iv)
and Subsection 6.02 (j) of those Sections), shall exercise any rights and powers
conferred by this Section and by Section 7.03 hereof.
No remedy conferred upon or reserved to the Trustee (or to the
Holders) by this Indenture is intended to be exclusive of any other remedy. Each
remedy shall be cumulative and shall be in addition to every other remedy given
hereunder or otherwise to the Trustee or to the Holders now or hereafter
existing.
No delay in exercising or omission to exercise any remedy, right
or power accruing upon any default or Event of Default shall impair that remedy,
right or power or shall be construed to be a waiver of any default or Event of
Default or acquiescence therein. Every
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remedy, right and power may be exercised from time to time and as often as may
be deemed to be expedient.
No waiver of any default or Event of Default hereunder, whether
by the Trustee or by the Holders, shall extend to or shall affect any subsequent
default or Event of Default or shall impair any remedy, right or power
consequent thereon.
As the assignee of all right, title and interest of the
Authority in and to the Agreement (except for the Unassigned Authority's
Rights), the Trustee is empowered to enforce each remedy, right and power
granted to the Authority under the Agreement. In exercising any remedy, right or
power thereunder or hereunder, the Trustee shall take any action which would
best serve the interests of the Holders in the judgment of the Trustee, applying
the standards described in Sections 6.01 and 6.02 hereof.
SECTION 7.05. RIGHT OF HOLDERS TO DIRECT PROCEEDINGS. Anything
to the contrary in this Indenture notwithstanding, the Holders of a majority in
aggregate principal amount of Bonds then outstanding shall have the right at any
time to direct, by an instrument or document or instruments or documents in
writing executed and delivered to the Trustee, the method and place of
conducting all proceedings to be taken in connection with the enforcement of the
terms and conditions of this Indenture or any other proceedings hereunder;
provided, that (i) any direction shall not be other than in accordance with the
provisions of law and of this Indenture, (ii) the Trustee shall be indemnified
as provided in Sections 6.01 and 6.02, and (iii) the Trustee may take any other
action which it deems to be proper and which is not inconsistent with the
direction.
SECTION 7.06. APPLICATION OF MONEYS. After payment of any costs,
expenses, liabilities and advances paid, including counsel fees, incurred or
made by the Trustee in the collection of moneys pursuant to any right given or
action taken under the provisions of this Article or the provisions of the
Agreement (including without limitation, reasonable attorneys' fees and
expenses, except as limited by law or judicial order or decision entered in any
action taken under this Article VII) and after payment of its customary fees and
expenses, all moneys received by the Trustee, shall be applied as follows,
subject to any provision made pursuant to Sections 4.05, 5.06 or 5.07 hereof:
(a) Unless the principal of all of the Bonds shall have
become, or shall have been declared to be, due and payable, all
of those moneys shall be deposited in the Bond Fund and shall be
applied:
First -- To the payment to the Holders entitled
thereto of all installments of interest then due on the
Bonds, in the order of the dates of maturity of the
installments of that interest, beginning with the
earliest date of maturity and, if the amount available is
not sufficient to pay in full any particular installment,
then to the payment thereof ratably, according to the
amounts due on that installment, to the Holders entitled
thereto, without any discrimination or privilege, except
as to any difference in the respective rates of interest
specified in the Bonds; and
Second -- To the payment to the Holders entitled
thereto of the unpaid principal of any of the Bonds which
shall have become due (other than Bonds previously called
for redemption for the payment of which moneys are held
pursuant to the provisions of this Indenture), whether at
stated maturity, by redemption or pursuant to any
mandatory sinking fund requirements, in the order of
their due dates, beginning with the earliest due date,
with interest
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on those Bonds from the respective dates upon which they
became due at the rates specified in those Bonds, and if
the amount available is not sufficient to pay in full all
Bonds due on any particular date, together with that
interest, then to the payment thereof ratably, according
to the amounts of principal due on that date, to the
Holders entitled thereto, without any discrimination or
privilege, except as to any difference in the respective
rates of interest specified in the Bonds.
(b) If the principal of all of the Bonds shall have
become due or shall have been declared to be due and payable
pursuant to this Article, all of those moneys shall be deposited
into the Bond Fund and shall be applied to the payment of the
principal and interest then due and unpaid upon the Bonds,
without preference or priority of principal over interest, of
interest over principal, of any installment of interest over any
other installment of interest, or of any Bond over any other
Bond, ratably, according to the amounts due respectively for
principal and interest, to the Holders entitled thereto, without
any discrimination or privilege, except as to any difference in
the respective rates of interest specified in the Bonds.
(c) If the principal of all of the Bonds shall have been
declared to be due and payable pursuant to this Article, and if
that declaration thereafter shall have been rescinded and
annulled under the provisions of Section 7.03 or 7.10 hereof,
subject to the provisions of paragraph (b) of this Section in
the event that the principal of all of the Bonds shall become
due and payable later, the moneys shall be deposited in the Bond
Fund and shall be applied in accordance with the provisions of
Article III.
(d) Whenever moneys are to be applied pursuant to the
provisions of this Section, those moneys shall be applied at
such times, and from time to time, as the Trustee shall
determine, having due regard to the amount of moneys available
for application and the likelihood of additional moneys becoming
available for application in the future. Whenever the Trustee
shall direct the application of those moneys, it shall fix the
date upon which the application is to be made, and upon that
date, interest shall cease to accrue on the amounts of
principal, if any, to be paid on that date, provided the moneys
are available therefor. The Trustee shall give notice of the
deposit with it of any moneys and of the fixing of that date,
all consistent with the requirements of Section 3.05 hereof for
the establishment of, and for giving notice with respect to, a
Special Record Date for the payment of overdue interest. The
Trustee shall not be required to make payment of principal of
and any premium on a Bond to the Holder thereof, until the Bond
shall be presented to the Trustee for appropriate endorsement or
for cancellation if it is paid fully.
SECTION 7.07. REMEDIES VESTED IN TRUSTEE. All rights of action
(including without limitation, the right to file proof of claims) under this
Indenture or under any of the Bonds may be enforced by the Trustee without the
possession of any of the Bonds or the production thereof in any trial or other
proceeding relating thereto. Any suit or proceeding instituted by the Trustee
shall be brought in its name as Trustee without the necessity of joining any
Holders as plaintiffs or defendants. Any recovery of judgment shall be for the
benefit of the Holders of the outstanding Bonds, subject to the provisions of
this Indenture.
SECTION 7.08. RIGHTS AND REMEDIES OF HOLDERS. A Holder shall not
have any right to institute any suit, action or proceeding for the enforcement
of this Indenture, for the execution of any trust hereof, or for the exercise of
any other remedy hereunder, unless:
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(a) there has occurred and is continuing an Event of
Default of which the Trustee has been notified, as provided in
paragraph (f) of Section 6.02 hereof, or of which it is deemed
to have notice under that paragraph,
(b) the Holders of at least 25 percent in aggregate
principal amount of Bonds then outstanding shall have made
written request to the Trustee and shall have afforded the
Trustee reasonable opportunity to proceed to exercise the
remedies, rights and powers granted herein or to institute the
suit, action or proceeding in its own name, and shall have
offered indemnity to the Trustee as provided in Sections 6.01
and 6.02 hereof, and
(c) the Trustee thereafter shall have failed or refused
to exercise the remedies, rights and powers granted herein or to
institute the suit, action or proceeding in its own name.
At the option of the Trustee, that notification (or notice), request,
opportunity and offer of indemnity are conditions precedent in every case, to
the institution of any suit, action or proceeding described above.
No one or more Holders of the Bonds shall have any right to
affect, disturb or prejudice in any manner whatsoever the security or benefit of
this Indenture by its or their action, or to enforce, except in the manner
provided herein, any remedy, right or power hereunder. Any suit, action or
proceedings shall be instituted, had and maintained in the manner provided
herein for the benefit of the Holders of all Bonds then outstanding. Nothing in
this Indenture shall affect or impair, however, the right of any Holder to
enforce the payment of the Bond Service Charges on any Bond owned by that Holder
at and after the maturity thereof, at the place, from the sources and in the
manner expressed in that Bond.
SECTION 7.09. TERMINATION OF PROCEEDINGS. In case the Trustee
shall have proceeded to enforce any remedy, right or power under this Indenture
in any suit, action or proceedings, and the suit, action or proceedings shall
have been discontinued or abandoned for any reason, or shall have been
determined adversely to the Trustee, the Authority, the Trustee and the Holders
shall be restored to their former positions and rights hereunder, respectively,
and all rights, remedies and powers of the Trustee shall continue as if no suit,
action or proceedings had been taken.
SECTION 7.10. WAIVERS OF EVENTS OF DEFAULT. Except as
hereinafter provided, at any time, in its discretion, the Trustee may waive any
Event of Default hereunder and its consequences and may rescind and annul any
declaration of maturity of principal of the Bonds. The Trustee shall do so upon
the written request of the Holders of
(a) at least a majority in aggregate principal amount of
all Bonds then outstanding in respect of which an Event of
Default in the payment of Bond Service Charges exists, or
(b) at least 25 percent in aggregate principal amount of
all Bonds then outstanding, in the case of any other Event of
Default.
There shall not be so waived, however, any Event of Default
described in paragraph (a) or (b) of Section 7.01 hereof or any declaration of
acceleration in connection therewith rescinded or annulled, unless at the time
of that waiver or rescission and annulment payments of the amounts provided in
Section 7.03 hereof for waiver and rescission and annulment in connection with
acceleration of maturity have been made or provision has been
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made therefor. In the case of the waiver or rescission and annulment, or in case
any suit, action or proceedings taken by the Trustee on account of any Event of
Default shall have been discontinued, abandoned or determined adversely to it,
the Authority, the Trustee and the Holders shall be restored to their former
positions and rights hereunder, respectively. No waiver or rescission shall
extend to any subsequent or other Event of Default or impair any right
consequent thereon.
(End of Article VII)
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ARTICLE VIII
SUPPLEMENTAL INDENTURES
SECTION 8.01. SUPPLEMENTAL INDENTURES GENERALLY. The Authority
and the Trustee may enter into indentures supplemental to this Indenture, as
provided in this Article and pursuant to the other provisions therefor in this
Indenture.
SECTION 8.02. SUPPLEMENTAL INDENTURES NOT REQUIRING CONSENT OF
HOLDERS. Without the consent of, or notice to, any of the Holders, the Authority
and the Trustee may enter into indentures supplemental to this Indenture which
shall not, in the opinion of the Authority and the Trustee, be inconsistent with
the terms and provisions hereof for any one or more of the following purposes:
(a) To cure any ambiguity, inconsistency or formal
defect or omission in this Indenture;
(b) To grant to or confer upon the Trustee for the
benefit of the Holders any additional rights, remedies, powers
or authority that lawfully may be granted to or conferred upon
the Holders or the Trustee;
(c) To assign additional revenues under this Indenture;
(d) To accept additional security and instruments and
documents of further assurance with respect to the Project;
(e) To add to the covenants, agreements and obligations
of the Authority under this Indenture, other covenants,
agreements and obligations to be observed for the protection of
the Holders, or to surrender or limit any right, power or
authority reserved to or conferred upon the Authority in this
Indenture, including without limitation, the limitation of
rights of redemption so that in certain instances Bonds of
different series will be redeemed in some prescribed
relationship to one another for the protection of the Holders of
a particular series of Bonds;
(f) To evidence any succession to the Authority and the
assumption by its successor of the covenants, agreements and
obligations of the Authority under this Indenture, the Agreement
and the Bonds;
(g) To make necessary or advisable amendments or
additions in connection with the issuance of Additional Bonds in
accordance with Section 2.04 hereof as do not adversely affect
the interests of Holders of outstanding Bonds;
(h) To permit the exchange of Bonds, at the option of the
Holder or Holders thereof, for coupon Bonds of the same series
payable to bearer, in an aggregate principal amount not
exceeding the unmatured and unredeemed principal amount of the
Predecessor Bonds, bearing interest at the same rate or rates
and maturing on the same date or dates, with coupons attached
representing all unpaid interest due or to become due thereon
if, in the opinion of nationally recognized bond counsel
selected by the Trustee, that exchange would not result in the
interest on any of the Bonds outstanding becoming subject to
federal income taxation;
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(i) To permit the use of a book entry system to identify
the owner of an interest in an obligation issued by the
Authority under this Indenture, whether that obligation was
formerly, or could be, evidenced by a tangible security;
(j) To permit the Trustee to comply with any obligations
imposed upon it by law;
(k) To specify further the duties and responsibilities
of, and to define further the relationship among, the Trustee,
the Registrar and any Authenticating Agents or Paying Agents;
(l) To achieve compliance of this Indenture with any
applicable federal securities or tax law;
(m) To make amendments to the provisions hereof relating
to requirements, or changes in requirements, under the Code, if,
in the opinion of Bond Counsel, those amendments would not cause
the interest on the Bonds outstanding to be included in the
gross income of the Holders for federal income tax purposes; and
(n) To permit any other amendment which, in the judgment
of the Trustee (relying on the advice of experts, where
appropriate) in its sole discretion, is not to the prejudice of
the Trustee or the Holders.
The provisions of Subsections 8.02(j) and (l) shall not be
deemed to constitute a waiver by the Trustee, the Registrar, the Authority or
any Holder of any right which it may have in the absence of those provisions to
contest the application of any change in law to this Indenture or the Bonds.
SECTION 8.03. SUPPLEMENTAL INDENTURES REQUIRING CONSENT OF
HOLDERS. Exclusive of Supplemental Indentures to which reference is made in
Section 8.02 hereof and subject to the terms, provisions and limitations
contained in this Section, and not otherwise, with the consent of the Holders of
not less than a majority in aggregate principal amount of the Bonds at the time
outstanding, evidenced as provided in this Indenture, and with the consent of
the Company if required by Section 8.04 hereof, the Authority and the Trustee
may execute and deliver Supplemental Indentures adding any provisions to,
changing in any manner or eliminating any of the provisions of this Indenture or
any Supplemental Indenture or restricting in any manner the rights of the
Holders. Nothing in this Section or Section 8.02 hereof shall permit, however,
or be construed as permitting:
(a) without the consent of the Holder of each Bond so
affected, (i) an extension of the maturity of the principal of
or the interest on any Bond, (ii) a reduction in the principal
amount of any Bond or the rate of interest or premium thereon,
or (iii) a reduction in the amount or extension of the time of
payment of any mandatory sinking fund requirements, or
(b) without the consent of the Holders of all Bonds then
outstanding, (i) the creation of a privilege or priority of any
Bond or Bonds over any other Bond or Bonds, or (ii) a reduction
in the aggregate principal amount of the Bonds required for
consent to a Supplemental Indenture.
If the Authority shall request that the Trustee execute and
deliver any Supplemental Indenture for any of the purposes of this Section, upon
(i) being satisfactorily indemnified with respect to its expenses in connection
therewith, and (ii) if required by Section 8.04 hereof,
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receipt of the Company's consent to the proposed execution and delivery of the
Supplemental Indenture, the Trustee shall cause notice of the proposed execution
and delivery of the Supplemental Indenture to be mailed by first class mail,
postage prepaid, to all Holders of Bonds then outstanding at their addresses as
they appear on the Register at the close of business on the fifteenth day
preceding that mailing.
The Trustee shall not be subject to any liability to any Holder
by reason of the Trustee's failure to mail, or the failure of any Holder to
receive, the notice required by this Section. Any failure of that nature shall
not affect the validity of the Supplemental Indenture when there has been
consent thereto as provided in this Section. The notice shall set forth briefly
the nature of the proposed Supplemental Indenture and shall state that copies
thereof are on file at the principal corporate trust office of the Trustee for
inspection by all Holders.
With respect to a Supplemental Indenture for any purposes of
this Section, if the Trustee shall receive, within a period prescribed by the
Authority, of not less than 60 days, but not exceeding one year, following the
mailing of the notice, an instrument or document or instruments or documents, in
form to which the Trustee does not reasonably object, purporting to be executed
by the Holders of not less than a majority in aggregate principal amount of the
Bonds then outstanding (which instrument or document or instruments or documents
shall refer to the proposed Supplemental Indenture in the form described in the
notice and specifically shall consent to the Supplemental Indenture in
substantially that form), the Trustee shall, but shall not otherwise, execute
and deliver the Supplemental Indenture in substantially the form to which
reference is made in the notice as being on file with the Trustee, without
liability or responsibility to any Holder, regardless of whether that Holder
shall have consented thereto.
Any consent shall be binding upon the Holder of the Bond giving
the consent and, anything herein to the contrary notwithstanding, upon any
subsequent Holder of that Bond and of any Bond issued in exchange therefor
(regardless of whether the subsequent Holder has notice of the consent to the
Supplemental Indenture). A consent may be revoked in writing, however, by the
Holder who gave the consent or by a subsequent Holder of the Bond by a
revocation of such consent received by the Trustee prior to the execution and
delivery by the Trustee of the Supplemental Indenture. At any time after the
Holders of the required percentage of Bonds shall have filed their consents to
the Supplemental Indenture, the Trustee shall make and file with the Authority a
written statement that the Holders of the required percentage of Bonds have
filed those consents. That written statement shall be conclusive evidence that
the consents have been so filed.
If the Holders of the required percentage in aggregate principal
amount of Bonds outstanding shall have consented to the Supplemental Indenture,
as provided in this Section, no Holder shall have any right (a) to object to (i)
the execution or delivery of the Supplemental Indenture, (ii) any of the terms
and provisions contained therein, or (iii) the operation thereof, (b) to
question the propriety of the execution and delivery thereof, or (c) to enjoin
or restrain the Trustee or the Authority from that execution or delivery or from
taking any action pursuant to the provisions thereof.
SECTION 8.04. CONSENT OF COMPANY. Anything contained herein to
the contrary notwithstanding, a Supplemental Indenture executed and delivered in
accordance with this Article VIII which affects any rights of the Company shall
not become effective unless and until the Company shall have consented in
writing to the execution and delivery of that Supplemental Indenture. The
Trustee shall cause notice of the proposed execution and delivery of any
Supplemental Indenture and a copy of the proposed Supplemental Indenture to be
mailed to the Company, as provided in Section 13.03 hereof, (i) at least 30 days
(unless waived by the Company) before the date of the proposed execution and
delivery in the case of a Supplemental
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Indenture to which reference is made in Section 8.02 hereof, and (ii) at least
30 days (unless waived by the Company) before the giving of the notice of the
proposed execution and delivery in the case of a Supplemental Indenture for
which provision is made in Section 8.03 hereof.
SECTION 8.05. AUTHORIZATION TO TRUSTEE; EFFECT OF SUPPLEMENT.
The Trustee is authorized to join with the Authority in the execution and
delivery of any Supplemental Indenture in accordance with this Article and to
make the further agreements and stipulations which may be contained therein.
Thereafter,
(a) That Supplemental Indenture shall form a part of
this Indenture;
(b) All terms and conditions contained in that
Supplemental Indenture as to any provision authorized to be
contained therein shall be deemed to be a part of the terms and
conditions of this Indenture for any and all purposes;
(c) This Indenture shall be deemed to be modified and
amended in accordance with the Supplemental Indenture; and
(d) The respective rights, duties and obligations under
this Indenture of the Authority, the Company, the Trustee, the
Registrar, the Paying Agents, the Authenticating Agents and all
Holders of Bonds then outstanding shall be determined, exercised
and enforced hereunder in a manner which is subject in all
respects to those modifications and amendments made by the
Supplemental Indenture.
Express reference to any executed and delivered Supplemental
Indenture may be made in the text of any Bonds issued thereafter, if that
reference is deemed necessary or desirable by the Trustee or the Authority. A
copy of any Supplemental Indenture for which provision is made in this Article,
except a Supplemental Indenture described in clause (g) of Section 8.02 hereof,
shall be mailed by the Trustee to the Registrar, each Authenticating Agent and
Paying Agent and the Original Purchaser of each series of Bonds affected
thereby. The Trustee shall not be required to execute any supplemental indenture
containing provisions adverse to the Trustee.
SECTION 8.06. OPINION OF COUNSEL. The Trustee shall be entitled
to receive, and shall be fully protected in relying upon, the opinion of any
counsel approved by it as conclusive evidence that (i) any proposed Supplemental
Indenture complies with the provisions of this Indenture, and (ii) it is proper
for the Trustee to join in the execution of that Supplemental Indenture under
the provisions of this Article. That counsel may be counsel for the Authority or
the Company.
SECTION 8.07. MODIFICATION BY UNANIMOUS CONSENT. Notwithstanding
anything contained elsewhere in this Indenture, the rights and obligations of
the Authority and of the Holders, and the terms and provisions of the Bonds and
this Indenture or any Supplemental Indenture, may be modified or altered in any
respect with the consent of (i) the Authority, (ii) the Holders of all of the
Bonds then outstanding, and (iii) if required by Section 8.04 hereof, the
Company.
(End of Article VIII)
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ARTICLE IX
DEFEASANCE
SECTION 9.01. RELEASE OF INDENTURE. If (i) the Authority shall
pay all of the outstanding Bonds, or shall cause them to be paid and discharged,
or if there otherwise shall be paid to the Holders of the outstanding Bonds, all
Bond Service Charges due or to become due thereon, and (ii) provision also shall
be made for the payment of all other sums payable hereunder or under the
Agreement and the Notes, then, this Indenture shall cease, terminate and become
null and void (except for those provisions surviving by reason of Section 9.03
hereof in the event the Bonds are deemed paid and discharged pursuant to Section
9.02 hereof), and the covenants, agreements and obligations of the Authority
hereunder shall be released, discharged and satisfied.
Thereupon, and subject to the provisions of Section 9.03 hereof
if applicable,
(i) the Trustee shall release this Indenture (except for
those provisions surviving by reason of Section 9.03 hereof in
the event the Bonds are deemed paid and discharged pursuant to
Section 9.02 hereof), and shall execute and deliver to the
Authority any instruments or documents in writing as shall be
requisite to evidence that release and discharge or as
reasonably may be requested by the Authority, and
(ii) the Trustee and any other Paying Agents shall assign
and deliver to the Authority any property subject at the time to
the lien of this Indenture which then may be in their
possession, except amounts in the Bond Fund required (a) to be
paid to the Company under Section 5.08 hereof, or (b) to be held
by the Trustee and the Paying Agents under Section 5.07 hereof
or otherwise for the payment of Bond Service Charges.
SECTION 9.02. PAYMENT AND DISCHARGE OF BONDS. All or any part of
the Bonds shall be deemed to have been paid and discharged within the meaning of
this Indenture, including without limitation, Section 9.01 hereof, if:
(a) the Trustee as paying agent and any Paying Agents
shall have received, in trust for and irrevocably committed
thereto, sufficient moneys, or
(b) the Trustee shall have received, in trust for and
irrevocably committed thereto, noncallable direct obligations of
the United States of America which are certified by an
independent public accounting firm of national reputation to be
of such maturities or redemption dates and interest payment
dates, and to bear such interest, as will be sufficient together
with any moneys to which reference is made in subparagraph (a)
above, without further investment or reinvestment of either the
principal amount thereof or the interest earnings therefrom
(which earnings are to be held likewise in trust and so
committed, except as provided herein),
for the payment of all Bond Service Charges on those Bonds, at their maturity or
redemption dates, as the case may be, or if a default in payment shall have
occurred on any maturity or redemption date, then for the payment of all Bond
Service Charges thereon to the date of the tender of payment; provided, that if
any of those Bonds are to be redeemed prior to the maturity thereof, notice of
that redemption shall have been duly given or irrevocable provision satisfactory
to the Trustee shall have been duly made for the giving of that notice.
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Any moneys held by the Trustee in accordance with the provisions
of this Section may be invested by the Trustee only in noncallable direct
obligations of the United States of America having maturity dates, or having
redemption dates which, at the option of the Holder of those obligations, shall
be not later than the date or dates at which moneys will be required for the
purposes described above. To the extent that any income or interest earned by,
or increment to, the investments held under this Section is determined from time
to time by an independent public accounting firm of national reputation to be in
excess of the amount required to be held by the Trustee for the purposes of this
Section, that income, interest or increment shall be transferred at the time of
that determination in the manner provided in Section 5.08 hereof for transfers
of amounts remaining in the Bond Fund.
If any Bonds shall be deemed paid and discharged pursuant to
this Section 9.02, then within 15 days after such Bonds are so deemed paid and
discharged the Trustee shall cause a written notice to be given to each Holder
as shown on the Register on the date on which such Bonds are deemed paid and
discharged. Such notice shall state the numbers of the Bonds deemed paid and
discharged or state that all Bonds of a particular series are deemed paid and
discharged, set forth a description of the obligations held pursuant to
subparagraph (b) of the first paragraph of this Section 9.02 and specify any
date or dates on which any of the Bonds are to be called for redemption pursuant
to notice of redemption given or irrevocable provisions made for such notice
pursuant to the first paragraph of this Section 9.02.
SECTION 9.03. SURVIVAL OF CERTAIN PROVISIONS. Notwithstanding
the foregoing, any provisions of the Bond Legislation and this Indenture which
relate to the maturity of Bonds, interest payments and dates thereof, optional
and mandatory redemption provisions, credit against mandatory sinking fund
requirements, exchange, transfer and registration of Bonds, replacement of
mutilated, destroyed, lost or stolen Bonds, the safekeeping and cancellation of
Bonds, nonpresentment of Bonds, the holding of moneys in trust, the provisions
of the Agreement and this Indenture relating to payments of fees and expenses of
the Trustee and indemnification of the Trustee, and repayments to the Company
from the Bond Fund and the duties of the Trustee and the Registrar in connection
with all of the foregoing as set forth in Article VI hereof, shall remain in
effect and be binding upon the Trustee, the Registrar, the Authenticating
Agents, Paying Agents and the Holders notwithstanding the release and discharge
of this Indenture. The provisions of this Article shall survive the release,
discharge and satisfaction of this Indenture.
(End of Article IX)
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ARTICLE X
COVENANTS AND AGREEMENTS
OF THE AUTHORITY
SECTION 10.01. COVENANTS AND AGREEMENTS OF THE AUTHORITY. In
addition to any other covenants and agreements of the Authority contained in
this Indenture or the Bond Legislation, the Authority further covenants and
agrees with the Holders and the Trustee as follows:
(a) PAYMENT OF BOND SERVICE CHARGES. The Authority will pay all
Bond Service Charges, or cause them to be paid, solely from the sources provided
herein, on the dates, at the places and in the manner provided in this
Indenture.
(b) REVENUES AND ASSIGNMENT OF REVENUES. The Authority will not
assign the Revenues or the Agreement, or create or authorize to be created any
debt, lien or charge thereon, other than the assignment thereof under this
Indenture.
(c) RECORDINGS AND FILINGS. At the expense of the Company, the
Authority will cause this Indenture, and any related instruments or documents
relating to the assignment made by it under this Indenture to secure the Bonds,
to be recorded and filed in the manner and in the places which may be required
by law in order to preserve and protect fully the security of the Holders and
the rights of the Trustee hereunder.
(d) INSPECTION OF PROJECT BOOKS. All books, instruments and
documents in the Authority's possession relating to the Project and the Revenues
shall be open to inspection at all times during the Authority's regular business
hours by any accountants or other agents of the Trustee which the Trustee may
designate from time to time.
(e) REGISTER. At reasonable times and under reasonable
regulations established by the Registrar, the Register may be inspected and
copied by the Company, the Trustee, by Holders of 25 percent or more in
principal amount of the Bonds then outstanding, or a designated representative
thereof.
(f) RIGHTS AND ENFORCEMENT OF THE AGREEMENT. The Trustee may
enforce, in its name or in the name of the Authority, all rights of the
Authority for and on behalf of the Holders, except for Unassigned Authority's
Rights, and may enforce all covenants, agreements and obligations of the Company
under and pursuant to the Agreement, regardless of whether the Authority is in
default in the pursuit or enforcement of those rights, covenants, agreements or
obligations. The Authority, however, will do all things and take all actions on
its part necessary to comply with covenants, agreements, obligations, duties and
responsibilities on its part to be observed or performed under the Agreement,
and will take all actions within its authority to keep the Agreement in effect
in accordance with the terms thereof.
SECTION 10.02. OBSERVANCE AND PERFORMANCE OF COVENANTS,
AGREEMENTS, AUTHORITY AND ACTIONS. The Authority will observe and perform
faithfully at all times all covenants, agreements, authority, actions,
undertakings, stipulations and provisions to be observed or performed on its
part under the Agreement, this Indenture, the Bond Legislation and the Bonds
which are executed, authenticated and delivered under this Indenture, and under
all proceedings pertaining thereto.
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The Authority represents and warrants that
(a) It is duly authorized by the Constitution and laws of
the State, including particularly and without limitation the
Act, to issue the Project Bonds, to execute and deliver this
Indenture and the Agreement and to provide the security for
payment of the Bond Service Charges in the manner and to the
extent set forth in this Indenture.
(b) All actions required on its part to be performed for
the issuance, sale and delivery of the Project Bonds and for the
execution and delivery of this Indenture and the Agreement have
been or will be taken duly and effectively.
(c) The Project Bonds will be valid and enforceable
special obligations of the Authority according to their terms.
SECTION 10.03. ENFORCEMENT OF AUTHORITY'S OBLIGATIONS. Each
obligation of the Authority required to be undertaken pursuant to the Bond
Legislation, this Indenture, the Agreement and the Bonds is binding upon the
Authority, and upon each officer or employee thereof as may have from time to
time the authority under law to take any action on behalf of the Authority which
may be necessary to perform all or any part of that obligation, as a duty of the
Authority and of each of those officers and employees resulting from an office,
trust or station within the meaning of Section 2731.01, Ohio Revised Code,
providing for enforcement by writ of mandamus.
(End of Article X)
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ARTICLE XI
AMENDMENTS TO AGREEMENT AND NOTES
SECTION 11.01. AMENDMENTS NOT REQUIRING CONSENT OF HOLDERS.
Without the consent of or notice to the Holders, the Authority and the Trustee
may consent to any amendment, change or modification of the Agreement or the
Notes as may be required (i) by the provisions of the Agreement or this
Indenture, (ii) in connection with the issuance of Additional Bonds, as
specified in Section 2.04 hereof, (iii) for the purpose of curing any ambiguity,
inconsistency or formal defect or omission in the Agreement or any of the Notes,
(iv) in connection with an amendment or to effect any purpose for which there
could be an amendment of this Indenture pursuant to Section 8.02 hereof, or (v)
in connection with any other change therein which is not to the prejudice of the
Trustee or the Holders of the Bonds, in the judgment of the Trustee (relying on
the advice of experts, where appropriate) in its sole discretion.
SECTION 11.02. AMENDMENTS REQUIRING CONSENT OF HOLDERS. Except
for the amendments, changes or modifications contemplated in Section 11.01
hereof, neither the Authority nor the Trustee shall consent to
(a) any amendment, change or modification of the
Agreement or any of the Notes which would change the amount or
time as of which Loan Payments are required to be paid, without
the giving of notice as provided in this Section of the proposed
amendment, change or modification and receipt of the written
consent thereto of the Holders of all of the then outstanding
Bonds, or
(b) any other amendment, change or modification of the
Agreement or any of the Notes without the giving of notice as
provided in this Section of the proposed amendment, change or
modification and receipt of the written consent thereto of the
Holders of not less than a majority in aggregate principal
amount of the Bonds then outstanding.
The consent of the Holders shall be obtained as provided in Section 8.03 hereof
with respect to Supplemental Indentures.
If the Authority and the Company shall request at any time the
consent of the Trustee to any proposed amendment, change or modification of the
Agreement or any of the Notes contemplated in subparagraphs (a) or (b), upon
being indemnified satisfactorily with respect to expenses, the Trustee shall
cause notice of the proposed amendment, change or modification to be provided in
the manner which is required by Section 8.03 hereof with respect to notice of
Supplemental Indentures. The notice shall set forth briefly the nature of the
proposed amendment, change or modification and shall state that copies of the
instrument or document embodying it are on file at the principal corporate trust
office of the Trustee for inspection by all Holders.
(End of Article XI)
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ARTICLE XII
MEETINGS OF HOLDERS
SECTION 12.01. PURPOSES OF MEETINGS. A meeting of Holders, or of
the Holders of any series of Bonds, may be called at any time and from time to
time pursuant to the provisions of this Article XII, to the extent relevant to
the Holders of all of the Bonds or of Bonds of that series, as the case may be,
to take any action (i) authorized to be taken by or on behalf of the Holders of
any specified aggregate principal amount of the Bonds, or of that series, (ii)
under any provision of this Indenture or (iii) authorized or permitted by law.
SECTION 12.02. CALL OF MEETINGS. The Trustee may (but shall not
be obligated to) call at any time a meeting of Holders pursuant to Section 12.01
to be held at any reasonable time and place the Trustee shall determine. Notice
of such meeting, setting forth the time, place and generally the subject
thereof, shall be mailed by first class mail, postage prepaid, not fewer than 15
nor more than 90 days prior to the date of the meeting to the Holders at their
addresses as they appear on the Register on the fifteenth day preceding such
mailing, which fifteenth day preceding the mailing shall be the record date for
the meeting.
At any time, the Authority or the board of directors of the
Company, or the Holders of at least 25 percent in aggregate principal amount of
the Bonds, or if applicable, the affected series of Bonds, then outstanding,
shall have requested the Trustee to call a meeting of Holders, by written
request setting forth the purpose of the meeting, and the Trustee shall not have
mailed the notice of the meeting within 20 days after receipt of the request,
then the Authority, the Company or the Holders of Bonds in the amount above
specified may determine the time and the place of the meeting and may call the
meeting to take any action authorized in Section 12.01, by mailing notice
thereof as provided above.
Any meetings of Holders, or the Holders of any series of Bonds
affected by a particular matter, shall be valid without notice, if the Holders
of all Bonds, or if applicable, the affected series of Bonds, then outstanding
are present in person or by proxy, or if notice is waived before or after the
meeting by the Holders of all Bonds, or if applicable, the affected series of
Bonds, outstanding who were not so present at the meeting, and if the Authority,
the Company and the Trustee are either present by duly authorized
representatives or have waived notice, before or after the meeting.
SECTION 12.03. VOTING. To be entitled to vote at any meeting of
Holders, a Person shall (a) be a Holder of one or more outstanding Bonds, or if
applicable, of the affected series of Bonds, as of the record date for the
meeting as determined above, or (b) be a person appointed by an instrument or
document in writing as proxy by a Person who is a Holder as of the record date
for the meeting, of one or more outstanding Bonds or, if applicable, of the
affected series of Bonds. Each Holder or proxy shall be entitled to one vote for
each $100,000 principal amount of Bonds held or represented by it.
The vote upon any resolution submitted to any meeting of Holders
shall be by written ballots on which shall be subscribed the signatures of the
Holders of Bonds or of their representatives by proxy and the identifying number
or numbers of the Bonds held or represented by them.
SECTION 12.04. MEETINGS. Notwithstanding any other provisions of
this Indenture, the Trustee may make any reasonable regulations which it may
deem to be advisable for meetings of Holders, with regard to
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(a) proof of the holding of Bonds and of the appointment
of proxies,
(b) the appointment and duties of inspectors of votes,
(c) recordation of the proceedings of those meetings,
(d) the execution, submission and examination of proxies
and other evidence of the right to vote, and
(e) any other matters concerning the conduct,
adjournment or reconvening of meetings which it may think fit.
The Trustee shall appoint a temporary chair of the meeting by an
instrument or document in writing, unless the meeting shall have been called by
the Authority, the Company or by the Holders, as provided in Section 12.02, in
which case the Authority, the Company or the Holders calling the meeting, as the
case may be, shall appoint a temporary chair in like manner. A permanent chair
and a permanent secretary of the meeting shall be elected by vote of the Holders
of a majority in principal amount of the Bonds represented at the meeting and
entitled to vote.
The only Persons who shall be entitled to be present or to speak
at any meeting of Holders shall be the Persons entitled to vote at the meeting
and their counsel, any representatives of the Trustee or Registrar and their
counsel, any representatives of the Authority and its counsel, and any
representatives of the Company and its counsel.
SECTION 12.05. MISCELLANEOUS. Nothing contained in this Article
XII shall be deemed or construed to authorize or permit any hindrance or delay
in the exercise of any right or rights conferred upon or reserved to the Trustee
or to the Holders under any of the provisions of this Indenture or of the Bonds
by reason of any call of a meeting of Holders or any rights conferred expressly
or impliedly hereunder to make a call.
(End of Article XII)
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ARTICLE XIII
MISCELLANEOUS
SECTION 13.01. LIMITATION OF RIGHTS. With the exception of
rights conferred expressly in this Indenture, nothing expressed or mentioned in
or to be implied from this Indenture or the Bonds is intended or shall be
construed to give to any Person other than the parties hereto, the Registrar,
the Authenticating Agents, the Company and the Holders of the Bonds any legal or
equitable right, remedy, power or claim under or with respect to this Indenture
or any covenants, agreements, conditions and provisions contained herein. This
Indenture and all of those covenants, agreements, conditions and provisions are
intended to be, and are, for the sole and exclusive benefit of the parties
hereto, the Company and the Holders of the Bonds, as provided herein.
SECTION 13.02. SEVERABILITY. In case any section or provision of
this Indenture, or any covenant, agreement, stipulation, obligation, act or
action, or part thereof, made, assumed, entered into or taken under this
Indenture, or any application thereof, is held to be illegal or invalid for any
reason, or is inoperable at any time, that illegality, invalidity or
inoperability shall not affect the remainder thereof or any other section or
provision of this Indenture or any other covenant, agreement, stipulation,
obligation, act or action, or part thereof, made, assumed, entered into or taken
under this Indenture, all of which shall be construed and enforced at the time
as if the illegal, invalid or inoperable portion were not contained therein.
Any illegality, invalidity or inoperability shall not affect any
legal, valid and operable section, provision, covenant, agreement, stipulation,
obligation, act, action, part or application, all of which shall be deemed to be
effective, operative, made, assumed, entered into or taken in the manner and to
the full extent permitted by law from time to time.
SECTION 13.03. NOTICES. Except as provided in Section 7.02
hereof, it shall be sufficient service or giving of any notice, request,
complaint, demand or other instrument or document, if the same shall be duly
mailed by first class mail, postage prepaid, addressed to the relevant party at
the Notice Address as defined in Article I hereof. Duplicate copies of each
notice, request, complaint, demand or other instrument or document given
hereunder by the Authority, the Trustee or the Company to one or both of the
others also shall be given to the others. The foregoing parties may designate,
by notice given hereunder, any further or different addresses to which any
subsequent notice, request, complaint, demand or other instrument or document
shall be sent. The Trustee shall designate, by notice to the Authority and the
Company the addresses to which notices or copies thereof shall be sent to the
Registrar, the Authenticating Agents and the Paying Agents.
In connection with any notice mailed pursuant to the provisions
of this Indenture, a certificate of the Trustee, the Authority, the Registrar,
the Authenticating Agents, the Company or the Holders of the Bonds, whichever or
whoever mailed that notice, that the notice was so mailed shall be conclusive
evidence of the proper mailing of the notice.
SECTION 13.04. SUSPENSION OF MAIL. If because of the suspension
of delivery of first class mail or, for any other reason, the Trustee shall be
unable to mail by the required class of mail any notice required to be mailed by
the provisions of this Indenture, the Trustee shall give such notice in such
other manner as in the judgment of the Trustee shall most effectively
approximate mailing thereof, and the giving of that notice in that manner for
all purposes of this Indenture shall be deemed to be in compliance with the
requirement for the
- 54 -
<PAGE> 60
mailing thereof. Except as otherwise provided herein, the mailing of any notice
shall be deemed complete upon deposit of that notice in the mail and the giving
of any notice by any other means of delivery shall be deemed complete upon
receipt of the notice by the delivery service.
SECTION 13.05. PAYMENTS DUE ON SATURDAYS, SUNDAYS AND HOLIDAYS.
If any Interest Payment Date, date of maturity of the principal of any Bonds, or
date fixed for redemption of any Bonds is a Saturday, Sunday or a day on which
(i) the Trustee is required, or authorized or not prohibited, by law (including
without limitation, executive orders) to close and is closed, then payment of
interest, principal and any redemption premium need not be made by the Trustee
or any Paying Agent on that date, but that payment may be made on the next
succeeding business day on which the Trustee and the Paying Agent are open for
business with the same force and effect as if that payment were made on the
Interest Payment Date, date of maturity or date fixed for redemption, and no
interest shall accrue for the period after that date, or (ii) a Paying Agent is
required, or authorized or not prohibited, by law (including without limitation,
executive orders) to close and is closed, then payment of interest, principal
and any redemption premium need not be made by that Paying Agent on that date,
but that payment may be made on the next succeeding business day on which that
Paying Agent is open for business with the same force and effect as if that
payment were made on the Interest Payment Date, date of maturity or date fixed
for redemption and no interest shall accrue for the period after that date;
provided, that if the Trustee is open for business on the applicable Interest
Payment Date, date of maturity or date fixed for redemption, it shall make any
payment required hereunder with respect to payment of interest on outstanding
Bonds and payment of principal of and premium on Bonds presented to it for
payment, regardless of whether any Paying Agent shall be open for business or
closed on the applicable Interest Payment Date, date of maturity or date fixed
for redemption.
SECTION 13.06. INSTRUMENTS OF HOLDERS. Any writing, including
without limitation, any consent, request, direction, approval, objection or
other instrument or document, required under this Indenture to be executed by
any Holder may be in any number of concurrent writings of similar tenor and may
be executed by that Holder in person or by an agent or attorney appointed in
writing. Proof of (i) the execution of any writing, including without
limitation, any consent, request, direction, approval, objection or other
instrument or document, (ii) the execution of any writing appointing any agent
or attorney, and (iii) the ownership of Bonds, shall be sufficient for any of
the purposes of this Indenture, if made in the following manner, and if so made,
shall be conclusive in favor of the Trustee with regard to any action taken
thereunder, namely:
(a) The fact and date of the execution by any person of
any writing may be proved by the certificate of any officer in
any jurisdiction, who has power by law to take acknowledgments
within that jurisdiction, that the person signing the writing
acknowledged that execution before that officer, or by affidavit
of any witness to that execution; and
(b) The fact of ownership of Bonds shall be proved by
the Register maintained by the Registrar.
Nothing contained herein shall be construed to limit the Trustee
to the foregoing proof, and the Trustee may accept any other evidence of the
matters stated therein which it deems to be sufficient. Any writing, including
without limitation, any consent, request, direction, approval, objection or
other instrument or document, of the Holder of any Bond shall bind every future
Holder of the same Bond, with respect to anything done or suffered to be done by
the Authority, the Trustee, the Registrar or any Paying Agent or Authenticating
Agent pursuant to that writing.
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<PAGE> 61
SECTION 13.07. PRIORITY OF THIS INDENTURE. This Indenture shall
be superior to any liens which may be placed upon the Revenues or any other
funds or accounts created pursuant to this Indenture.
SECTION 13.08. EXTENT OF COVENANTS; NO PERSONAL LIABILITY. All
covenants, stipulations, obligations and agreements of the Authority contained
in this Indenture are and shall be deemed to be covenants, stipulations,
obligations and agreements of the Authority to the full extent authorized by the
Act and permitted by the Constitution of the State. No covenant, stipulation,
obligation or agreement of the Authority contained in this Indenture shall be
deemed to be a covenant, stipulation, obligation or agreement of any present or
future member, officer, agent or employee of the Authority in other than that
person's official capacity. Neither the members of the Authority nor any
official executing the Bonds, this Indenture, the Agreement or any amendment or
supplement hereto or thereto shall be liable personally on the Bonds or be
subject to any personal liability or accountability by reason of the issuance or
execution hereof or thereof.
SECTION 13.09. BINDING EFFECT. This Indenture shall inure to the
benefit of and shall be binding upon the Authority and the Trustee and their
respective successors and assigns, subject, however, to the limitations
contained herein.
SECTION 13.10. COUNTERPARTS. This Indenture may be executed in
any number of counterparts, each of which shall be regarded as an original and
all of which shall constitute but one and the same instrument.
SECTION 13.11. MAJORITY OF BONDHOLDERS. As used herein, the
phrase "a majority in the principal amount of the Bonds then outstanding" or
like phrases shall mean Holders of greater than 50% of the outstanding principal
amount of the Bonds.
SECTION 13.12. GOVERNING LAW. This Indenture and the Bonds shall
be deemed to be contracts made under the laws of the State and for all purposes
shall be governed by and construed in accordance with the laws of the State.
SECTION 13.13. CONTINUING DISCLOSURE. The Authority and the
Trustee hereby acknowledge the entry by the Company into the Continuing
Disclosure Agreement under which the Company has assumed certain obligations for
the benefit of the Holders and beneficial owners of the Bonds. Notwithstanding
any other provisions of this Indenture, any failure by the Company to comply
with any provision of the Continuing Disclosure Agreement shall not be a failure
or a default, or an Event of Default, under the Agreement or this Indenture.
(End of Article XIII)
- 56 -
<PAGE> 62
IN WITNESS WHEREOF, the Authority has caused this Indenture to
be executed and delivered for it and in its name and on its behalf by its duly
authorized officers; in token of its acceptance of the trusts created hereunder,
the Trustee has caused this Indenture to be executed and delivered for it and in
its name and on its behalf by its duly authorized signers; and in token of its
acceptance of the duties and obligations of the Registrar hereunder, the
Registrar has caused this Indenture to be executed and delivered for it and in
its name and on its behalf by its duly authorized signers, all as of the day and
year first above written.
OHIO WATER DEVELOPMENT
AUTHORITY
By: /s/ Steven J. Grossman
----------------------------------
Executive Director
BANK ONE, COLUMBUS, NA, as Trustee
By: /s/ Shelina Virjee
----------------------------------
Title: Authorized Signature
BANK ONE, COLUMBUS, NA,
as Registrar of the Project Bonds
By: /s/ Shelina Virjee
----------------------------------
Title: Authorized Signature
- 57 -
<PAGE> 63
EXHIBIT A
(Form of Bond)
Registered
No. R-
United States of America
State of Ohio
Solid Waste Revenue Bond, Series 1996
(Republic Engineered Steels, Inc.)
Interest Rate: Maturity Date: Dated as of: CUSIP:
9.00% per year June 1, 2021 June 1, 1996 67759A AC3
Registered Owner: CEDE & CO.
Principal Amount: FIFTY-THREE MILLION SEVEN HUNDRED THOUSAND
DOLLARS
The State of Ohio (the "State"), by the Ohio Water Development
Authority (the "Authority"), a body politic and corporate duly organized and
existing under and by virtue of the laws of the State, for value received,
promises to pay to the Registered Owner specified above, or registered assigns,
but solely from the sources and in the manner referred to herein, the Principal
Amount specified above on the aforesaid Maturity Date, unless this Project Bond
is called for earlier redemption, and to pay from those sources interest thereon
at the aforesaid Interest Rate on June 1 and December 1 of each year, commencing
December 1, 1996 (the "Interest Payment Dates"), until the principal amount is
paid or duly provided for. This Project Bond will bear interest from the most
recent date to which interest has been paid or duly provided for or, if no
interest has been paid or duly provided for, from its date. Interest shall be
calculated on the basis of a 360 day year, with 12 months of 30 days.
The principal of and any premium on this Project Bond are
payable upon presentation and surrender hereof at the principal corporate trust
office of the trustee, presently Bank One, Columbus, NA, Columbus, Ohio, (the
"Trustee"). Interest is payable on each Interest Payment Date to the person in
whose name this Project Bond (or one or more predecessor bonds) is registered
(the "Holder") at the close of business on the May 15 or November 15 next
preceding that Interest Payment Date (the "Regular Record Date") on the
registration books for this issue maintained by the Trustee, as Registrar, at
the address appearing therein. Any interest which is not timely paid or duly
provided for shall cease to be payable to the Holder hereof (or of one or more
predecessor bonds) as of the Regular Record Date, and shall be payable to the
Holder hereof (or of one or more predecessor bonds) at the close of business on
a Special Record Date to be fixed by the Trustee for the payment of that overdue
interest. Notice of the Special Record Date shall be mailed to Holders not fewer
than ten days prior thereto. The principal of and interest and any premium on
this Project Bond are payable in lawful money of the United States of America,
without deduction for the services of the paying agent. Except when this Bond is
registered in the name of a Depository (as defined in the Indenture) or its
nominee, interest shall be paid by check or draft mailed to the Holder as
described above. When this Bond is registered in the name of a Depository or its
nominee, interest is payable in next day or federal funds delivered or
transmitted to the Depository.
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<PAGE> 64
This Project Bond is issued pursuant to the Constitution and
laws of the State, particularly Chapter 6123 of the Ohio Revised Code, as
amended (the "Act"), and to a resolution duly enacted by the Authority. The
Project Bonds are issued by the Authority to accomplish the public purposes of
the Act by financing a portion of a "development project" as defined in the Act
by aiding in financing the costs of acquiring, constructing, installing and
equipping facilities designed for solid waste disposal at the Company's
CAST-ROLL(TM) plant (formerly known as the continuous cast direct billet process
plant) in Canton Township, Ohio.
REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS PROJECT
BOND SET FORTH ON THE REVERSE SIDE. THOSE PROVISIONS SHALL HAVE THE
SAME EFFECT FOR ALL PURPOSES AS IF SET FORTH HERE.
It is certified and recited that there have been performed and
have happened in regular and due form, as required by law, all acts and
conditions necessary to be done or performed by the State or to have happened
(i) precedent to and in the issuing of the Project Bonds in order to make them
legal, valid and binding special obligations of the State, and (ii) precedent to
and in the execution and delivery of the Indenture and the Agreement; that
payment in full for the Project Bonds has been received; and that the Project
Bonds do not exceed or violate any constitutional or statutory limitation.
Date of (FORM OF Registrable at: (Seal) IN WITNESS OF
Registration CERTIFICATE OF Bank One, THE ABOVE, the State
Authenti- AUTHENTICATION) Columbus, NA of Ohio, by the Ohio
cation: This Project Bond Columbus, Ohio Water Development
June 27, is one of the Bonds Authority, has
1996 described in the caused this Project
within-mentioned Payable by: Bond to be executed
Indenture. Bank One, in the name of the
Columbus, NA Authority in their
Columbus, Ohio official capacities
by the facsimile
By________________ signature of the
Authorized Chairman and Vice-
Signer Chairman of the
Authority and
attested to by the
facsimile signature
of the Secretary-
Treasurer and a
facsimile of the
seal of the
Authority to be
reproduced hereon,
as of the date shown
above.
STATE OF OHIO, by
the OHIO WATER
DEVELOPMENT
AUTHORITY
By: [facsimile of
Chairman]
[facsimile of Vice
Chairman]
Attest: [facsimile
of Secretary
Treasurer]
A-2
<PAGE> 65
[FORM OF REVERSE OF BOND]
This Project Bond is one of a duly authorized issue of Solid
Waste Revenue Bonds, Series 1996 (Republic Engineered Steels, Inc. Project) (the
"Project Bonds"), issuable under the Trust Indenture dated as of June 1, 1996
(the "Indenture"), between the Authority and the Trustee, aggregating in
principal amount $53,700,000 and issued for the purpose of making a loan (the
"Loan") to assist Republic Engineered Steels, Inc. (the "Company") in the
financing of costs of a Project, as defined in the Loan Agreement dated as of
the same date as the Indenture (the "Agreement") between the Authority and the
Company. The Project Bonds, together with any Additional Bonds which may be
issued on a parity therewith under the Indenture (collectively, the "Bonds"),
are special obligations of the Authority, issued or to be issued under and are
to be secured and entitled equally and ratably to the protection given by the
Indenture.
Reference is made to the Indenture for a more complete
description of the Project, the provisions, among others, with respect to the
nature and extent of the security for the Bonds, the rights, duties and
obligations of the Authority, the Trustee and the Holders of the Bonds, and the
terms and conditions upon which the Bonds are issued and secured. Each Holder
assents, by its acceptance hereof, to all of the provisions of the Indenture.
Pursuant to the Agreement, the Company has executed and
delivered to the Trustee the Company's promissory note dated as of the same date
as the Project Bonds (the "Project Note"), in the principal amount of
$53,700,000. The Company is required by the Agreement and the Project Note to
make payments to the Trustee in the amounts and at the times necessary to pay
the principal of and interest and any premium (the "Bond Service Charges") on
the Project Bonds. In the Indenture, the Authority has assigned to the Trustee,
to provide for the payment of the Bond Service Charges on the Bonds, the
Authority's right, title and interest in and to the Agreement, except for
Unassigned Authority's Rights as defined in the Agreement.
Copies of the Indenture, the Agreement and the Project Note are
on file in the principal corporate trust office of the Trustee.
THE BOND SERVICE CHARGES ON THE BONDS ARE PAYABLE SOLELY FROM
THE REVENUES, AS DEFINED AND AS PROVIDED IN THE INDENTURE (BEING, GENERALLY, THE
AMOUNTS PAYABLE UNDER THE AGREEMENT IN REPAYMENT OF THE LOAN AND ANY UNEXPENDED
PROCEEDS OF THE BONDS), AND ARE AN OBLIGATION OF THE AUTHORITY ONLY TO THE
EXTENT OF THE REVENUES. THE BONDS DO NOT CONSTITUTE A DEBT OR A PLEDGE OF THE
FAITH AND CREDIT OF THE AUTHORITY, THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF AND THE HOLDERS OR OWNERS OF THE BONDS HAVE NO RIGHT TO HAVE TAXES
LEVIED BY THE GENERAL ASSEMBLY OF THE STATE OR THE TAXING AUTHORITY OF ANY
POLITICAL SUBDIVISION OF THE STATE FOR THE PAYMENT OF BOND SERVICE CHARGES. THE
ISSUER HAS NO TAXING POWER.
The Project Bonds are issuable only as fully registered bonds in
authorized denominations and, except as hereinafter provided, registered in the
name of The Depository Trust Company, New York, New York ("DTC") or its nominee,
which shall be considered to be the Bondholder for all purposes of the
Indenture, including, without limitation, payment by the Authority of Bond
Service Charges on the Project Bonds and receipt of notices and exercise of
rights of Bondholders. There shall be a single Project Bond which shall be
immobilized in the custody of DTC with the owners of book entry interests in the
Project Bonds ("book entry interests") having no right to receive Project Bonds
in the form of physical securities or
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<PAGE> 66
certificates. Ownership of book entry interests shall be shown by book entry on
the system maintained and operated by DTC, its participants (the "Participants")
and certain persons acting through the Participants. Transfers of ownership of
book entry interests are to be made only by DTC and the Participants by that
book entry system, and the Authority and the Trustee shall have no
responsibility therefor. DTC is to maintain records of the positions of
Participants in the Project Bonds, and the Participants and persons acting
through Participants are to maintain records of the purchasers and owners of
book entry interests. The Project Bonds as such shall not be transferable or
exchangeable, except for transfer to another Depository or to another nominee of
a Depository, without further action by the Authority.
If any Depository determines not to continue to act as a
Depository for the Project Bonds for use in a book entry system or upon the
request of the Company to remove or replace the then Depository, the Authority
may attempt to have established a securities depository/book entry system
relationship with another qualified Depository under the Indenture. If the
Authority does not or is unable to do so, the Authority and the Trustee, after
the Trustee has made provision for notification of the owners of book entry
interests by the then Depository, shall permit withdrawal of the Project Bonds
from the Depository, and authenticate and deliver Project Bond certificates in
fully registered form (in denominations of $100,000 or any multiple of $5,000 in
excess thereof) to the assigns of the Depository or its nominee, all at the cost
and expense (including costs of printing or otherwise preparing and delivering
replacement Project Bonds), if the event is not the result of Authority action
or inaction, of those persons requesting such authentication and delivery.
Except as described above with respect to this Project Bond when
it is registered in the name of a depository or its nominee, the Project Bonds
are exchangeable for Project Bonds of other authorized denominations in equal
aggregate principal amounts at the office of the Registrar specified on the face
hereof, but only in the manner and subject to the limitations provided in the
Indenture. Except as described above with respect to this Project Bond when it
is registered in the name of a depository or its nominee, this Project Bond is
transferable at the office of the Registrar, by the Holder in person or by his
attorney, duly authorized in writing, upon presentation and surrender hereof to
the Registrar. The Registrar is not required to transfer or exchange (i) any
Bond during a period beginning at the opening of business 15 days before the day
of the mailing of a notice of redemption of Bonds and ending at the close of
business on the day of such mailing, or (ii) any Bonds so selected for
redemption in whole or in part.
The Project Bonds are subject to redemption prior to stated
maturity as follows:
1. All are subject to extraordinary optional redemption by the
Authority, at the Company's option, if events described in Section 6.2 of the
Agreement occur, (a) at any time in whole, or (b) on any Interest Payment Date
in part in the event of condemnation of part of the Project, as provided in
Section 6.2 of the Agreement, in each case, at a redemption price equal to 100
percent of the principal amount redeemed, plus interest accrued to the
redemption date.
2. All are subject to mandatory redemption either in whole or in
part by the Authority upon the occurrence of a Determination of Taxability, as
defined in the Indenture, at a redemption price equal to 100 percent of the
principal amount redeemed, plus interest accrued to the redemption date, at the
earliest practicable date selected by the Trustee, after consultation with the
Company, but in no event later than 180 days following the Company's receipt of
notice of the Determination of Taxability.
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<PAGE> 67
3. The Project Bonds are subject to redemption on or after June
1, 2006, in whole on any date or in part on any Interest Payment Date, at the
option of the Authority, upon the direction of the Company, at a redemption
price on June 1, 2006 of 102% of the principal amount redeemed reducing
thereafter to 100% of the principal amount redeemed on June 1, 2008 and
thereafter, plus interest accrued to the redemption date.
Notice of redemption of Project Bonds as described above shall
be given by first class mail at least 30 days prior to the redemption date.
If less than all Project Bonds are to be redeemed at one time,
their selection shall be made by lot by the Trustee. If Project Bonds or
portions thereof are called for redemption and if on the redemption date moneys
for the redemption thereof are held by the Trustee, thereafter those Project
Bonds or portions thereof to be redeemed shall cease to bear interest, and shall
cease to be secured by, and shall not be deemed to be outstanding under, the
Indenture.
The Indenture permits certain amendments or supplements to the
Agreement, the Indenture, and the Project Note not prejudicial to the Holders to
be made without the consent of or notice to the Holders, and other amendments or
supplements thereto to be made with the consent of the Holders of not less than
a majority in aggregate principal amount of the Bonds then outstanding.
The Holder of each Project Bond has only those remedies provided
in the Indenture.
The Bonds shall not constitute the personal obligation, either
jointly or severally, of any member, officer or employee of the Authority.
This Project Bond shall not be entitled to any security or
benefit under the Indenture or be valid or become obligatory for any purpose
until the certificate of authentication hereon shall have been signed.
LEGAL OPINION
The following is a true copy of the opinion rendered by Squire,
Sanders & Dempsey in connection with the issuance of, and dated as of and
premised on facts and law in effect on the date of the original delivery of, the
Bonds. A signed copy is on file in my office.
(Facsimile)
---------------------------------
Secretary-Treasurer
TEXT OF LEGAL OPINION
We have examined the transcript of proceedings (the
"Transcript") relating to the issuance by the Ohio Water Development Authority
(the "Issuer") of $53,700,000 aggregate principal amount of State of Ohio Solid
Waste Revenue Bonds, Series 1996 (Republic Engineered Steels, Inc. Project),
dated as of June 1, 1996 (the "Bonds"). The Bonds are being issued for the
purpose of making a loan to assist Republic Engineered Steels, Inc. (the
"Company") in financing a portion of the costs of the acquisition, construction
and installation of solid waste disposal facilities at the Company's plant in
Canton Township, Ohio comprising
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<PAGE> 68
"solid waste facilities" as defined in Section 6123.01 of the Ohio Revised Code
and as more particularly described in the Trust Indenture (the "Indenture"),
dated as of June 1, 1996, between the Issuer and Bank One, Columbus, NA,
Columbus, Ohio, as trustee (the "Trustee"). The Transcript documents examined
include an executed counterpart of the following, each dated as of June 1, 1996:
(i) the Indenture, (ii) the Loan Agreement (the "Agreement") between the Issuer
and the Company, and (iii) the promissory note (the "Note") executed and
delivered by the Company to the Trustee pursuant to the Agreement. We also have
examined a conformed copy of an executed Bond.
Based on such examination, we are of the opinion that, under the
law existing on the date of this opinion:
1. The Bonds, the Indenture, the Note and the Agreement are
legal, valid, binding and enforceable in accordance with their respective terms,
except that the binding effect and enforceability thereof are subject to
bankruptcy laws and other laws affecting creditors' rights and to the exercise
of judicial discretion.
2. The Bonds constitute special obligations of the State of
Ohio, and the principal of and interest and any premium (collectively, "debt
service") on the Bonds are payable solely from the revenues and other moneys
assigned by the Indenture to secure that payment. Those revenues and other
moneys include the payments required to be made by the Company under the
Agreement, and the Company's obligation to make those payments is evidenced and
secured by the Note delivered to the Trustee pursuant to the Agreement. The
Bonds do not constitute a debt or pledge of the faith and credit of the Issuer
or the State of Ohio or any political subdivision thereof, and the holders or
owners thereof have no right to have taxes levied by the General Assembly of the
State of Ohio for the payment of debt service.
3. The interest on the Bonds is excluded from gross income for
federal income tax purposes under Section 103(a) of the Internal Revenue Code of
1986, as amended (the "Code"), except interest on any Bond for any period during
which it is held by a "substantial user" or a "related person" as those terms
are used in Section 147(a) of the Code. Interest on the Bonds is an item of tax
preference under Section 57 of the Code and therefore may be subject to the
alternative minimum tax imposed by the Code on individuals and corporations. The
interest on the Bonds and any profit made on the sale, exchange or other
disposition thereof are exempt from Ohio personal income tax, the net income
base of the Ohio corporate franchise tax and municipal and school district
income taxes in Ohio. We express no opinion as to any other tax consequences
regarding the Bonds.
Under the Code, interest on the Bonds may be subject to an
environmental tax imposed on corporations for certain taxable years, a branch
profits tax imposed on certain foreign corporations doing business in the United
States, and a tax imposed on excess net passive income of certain S
corporations.
In giving the foregoing opinion, we have assumed and relied upon
compliance with the covenants of the Issuer and the Company and the accuracy,
which we have not independently verified, of the representations and
certifications of the Issuer and of the Company contained in the Transcript. The
accuracy of certain of those representations and certifications, and compliance
by the Issuer and the Company with certain of those covenants, may be necessary
for the interest on the Bonds to be and to remain excluded from gross income for
federal income tax purposes. Failure to comply with certain requirements
subsequent to the issuance of the Bonds may cause interest thereon to be
included in gross income for federal income tax purposes retroactively to the
date of issuance of the Bonds. We also have relied upon the opinion, contained
in the Transcript, of counsel for the Company as to all matters concerning the
due
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<PAGE> 69
authorization, execution and delivery by, and the binding effect upon and
enforceability against, the Company of the Agreement and the Note.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY
A-7
<PAGE> 70
FORM OF ASSIGNMENT
Assignment
For value received, the undersigned sells, assigns and transfers
unto ____________________________________________ (Insert Name, Address and Tax
Identification or Social Security Number of Transferee) the within Project Bond
and irrevocably constitutes and appoints ___________________________ attorney to
transfer that Project Bond on the books kept for registration thereof, with full
power of substitution in the premises.
Dated: _________________________ __________________________________
Signature
Notice: The assignor's signature to this
assignment must correspond with
the name as it appear
A-8
<PAGE> 1
EXHIBIT 10.18(b)
EXECUTION
================================================================================
LOAN AGREEMENT
between
OHIO WATER DEVELOPMENT AUTHORITY
and
REPUBLIC ENGINEERED STEELS, INC.
----------------------------------------
$53,700,000
State of Ohio
Solid Waste Revenue Bonds, Series 1996
(Republic Engineered Steels, Inc. Project)
----------------------------------------
Dated
as of
June 1, 1996
================================================================================
Squire, Sanders & Dempsey
Bond Counsel
<PAGE> 2
INDEX
(The Index is not a part of the Agreement and is only
for convenience of reference.)
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Recitals........................................................................................... 1
ARTICLE I
DEFINITIONS
Section 1.1 Use of Defined Terms......................................................... 2
Section 1.2 Definitions.................................................................. 2
Section 1.3 Certain Words Used Herein; References........................................ 6
Section 1.4 Captions and Headings........................................................ 7
ARTICLE II
REPRESENTATIONS
Section 2.1 Representations, Warranties and Covenants
of the Authority........................................................... 8
Section 2.2 Representations, Warranties and Covenants
of the Company............................................................. 8
ARTICLE III
COMPLETION OF THE PROJECT;
ISSUANCE OF BONDS
Section 3.1 Acquisition, Construction and Installation................................... 11
Section 3.2 Plans and Specifications..................................................... 11
Section 3.3 Issuance of Project Bonds; Application of Proceeds........................... 12
Section 3.4 Disbursements from the Project Fund.......................................... 12
Section 3.5 Company Required to Pay Costs in Event Project
Fund Insufficient.......................................................... 14
Section 3.6 Completion Date.............................................................. 14
Section 3.7 Investment of Fund Moneys.................................................... 14
Section 3.8 Agreement as to Ownership of Project......................................... 15
Section 3.9 Use of Project............................................................... 15
Section 3.10 Rebate Fund.................................................................. 15
ARTICLE IV
LOAN BY AUTHORITY; REPAYMENT OF THE LOAN;
LOAN PAYMENTS AND ADDITIONAL PAYMENTS; SECURITY
Section 4.1 Loan and Repayment; Delivery of Notes........................................ 16
Section 4.2 Additional Payments.......................................................... 17
Section 4.3 Place of Payments............................................................ 17
Section 4.4 Obligations Unconditional.................................................... 18
Section 4.5 Deposit of Moneys in the Bond Fund; Moneys for
Purchase; Redemption....................................................... 18
Section 4.6 Assignment Under Indenture................................................... 18
Section 4.7 Assignment by Company........................................................ 18
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ARTICLE V
FURTHER AGREEMENTS AND PARTICULAR COVENANTS
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Section 5.1 Right of Inspection.......................................................... 20
Section 5.2 Maintenance.................................................................. 20
Section 5.3 Removal of Portions of the Project........................................... 20
Section 5.4 Operation of Project......................................................... 20
Section 5.5 Damage; Destruction and Eminent Domain....................................... 21
Section 5.6 Indemnification.............................................................. 21
Section 5.7 Company Not to Adversely Affect Tax Exempt Status
of Interest................................................................ 22
Section 5.8 Company to Maintain Its Existence; Sales of
Assets or Mergers.......................................................... 22
Section 5.9 Financial Statements......................................................... 22
Section 5.10 Ownership of Project......................................................... 23
ARTICLE VI
REDEMPTION OF PROJECT BONDS
Section 6.1 Optional Redemption.......................................................... 24
Section 6.2 Extraordinary Optional Redemption............................................ 24
Section 6.3 Mandatory Redemption Upon a Determination
of Taxability.............................................................. 25
Section 6.4 Actions by Authority......................................................... 26
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1 Events of Default............................................................ 27
Section 7.2 Remedies on Default.......................................................... 28
Section 7.3 No Remedy Exclusive.......................................................... 28
Section 7.4 Agreement to Pay Attorneys' Fees and Expenses................................ 29
Section 7.5 No Additional Waiver Implied by One Waiver................................... 29
ARTICLE VIII
MISCELLANEOUS
Section 8.1 Term of Agreement............................................................ 30
Section 8.2 Amounts Remaining in Funds................................................... 30
Section 8.3 Notices...................................................................... 30
Section 8.4 Extent of Covenants of the Authority; No Personal
Liability.................................................................. 30
Section 8.5 Binding Effect............................................................... 30
Section 8.6 Amendments, Changes and Modifications........................................ 30
Section 8.7 Execution Counterparts....................................................... 31
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Section 8.8 Severability................................................................. 31
Section 8.9 Governing Law................................................................ 31
Section 8.10 Continuing Disclosure........................................................ 31
Signatures ............................................................................. 31
Exhibit A - PROJECT NOTE
Exhibit B - PROJECT
Exhibit C - FORM OF DISBURSEMENT REQUEST
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LOAN AGREEMENT
THIS LOAN AGREEMENT is made and entered into as of June 1, 1996,
between the OHIO WATER DEVELOPMENT AUTHORITY (the "Authority"), a body politic
and corporate, duly organized and existing under and by virtue of the laws of
the State of Ohio, and the Company, as hereinafter defined, under the following
circumstances (the capitalized terms used but not defined in the following
recitals are used therein as defined in Article I hereof):
A. Pursuant to and in accordance with the provisions of the
Constitution and laws of the State of Ohio, including Section 13 of Article
VIII, Ohio Constitution, and Chapter 6123 of the Ohio Revised Code, as amended,
the Authority has determined to issue, sell and deliver revenue bonds of the
State (the "Project Bonds") and to loan the proceeds derived from the sale
thereof to the Company to pay a portion of the costs of acquiring, constructing
and installing certain solid waste disposal facilities constituting the Project,
as hereinafter defined.
B. The Company and the Authority each have full right and lawful
authority to enter into this Loan Agreement and to perform and observe the
provisions hereof on their respective parts to be performed and observed.
NOW, THEREFORE, in consideration of the premises and the mutual
representations and agreements hereinafter contained, the Authority and the
Company agree as follows (provided that any obligation of the Authority or the
State created by or arising out of this Loan Agreement will not constitute a
debt or a pledge of the faith and credit of the Authority, the State or any
political subdivision thereof, and the owners of the Project Bonds will have no
right to have taxes levied by the General Assembly of the State or by the taxing
authority of any political subdivision thereof for the payment of principal of
or any premium or interest on the Project Bonds which are payable solely out of
the Revenues and moneys realized from the sale of the Project Bonds):
<PAGE> 6
ARTICLE I
DEFINITIONS
Section 1.1. USE OF DEFINED TERMS. In addition to the words and
terms elsewhere defined in this Loan Agreement or by reference to the Indenture,
the words and terms set forth in Section 1.2 shall have the meanings therein set
forth unless the context or use indicates another or different meaning or intent
and such definitions shall be equally applicable to both the singular and plural
forms of any of the words and terms herein defined.
Section 1.2. DEFINITIONS. As used herein:
"Act" means Chapter 6123, Ohio Revised Code, as enacted and
amended from time to time.
"Additional Bonds" means the Additional Bonds as defined in the
Indenture.
"Additional Notes" means any nonnegotiable promissory note or
notes, in addition to the Project Note, delivered by the Company to the Trustee
in connection with the issuance of Additional Bonds, as provided herein.
"Additional Payments" means the amounts required to be paid by
the Company pursuant to the provisions of Section 4.2 hereof.
"Agreement" means this Loan Agreement as amended or supplemented
from time to time.
"Authenticating Agent" means the Authenticating Agent as defined
in the Indenture.
"Authority Fee" means the Authority Fee in the amount of
$111,550.
"Authorized Company Representative" means the person or persons
at the time designated to act on behalf of the Company by written certificate
furnished to the Authority and the Trustee, containing the specimen signature of
such person or persons and signed on behalf of the Company by the Chairman or
any Vice Chairman of the Board, the President, any Senior or Administrative Vice
President, any Vice President, the Treasurer or any Assistant Treasurer of the
Company. Such certificate may designate an alternate or alternates who shall
have the same authority, duties and powers as such Authorized Company
Representative.
"Bond Counsel" means an attorney or firm of attorneys of
nationally recognized standing on the subject of municipal bonds selected by the
Company and approved by the Trustee.
"Bond Fund" means the Bond Fund created by the Indenture.
"Bond Legislation" means (a) when used with reference to the
Project Bonds, the legislation providing for their issuance and approving this
Agreement, the Indenture and related matters, (b) when used with reference to an
issue of Additional Bonds, the legislation providing for the issuance of the
Project Bonds, to the extent applicable, and the legislation providing for the
issuance of the Additional Bonds and approving any amendment to this Agreement,
any Supplemental Indenture and related matters; and (c) when used with reference
to Bonds when Additional Bonds are outstanding, the legislation providing for
the issuance of the Project Bonds
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and the legislation providing for the issuance of the then outstanding and the
then to be issued Additional Bonds; in each case as amended or supplemented from
time to time.
"Bond Service Charges" means, for any period or payable at any
time, the principal of and premium, if any, and interest required to be paid by
the Authority on the Bonds for that period or payable at that time whether due
at maturity or upon acceleration or redemption.
"Bonds" means the Project Bonds and any Additional Bonds.
"Business Day" means any day other than a Saturday, Sunday or a
day on which the Trustee or any Paying Agent, as defined in the Indenture, is
required, or authorized or not prohibited by law (including executive orders) to
close and is closed.
"Code" means the Internal Revenue Code of 1986, as amended from
time to time. References to the Code and Sections of the Code include relevant
applicable regulations (including temporary regulations) and proposed
regulations thereunder and under the Internal Revenue Code of 1954, as amended,
and any successor provisions to those Sections, regulations or proposed
regulations.
"Company" means Republic Engineered Steels, Inc., a corporation
for profit duly organized and validly existing under the laws of the State of
Delaware and qualified to do business in the State of Ohio, and its lawful
successors or assigns as provided in Section 5.4 hereof.
"Completion Date" means the date of completion of the Project as
set forth in the certificate to be furnished by the Company pursuant to Section
3.6 hereof.
"Construction Period" means the period between the beginning of
the acquisition, construction and installation of the Project or the date on
which the Project Bonds are delivered to the Original Purchaser, whichever is
earlier, and the Completion Date.
"Continuing Disclosure Agreement" means the Continuing
Disclosure Agreement dated as of June 1, 1996, given by the Company, as amended
or supplemented from time to time.
"Determination of Taxability" means, with respect to the Project
Bonds, (i) the receipt by the Trustee of an opinion of Bond Counsel, (ii) the
receipt by the Trustee of notice of the issuance of a published or private
ruling of the Internal Revenue Service, (iii) the receipt by the Trustee of
notice of the issuance of a technical advice memorandum by the National Office
of the Internal Revenue Service, or (iv) the receipt by the Trustee of notice of
a final decision by any court of competent jurisdiction in the United States, to
the effect that the interest payable on any Project Bond is includable in the
gross income for federal income tax purposes of a Holder thereof; provided that
in each instance that interest is so includable other than because the Holder is
a "substantial user" of the Project or a "related person" thereof, as those
terms are used in Section 147(a) of the Code, and, provided further, that no
decision by any court or decision, ruling or technical advice by an
administrative authority shall constitute a Determination of Taxability unless
the Holder involved in the proceeding or action giving rise to such decision,
ruling or technical advice gave the Company and the Trustee prompt notice of the
commencement thereof and offered the Company the opportunity to control the
defense thereof, provided the Company agreed to pay all expenses of such
defense; and, as to any series of Additional Bonds, any Determination of
Taxability defined in the applicable Bond Legislation or Supplemental Indenture.
"Eligible Investments" means Eligible Investments as defined in
the Indenture.
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<PAGE> 8
"Engineer" means an engineer or engineering firm or an architect
or architectural firm qualified to practice the profession of engineering or
architecture under the laws of the State and who or which is acceptable to the
Trustee, and who or which may be regularly employed by the Company.
"EPA" means the Environmental Protection Agency of the State and
any successor body, agency, commission or department.
"Event of Default" means any of the events described as an event
of default in Section 7.1 hereof.
"Holder" or "Holder of a Bond" means the Person in whose name a
bond is registered on the Register.
"Indenture" means the Trust Indenture, dated as of the same date
as this Agreement, between the Authority and the Trustee, as the same may be
amended or supplemented from time to time.
"Interest Payment Date" means an Interest Payment Date as
defined in the Indenture.
"Loan" means the loan by the Authority to the Company of the
proceeds received from the sale of the Bonds, exclusive of any interest accrued
on the Bonds from their date to the date of delivery thereof to the Original
Purchaser.
"Loan Payment Date" means each Interest Payment Date, commencing
December 1, 1996, or any other date on which any principal of or premium, if
any, or interest on the Bonds shall be due and payable, whether at maturity,
upon acceleration, call for redemption or otherwise.
"Loan Payments" means the amounts required to be paid by the
Company in repayment of the Loan pursuant to the provisions of Section 4.1
hereof and the Note.
"Notes" means the Project Note and any Additional Notes.
"Notice Address" means:
(a) As to the Authority: Ohio Water Development Authority
State of Ohio
88 East Broad Street
Suite 1300
Columbus, Ohio 43215-3516
Attention: Executive Director
(b) As to the Company: Republic Engineered Steels, Inc.
410 Oberlin Road SW
Massillon, Ohio 44647
Attention: Vice President and Chief
Financial Officer
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(c) As to the Trustee: Bank One, Columbus, NA
100 East Broad Street, 8th Floor
Columbus, Ohio 43271-0181
Attention: Corporate Trust Bond
Administration
- Republic Engineered
Steels, Inc. Project,
Series 1996
or such different address notice of which is given under Section 8.3 hereof.
"Original Purchaser" means, as to the Project Bonds, the Person
or Persons identified as the purchaser or purchasers in the Purchase Agreement,
and, as to any Additional Bonds, the Person or Persons identified as the
purchaser or purchasers in the applicable purchase agreement.
"Paying Agent" means the Paying Agent as defined in the
Indenture.
"Person" or words importing persons mean and include firms,
associations, partnerships (including without limitation, general and limited
partnerships), joint ventures, societies, estates, trusts, corporations, limited
liability companies, public or governmental bodies or other legal entities and
natural persons.
"Plant" means the Company's CAST-ROLL(TM) plant (formerly
known as the Continuous Cast Direct Billet Process plant or "CCDBP").
"Plans and Specifications" means the diagrams and descriptions
for the Project as now on file with the Authority, as such may be changed from
time to time as provided in this Agreement.
"Project" means the real, personal, or real and personal
property, including undivided or other interests therein, identified in Exhibit
B hereto, and in or pursuant to any amendments thereto and in the certificate of
the Authorized Company Representative given pursuant to Section 3.6 hereof, and
acquired, constructed or installed as a replacement or substitution therefor or
addition thereto, and as may result from a revision of the Plans and
Specifications in accordance with the provisions of this Agreement.
"Project Bonds" means the $53,700,000 State of Ohio Solid Waste
Revenue Bonds, Series 1996 (Republic Engineered Steels, Inc. Project) issued
pursuant to the Bond Legislation.
"Project Costs" means the costs of the Project specified in
Section 3.4 hereof.
"Project Facilities" means the solid waste disposal facilities
as more particularly described in Exhibit B hereto for use related to and in
connection with the Company's CAST-ROLL(TM) plant (formerly the Continuous Cast
Direct Billet Process plant or "CCDBP") and forming a part thereof.
"Project Fund" means the Project Fund created by the Indenture.
"Project Note" means the nonnegotiable promissory note of the
Company in the form attached hereto as Exhibit A and in the principal amount of
$53,700,000, dated as of the same date as this Agreement, evidencing the
obligation of the Company to make Loan Payments.
"Project Purposes" means acquiring and installing certain "solid
waste facilities" as defined in the Act.
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"Project Site" means those parcels of real estate described in
the plot plan on file with the Authority and the Trustee and on which the
Project is located, together with any additions thereto and except any removals
therefrom.
"Purchase Agreement" means the Underwriting Agreement, dated
June 19, 1996, between the Authority and the Original Purchaser and approved by
the Company.
"Rebate Fund" means the Rebate Fund created in the Indenture.
"Register" means the books kept and maintained by the Registrar
for the registration and transfer of Bonds pursuant to Section 3.06 of the
Indenture.
"Registrar" means the Registrar as defined in the Indenture.
"Revenues" means (a) Loan Payments, (b) all other moneys
received or to be received by the Authority or the Trustee in respect of
repayment of the Loan, including without limitation, moneys and investments in
the Bond Fund, (c) any moneys and investments in the Project Fund, and all
income and profit from the investment of the foregoing moneys. The term
"Revenues" does not include any moneys or investments in the Rebate Fund.
"Solid Waste Facilities" means those facilities which are "solid
waste facilities" as defined in Section 6123.01(D) of the Act and as more
particularly described in Exhibit B hereto.
"State" means the State of Ohio.
"Trustee" means the bank or trust company at the time serving as
Trustee under the Indenture.
"Unassigned Authority's Rights" means all the rights of the
Authority to receive Additional Payments under Section 4.2 hereof, to be held
harmless and to be indemnified under Section 5.6 hereof, to take certain
corrective measures as provided in Section 5.10 hereof, to be reimbursed for
reasonable attorneys' fees and expenses under Section 7.4 hereof, and to give or
withhold consent to amendments, changes, modifications and alterations to this
Agreement under Section 8.6 hereof and its right to enforce such rights.
Section 1.3. CERTAIN WORDS USED HEREIN; REFERENCES. Any
reference herein to the Authority or to any officers of the Authority shall
include those which succeed to their respective functions, duties or
responsibilities pursuant to or by operation of law or who are lawfully
performing their functions.
Any reference to a section or provision of the Constitution of
the State or to the Act, or to a section, provision or chapter of the Ohio
Revised Code, or to any statute of the United States of America or to the Code
shall include such section or provision or chapter as amended, modified revised,
supplemented or superseded from time to time; provided, that no amendment,
modification, revision, supplement or superseding section, provision or chapter
shall be applicable by reason of this provision if such change would in any way
constitute an impairment of the rights or obligations of the Authority, the
Holder or the Company under this Agreement.
Unless the context indicates otherwise, words importing the
singular number include the plural number, and vice versa. The terms "hereof",
"hereby", "herein", "hereto", "hereunder" and similar terms refer to this
Agreement, and the term "heretofore" means before, and the term "hereafter"
means after, the effective date hereof as provided in Section 8.1 hereof.
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Words of any gender include the correlative words of other genders, unless the
sense indicates otherwise.
Section 1.4. CAPTIONS AND HEADINGS. The captions and headings in
this Agreement are solely for convenience of reference and do not define, limit
or describe the scope or intent of any Articles, Sections, Subsections,
paragraphs, subparagraphs or clauses hereof.
(End of Article I)
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ARTICLE II
REPRESENTATIONS
Section 2.1. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
AUTHORITY. The Authority represents, warrants and covenants that:
(a) it is a body corporate and politic duly created,
organized and validly existing under the laws of the State and
has complied and continues to comply and will comply in all
respects with all applicable provisions of the laws of the State
relating to its organization and existence;
(b) it has duly accomplished all conditions and has
taken all steps necessary to be accomplished or taken by it
prior to issuance and delivery of the Project Bonds and the
execution and delivery of this Agreement and the Indenture;
(c) it is not in violation of or conflict with any
provisions of the laws of the State which would impair its
ability to carry out its obligations hereunder or contained in
the Indenture;
(d) it is empowered to enter into the transactions
contemplated by this Agreement and the Indenture, and the
execution and performance of this Agreement by the Authority
will not violate or conflict with any instrument by which the
Authority or its properties are bound;
(e) it has duly authorized the execution, delivery and
performance of this Agreement and the Indenture and such
authorization has not been repealed or modified;
(f) it will do all things in its power in order to
maintain its existence or assure the assumption of its
obligations under this Agreement and the Indenture by any
successor public body;
(g) The Project constitutes solid waste facilities under
the Act.
Section 2.2. REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE
COMPANY. The Company represents, warrants and covenants that:
(a) It is a corporation for profit duly organized and
validly existing under the laws of the State of Delaware and
qualified to do business in the State of Ohio;
(b) It has full corporate power and authority to execute,
deliver and perform this Agreement, the Continuing Disclosure
Agreement and the Project Note and to enter into and carry out
the transactions contemplated herein and therein. Such
execution, delivery and performance are not in contravention of
applicable local, state or federal law or the Company's Restated
Certificate of Incorporation (as amended) or By-Laws, as
amended, or any indenture, agreement or undertaking which is
material to the Company to which the Company is a party or by
which it is bound (provided that the foregoing does not apply to
any action required under state securities or Blue Sky laws in
connection with the purchase and distribution of the Project
Bonds by the Original Purchaser). This Agreement, the Continuing
Disclosure Agreement and the Project Note have, by proper
corporate action, been duly authorized, executed and delivered
by the Company
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and all steps necessary have been taken by the Company to
constitute this Agreement, the Continuing Disclosure Agreement
and the Project Note valid and binding obligations of the
Company;
(c) No acquisition or construction of the Project was
commenced prior to the 60th day preceding adoption of the
resolution of the Authority on August 25, 1994 except for
preparation of plans and specifications and other preliminary
engineering work;
(d) The Project to be acquired, constructed and installed
at the Project Site, as provided under this Agreement,
constitutes "solid waste facilities" under the Act and is
consistent with and will further the purposes of the Act and
Section 13 of Article VIII of the Ohio Constitution;
(e) It is expected that the Project will be utilized as
"solid waste facilities" under the Act commencing promptly as
portions thereof become available for utilization, but in any
event on or before the Completion Date;
(f) At least 95% of the net proceeds of the Project Bonds
(as defined in Section 150 of the Code) will be used to provide
"solid waste disposal facilities" within the meaning of Section
142(a)(6) of the Code and which constitute capital expenditures
within the meaning of Treasury Regulations 1.150-1(b). The
Company will not request or authorize any disbursement pursuant
to Section 3.4 hereof, which, if paid, would result in less than
95% of the net proceeds of the Project Bonds being so used. The
costs of issuance financed by the Project Bonds will not exceed
2% of the proceeds of the Project Bonds (within the meaning of
Section 147(g) of the Code), and the Company will not request or
authorize any disbursement pursuant to Section 3.4 hereof or
otherwise, which, if paid, would result in more than 2% of the
proceeds of the Project Bonds being so used. None of the
proceeds of the Project Bonds will be used to provide working
capital;
(g) In accordance with Section 147(b) of the Code, the
average maturity of the Project Bonds does not exceed 120% of
the average reasonably expected economic life of the facilities
being financed by the Project Bonds;
(h) None of the proceeds of the Project Bonds will be
used to provide any airplane, skybox or other private luxury
box, or health club facility; any facility primarily used for
gambling; or any store the principal business of which is the
sale of alcoholic beverages for consumption off premises;
(i) Less than 25% of the net proceeds of the Project
Bonds will be used directly or indirectly to acquire land or any
interest therein, and none of such land is being or shall be
used for farming purposes; no portion of the net proceeds of the
Project Bonds will be used to acquire existing property or any
interest therein unless such acquisition meets the
rehabilitation requirements of Section 147(d)(2) of the Code;
(j) Except for proceeds of the Project Bonds invested
during the applicable temporary periods under Section 148(d)(3)
of the Code, at no time during any bond year will the aggregate
amount of gross proceeds of the Project Bonds invested in higher
yielding investments (within the meaning of Section 148(b) of
the Code) exceed 150 percent of the debt service on the Project
Bonds for such bond year, and the aggregate amount of gross
proceeds of the Project Bonds invested in higher yielding
investments, if any, will be promptly and appropriately reduced
as the
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amount of outstanding Project Bonds are reduced, provided
however that the foregoing shall not require the sale or
disposition of any investments in higher yielding investments if
such sale or disposition would result in a loss which exceeds
the amount which would be paid to the United States pursuant to
Section 5.09 of the Indenture (but for such sale or disposition)
at the time of such sale or disposition if a payment under
Section 5.09 of the Indenture were due at such time.
At no time will any funds constituting gross proceeds of
the Project Bonds be used in a manner as would constitute
failure of compliance with Section 148 of the Code.
The terms "bond year", "gross proceeds", "higher yielding
investments", "yield", and "debt service" have the meanings
assigned to them for purposes of Section 148 of the Code;
(k) The Project Bonds are not "federally guaranteed"
within the meaning of Section 149(b) of the Code;
(l) The Project does not include any office except for
offices (i) located at the site of the Project and (ii) not more
than a de minimus amount of the functions to be performed at
which is not directly related to the day-to-day operations of
the Project;
(m) The Project is in compliance with Chapter 3734 of the
Ohio Revised Code and with the regulations adopted by the
Director of Environmental Protection under Section 3734.02 of
the Ohio Revised Code.
(End of Article II)
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ARTICLE III
COMPLETION OF THE PROJECT;
ISSUANCE OF BONDS
Section 3.1. ACQUISITION, CONSTRUCTION AND INSTALLATION. The
Company agrees (a) that it will cause the Project to be acquired, constructed
and installed on the Project Site in accordance with the Plans and
Specifications and in conformance with all applicable, valid and enforceable (i)
zoning, planning, building, environmental and other similar regulations of all
governmental authorities having jurisdiction over the Project and (ii) permits,
variances and orders issued in respect of the Project by EPA, noncompliance with
which would have a material adverse effect on the Company's ability to operate
and maintain the Project or to perform its obligations hereunder, provided that
the Company reserves the right to contest in good faith any such regulations,
permits, variances or orders, (b) that it will use its reasonable efforts to
cause the acquisition, construction and installation of other facilities and
real and personal property deemed necessary in connection with the Project to
the end that the Project will fulfill the Project Purposes, (c) to pay all fees,
costs and expenses incurred in such acquisition, construction and installation
and (d) to ask, demand, sue for, levy, recover and receive all such sums of
money, debts and other demands whatsoever which may be due, owing and payable
under the terms of any contract, order, receipt, writing and instruction in
connection with the acquisition, construction and installation of the Project,
and to enforce the provisions of any contract, agreement, obligation, bond or
other performance security with respect thereto.
It is understood that the Project is that of the Company and any
contracts made by the Company with respect thereto, whether acquisition
contracts, installation contracts or otherwise, or any work to be done by the
Company on the Project are made or done by the Company on its own behalf and not
as agent or contractor for the Authority.
With knowledge of the provisions of the January 27, 1972
Executive Order of the Governor of Ohio, relating to equal employment
opportunity, the Company hereby makes the pledges and commitments enumerated in
said order with respect to the construction and installation of the Project and
to the extent that said Executive Order is applicable, agrees that the same
requirement and commitment shall be included in all contracts and subcontracts
awarded for the construction and installation of the Project.
All laborers and mechanics employed on the Project will be paid
the prevailing rates of wages of laborers and mechanics for the class of work
called for by the Project, which wages will be determined in accordance with the
requirements of Chapter 4115, Ohio Revised Code, for determination of prevailing
wage rates; provided, that should the Company or other nonpublic user of the
Project undertake, as part of the Project, construction to be performed by its
regular bargaining unit employees who are covered under a collective bargaining
agreement which was in existence prior to the date of the commitment instrument
undertaking to issue the Bonds, then, in that event, the rate of pay provided
under the collective bargaining agreement may be paid to those employees.
Section 3.2. PLANS AND SPECIFICATIONS. The Plans and
Specifications have been filed with the Authority. The Company may revise the
Plans and Specifications from time to time; provided that any such revision
shall also be filed with the Authority and provided further that no such
revision shall materially change the function of the Project without (i) an
Engineer's certificate that such changes will not impair the significance or
character of the Project as a "solid waste facility" as defined in the Act, and
(ii)(a) an opinion of Bond Counsel or (b) ruling of the Internal Revenue Service
that such amendment will not adversely affect the exclusion from
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gross income of the Holders for federal income tax purposes of interest paid on
the Project Bonds.
Section 3.3. ISSUANCE OF PROJECT BONDS; APPLICATION OF PROCEEDS.
To provide funds to make the Loan for purposes of paying the Project Costs, the
Authority will issue, sell and deliver the Project Bonds to the Original
Purchaser. The Project Bonds will be issued pursuant to the Indenture in the
aggregate principal amount, bearing interest, maturing and being redeemable as
set forth in the Indenture. The Company hereby acknowledges its approval of the
terms and conditions under which the Project Bonds will be issued, sold and
delivered.
The proceeds from the sale of the Project Bonds shall be paid to
the Trustee and deposited as follows: (a) a sum equal to accrued interest, if
any, paid by the Original Purchaser shall be deposited in the Bond Fund and (b)
the balance of such proceeds shall be deposited in the Project Fund. Pending
disbursement pursuant to Section 3.4 hereof, the proceeds so deposited in the
Project Fund, together with any investment earnings thereon, shall constitute a
part of the Revenues assigned by the Authority to the payment of Bond Service
Charges as provided in the Indenture.
At the request of the Company, and for the purposes and upon
fulfillment of the conditions specified in the Indenture, the Authority may
provide for the issuance, sale and delivery of Additional Bonds and loan the
proceeds from the sale thereof to the Company.
Section 3.4. DISBURSEMENTS FROM THE PROJECT FUND. (a)
Disbursements from the Project Fund shall be made only to reimburse or pay the
Company, or any Person designated by the Company, for the following Project
Costs:
(i) Costs incurred directly or indirectly for or in
connection with the acquisition, construction or installation of
the Project, including but not limited to those costs incurred
for preliminary planning and studies, architectural, legal,
engineering and supervisory services, labor, services,
materials, acquisition, construction and installation, recording
of documents and title work relating to the Project Site.
(ii) Premiums attributable to all insurance required to
be taken out and maintained during the Construction Period with
respect to the Project and the premium on each surety bond, if
any, required with respect to work on the Project.
(iii) Taxes, assessments and other charges in respect of
the Project that may become due and payable during the
Construction Period for the Project.
(iv) Costs incurred directly or indirectly in seeking to
enforce any remedy against any contractor or subcontractor in
respect of any default under any contract relating to the
Project.
(v) Financial, legal, accounting, appraisal, printing and
engraving fees, charges and expenses, title insurance premiums,
if any, and all other such fees, charges and expenses incurred
in connection with the authorization, sale, issuance and
delivery of the Project Bonds and the preparation and delivery
of this Agreement, the Indenture and other related documents.
(vi) Fees and expenses of the Trustee, Authenticating
Agent, Paying Agent and Registrar (as such terms are defined in
the Indenture), including reasonable counsel fees and expenses,
properly incurred under the Indenture that may become
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due and payable during the Construction Period, including the
initial or acceptance fee of the Trustee.
(vii) Any other incidental and necessary costs including
without limitation any expenses, fees and charges relating to
the acquisition, construction or installation of the Project.
(viii) Payments made to the Bond Fund of any amounts
necessary to pay interest on the Project Bonds during the
Construction Period.
(ix) Payments made to the Rebate Fund.
(x) Any other expense permissible, in the opinion of
Bond Counsel, under the Act.
(b) Any disbursements from the Project Fund for the payment of
Project Costs shall be made by the Trustee only upon the written order of the
Authorized Company Representative. Each such written order shall be in the form
of the disbursement request attached hereto as Exhibit C and shall be
consecutively numbered. In the case of any contract providing for the retention
of a portion of the contract price, there shall be paid initially from the
Project Fund only the net amount remaining after deduction of any such portion,
and when the amount of any such retention is due and payable, then such
retention may be paid from the Project Fund.
In addition, the Company shall not request or authorize any
disbursements from the Project Fund prior to the Completion Date for a purpose
or function other than to provide solid waste disposal facilities within the
meaning of Section 142(a)(6) of the Code prior to the time that the total
issuance costs of the Project Bonds paid from the net proceeds of such Bonds
divided by the aggregate of such issuance costs and the costs of solid waste
disposal facilities so paid no longer exceed 5%, and thereafter, unless such
disbursement would not result in more than 5% of the net proceeds of the Project
Bonds requisitioned in the aggregate after such disbursement being used other
than to provide solid waste disposal facilities (treating issuance costs so paid
as being used other than to provide solid waste disposal facilities), unless in
connection with any such disbursement request the Company provides the Trustee
with an opinion of Bond Counsel or ruling of the Internal Revenue Service to the
effect that such disbursement will not cause the interest on the Project Bonds
to be included in the gross income of the Holders for federal income tax
purposes. In addition, any disbursement for any item not described in, or the
cost for which item is other than as described in, the information statement
filed by the Authority in connection with the issuance of the Project Bonds as
required by Section 149(e) of the Code, shall be accompanied by evidence
satisfactory to the Trustee that the average reasonably expected economic life
of the facilities being financed by the Project Bonds is not less than 5/6ths of
the average maturity of the Project Bonds or, if such evidence is not presented
with the disbursement or at the request of the Trustee, by an opinion of Bond
Counsel to the effect that such disbursement will not cause the interest on the
Project Bonds to be included in the gross income of the Holders for federal
income tax purposes.
(c) Any moneys in the Project Fund remaining after the
Completion Date and payment, or provision for payment, in full of the Project
Costs at the direction of the Authorized Company Representative promptly shall
be (i) used to acquire, construct or install such additional real and personal
property comprising a "solid waste facility" as defined in the Act for use in
connection with the Project as is designated by the Authorized Company
Representative and the acquisition, construction, equipment, installation and
improvement of which will be such as is permitted under the Act, (ii) used for
the purchase of Project Bonds in the open market for the purpose of cancellation
at prices not exceeding the fair market value
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thereof plus accrued interest to the date of payment therefor or (iii) used for
a combination of the foregoing as is provided in that direction or for any other
purposes as are or may be permitted under the Act; provided that, in all such
cases, (A) those moneys shall be so used or applied only to the extent that such
use or application will not, in the opinion of Bond Counsel or under a ruling of
the Internal Revenue Service, adversely affect the exclusion of the interest on
the Project Bonds from the gross income of the Holders thereof and (B) any money
remaining in the Project Fund following completion of the Project shall be
invested in accordance with the Code in such manner as not to adversely affect
the exclusion of the interest on the Project Bonds from the gross income of the
Holders thereof.
Section 3.5. COMPANY REQUIRED TO PAY COSTS IN EVENT PROJECT FUND
INSUFFICIENT. If moneys in the Project Fund are not sufficient to pay all
Project Costs, the Company, nonetheless, will complete the Project in accordance
with the Plans and Specifications in order to fulfill the Project Purposes and
shall pay all such additional Project Costs from its own funds. The Company
shall not be entitled to any reimbursement for any such additional Project Costs
from the Authority, the Trustee or the Holders of any of the Bonds, nor shall it
be entitled to any abatement, diminution or postponement of the Loan Payments.
Section 3.6. COMPLETION DATE. The Company shall notify the
Authority and the Trustee of the Completion Date by a certificate signed by the
Authorized Company Representative stating:
(i) the date on which the Project was substantially
completed and all other facilities necessary in connection with
the Project have been acquired, constructed and installed,
(ii) that the acquisition, construction and installation
of the Project and such other facilities have been accomplished
in such a manner as to conform with all applicable, legal and
valid zoning, planning, building, environmental and other
similar governmental regulations, so as not to have a material
adverse effect on the Company's ability to operate the Project
for the Project Purposes and perform its obligations hereunder,
(iii) that, except as provided in clause (v) of this
Section 3.6, all costs of that acquisition and installation then
and theretofore due and payable have been paid, and
(iv) the amount which the Trustee shall retain in the
Project Fund for the payment of Project Costs not yet due or for
liabilities which the Company is contesting or which otherwise
should be retained and the reasons such amount should be
retained.
That certificate may state that it is given without prejudice to any rights
against third parties which then exist or subsequently may come into being. The
Authorized Company Representative shall include with that certificate a
statement specifically describing all items of personal property comprising a
part of the Project. The certificate shall be delivered as promptly as
practicable after the occurrence of the events and conditions referred to in
clauses (i) through (iv) of this Section.
Section 3.7. INVESTMENT OF FUND MONEYS. Any moneys held as part
of the Bond Fund, the Project Fund or the Rebate Fund shall, at the oral
request, confirmed in writing within five business days, or at the written
request of the Authorized Company Representative, be invested or reinvested by
the Trustee in Eligible Investments, as specified in the Indenture. The
Authority and the Company each hereby covenants that it will restrict that
investment and
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reinvestment and the use of the proceeds of the Project Bonds in such manner and
to such extent, if any, as may be necessary, so that the Project Bonds will not
constitute arbitrage bonds under Section 148 of the Code and the regulations
prescribed under that Section.
Any officer of the Authority having responsibility for issuing
the Project Bonds is authorized and directed, alone or in conjunction with any
of the foregoing or with any other officer, employee or agent of or consultant
to the Authority, or with the Company or any officer, employee or agent of or
consultant to the Company, to give an appropriate certificate of the Authority
pursuant to Section 148 of the Code, for inclusion in the transcript of
proceedings for the Project Bonds, setting forth the reasonable expectations of
the Authority regarding the amount and use of the proceeds of the Project Bonds
and the facts, estimates and circumstances on which those expectations are
based, that certificate to be premised on the reasonable expectations and the
facts, estimates and circumstances on which those expectations are based, as
provided by the Company, all as of the date of delivery of and payment for the
Project Bonds. The Company shall provide the Authority with, and the Authority's
certificate may be based on, a certificate of an appropriate officer, employee
or agent of or consultant to the Company setting forth the reasonable
expectations of the Company, on the date of delivery of and payment for the
Project Bonds regarding the amount and use of the proceeds of the Project Bonds
and the facts, estimates and circumstances upon which such expectations are
based.
Section 3.8. AGREEMENT AS TO OWNERSHIP OF PROJECT. The Authority
agrees that it shall not have any interest in, title to or ownership of the
Project or the Project Site.
Section 3.9. USE OF PROJECT. The Authority does hereby covenant
and agree that it will not take any action, or cause any action to be taken,
during the term of this Agreement, other than pursuant to Article VII of this
Agreement or Article VII of the Indenture, to interfere with the Company's
ownership of the Project or to prevent the Company from having possession,
custody, use and enjoyment of the Project, except such action as is requested by
the Trustee in enforcing any remedies available to it under this Agreement or
the Indenture.
Section 3.10. REBATE FUND. To the extent required by Section
5.09 of the Indenture, within five days after the end of each Bond Year (as
defined in the Indenture) and within five days after payment in full of all
outstanding Bonds of each series, the Company shall calculate the amount of
Excess Earnings as of the end of that Bond Year or the date of such payment in
full and shall notify the Trustee of that amount. If the amount then on deposit
in the Rebate Fund created under the Indenture is less than the amount of Excess
Earnings (computed by taking into account the amount or amounts, if any,
previously paid to the United States pursuant to Section 5.09 of the Indenture
and this Section), the Company shall, within five days after the date of the
aforesaid calculation, pay to the Trustee for deposit in the Rebate Fund an
amount sufficient to cause the Rebate Fund to contain an amount equal to the
Excess Earnings. The obligation of the Company to make such payments shall
remain in effect and be binding upon the Company notwithstanding the release and
discharge of the Indenture. The Company shall obtain and keep such records of
the computations made pursuant to this Section as are required under Section
148(f) of the Code.
(End of Article III)
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ARTICLE IV
LOAN BY AUTHORITY; REPAYMENT OF THE LOAN;
LOAN PAYMENTS AND ADDITIONAL PAYMENTS; SECURITY
Section 4.1. LOAN AND REPAYMENT; DELIVERY OF NOTES. Upon the
terms and conditions of this Agreement, the Authority will make the Loan to the
Company. The proceeds of the Loan shall be deposited with the Trustee to be held
and disbursed in accordance with the provisions of the Indenture and this
Agreement.
Concurrently with the issuance of the Project Bonds, the Company
agrees to and shall execute and deliver the Project Note in substantially the
form attached hereto as Exhibit A, evidencing the obligation of the Company to
make the Loan Payments to repay the loan made by the Authority. All such Loan
Payments shall be paid to the Trustee and shall be held and disbursed in
accordance with the provisions of the Indenture and this Agreement for
application to the payment of Bond Service Charges on the Project Bonds. The
Project Note shall be dated as of the date of this Agreement and shall mature
and bear interest as set forth in Exhibit A hereto. Such amounts of principal
and interest (together with any premium on the Project Note) shall together
constitute the Loan Payments. The Project Note shall contain substantially the
other terms and provisions, and shall be subject to prepayment, as set forth in
Exhibit A.
The Company shall make Loan Payments under this Agreement and
the Project Note in lawful money of the United States of America on or before
each Loan Payment Date by paying an amount equal to the total sum which when
added to the balance then in the Bond Fund and available for such purpose, shall
be equal to the amount payable as Bond Service Charges on the Project Bonds on
such Loan Payment Date. The Company shall be entitled to a credit against the
Loan Payments required to be made on the next Loan Payment Date to the extent
that the balance of the Bond Fund is then in excess of amounts required (i) for
the payment of Bond Service Charges on the Project Bonds theretofore matured or
theretofore called for redemption, and (ii) to be deposited in the Bond Fund by
the Indenture for use for other than the payment of Bond Service Charges on the
Project Bonds on the next following Loan Payment Date. In any event, however, if
on any Loan Payment Date, the balance then available in the Bond Fund is
insufficient to make required payments of Bond Service Charges on the Project
Bonds, the Company will forthwith pay to the Trustee for deposit into the Bond
Fund any such deficiency. Whenever any Loan Payment to be made hereunder or
under the Project Note shall be stated to be due on a day which is not a
Business Day, such Loan Payment may be made on the next succeeding Business Day.
All amounts payable under this Section are assigned by the
Authority to the Trustee pursuant to the Indenture for the benefit of the
Holders. The Company consents to such assignment. Accordingly, the Company will
pay directly to the Trustee at its principal corporate trust office all payments
payable by the Company pursuant to this Section.
In connection with the issuance of any Additional Bonds, the
Company shall execute and deliver one or more Additional Notes in a form
substantially similar to the form of the Project Note. All such Additional Notes
shall:
(a) require payments of principal and redemption payments
and any premium equal to the payments of principal, prepayments
and sinking fund payments and any premium on the corresponding
Additional Bonds and provide for payments of interest equal to
the payments of interest on the corresponding Additional Bonds;
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(b) require all payments on any such Additional Notes to
be made no later than the due dates for the corresponding
payments to be made on the corresponding Additional Bonds; and
(c) contain by reference or otherwise optional and
mandatory redemption provisions and provisions in respect of the
optional and mandatory acceleration or prepayment of principal
and any premium corresponding with the redemption and
acceleration provisions of the corresponding Additional Bonds.
All Notes shall secure equally and ratably all outstanding
Bonds, provided that, so long as no Event of Default has occurred and is
subsisting hereunder, payments by the Company on any of the Notes shall be used
by the Trustee to make a like payment of Bond Service Charges on the
corresponding Bonds in connection with which those Notes were delivered and
shall constitute Loan Payments made in respect of the related Bonds.
Upon payment in full, in accordance with the Indenture, of the
Bond Service Charges on any or all Bonds, whether at maturity or by redemption
or otherwise, or upon provision for the payment thereof having been made in
accordance with the provisions of the Indenture, (i) the Notes issued
concurrently with those corresponding Bonds, of the same maturity, bearing the
same interest rate and in an amount equal to the aggregate principal amount of
the Bonds so surrendered and cancelled or for the payment of which provision has
been made, shall be deemed fully paid, the obligations of the Company thereunder
shall be terminated, and any of those Notes shall be surrendered by the
Authority or the Trustee to the Company, and shall be cancelled by the Company,
or (ii) in the event there is only one of those Notes, an appropriate notation
shall be endorsed thereon evidencing the date and amount of the principal
payment or prepayment equal to the Bonds so paid, or with respect to which
provision for payment has been made, and that Note shall be surrendered by the
Authority or the Trustee to the Company for cancellation if all Bonds shall have
been paid (or provision made therefor) and cancelled as aforesaid. Unless the
Company is entitled to a credit under express terms of this Agreement or the
Notes, all payments on each of the Notes shall be in the full amount required
thereunder.
Section 4.2. ADDITIONAL PAYMENTS. The Company shall pay to the
Authority, as Additional Payments hereunder, any and all costs and expenses
incurred or to be paid by the Authority in connection with the issuance and
delivery of the Bonds or otherwise related to actions taken by the Authority
under this Agreement or the Indenture and, in addition, the Authority Fee on the
date of delivery of the Project Bonds to the Original Purchaser. The Company
shall provide the Trustee with the amount and account from which any Additional
Payments are to be made.
The Company shall (i) pay the Trustee, the Registrar and any
Authenticating or Paying Agent (all as defined in the Indenture) from time to
time, and those parties shall be entitled to, reasonable compensation and (ii)
pay or reimburse each of the Trustee, the Registrar and any Authenticating or
Paying Agent upon request for all reasonable expenses, disbursements and
advances incurred or made in accordance with any of the provisions of this
Agreement and the Indenture (as described in Section 6.03 of the Indenture and
including the reasonable compensation and the expenses and disbursements of its
counsel and of all agents and other persons not regularly in its employ), except
to the extent that any such expense, disbursement or advance is due to its own
gross negligence or bad faith.
Section 4.3. PLACE OF PAYMENTS. The Company shall make all Loan
Payments directly to the Trustee at its principal corporate trust office.
Additional Payments shall be made directly to the Person to whom or to which
they are due.
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Section 4.4. OBLIGATIONS UNCONDITIONAL. The obligations of the
Company to make Loan Payments and, subject to Section 4.2 hereof, Additional
Payments shall be absolute and unconditional and the Company shall make such
payments without abatement, diminution or deduction regardless of any cause or
circumstances whatsoever including, without limitation, any defense (other than
payment), set-off, recoupment or counterclaim which the Company may have or
assert against the Authority, the Trustee or any other Person.
Section 4.5. DEPOSIT OF MONEYS IN THE BOND FUND; MONEYS FOR
PURCHASE; REDEMPTION. The Company may at any time deposit moneys in the Bond
Fund, without premium or penalty, to be held by the Trustee for application to
Loan Payments not yet due and payable, and the Authority agrees that the Trustee
shall accept such deposits when tendered by the Company. Such deposits shall be
credited against the Loan Payments, or any portion thereof, in the order of
their due dates. In addition, the Company may at any time deliver moneys to the
Trustee in addition to such deposits with instructions to the Trustee to use
such moneys for the purpose of making open market purchases of Project Bonds.
Such deposits or such delivery of moneys for Project Bond purchases shall not in
any way alter or suspend the obligations of the Company under this Agreement or
the Project Note during the term hereof as provided in Section 8.1 hereof. In
addition, the Company may deliver moneys to the Trustee for optional redemption
of Project Bonds pursuant to Sections 6.1 and 6.2 hereof.
Section 4.6. ASSIGNMENT UNDER INDENTURE. The Authority shall, by
the Indenture, assign its rights under and interest in this Agreement (except
for the Unassigned Authority's Rights) to the Trustee and shall assign and grant
a security interest in the Revenues to the Trustee, all as security for the
payment of Bond Service Charges on the Project Bonds. The Company hereby agrees
and consents to such assignments and grants in the manner and to the extent set
forth in the Indenture and to the other assignments and grants therein made by
the Authority. The rights of the Company under this Agreement shall be
unaffected by any assignment pursuant to this Section.
Section 4.7. ASSIGNMENT BY COMPANY. This Agreement may be
assigned in whole or in part by the Company without the necessity of obtaining
the consent of the Authority, the Trustee, or the Holders, subject, however, to
each of the following conditions:
(a) No assignment (other than pursuant to Section 5.4
hereof) shall relieve the Company from primary liability for any
of its obligations hereunder, and in the event of any such
assignment the Company shall continue to remain primarily liable
for the payment of the Loan Payments and Additional Payments and
for performance and observance of the agreements on its part
herein provided to be performed and observed by it;
(b) Any assignment from the Company must retain for the
Company such rights and interests as will permit it to perform
its obligations under this Agreement, and any assignee from the
Company shall assume in writing the obligations of the Company
hereunder to the extent of the interest assigned;
(c) The Company shall, within 30 days after execution
thereof, furnish or cause to be furnished to the Authority and
the Trustee a true and complete copy of each such assignment
together with any instrument of assumption; and
(d) Any assignment from the Company shall not materially
impair fulfillment of the Project Purposes to be accomplished by
operation of the Project as herein provided;
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provided, however, that the foregoing conditions shall not apply if all of the
Holders and the Authority consent in writing to the assignment of this
Agreement.
(End of Article IV)
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ARTICLE V
ADDITIONAL AGREEMENTS AND COVENANTS
Section 5.1. RIGHT OF INSPECTION. Subject to reasonable security
and safety regulations and upon reasonable notice, the Authority and the
Trustee, and their respective duly authorized agents, shall have the right at
all reasonable times to enter upon the Project Site to examine and inspect the
Project. The Company further agrees the Authority and its duly authorized agents
shall have such rights of access to the Project Site as may be reasonably
necessary to enable the Authority to exercise its rights under Section 5.10
hereof and Section 6123.041 of the Act.
Section 5.2. MAINTENANCE. The Company shall keep and maintain
the Project, including all appurtenances thereto and any personal property
therein or thereon, in good repair and good operating condition so that the
Project will continue to constitute Solid Waste Facilities for the purposes of
the operation thereof as required by Section 5.4 hereof.
So long as such shall not be in violation of the Act or impair
the character of the Project as Solid Waste Facilities, and provided there is
continued compliance with applicable laws and regulations of governmental
entities having jurisdiction thereof, the Company shall have the right to
remodel the Project or make additions, modifications and improvements thereto,
from time to time as it, in its discretion, may deem to be desirable for its
uses and purposes, the cost of which remodeling, additions, modifications and
improvements shall be paid by the Company and the same shall, when made, become
a part of the Project.
Section 5.3. REMOVAL OF PORTIONS OF THE PROJECT. The Company
shall not be under any obligation to renew, repair or replace any inadequate,
obsolete, worn out, unsuitable, undesirable or unnecessary portions of the
Project, except to the extent, if any, necessary to ensure the continued
character of the Project as Solid Waste Facilities. The Company shall have the
right from time to time to substitute personal property or fixtures for any
portions of the Project, provided that the personal property or fixtures so
substituted shall not impair the character of the Project as Solid Waste
Facilities. Any such substituted property or fixtures shall, when so
substituted, become a part of the Project. The Company shall also have the right
to remove any portions of the Project, without substitution therefor; provided,
that the Company shall deliver to the Trustee a certificate signed by an
Engineer describing said portions of the Project and stating that the removal of
such property or fixtures will not impair the character of the Project as Solid
Waste Facilities.
Section 5.4. OPERATION OF PROJECT. Subject to its obligations
and rights to maintain, repair or remove portions of the Project as provided in
Sections 5.2 and 5.3 hereof, the Company shall use its best efforts to continue
operation of the Project so long as and to the extent that operation thereof is
required to comply with the laws or regulations of governmental entities having
jurisdiction thereof or unless the Authority shall have approved the
discontinuance of such operation (which approval shall not be unreasonably
withheld). The Company agrees that it will, within the design capacities
thereof, operate and maintain the Project in accordance with all applicable,
valid and enforceable rules and regulations of EPA pertaining to Solid Waste
Facilities or any successor body, agency, commission or department thereto;
provided, that the Company reserves the right to contest in good faith any such
laws or regulations.
Nothing in this Section shall prevent or restrict the Company,
in its sole discretion, at any time, from discontinuing or suspending either
permanently or temporarily its use of any facility of the Company served by the
Project and in the event such discontinuance or suspension shall render
unnecessary the continued operation of the Project, the Company shall have the
right
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to discontinue the operation of the Project during the period of any such
discontinuance or suspension.
Section 5.5. DAMAGE; DESTRUCTION AND EMINENT DOMAIN. If, during
the term of this Agreement, the Project or any portion thereof is destroyed or
damaged in whole or in part by fire or other casualty, or title to, or the
temporary use of, the Project or any portion thereof shall have been taken by
the exercise of the power of eminent domain, the Company (unless it shall have
exercised its option to prepay the Loan Payments pursuant to the Indenture)
shall promptly repair, rebuild or restore the portion of the Project so damaged,
destroyed or taken with such changes, alterations and modifications (including
the substitution and addition of other property) as may be necessary or
desirable for the administration and operation of the Project as Solid Waste
Facilities and as shall not impair the character or significance of the Project
as furthering the purposes of the Act.
Section 5.6. INDEMNIFICATION. The Company releases the Authority
from, agrees that the Authority shall not be liable for, and indemnifies the
Authority against, all liabilities, claims, costs and expenses imposed upon or
asserted against the Authority on account of: (a) any loss or damage to property
or injury to or death of or loss by any person that may be occasioned by any
cause whatsoever pertaining to the maintenance, operation and use of the
Project; (b) any breach or default on the part of the Company in the performance
of any covenant or agreement of the Company under this Agreement, the Continuing
Disclosure Agreement, the Project Note or any related document, or arising from
any act or failure to act by the Company, or any of its agents, contractors,
servants, employees or licensees; (c) the authorization, issuance and sale of
the Project Bonds, and the provision of any information furnished in connection
therewith concerning the Project or the Company (including, without limitation,
any information furnished by the Company for inclusion in any certifications
made by the Authority under Section 3.10 hereof or for inclusion in, or as a
basis for preparation of, the information statements filed by the Authority
pursuant to the Code); (d) any audit of the tax status of the interest on the
Project Bonds; and (e) any claim or action or proceeding with respect to the
matters set forth in (a), (b) and (c) above brought thereon.
The Company agrees to indemnify each of the Trustee, the
Registrar and any Authenticating or Paying Agent for, and to hold each harmless
against, any loss, liability or expense incurred by it, arising out of or in
connection with the acceptance or administration of the Indenture or the trusts
thereunder or the performance of its duties thereunder or under this Agreement,
including the costs and expenses of defending itself against or investigating
any claim of liability in the premises, except to the extent that any such loss,
liability or expense was due to its own gross negligence or bad faith.
In case any action or proceeding is brought against the
Authority, the Trustee, the Registrar and any Authenticating or Paying Agent in
respect of which indemnity may be sought hereunder, the party seeking indemnity
promptly shall give notice of that action or proceeding to the Company, and the
Company upon receipt of that notice shall have the obligation and the right to
assume the defense of the action or proceeding; provided, that failure of a
party to give that notice shall not relieve the Company from any of its
obligations under this Section unless that failure prejudices the defense of the
action or proceeding by the Company. At its own expense, an indemnified party
may employ separate counsel and participate in the defense; provided; however,
where it is ethically inappropriate for one firm to represent the interests of
the Company and any other indemnified party or parties, the Company shall pay
the legal expenses of that indemnified party in connection with its retention of
separate counsel. The Company shall not be liable for any settlement made
without its consent.
The indemnification set forth above is intended to and shall
include the indemnification of all affected officials, directors, officers and
employees of the Authority, the
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Trustee, the Registrar and any Authenticating or Paying Agent, respectively.
That indemnification is intended to and shall be enforceable by the Authority,
the Trustee, the Registrar and any Authenticating or Paying Agent, respectively,
to the full extent permitted by law.
Section 5.7. COMPANY NOT TO ADVERSELY AFFECT TAX EXEMPT STATUS
OF INTEREST. The Company hereby covenants and represents that it has taken and
caused to be taken and shall take and cause to be taken all actions that may be
required of it alone or in conjunction with the Authority for the interest on
the Project Bonds to be and remain excluded from gross income of the Holders for
federal income tax purposes, and that it has not taken or permitted to be taken
on its behalf, and covenants that it shall not take, or permit to be taken on
its behalf, any action which, if taken, would adversely affect such exclusion
under the provisions of the Code.
Section 5.8. COMPANY TO MAINTAIN ITS EXISTENCE; SALES OF ASSETS
OR MERGERS. The Company shall do all things necessary to preserve and keep in
full force and effect its existence, rights and franchises, except as otherwise
permitted by this Section 5.8. In particular, the Company shall not (a) sell,
transfer or otherwise dispose of all, or substantially all, of its assets; (b)
consolidate with or merge into any other entity; or (c) permit one or more other
entities to consolidate with or merge into it unless (i) the corporation formed
by such consolidation or into which the Company is merged or the entity which
acquired by conveyance or transfer the properties and assets of the Company
substantially as an entity shall, if such entity is a corporation, be a
corporation organized and existing under the laws of the United States of
America or any state or the District of Columbia, and shall expressly assume, by
an amendment to this Agreement and an appropriate assumption agreement relating
to the Project Note, the due and punctual payment of Loan Payments and the
performance of every agreement and covenant of this Agreement on the part of the
Company to be performed or observed; (ii) immediately after giving effect to
such transaction, no event of default and no event which, after notice or lapse
of time, or both, would become an event of default, has happened and is
continuing; (iii) the Company shall have delivered to the Authority and the
Trustee a certificate stating that such consolidation, merger, conveyance or
transfer and such amendment to this Agreement comply with this Agreement and
that all conditions precedent provided for in this Agreement relating to such
transaction have been complied with; and (iv) the transferee or the surviving or
resulting entity has a net worth, determined in accordance with generally
accepted accounting principles consistently applied, not less than the net worth
of the Company immediately prior to such consolidation, merger, sale, transfer
or disposition.
In connection with any transfer, disposition, consolidation,
merger or other action pursuant to this Section 5.8, the Company shall deliver
or caused to be delivered any amendment or supplement to the Continuing
Disclosure Agreement or a successor agreement thereto as may then be required in
the opinion of Bond Counsel for purposes of satisfying the Rule (as defined in
the Continuing Disclosure Agreement).
Section 5.9. FINANCIAL STATEMENTS. Within 120 days after the end
of each fiscal year of the Company, the Company shall provide to the Trustee
and/or any requesting Holders the Company's financial statements for such fiscal
year including its consolidated statement of operations, changes in financial
condition and balance sheet, certified by the Company's regular independent
certified public accountants or firm of independent certified public
accountants.
Within 60 days after the end of each fiscal quarter of the
Company, the Company shall provide to the Trustee and/or any requesting Holders
the Company's financial statements for such fiscal quarter including its
consolidated statement of operations, changes in financial condition and balance
sheet. Such financial statements shall be furnished by the Trustee to any Holder
of the Bonds requesting them in accordance with the Indenture, and the number of
copies furnished by the Company to the Trustee shall be sufficient for such
purpose. The Company's
- 22 -
<PAGE> 27
obligations under this Section will be satisfied by the Company providing copies
of its Form 10- K report and Form 10-Q report filed with the Securities and
Exchange Commission to the parties and within the time period required by this
Section.
Section 5.10. OWNERSHIP OF PROJECT. No provision of this
Agreement or of the Indenture is intended to mortgage, create a security
interest in or otherwise adversely affect the Company's title to or ownership of
the Project or the Project Site. The Company's obligations under the Agreement
and the Notes constitute unsecured, general obligations of the Company. Subject
to the Company's obligation to comply with the agreements and covenants
contained in this Agreement and, in particular, in Article V hereof, the Company
may mortgage, grant a security interest in or otherwise similarly encumber its
title to the Project or the Project Site in connection with other financings
that it may undertake in the future or in connection with other corporate
activities.
(End of Article V)
- 23 -
<PAGE> 28
ARTICLE VI
REDEMPTION OF PROJECT BONDS
Section 6.1. OPTIONAL REDEMPTION. At any time and from time to
time as long as no event of default shall have occurred and be subsisting, the
Company may deliver moneys to the Trustee in addition to Loan Payments and
direct the Trustee to use such moneys to call the Project Bonds for optional
redemption at any time in accordance with the applicable provision of the
Indenture providing for optional redemption at the redemption price stated
therein. Pending application for such purposes, such moneys shall be held by the
Trustee in a special account in the Bond Fund and shall not operate to abate or
postpone Loan Payments or to otherwise alter or suspend the obligations of the
Company under this Agreement and the Project Note; provided, however, the
Company is not obligated to deliver moneys for optional redemption prior to the
optional redemption date.
Section 6.2. EXTRAORDINARY OPTIONAL REDEMPTION. The Company
shall have, subject to the conditions hereinafter imposed, the option to direct
the redemption in whole or in part of outstanding Project Bonds in accordance
with the applicable provisions of the Indenture, if any of the following shall
have occurred:
(a) The Project Facilities or the Plant shall have been
damaged or destroyed (i) to such extent that it shall reasonably
appear that the Project Facilities or the Plant cannot
reasonably be restored within a period of six months to the
condition thereof immediately preceding such damage or
destruction, or (ii) to such extent that it shall reasonably
appear that the Company would thereby be prevented from carrying
on its normal operations in connection therewith for a period of
at least six months.
(b) Title to, or the temporary use of, all or a
substantial portion of the Project Facilities or the Plant shall
have been taken under the exercise of the power of eminent
domain by any governmental authority, or person, firm or
corporation acting under governmental authority, (i) to such
extent that it shall reasonably appear that the Project
Facilities or the Plant cannot be restored within a period of
six months to a condition of usefulness comparable to that
existing prior to such taking, or (ii) it shall reasonably
appear that such a taking would result in the Company being
thereby prevented from carrying on normal operations in
connection therewith for a period of at least six months.
(c) As a result of any changes in the Constitution of the
State or the Constitution of the United States of America or of
legislative or administrative action (whether state or federal)
or by final decree, judgment or order of any court or
administrative body (whether state or federal), the obligations
of the Company under this Agreement or the Project Note shall
have become unenforceable or impossible of performance in any
material respect in accordance with the intent and purpose of
the parties as expressed in this Agreement or the Project Note,
or if unreasonable burdens or excessive liabilities shall have
been imposed upon the Authority or the Company with respect to
the Project Facilities or the Plant or the operation thereof,
including without limitation, federal, state or other ad valorem
taxes not presently levied upon privately-owned property used
for the same general purpose as the Project Facilities or the
Plant.
(d) Changes in the marketability of products or the
economic availability of raw materials, labor, operating
supplies, energy sources or supplies, or facilities
- 24 -
<PAGE> 29
(including but not limited to facilities in connection with the
disposal of wastes) necessary for the operation of the Project
Facilities or the Plant for the Project Purposes shall have
occurred or such technological changes or other changes shall
have occurred which, in the case of any of the foregoing, the
Company cannot reasonably overcome or control and which in the
Company's reasonable judgment (as evidenced by a certificate of
the chief financial officer of the Company and a resolution of
the Board of Directors of the Company to that effect) would
render the Project Facilities or the Plant uneconomic for such
purposes for a period of at least 6 months.
To exercise such option, the Company shall, at any time within 180 days
following the event authorizing the exercise of such option, or at any time
during the continuation of the condition referred to in clause (d) above, give
notice to the Authority and to the Trustee specifying the date on which the
Company will make the payment hereinafter specified, which date shall be not
less than 45 nor more than 90 days from the date such notice is mailed, and
shall make arrangements satisfactory to the Trustee for the giving of the
required notice of redemption. The amount payable by the Company in the event of
its exercise of the option granted in this Section shall be the sum of the
following:
(i) An amount of money which, when added to the moneys
and investments held to the credit of the Bond Fund and
available therefor, will be sufficient pursuant to the
provisions of the Indenture to pay and discharge the outstanding
Bonds to be so redeemed together with interest accrued thereon
to the redemption date on the earliest applicable redemption
date within such 45 to 90 day period, such amount to be paid to
the Trustee, plus
(ii) An amount of money equal to the Additional Payments
relating to the Bonds to be so redeemed, accrued and to accrue
until actual final payment and redemption of such Bonds, such
amount or applicable portions thereof to be paid to the Trustee
or to the persons to whom such Additional Payments are or will
be due.
The requirement of clause (ii) above with respect to Additional Payments to
accrue may be met if provisions satisfactory to the Trustee and the Authority
are made for paying such amounts as they become due.
The option granted to the Company in this subsection may be
exercised whether or not the Company is in default hereunder; provided that such
default will not result in nonfulfillment of any condition to the exercise of
any such right or option.
Section 6.3. MANDATORY REDEMPTION UPON A DETERMINATION OF
TAXABILITY. Upon receipt by the Company from the Issuer, any Holder or the
Trustee of notice of a Determination of Taxability (as defined in the Indenture)
resulting from (i) a failure by the Company to observe the agreements specified
in Section 5.7 hereof or (ii) the inaccuracy of any representation or warranty
by the Company hereunder, the Company shall, in the manner and upon the date
requested in writing by the Trustee (after consultation with the Company as
provided in the Indenture), deliver to the Trustee the moneys needed to redeem
the applicable principal amount of outstanding Project Bonds in accordance with
the loss of tax exemption redemption provisions set forth in Section 4.01(b) of
the Indenture. The amount payable by the Company in such event shall be an
amount which, together with any moneys available in the Bond Fund for such
purpose, shall equal 100% of the outstanding principal amount thereof, together
with accrued interest to the redemption date.
- 25 -
<PAGE> 30
Section 6.4. ACTIONS BY AUTHORITY. At the expense and request of
the Company, and in the case of mandatory redemption pursuant to Section 6.3
hereof, the Authority will forthwith take all steps, if any, required of it
under the applicable provisions of the Indenture to effect on the earliest
applicable redemption date the optional or mandatory redemption of all or such
portion of the Project Bonds as may be specified by the Company or required by
Section 6.3 hereof.
(End of Article VI)
- 26 -
<PAGE> 31
ARTICLE VII
EVENTS OF DEFAULT AND REMEDIES
Section 7.1. EVENTS OF DEFAULT. Each of the following shall be
an "event of default":
(a) The Company shall fail to pay any Loan Payment
representing interest on any Bond on or prior to the date on
which such Loan Payment is due and payable and continuing for
more than five days thereafter.
(b) The Company shall fail to pay any Loan Payment
representing principal of or any premium on any Bond on or prior
to the date on which such Loan Payment is due and payable.
(c) The Company shall fail to deliver to the Trustee, or
cause to be delivered on its behalf, the moneys needed to redeem
any outstanding Bonds in the manner and upon the date requested
in writing by the Trustee as provided in Section 6.3 of this
Agreement.
(d) The Company shall fail to observe and perform any
other material agreement, term or condition contained in this
Agreement or the Project Note, if such failure continues for a
period of 60 days after notice of such failure is given to the
Company by the Trustee, or for such longer period as the Trustee
may agree to in writing; provided, that if the failure is other
than the payment of money and is of such nature that it cannot
be corrected within the applicable period, such failure shall
not constitute an event of default so long as the Company
institutes curative action within the applicable period and
diligently pursues such action to completion.
(e) The Company shall: (i) admit in writing its inability
to pay its debts generally as they become due; (ii) have an
order for relief entered in any case commenced by or against it
under the federal bankruptcy laws, as now or hereafter in
effect; (iii) commence a proceeding under any other federal or
state bankruptcy, insolvency, reorganization or other similar
law, or have such a proceeding commenced against it and either
have an order of insolvency or reorganization entered against it
or have the proceeding remain undismissed and unstayed for
thirty days; (iv) make an assignment for the benefit of
creditors; or (v) have a receiver or trustee appointed for it or
for the whole or any substantial part of its property;
(f) Any representation or warranty made by the Company
herein, or in any report, certificate, financial statement or
other instrument furnished by the Company in connection with
this Agreement or with the purchase of the Project Bonds shall
at any time prove to have been false or misleading in any
material respect when made or given, provided that no event of
default shall be deemed to have occurred if the inaccuracy of
any such representation or warranty shall first have resulted in
a Determination of Taxability or is alleged to be the basis for
a Determination of Taxability that is presently being contested.
The term "default" hereunder means default by the Company in the
performance or observance of any of the covenants, agreements or conditions on
its part contained herein or
- 27 -
<PAGE> 32
in the Project Note, exclusive of any period of grace required to constitute a
default an "event of default" as hereinabove provided.
The declaration of an event of default under this Section and
the exercise of remedies upon any such declaration shall be subject to any
applicable limitations of federal bankruptcy law affecting or precluding such
declaration or exercise during the pendency of or immediately following any
bankruptcy, liquidation or reorganization proceedings.
Section 7.2. REMEDIES ON DEFAULT. Whenever an event of default
shall have happened and be subsisting, any one or more of the following remedial
steps may be taken:
(a) The Authority, with the written consent of the
Trustee, if acceleration is declared pursuant to Section 7.03 of
the Indenture, shall declare all Loan Payments, together with
any Additional Payments and other amounts payable hereunder to
be immediately due and payable, whereupon the same shall become
immediately due and payable;
(b) The Authority and the Trustee or either of them may
have access to and inspect, examine and make copies of the books
and records and any and all accounts, data and income tax and
other tax returns of the Company, only, however, insofar as they
pertain to the Project; and
(c) The Authority and the Trustee or either of them may
take whatever action at law or in equity may appear necessary or
desirable to collect the Loan Payments, Additional Payments and
other amounts then due and thereafter to become due, or to
enforce performance and observance of any other obligation or
agreement of the Company, under this Agreement and the Project
Note.
Notwithstanding the foregoing, the Authority shall not be obligated to take any
step which in its opinion will or might cause it to expend time or money or
otherwise incur liability unless and until a satisfactory indemnity bond has
been furnished to the Authority at no cost or expense to the Authority. Any
amounts collected as Loan Payments or applicable to Loan Payments and any other
amounts which would be applicable to payment of Bond Service Charges on the
Project Bonds collected pursuant to action taken under this Section shall be
paid into the Bond Fund and applied in accordance with the provisions of the
Indenture or, if the outstanding Project Bonds have been paid and discharged in
accordance with the provisions of the Indenture, shall be paid as provided in
Section 5.08 of the Indenture for transfers of remaining amounts in the Bond
Fund.
The provisions of this Section are subject to the further
limitation that the annulment of a declaration that all the Bonds outstanding
under the Indenture are immediately due and payable shall also constitute a
rescission of any corresponding declaration made pursuant to paragraph (a) of
this Section and a waiver and rescission of the consequences of such declaration
and of the event of default with respect to which such declaration has been
made, provided that no such waiver or rescission shall extend to or affect any
subsequent or other default or impair any right consequent thereon.
Section 7.3. NO REMEDY EXCLUSIVE. No remedy conferred upon or
reserved to the Authority or the Trustee by this Agreement is intended to be
exclusive of any other available remedy or remedies, but each and every such
remedy shall be cumulative and shall be in addition to every other remedy given
under this Agreement or now or hereafter existing at law, in equity or by
statute. No delay or omission to exercise any right or power accruing upon any
default shall impair any such right or power or shall be construed to be a
waiver thereof, but any such right and power may be exercised from time to time
and as often as may be deemed
- 28 -
<PAGE> 33
expedient. In order to entitle the Authority or the Trustee to exercise any
remedy reserved to it in this Article, it shall not be necessary to give any
notice, other than such notice as may be expressly required herein.
Section 7.4. AGREEMENT TO PAY ATTORNEYS' FEES AND EXPENSES. If
an event of default should occur and the Authority or the Trustee should employ
attorneys or incur other expenses for the enforcement of any obligation or
agreement contained herein or in the Project Note, the Company shall on demand
therefor reimburse the reasonable fees of such attorneys and such other expenses
so incurred.
Section 7.5. NO ADDITIONAL WAIVER IMPLIED BY ONE WAIVER. In the
event any agreement contained in this Agreement should be breached by either
party and thereafter waived by the other party, such waiver shall be limited to
the particular breach so waived and shall not be deemed to waive any other
breach hereunder.
(End of Article VII)
- 29 -
<PAGE> 34
ARTICLE VIII
MISCELLANEOUS
Section 8.1. TERM OF AGREEMENT. This Agreement shall remain in
full force and effect from the date of delivery of the Project Bonds to the
Original Purchaser until such time as all of the Bonds shall have been fully
paid (or provision made for such payment) pursuant to the Indenture and all
other sums payable hereunder shall have been paid except for obligations of the
Company under Sections 4.2 and 5.6 hereof, which shall survive any termination
of this Agreement.
Section 8.2. AMOUNTS REMAINING IN FUNDS. Any amounts in the Bond
Fund remaining unclaimed by the Holders for one year after the due date (whether
at maturity or by redemption or pursuant to any mandatory sinking fund
requirements or otherwise) thereof shall at the option of the Company be deemed
to belong to and shall, at the written request of the Company, be paid to the
Company by the Trustee as overpayment of Loan Payments. With respect to that
principal of and any premium and interest on the Bonds to be paid from moneys
paid to the Company pursuant to the preceding sentence the Holders entitled to
such moneys shall look solely to the Company for the payment of such moneys.
Further, any amounts remaining in the Bond Fund, the Project Fund, the Rebate
Fund and any other special funds or accounts created under this Agreement or the
Indenture after all the outstanding Bonds shall be deemed to be paid and
discharged under the provisions of the Indenture and all other amounts required
to be paid under the Indenture, this Agreement and the Notes have been paid,
shall be paid to the Company.
Section 8.3. NOTICES. All notices, certificates, requests or
other communications hereunder shall be deemed to be sufficiently given when
mailed by first class mail, postage prepaid, addressed to the appropriate Notice
Address. A duplicate copy of each notice, certificate, request or other
communication given hereunder to the Authority, the Company, or the Trustee
shall also be given to the others. The Authority, the Company, and the Trustee
may, by notice given hereunder, designate any further or different addresses to
which subsequent notices, certificates, requests or other communications shall
be sent.
Section 8.4. EXTENT OF COVENANTS OF THE AUTHORITY; NO PERSONAL
LIABILITY. All covenants, stipulations, obligations and agreements of the
Authority contained in this Agreement shall be effective to the extent
authorized and permitted by applicable law. No such covenant, stipulation,
obligation or agreement shall be deemed to be a covenant, stipulation,
obligation or agreement of any present or future member, officer, agent or
employee of the Authority in other than his official capacity, and neither the
members of the Authority nor any official of the Authority executing the Project
Bonds shall be liable personally on the Project Bonds or be subject to any
personal liability or accountability by reason of the issuance thereof or by
reason of the covenants, stipulations, obligations or agreements of the
Authority contained in this Agreement or in the Indenture.
Section 8.5. BINDING EFFECT. This Agreement and the Project Note
shall inure to the benefit of and shall be binding in accordance with its terms
upon the Authority, the Company and their respective successors and assigns.
Section 8.6. AMENDMENTS, CHANGES AND MODIFICATIONS. Except as
otherwise provided in this Agreement or in the Indenture, subsequent to the
issuance of the Project Bonds and prior to all conditions provided for in the
Indenture for release of the Indenture having been met, this Agreement and the
Project Note may not be effectively amended, changed, modified,
- 30 -
<PAGE> 35
altered or terminated except in accordance with the provisions of Article XI of
the Indenture, as applicable.
Section 8.7. EXECUTION COUNTERPARTS. This Agreement may be
executed in any number of counterparts, each of which shall be regarded as an
original and all of which shall constitute but one and the same instrument.
Section 8.8. SEVERABILITY. If any clause, provision or section
of this Agreement or the Project Note, or any covenant, stipulation, obligation,
agreement, act, or action, or part thereof made, assumed, entered into, or taken
hereunder or thereunder or any application hereof or thereof, is for any reason
held to be illegal, invalid or inoperable, such illegality, invalidity or
inoperability shall not affect any other provision or any other covenant,
stipulation, obligation, agreement, act or action or part thereof, made,
assumed, entered into, or taken, each of which shall be construed and enforced
as if such illegal or invalid portion were not contained herein. Nor shall such
illegality, invalidity or inoperability of any application thereof affect any
legal and valid application thereof, and each such clause, provision, section,
covenant, stipulation, obligation, agreement, act, or action, or part shall be
deemed to be effective, operative, made, entered into or taken in the manner and
to the full extent permitted by law.
Section 8.9. GOVERNING LAW. This Agreement and the Project Note
shall be deemed to be contracts made under the laws of the State and for all
purposes shall be governed exclusively by and construed in accordance with the
laws of the State.
Section 8.10. CONTINUING DISCLOSURE. The Company acknowledges
and agrees that the Authority is not an "obligated person" (as defined in the
Continuing Disclosure Agreement) with respect to the Bonds and represents that
the Company is the only obligated person with respect to the Bonds. The
Authority hereby acknowledges the entry by the Company into the Continuing
Disclosure Agreement under which the Company has assumed certain obligations for
the benefit of the Holders and beneficial owners of the Bonds. The Company
agrees to perform its obligations under the Continuing Disclosure Agreement.
Notwithstanding any other provision of this Agreement, any failure by the
Company to comply with any provision of the Continuing Disclosure Agreement
shall not be a failure or a default, or an Event of Default, under this
Agreement or the Indenture.
(End of Article VIII)
- 31 -
<PAGE> 36
IN WITNESS WHEREOF, the Authority and the Company have caused
this Agreement to be duly executed in their respective names, all as of the date
hereinbefore written.
OHIO WATER DEVELOPMENT
AUTHORITY
By: /s/ Steven ???
-----------------------------
Executive Director
REPUBLIC ENGINEERED
STEELS, INC.
By: /s/ Harold ???
-----------------------------
Title:
- 32 -
<PAGE> 37
EXHIBIT A
This Promissory Note has not been registered under
the Securities Act of 1933. Its transferability is
restricted by the Trust Indenture and the Loan
Agreement referred to herein.
REPUBLIC ENGINEERED STEELS, INC.
PROJECT NOTE
REPUBLIC ENGINEERED STEELS, INC., a Delaware corporation (the
"Company"), for value received, promises to pay to Bank One, Columbus, NA,
Columbus, Ohio, as trustee (the "Trustee") under the Indenture hereinafter
referred to, the principal sum of
FIFTY-THREE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($53,700,000)
and to pay interest on the unpaid balance of the principal sum hereof from June
1, 1996 at the rate of interest borne by the Bonds, as hereinafter defined,
until the payment of the principal sum has been made or provided for.
This Project Note is issued pursuant to the Loan Agreement dated
as of the same date as this Project Note (the "Agreement") between the Ohio
Water Development Authority (the "Authority") and the Company pursuant to which
the Authority has loaned to the Company proceeds received from the sale of the
Authority's $53,700,000 Solid Waste Revenue Bonds, Series 1996 (Republic
Engineered Steels, Inc. Project) (the "Bonds") to assist in the financing of the
Project (as defined in the Agreement). This Project Note evidences the Company's
obligation to make Loan Payments, as defined in the Agreement, required to pay
the principal of, premium, if any, and interest on the Bonds as and when due and
is entitled to the benefits and subject to the provisions of the Agreement. The
Bonds have been issued concurrently with the execution and delivery of this
Project Note, pursuant to, and are secured by, the Trust Indenture dated as of
the same date as this Project Note (the "Indenture") between the Authority and
the Trustee.
The Bonds bear interest from their date at the rate of 9.00% per
annum, payable each June 1 and December 1, commencing December 1, 1996
("Interest Payment Dates"), all as defined and described in the Indenture. The
Bonds mature in the amount of $53,700,000 on June 1, 2021.
To provide funds to pay the principal of, premium, if any, and
interest on the Bonds as and when due, the Company hereby agrees to and shall
make Loan Payments on each Interest Payment Date in an amount equal to the
amount payable as principal, premium, if any, and interest on the Bonds on such
Interest Payment Date.
All payments made under this Project Note shall be in lawful
money of the United States of America and shall be made to the Trustee at its
principal corporate trust office in Columbus, Ohio, or such other place as the
Trustee may designate, and deposited in the Bond Fund created by the Indenture.
Except as otherwise provided in the Indenture and the Agreement, such payments
shall be used by the Trustee to pay the principal, premium, if any, and interest
on the Bonds as and when due.
A-1
<PAGE> 38
Whenever payment or provision therefor has been made in respect
of the principal of, premium, if any, or interest on, all or any portion of the
Bonds in accordance with the Indenture, this Project Note shall be deemed paid
to the extent such payment or provision therefor has been made. If Bonds are
thereby deemed paid in full, this Project Note shall be cancelled and returned
to the Company. The Company shall receive a credit against its obligation to
make payments hereunder to the extent of moneys available in the Bond Fund,
created by the Indenture, for payment of principal, premium, if any, and
interest on the Bonds pursuant to the Agreement. Subject to the foregoing, all
payments shall be in the full amount required under this Project Note.
The obligations of the Company to make Loan Payments shall be
absolute and unconditional as provided in the Agreement.
This Project Note is subject to mandatory and optional
prepayment in the manner and to the extent provided in Article VI of the
Agreement for the purpose of redemption of the Bonds.
Whenever an Event of Default under Section 7.01 of the Indenture
shall have occurred and, as a result thereof, the principal of and any premium
on all Bonds then outstanding and interest accrued thereon shall have been
declared to be immediately due and payable pursuant to Section 7.03 of the
Indenture, the unpaid principal amount of and any premium and accrued interest
on this Project Note shall be due and payable on the date on which the principal
of and premium and interest on the Bonds shall have been declared due and
payable; provided that the annulment of a declaration of acceleration with
respect to the Bonds shall also constitute an annulment of any corresponding
declaration with respect to this Project Note.
IN WITNESS WHEREOF, the Company has caused this Project Note to
be executed in its name by its duly authorized officers as of June 1, 1996.
REPUBLIC ENGINEERED
STEELS, INC.
By:
------------------------
Title:
A-2
<PAGE> 39
EXHIBIT B
PROJECT
The Project is comprised of facilities for the disposal of solid
waste consisting of scrap ferrous metals by the recycling thereof, together with
all necessary and appurtenant equipment and improvements, designed for or
relating to the disposal of solid waste, as well as other related costs and
improvements, all to be located at a new continuous cast direct billet process
plant at the Republic Engineered Steels, Inc. facility in Canton Township, Ohio.
B-1
<PAGE> 40
EXHIBIT C
FORM OF DISBURSEMENT REQUEST
STATEMENT NO. ___ REQUESTING DISBURSEMENT
OF FUNDS FROM PROJECT FUND PURSUANT TO
SECTION 3.4 OF THE LOAN AGREEMENT DATED AS
OF JUNE 1, 1996 BETWEEN THE OHIO
WATER DEVELOPMENT AUTHORITY AND
REPUBLIC ENGINEERED STEELS, INC.
Pursuant to Section 3.4 of the Loan Agreement (the "Agreement")
between the Ohio Water Development Authority (the "Authority") and Republic
Engineered Steels, Inc. (the "Company") dated as of June 1, 1996, the
undersigned Authorized Company Representative hereby authorizes Bank One,
Columbus, NA, as trustee (the "Trustee") as depository of the Project Fund
created by the Indenture (the "Indenture") by and between the Authority and said
Trustee, to pay to the Company out of the moneys deposited in said Project Fund
the aggregate sum of $_______________ to pay the person(s) listed on Schedule I,
for the advances, payments and expenditures made by it in connection with the
items listed in Schedule I, which is incorporated herein by reference.
The undersigned in connection with the foregoing request for
disbursements from said Project Fund hereby certifies that:
(a) Each item is properly payable out of the Project Fund in
accordance with the terms and conditions of the Agreement
and none of such items for which payment is requested has
formed the basis for any payment heretofore made from
said Project Fund.
(b) Each item for which payment is requested hereunder is or
was necessary in connection with the acquisition,
construction or installation of the Project, as defined
in the Indenture and Agreement, or costs related thereto
as permitted by the Agreement.
(c) This document evidences the approval of the undersigned
Authorized Company Representative of each payment hereby
authorized.
(d) Each item for which disbursement is requested hereunder,
and the cost for each item, is as described in the
information statement filed by the Authority in
connection with the issuance of the Bonds (as defined in
the Agreement), as required by Section 149(e) of the
Code; provided that if the foregoing statement is not
true, the average reasonably expected economic life of
the facilities which have been and will be paid for with
moneys in the Project Fund is not less than 5/6ths of the
average maturity of the Bonds.
This _______ day of _______________, ____.
--------------------------------------
Authorized Company Representative
C-1
<PAGE> 41
Schedule I
TO STATEMENT NO. ________________ REQUESTING DISBURSEMENT OF FUNDS FROM PROJECT
FUND PURSUANT TO SECTION 3.4 OF LOAN AGREEMENT DATED AS OF JUNE 1, 1996, BETWEEN
THE OHIO WATER DEVELOPMENT AUTHORITY AND REPUBLIC ENGINEERED STEELS, INC.
PAYEE AMOUNT PURPOSE
- - ----- ------ -------
C-2
<PAGE> 1
EXHIBIT 10.19(b)
This Promissory Note has not been registered under
the Securities Act of 1933. Its transferability is
restricted by the Trust Indenture and the Loan
Agreement referred to herein.
REPUBLIC ENGINEERED STEELS, INC.
PROJECT NOTE
REPUBLIC ENGINEERED STEELS, INC., a Delaware corporation (the
"Company"), for the value received, promises to pay Bank One, Columbus, NA,
Columbus, Ohio, as trustee (the "Trustee") under the Indenture hereinafter
referred to, the principal sum of
FIFTY-THREE MILLION SEVEN HUNDRED THOUSAND DOLLARS ($53,700,000)
and to pay interest on the unpaid balance of the principal sum hereof from Jume
1, 1996 at the rate of interest borne by the Bonds, as hereinafter defined
until the payment of the principal sum has been made or provided for.
This Project Note is issued pursuant to the Loan Agreement
dated as of the same date as this Project Note (the "Agreement") between the
Ohio Water Development Authority (the "Authority") and the Company pursuant to
which the Authority has loaned to the Company proceeds received from the sale
of the Authority's $53,700,000 Solid Waste Revenue Bonds, Series 1996 (Republic
Engineered Steel Inc. Project)(the "Bonds") to assist in the financing of the
Project (as defined in the Agreement). This Project Note evidences the
Company's obligation to make Loan Payments as defined in the Agreement,
required to pay the principal of, premium, if any and interest on the Bonds as
and when due and is entitled to the benefits and subject to the provisions of
the Agreement. The Bonds have not been issued concurrently with the execution
and delivery of this Project Note (the "Indenture") between the Authority and
the Trustee.
The Bonds bear interest from their date at the rate of 9.00%
per annum, payable each June 1 and December 1, commencing December 1, 1996
("Interest Payment Dates"), all as defined and described in the Indenture. The
Bonds mature in the amount of $ 53,700.000 on June 1, 2021.
To provide funds to pay the principal of, premium. if any, and
intrest on the Bonds as and when due, the Company hereby agrees to and shall
make Loan Payments on each Intrest Payment Date in an Amount equal to the
amount payable as principal, premium, if any, and interest on the Bonds on such
Interest Payment Date.
<PAGE> 2
All payments made under this Project Note shall not be in
lawful money of the United States of America and shall be made to the Trustee
at its principal corporate trust office in Columbus, Ohio, or such other place
as the Trustee may designate, and deposited in the Bond Fund created by the
Indenture and the Agreement, such payments shall be used by the Trustee to pay
the principal, premuim, if any, and interest on the Bonds as and when due.
Whenever payment or provision therefor has been made in respect
of the principal of, premium, if any, or interest on, all or any portion of the
Bonds in accordance with the Indenture, this Project Note shall be deemed paid
to the extent such payment or provision therefor has been made. If Bonds are
thereby deemed paid in full, this Project Note shall be cancelled and returned
to the Company. The Company shall receive a credit against its obligation to
make its payments hereunder to the extent of moneys available in the Bond Fund,
created by the Indenture, for payment of principal, premium, if any and
interest of the Bonds pursuant to the Agreement. Subject to the foregoing, all
payments shall be in the amount required under this Project Note.
The obligations of the Company to make the loan payments shall
be absolute and unconditional as provided in the Agreement.
This Project Note is subject to mandatory and optional
prepayment in the manner and to the extent provided in Rule VI of the Agreement
for the purpose of redemption of the Bonds.
Whenever an Event of Default under Section 7.01 of the
Indenture shall have occurred and, as a result thereof, the principal of and any
premium on all Bonds then outstanding and interest accrued theron shall have
been declared to be immediately due and payable pursuant to Section 7.03 of the
Indenture, the unpaid principal amount of and any premium and accrued interest
on this Project Note shall be due and payable on the date on which the
principal of and premium and interest on the Bonds shall have been declared due
and payable; provided that the annulment of a declaration of acceleration with
respect to the Bonds shall also constitute an annulment of any corresponding
declaration with respect to this Project Note.
IN WITNESS WHEREOF, the Company has caused this Project Note to
be executed in its name by its duly authorized officers as of June 1, 1996.
REPUBLIC ENGINEERED
STEELS, INC.
By: /s/ Harold V. Kelly
----------------------------------
Title: Executive Vice President
and General Counsel
-2-
<PAGE> 1
Exhibit 10-20(b)
REGISTERED REGISTERED
NUMBER DOLLARS
No. R-1 $53,700,000
UNITED STATES OF AMERICA
STATE OF OHIO
SOLID WASTE REVENUE BOND, SERIES 1996
(REPUBLIC ENGINEERED STEELS, INC. PROJECT)
<TABLE>
<CAPTION>
INTEREST RATE: MATURITY DATE: DATED AS OF: CUSIP:
<S> <C> <C> <C>
9% per year June 1, 2021 June 1, 1996 67759AAC3
</TABLE>
REGISTERED OWNER: CEDE & CO.
PRINCIPAL AMOUNT: FIFTY-THREE MILLION SEVEN HUNDRED THOUSAND DOLLARS
The State of Ohio (the "State"), by the Ohio Water Development
Authority (the "Authority"), a body politic and corporate duly organized and
existing under and by virtue of the laws of the State, for value received,
promises to pay to the Registered Owner specified above, or registered assigns,
but solely from the sources and in the manner referred to herein, the Principal
Amount specified above on the aforesaid Maturity Date, unless this Project Bond
is called for earlier redemption, and to pay from those sources interest
thereon at the aforesaid Interest Rate on June 1 and December 1 of each year,
commencing December 1, 1996 (the "Interest Payment Dates"), until the principal
amount is paid or duly provided for. This Project Bond will bear interest from
the most recent date to which interest has been paid or duly provided for or, if
no interest has been paid or duly provided for, from its date. Interest shall
be calculated on the basis of a 360 day year, with 12 months of 30 days.
The principal of and any premium on this Project Bond are payable upon
presentation and surrender hereof at the principal corporate trust office of
the trustee, presently Bank One, Columbus, NA, Columbus, Ohio (the "Trustee").
Interest is payable on each Interest Payment Date to the person in whose name
this Project Bond (or one or more predecessor bonds) is registered (the
"Holder") at the close of business on the May 15 or November 15 next preceding
that Interest Payment Date (the "Regular Record Date") on the registration
books for this issue maintained by the Trustee, as Registrar, at the address
appearing therein. Any interest which is not timely paid or duly provided for
shall cease to be payable to the Holder hereof (or of one or more predecessor
bonds) as of the Regular Record Date, and shall be payable to the Holder hereof
(or of one or more predecessor bonds) at the close of business on a Special
Record Date to be fixed by the Trustee for the payment of that overdue
interest. Notice of the Special Record Date shall be mailed to Holders not
fewer than ten days prior thereto. The principal of and interest and any
premium on this Project Bond are payable in lawful money of the United States
of America, without deduction for the services of the paying agent. Except when
this Bond is registered in the name of a Depository (as defined in the
Indenture) or its nominee, interest shall be paid by check or draft mailed to
the Holder as described above. When this Bond is registered in the name of a
Depository or its nominee, interest is payable in next day or federal funds
delivered or transmitted to the Depository.
This Project Bond is issued pursuant to the Constitution and laws of
the State, particularly Chapter 6123 of the Ohio Revised Code, as amended (the
"Act"), and to a resolution duly enacted by the Authority. The Project Bonds
are issued by the Authority to accomplish the public purposes of the Act by
financing a portion of a "development project" as defined in the Act by aiding
in financing the costs of acquiring, constructing, installing and equipping
facilities designed for solid waste disposal at the Company's CAST-ROLL(TM)
plant (formerly known as the continuous cast direct billet process plant) in
Canton Township, Ohio.
REFERENCE IS MADE TO THE FURTHER PROVISIONS OF THIS PROJECT BOND SET
FORTH ON THE REVERSE SIDE. THOSE PROVISIONS SHALL HAVE THE SAME EFFECT FOR ALL
PURPOSES AS IF SET FORTH HERE.
It is certified and recited that there have been performed and have
happened in regular and due form, as required by law, all acts and conditions
necessary to be done or performed by the State or to have happened (i)
precedent to and in the issue of the Project Bonds in order to make them legal,
valid and binding special obligations of the State, and (ii) precedent to and
in the execution and delivery of the Indenture and the Agreement; that payment
in full for the Project Bonds has been received; and that the Project Bonds do
not exceed or violate any constitutional or statue of limitation.
IN WITNESS OF THE ABOVE, the State of Ohio, by the Ohio Water
Development Authority, has caused this Project Bond to be executed in the name
of the Authority in their official capacities by the facsimile signature of the
Chairman and Vice Chairman of the Authority and attested to by the facsimile
signature of the Secretary Treasurer and a facsimile of the seal of the
Authority to be reproduced hereon, as of the date shown above.
Date of Registration and Authentication: June 27, 1996
CERTIFICATE OF AUTHENTICATION
This Project Bond is one of the Bonds described in the within-mentioned
Indenture.
BANK ONE, COLUMBUS, NA, Trustee and Paying Agent
By: /s/ Shelina Virjee
------------------------------
Authorized Signer
STATE OF OHIO, By the OHIO WATER DEVELOPMENT AUTHORITY
/s/ John D. McClure
-----------------------------
Chairman
/s/ Philip M. Zannella
-----------------------------
Vice-Chairman
Attest: /s/ Ms. Donita Hoosier
--------------------------
Secretary-Treasurer
[OHIO WATER DEVELOPMENT AUTHORITY SEAL]
<PAGE> 2
FURTHER PROVISIONS
This Project Bond is one of a duly authorized issue of Solid Waste
Revenue Bonds, Series 1996 (Republic Engineered Steels, Inc. Project) (the
"Project Bonds"), issuable under the Trust Indenture dated as of June 1, 1996
(the "Indenture"), between the Authority and the Trustee, aggregating in
principal amount $53,700,000 and issued for the purpose of making a loan (the
"Loan") to assist Republic Engineered Steels, Inc. (the "Company") in the
financing of costs of a Project, as defined in the Loan Agreement dated as of
the same date as the Indenture (the "Agreement") between the Authority and the
Company. The Project Bonds, together with any Additional Bonds which may be
issued on a parity therewith under the Indenture (collectively, the "Bonds"),
are special obligations of the Authority, issued or to be issued under and are
to be secured and entitled equally and ratably to the protection given by the
Indenture.
Reference is made to the Indenture for a more complete description of
the Project, the provisions, among others, with respect to the nature and
extent of the security for the Bonds, the rights, duties and obligations of the
Authority, the Trustee and the Holders of the Bonds, and the terms and
conditions upon which the Bonds are issued and secured. Each Holder assents, by
its acceptance hereof, to all of the provisions of the Indenture.
Pursuant to the Agreement, the Company has executed and delivered to
the Trustee the Company's promissory note dated as of the same date as the
Project Bonds (the "Project Note"), in the principal amount of $53,700,000. The
Company is required by the Agreement and the Project Note to make payments to
the Trustee in the amounts and at the times necessary to pay the principal of
and interest and any premium (the "Bond Service Charges") on the Project Bonds.
In the Indenture, the Authority has assigned to the Trustee, to provide for the
payment of the Bond Service Charges on the Bonds, the Authority's right, title
and interest in and to the Agreement, except for Unassigned Authority's Rights
as defined in the Agreement.
Copies of the Indenture, the Agreement and the Project Note are on file
in the principal corporate trust office of the Trustee.
THE BOND SERVICE CHARGES ON THE BONDS ARE PAYABLE SOLELY FROM THE
REVENUES, AS DEFINED AND AS PROVIDED IN THE INDENTURE (BEING, GENERALLY, THE
AMOUNTS PAYABLE UNDER THE AGREEMENT IN REPAYMENT OF THE LOAN AND ANY UNEXPENDED
PROCEEDS OF THE BONDS), AND ARE AN OBLIGATION OF THE AUTHORITY ONLY TO THE
EXTENT OF THE REVENUES. THE BONDS DO NOT CONSTITUTE A DEBT OR A PLEDGE OF THE
FAITH AND CREDIT OF THE AUTHORITY, THE STATE OR ANY POLITICAL SUBDIVISION
THEREOF AND THE HOLDERS OR OWNERS OF THE BONDS HAVE NO RIGHT TO HAVE TAXES
LEVIED BY THE GENERAL ASSEMBLY OF THE STATE OR THE TAXING AUTHORITY OF ANY
POLITICAL SUBDIVISION OF THE STATE FOR THE PAYMENT OF BOND SERVICE CHARGES. THE
ISSUER HAS NO TAXING POWER.
The Project Bonds are issuable only as fully registered bonds in
authorized denominations and, except as hereinafter provided, registered in the
name of The Depository Trust Company, New York, New York ("DTC") or its
nominee, which shall be considered to be the Bondholder for all purposes of the
Indenture, including, without limitation, payment by the Authority of Bond
Service Charges on the Project Bonds and receipt of notices and exercise of
rights of Bondholders. There shall be a single Project Bond which shall be
immobilized in the custody of DTC with the owners of book entry interests in
the Project Bonds ("book entry interests") having no right to receive Project
Bonds in the form of physical securities or certificates. Ownership of book
entry interests shall be shown by book entry on the system maintained and
operated by DTC, its participants (the "Participants") and certain persons
acting through the Participants. Transfers of ownership of book entry interests
are to be made only by DTC and the Participants in that book entry system, and
the Authority and the Trustee shall have no responsibility therefor. DTC is to
maintain records of the positions of Participants in the Project Bonds, and the
Participants and persons acting through Participants are to maintain records of
the purchasers and owners of book entry interests. The Project Bonds as such
shall not be transferable or exchangeable, except for transfer to another
Depository or to another nominee of a Depository, without further action by the
Authority.
If any Depository determines not to continue to act as a Depository for
the Project Bonds for use in a book entry system or upon the request of the
Company to remove or replace the then Depository, the Authority may attempt to
have established a securities depository/book entry system relationship with
another qualified Depository under the Indenture. If the Authority does not or
is unable to do so, the Authority and the Trustee, after the Trustee has made
provision for notification of the owners of book entry interests by the then
Depository, shall permit withdrawal of the Project Bonds from the Depository,
and authenticate and deliver Project Bond certificates in fully registered form
(in denominations of $100,000 or any multiple of $5,000 in excess thereof) to
the assigns of the Depository or its nominee, all at the cost and expense
(including costs of printing or otherwise preparing and delivering replacement
Project Bonds), if the event is not the result of Authority action or inaction,
of those persons requesting such authentication and delivery.
Except as described above with respect to this Project Bond when it is
registered in the name of a depository or its nominee, the Project Bonds are
exchangeable for Project Bonds of other authorized denominations in equal
aggregate principal amounts at the office of the Registrar specified on the
face hereof, but only in the manner and subject to the limitations provided in
the Indenture. Except as described above with respect to this Project Bond when
it is registered in the name of a depository or its nominee, this Project Bond
is transferable at the office of the Registrar, by the Holder in person or by
his attorney, duly authorized in writing, upon presentation and surrender
hereof to the Registrar. The Registrar is not required to transfer or exchange
(i) any Bond during a period beginning at the opening of business 15 days
before the day of the mailing of a notice of redemption of Bonds and ending at
the close of business on the day of such mailing, or (ii) any Bonds so selected
for redemption in whole or in part.
The Project Bonds are subject to redemption prior to stated maturity as
follows:
1. All are subject to extraordinary optional redemption by the
Authority, at the Company's option, if events described in Section 6.2 of the
Agreement occur, (a) at any time in whole, or (b) on any Interest Payment Date
in part in the event of condemnation of part of the Project, as provided in
Section 6.2 of the Agreement, in each case, at a redemption price equal to 100
percent of the principal amount redeemed, plus interest accrued to the
redemption date.
2. All are subject to mandatory redemption either in whole or in part
by the Authority upon the occurrence of a Determination of Taxability, as
defined in the Indenture, at a redemption price equal to 100 percent of the
principal amount redeemed, plus interest accrued to the redemption date, at the
earliest practicable date selected by the Trustee, after consultation with the
Company, but in no event later than 180 days following the Company's receipt of
notice of the Determination of Taxability.
3. The Project Bonds are subject to redemption on or after June 1,
2006, in whole on any date or in part on any Interest Payment Date, at the
option of the Authority, upon the direction of the Company, at a redemption
price on June 1, 2006 of 102% of the principal amount redeemed reducing
thereafter to 100% of the principal amount redeemed on June 1, 2008 and
thereafter, plus interest accrued to the redemption date.
Notice of redemption of Project Bonds as described above shall be given
by first class mail at least 30 days prior to the redemption date.
If less than all Project Bonds are to be redeemed at one time, their
selection shall be made by lot by the Trustee. If Project Bonds or portions
thereof are called for redemption and if on the redemption date moneys for the
redemption thereof are held by the Trustee, thereafter those Project Bonds or
portions thereof to be redeemed shall cease to bear interest, and shall cease
to be secured by, and shall not be deemed to be outstanding under, the
Indenture.
The Indenture permits certain amendments or supplements to the
Agreement, the Indenture, and the Project Note not prejudicial to the Holders
to be made without the consent of or notice to the Holders, and other
amendments or supplements thereto to be made with the consent of the Holders of
not less than a majority in aggregate principal amount of the Bonds then
outstanding.
The Holder of each Project Bond has only those remedies provided in the
Indenture.
The Bonds shall not constitute the personal obligation, either jointly
or severally, of any member, officer or employee of the Authority.
The Project Bond shall not be entitled to any security or benefit under
the Indenture or be valid or become obligatory for any purpose until the
certificate of authentication hereon shall have been signed.
- - -------------------------------------------------------------------------------
LEGAL OPINION
The following is a true copy of the opinion rendered by Squire, Sanders
& Dempsey in connection with the issuance of, and dated as of and premised on
facts and law in effect on the date of the original delivery of, the Bonds. A
signed copy is on file in my office.
/s/ Mrs. Donita Hoosier
----------------------
Secretary-Treasurer
We have examined the transcript of proceedings (the "Transcript")
relating to the issuance by the Ohio Water Development Authority (the "Issuer")
of $53,700,000 aggregate principal amount of State of Ohio Solid Waste Revenue
Bonds, Series 1996 (Republic Engineered Steels, Inc. Project), dated as of June
1, 1996 (the "Bonds"). The Bonds are being issued for the purpose of making a
loan to assist Republic Engineered Steels, Inc. (the "Company") in financing a
portion of the costs of the acquisition, construction and installation of solid
waste disposal facilities at the Company's plant in Canton Township, Ohio
comprising "solid waste facilities" as defined in Section 6123.01 of the Ohio
Revised Code and as more particularly described in the Trust Indenture (the
"Indenture"), dated as of June 1, 1996, between the Issuer and Bank One,
Columbus, NA, Columbus, Ohio, as trustee (the "Trustee"). The Transcript
documents examined include an executed counterpart of the following, each dated
as of June 1, 1996: (i) the Indenture, (ii) the Loan Agreement (the
"Agreement") between the Issuer and the Company, and (iii) the promissory note
(the "Note") executed and delivered by the Company to the Trustee pursuant to
the Agreement. We also have examined a conformed copy of an executed Bond.
Based on such examination, we are of the opinion that, under the law
existing on the date of this opinion:
1. The Bonds, the Indenture, the Note and the Agreement are legal,
valid, binding and enforceable in accordance with their respective terms,
except that the binding effect and enforceability thereof are subject to
bankruptcy laws and other laws affecting creditors' rights and to the exercise
of judicial discretion.
2. The Bonds constitute special obligations of the State
of Ohio, and the principal of and interest and any premium (collectively, "debt
service") on the Bonds are payable solely from the revenues and other moneys
assigned by the Indenture to secure that payment. Those revenues and other
moneys include the payments required to be made by the Company under the
Agreement, and the Company's obligation to make those payments is evidenced and
secured by the Company's $53,700,000 Project Note (the "Note") delivered to the
Trustee pursuant to the Agreement. The Bonds do not constitute a debt or pledge
of the faith and credit of the Issuer or the State of Ohio or any political
subdivision thereof, and the holders or owners thereof have no right to have
taxes levied by the General Assembly of the State of Ohio for the payment of
debt service.
3. The interest on the Bonds is excluded from gross income for federal
income tax purposes under Section 103(a) of the Internal Revenue Code of 1986,
as amended (the "Code"), except interest on any Bond for any period during which
it is held by a "substantial user" or a "related person" as those terms are
used in Section 147(a) of the Code. Interest on the Bonds is an item of tax
preference under Section 57 of the Code and therefore may be subject to the
alternative minimum tax imposed by the Code on individuals and corporations.
The interest on the Bonds and any profit made on the sale, exchange or other
disposition thereof are exempt from Ohio personal income tax, the net income
base of the Ohio corporate franchise tax and municipal and school district
income taxes in Ohio. We express no opinion as to any other tax consequences
regarding the Bonds.
Under the Code, interest on the Bonds may be subject to an
environmental tax imposed on corporations for certain taxable years, a branch
profits tax imposed on certain foreign corporations doing business in the
United States, and a tax imposed on excess net passive income of certain S
corporations.
In giving the foregoing opinion, we have assumed and relied upon
compliance with the covenants of the Issuer and the Company and the accuracy,
which we have not independently verified, of the representations and
certifications of the Issuer and of the Company contained in the Transcript.
The accuracy of certain of those representations and certifications, and
compliance by the Issuer and the Company with certain of those covenants, may
be necessary for the interest on the Bonds to be and to remain excluded from
gross income for federal income tax purposes. Failure to comply with certain
requirements subsequent to the issuance of the Bonds may cause interest thereon
to be included in gross income for federal income tax purposes retroactively to
the date of issuance of the Bonds. We also have relied upon the opinion,
contained in the Transcript, of counsel for the Company as to all matters
concerning the due authorization, execution and delivery by, and the binding
effect upon and enforceability against, the Company of the Agreement and the
Note.
Respectfully submitted,
SQUIRE, SANDERS & DEMPSEY
- - -----------------------------------------------------------------------------
ASSIGNMENT
For value received, the undersigned sells, assigns and transfers unto
_________________________________________________ (Insert Name, Address and Tax
Identification or Social Security Number of Transferee) the within Project Bond
and irrevocably constitutes and appoints _____________________________________
attorney to transfer that Project Bond on the books kept for registration
thereof, with full power of substitution in the premises.
Dated: ________________________________ _________________________________
Signature Guaranteed:
_______________________________________
Commercial Bank, Trust Company or Member
of a National Securities Exchange or
recognized Signature Guarantee Medallion Program
<PAGE> 1
REPUBLIC ENGINEERED STEELS, INC.
SALARIED EMPLOYEES'
TERMINATION PLAN
Amended and Restated
as of October 26, 1995
OFFICIAL COPY
Pg 1 of 17
-- --
<PAGE> 2
REPUBLIC ENGINEERED STEELS, INC.
SALARIED EMPLOYEES' TERMINATION PLAN
TABLE OF CONTENTS
-----------------
PAGE
----
Article 1 - Eligibility
1.1 Eligibility ...................................................... 1
1.2 Exclusions ........................................................ 1
1.3 Termination of Eligibility ........................................ 2
Article 2 - Notification Period
2.1 Notification Period .............................................. 3
2.2 Schedule of Termination Plan Allowance ........................... 3
2.3 Commencement of Termination Plan Allowance ....................... 4
2.4 Payment of Termination Plan Allowance ............................ 5
2.5 Certain Contracted Officers ...................................... 5
2.6 Cessation of Termination Plan Allowance .......................... 6
Article 3 - Other Employee Benefits
3.1 Notification Period .............................................. 8
3.2 Termination Plan Allowance Period ................................ 8
3.3 Retirement and Capital Accumulation Plan ......................... 8
3.4 Health Care Plan ................................................. 9
3.5 Employee and Spouse Life and Accidental Death Plan ............... 9
3.6 Disability Income Plan ........................................... 10
3.7 Benefit Bank ..................................................... 10
3.8 Vacation ......................................................... 11
3.9 Employee Common Stock Ownership Plan ("ESOP") and ESOP Excess
Benefit Plan ..................................................... 11
Article 4 - Contributions
4.1 No Employee Contributions ........................................ 12
4.2 No Trust Created ................................................. 12
Article 5 - General Provisions
5.1 General Provisions ............................................... 13
5.2 Administration ................................................... 13
5.3 Establishment of Rules ........................................... 13
5.4 Taxes ............................................................ 13
Article 6 - Execution ................................................... 14
OFFICIAL COPY
Pg 2 of 17
--- ----
<PAGE> 3
PREAMBLE
Republic Engineered Steels, Inc. ("Employer") hereby creates the Republic
Engineered Steels, Inc. Salaried Employees' Termination Plan ("Plan"); the
Effective Date shall be November 28, 1989 and amended and restated
effective as of October 26, 1995.
The Plan hereby adopted has been approved by the Employer and is intended
to meet the requirements of the Employee Retirement Income Security Act of
1974 ("ERISA"), as amended.
The terms and conditions of the Plan are as follows:
OFFICIAL Copy
Pg 3 of 17
--- ----
<PAGE> 4
ARTICLE 1
ELIGIBILITY
1.1 ELIGIBILITY
Subject to the provisions of Section 1.2, any Covered Employee whose
active employment with the Employer is terminated because of a reduction
in salaried work force due to restructuring by the Employer or as
otherwise necessitated by business conditions is eligible to receive his
salary and benefits during the Notification Period and a Termination Plan
Allowance in accordance with the provisions of this Plan. The
determination of whether a Covered Employee is eligible for coverage under
this Plan shall be in the sole discretion of the Plan Administrator.
For purposes of this Plan, a "Covered Employee" shall mean any employee
who is on the full-time, active salaried payroll of the Employer and who
is not a nonresident alien or represented in a collective bargaining unit.
No person employed by a newly created or newly purchased organizational
unit of the Employer shall become a Covered Employee unless and until such
organization is brought under the Plan by specific action of the Employer.
1.2 EXCLUSIONS
Notwithstanding anything to the contrary in this Plan, a Termination Plan
Allowance shall not be paid to:
(a) any Covered Employee who is eligible to receive benefits from the
Employer's Disability Income Plan,
OFFICIAL COPY
Pg 4 of 17
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1/1
<PAGE> 5
(b) a temporary, summer or part-time employee,
(c) an employee hired for specific periods of time (either on contract
or otherwise), except for any Covered Employee described in Section
2.5,
(d) any employee of a plant, division or other unit of the Employer
which is sold or spun-off to new owners, provided such employee is
offered employment with the new owner,
(e) any employee who refuses to accept another job within the Employer,
(f) any employee who, as of the date of termination, owes any sum of
money for any reason (including any expense account advance) to the
Employer, except to the extent such debt is first satisfied,
(g) any employee who is discharged for cause (including a finding of
unsatisfactory work performance) as determined by the Plan
Administrator, and
(h) any employee who dies, voluntarily quits or retires.
1.3 TERMINATION OF ELIGIBILITY
An employee is no longer eligible to begin receiving a Termination Plan
Allowance from this Plan as of the date the employee ceases to be a
Covered Employee.
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ARTICLE 2
TERMINATION PLAN ALLOWANCE
2.1 NOTIFICATION PERIOD
During a Covered Employee's "Notification Period," such individual
shall receive the base salary, supplemental salary and any other
employee benefits he was receiving as of the date immediately
preceding the Covered Employee's Notification Period.
For purposes of this Plan, a Covered Employee's "Notification
Period" shall be the 15-day period beginning on the day immediately
following notification from the Employer of his termination from
active employment for the reason provided in Section 1.1.
2.2 SCHEDULE OF TERMINATION PLAN ALLOWANCE
(a) Subject to Section 2.5, an eligible Covered Employee shall be
entitled to receive a Termination Plan Allowance pursuant to the
following schedule:
Termination Plan Allowance
Expressed As
Months of Salary Continuance
----------------------------
Less Than 40 or More
Service 40 Years Old Years Old
------- ------------ ---------
Less than 3 years 1/2 1-1/2
at least 3 but less than 5 years 1 2
at least 5 but less than 7 years 1-1/2 2-1/2
at least 7 but less than 10 years 1-3/4 2-3/4
at least 10 but less than 15 years 2 3
at least 15 but less than 20 years 3 4
at least 20 but less than 25 years 4 5
at least 25 years 5 6
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(b) For purposes of the above schedule, a Covered Employee's:
(1) age is determined as of the day immediately following the
end of his Notification Period,
(ii) service is equal to the amount of "vesting service" such
Covered Employee is credited with under the Republic
Engineered Steels, Inc. Retirement and Capital
Accumulation Plan ("RCAP") as of the day immediately
following the end of his Notification Period.
(iii) salary means the total cash remuneration paid to a
Covered Employee for services rendered to the
Employer, including any reduction pursuant to Code
Sections 125 or 401(k). Compensation shall
include supplemental salary where applicable, but
shall exclude the amount resulting from any
cost-of-living adjustment provision and all items
exceeding straight-time pay or base salary for the
Covered Employee's job, such as bonuses,
management variable compensation programs, pay for
vacation not taken, and contributions to any
benefit plan.
(c) The Termination Plan Allowance also includes coverage under
employee benefit plans sponsored by the Employer which are
described in Article 3.
2.3 COMMENCEMENT OF TERMINATION PLAN ALLOWANCE
(a) A Termination Plan Allowance shall be payable to a Covered
Employee beginning with the day immediately following the end
of such Covered Employee's Notification Period.
(b) During a Covered Employee's Notification Period, the Covered
Employee shall be paid as provided in Section 2.1.
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2.4 PAYMENT OF TERMINATION PLAN ALLOWANCE
(a) A Covered Employee's Termination Plan Allowance shall be paid
in the same manner as his regular monthly salary. Payroll
deductions shall continue to be made for:
(i) taxes,
(ii) bonds,
(iii) Social Security,
(iv) United Way,
(v) outstanding RCAP loans,
(vi) any "Design Your Benefit" options (except for the
disability supplement or optional vacation), and
(vii) any other deduction being made prior to
payment of the Termination Plan Allowance.
(b) A Covered Employee shall continue to accrue
"continuous service" for all employee benefit
purposes during the period for which he is receiving
a Termination Plan Allowance.
2.5 TERMINATION PLAN PROVISIONS APPLICABLE TO EXECUTIVE OFFICERS
EFFECTIVE OCTOBER 26, 1995
(a) The provisions of this Plan shall apply to the Employer's
Executive Officers (except the Chairman and Chief Executive
Officer) with the modifications as provided in this Section 2.5.
An Executive Officer is a Covered Employee who is designated as
an Executive Officer by the Employer's Board of Directors.
(b) Executive Officers shall be eligible for coverage under this
Section in the following situations:
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(1) immediately upon completing two years of service as an
Executive Officer; or
(2) prior to completing two years of service as an Executive
Officer immediately upon designation as such by the
Employer's Board of Directors in its sole discretion.
(c) Any eligible Executive Officer, whose active employment with the
Employer is terminated, is eligible to receive his salary and
benefits during the Notification Period and a Termination Plan
Allowance as provided below:
(1) An eligible Executive Officer with two or more years of
service as an Executive Officer shall receive a Termination
Plan Allowance of salary and benefits for a period of one
(1) year beginning at the end of the Notification Period.
(2) An eligible Executive Officer with less than two years of
service as an Executive Officer shall receive a
Termination Plan Allowance of salary and benefits for a
period of up to one (1) year beginning at the end of the
Notification Period as determined by the Employer's Board
of Directors in its sole discretion.
(d) In addition to any other event of cessation of the Termination
Plan Allowance provided in Section 2.6, an Executive Officer's
Allowance shall be offset by any salary or wages received by the
former Executive Officer from any employer during the
Notification Period and the one (1) year period thereafter during
which the full Allowance would have been payable.
2.6 CESSATION OF TERMINATION PLAN ALLOWANCE
A Covered Employee's Termination Plan Allowance shall cease as of the
earliest of the date:
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(a) described in the Schedule in Section 2.2(a), or
(b) upon which he retires with an immediate retirement benefit under
the RCAP or other qualified retirement plan of the Employer, or
(c) of his re-employment by the Employer.
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ARTICLE 3
OTHER EMPLOYEE BENEFITS
3.1 NOTIFICATION PERIOD
During a Covered Employee's Notification Period, he will continue to
be eligible for all employee benefits provided by the Employer for the
Covered Employee immediately prior to the Notification Period.
3.2 TERMINATION PLAN ALLOWANCE PERIOD
During the period a Covered Employee is receiving a Termination Plan
Allowance, Employer sponsored employee benefit programs shall be provided
as described in Sections 3.3 through 3.10.
3.3 RETIREMENT AND CAPITAL ACCUMULATION PLAN
(a) During the period of time for which a Covered Employee receives a
Termination Plan Allowance:
(i) such Covered Employee shall continue to accrue "vesting
service" as defined under the RCAP, and
(ii) the Employer shall continue to make monthly contributions to
such Covered Employee's RCAP account based on his Termination
Plan Allowance.
(b) A Covered Employee shall not be considered to have a "severance
date" as defined under the RCAP until the date immediately
following the cessation of his Termination Plan Allowance.
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3.4 HEALTH CARE PLAN
(a) A Covered Employee shall continue to participate in the Employer's
Health Care Plan as if he was actively employed during the period
such Covered Employee receives a Termination Plan Allowance.
(b) A Covered Employee shall no longer be considered actively employed
for purposes of the Employer's Health Care Plan as of the date
immediately following the cessation of his Termination Plan
Allowance, except that a Covered Employee who is a member of a
Health Maintenance Organization ("HMO") shall continue his
coverage under such HMO until the end of the month in which his
Termination Plan Allowance ceases.
(c) Upon the cessation of participation in the Employer's Health Care
Plan described in subsection (b), a Covered Employee may elect to
continue coverage under the Health Care Plan as required by the
Consolidated Omnibus Budget Reconciliation Act of 1985. As
provided in the Health Care Plan, continuation coverage may be
available through an individual policy at the Covered Employee's
cost.
3.5 EMPLOYEE AND SPOUSE LIFE AND ACCIDENTAL DEATH PLAN
(a) A Covered Employee may continue to purchase life insurance and/or
accidental death coverage under the Employer's Life and Accidental
Death Plan, covering himself and/or his spouse during the period
such Covered Employee receives a Termination Plan Allowance,
however, coverage cannot be increased during such period.
(b) Coverage under such plan ends at the end of the month in which the
Covered Employee's Termination Plan Allowance ceases.
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(c) Conversion privileges for extended coverage at the Covered
Employee's cost are available pursuant to the provisions of the
Life and Accidental Death Plan applicable to terminated employees.
3.6 DISABILITY INCOME PLAN
(a) If a Covered Employee is receiving benefits under the Disability
Income Plan at the time his Notification Period begins, those
benefits shall continue as provided under the Disability Income
Plan.
(b) A Covered Employee shall remain eligible under the Employer's
Disability Income Plan until the last day of the Notification
Period, at which time deductions from supplemental salary for the
purchase of extended disability coverage shall also cease.
(c) A Covered Employee shall not be eligible to submit a claim under
such plan for a disability which is incurred after the last day of
the Notification Period.
(d) No conversion privilege is available under such plan for disability
coverage after the Notification Period.
3.7 BENEFIT BANK
(a) A Covered Employee shall be eligible to continue deposits under
the Employer's Benefit Bank through the end of the month in which
his Termination Plan Allowance ceases.
(b) A Covered Employee may reduce or discontinue deposits to the
Benefit Bank during the Notification Period.
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(c) Eligible expenses under the Benefit Bank will qualify for
reimbursement during the calendar year in which deposits were
made. Reimbursement of eligible expenses shall be limited to the
amount of deposits made during the calendar year.
3.8 VACATION
(a) Regular vacation time not taken in the year of termination of
employment shall be paid to a Covered Employee when his
Termination Plan Allowance ceases.
(b) Payments received pursuant to subsection (a) do not extend
"continuous service" under any Employer sponsored employee benefit
plan.
(c) No contributions for "optional vacation" shall be made by a
Covered Employee upon the cessation of his Notification Period.
(d) Contributions made by a Covered Employee for unused optional
vacation days shall be refunded by the Employer upon the cessation
of his Termination Plan Allowance.
3.9 EMPLOYEE COMMON STOCK OWNERSHIP PLAN ("ESOP") AND ESOP EXCESS BENEFIT PLAN
(a) A Covered Employee shall continue to be a participant in the
Employer's ESOP and ESOP Excess Benefit Plan while receiving a
Termination Plan Allowance.
(b) A Covered Employee's Termination Plan Allowance shall be included
in the calculation for allocation of common stock under such plans
through the end of the calendar year in which his Termination Plan
Allowance ceases.
(c) For purposes of receiving a distribution from the ESOP and ESOP
Excess Benefit Plan, a Covered Employee is not considered to have
incurred a Termination of Service until his Termination Plan
Allowance ceases.
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ARTICLE 4
CONTRIBUTIONS
4.1 NO EMPLOYEE CONTRIBUTIONS
No contributions shall be made to this Plan by the Covered Employee.
4.2 NO TRUST CREATED
Unless otherwise required by ERISA or the Code, no assets of the
Employer shall be specifically set aside for the payment of any benefits
under the Plan. The Plan does not create a trust in favor of a Covered
Employee or any person claiming on the Covered Employee's behalf, and
the obligations of the Employer are solely contractual obligations to
make payments due hereunder. The obligation to make a benefit payable
under the Plan shall be considered a liability of the Employer, and the
Covered Employee's right thereto shall be the same as that of any
unsecured general creditor of the Employer. Neither a Covered Employee
nor any other person shall, pursuant to the Plan, acquire any right,
title or interest in or to any asset of the Employer other than the
right to the actual payment of benefits in accordance with the terms of
the Plan.
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ARTICLE 5
GENERAL PROVISIONS
5.1 GENERAL PROVISIONS
The Republic Engineered Steels, Inc. General Welfare Plan provisions are
hereby incorporated by reference.
5.2 ADMINISTRATION
The Employer shall be designated as the Plan Administrator. The general
administration of the Plan and the responsibility for carrying out the
provisions of the Plan shall be placed with the Plan Administrator. In
providing for the administration of the Plan, the Plan Administrator may
delegate responsibilities for the operation and administration of the
Plan by written document filed in the Plan records.
5.3 ESTABLISHMENT OF RULES
Subject to the limitations of the Plan, the Plan Administrator from time
to time shall establish rules for the administration of the Plan and the
transaction of its business. The Plan Administrator shall have
discretionary authority to interpret the Plan. The determination of
the Plan Administrator as to any disputed question shall be conclusive
and final to the extent permitted by applicable law.
5.4 TAXES
The Employer may withhold from any payment due under this Plan any taxes
required to be withheld under applicable federal, state or local tax
laws or regulations.
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ARTICLE 6
EXECUTION
IN WITNESS WHEREOF, and as conclusive evidence of the adoption of the foregoing,
Republic Engineered Steels, Inc. has caused its corporate seal to be affixed
hereto and has caused the Plan to be duly executed in its name and on it behalf
by its proper officers duly authorized this 7th day of May, 1996, as of October
26, 1995.
REPUBLIC ENGINEERED STEELS, INC.:
ATTEST:
/s/ James D. Donahoe /s/ Russell W. Maier
- - -------------------- ---------------------------------
S
E
A
L
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<PAGE> 1
RATIO OF EARNINGS
TO FIXED CHARGES
EXHIBIT 12.1
52
<PAGE> 2
EXHIBIT 12.1
REPUBLIC ENGINEERED STEELS, INC.
RATIO OF EARNINGS TO FIXED CHARGES
FOR FISCAL YEARS ENDING JUNE 30, 1992, 1993, 1994, 1995 AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
FISCAL FISCAL FISCAL FISCAL FISCAL
1992 1993 1994 1995 1996
------ ------- ------- ------ -------
<S> <C> <C> <C> <C> <C>
RATIO OF EARNINGS TO FIXED CHARGES............. -- -- -- --
COVERAGE DEFICIENCY............................ $8,389 $13,865 $27,602 $7,212 $55,566
</TABLE>
NOTE: For the purposes of calculating the ratio of earnings to the fixed
charges, earnings represent earnings (losses) before income taxes, extraordinary
gain and cumulative effect of changes in accounting principles plus fixed
charges. Fixed charges consist of net interest expense, amortization of discount
and deferred financing costs and the portion of rental expense which management
believes is representative of the interest component of rent expense. If
earnings were adjusted to eliminate non-cash ESOP charges, the ratio of
earnings, as adjusted, to fixed charges would have been 1.50x, 1.62x, 1.19x,
2.85x and (0.21), respectively.
53
<PAGE> 1
CONSENT OF KPMG PEAT MARWICK LLP
EXHIBIT 23.1
54
<PAGE> 2
ACCOUNTANT'S REPORT ON SCHEDULES AND CONSENT
The Board of Directors
Republic Engineered Steels, Inc.
The audits referred to in our report dated August 2, 1996, included the
related financial statement schedules as of June 30, 1996, and for each of the
years in the three-year period ended June 30, 1996, included herein. These
financial statement schedules are the responsibility of the Company's
management. Our responsibility is to express an opinion of these financial
statement schedules based on our audits. In our opinion, such financial
statement schedules, when considered in relation to the basic consolidated
financial statements taken as a whole, present fairly in all material respects
the information set forth therein.
We consent to the incorporation by reference of our report dated August 2,
1996 included herein to registration statement No. 33-91814, relating to The
Republic Engineered Steels, Inc. Employee Common Stock Ownership Plan and to
registration statement No. 33-91816 relating to The Republic Engineered Steels,
Inc. 1995 Stock Option Plan.
/s/ KPMG PEAT MARWICK LLP
- - ---------------------------------------------------------
KPMG Peat Marwick LLP
Pittsburgh, PA
September 23, 1996
55
<PAGE> 3
FINANCIAL
STATEMENT
SCHEDULES
56
<PAGE> 4
SCHEDULE II
REPUBLIC ENGINEERED STEELS, INC.
VALUATION OF QUALIFYING ACCOUNTS
YEARS ENDED JUNE 30, 1994, 1995, AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
ADDITIONS
CHARGED
BALANCE AT TO BALANCE
BEGINNING COSTS AND (DEDUCTIONS) AT END
OF PERIOD EXPENSES RECOVERIES OF PERIOD
---------- --------- ----------- ---------
<S> <C> <C> <C> <C>
YEAR ENDED JUNE 30, 1994
Allowance for doubtful accounts.................. $ 2,097 $ (32 ) $ (153) $ 1,912
YEAR ENDED JUNE 30, 1995
Allowance for doubtful accounts.................. $ 1,912 $ 0 $ 36 $ 1,948
YEAR ENDED JUNE 30, 1996
Allowance for doubtful accounts.................. $ 1,948 $ 0 $ 1 $ 1,949
</TABLE>
57
<PAGE> 5
SCHEDULE V
REPUBLIC ENGINEERED STEELS, INC.
SUPPLEMENTARY INCOME STATEMENT INFORMATION
YEARS ENDED JUNE 30, 1994, 1995, AND 1996
(DOLLARS IN THOUSANDS)
<TABLE>
<CAPTION>
CHARGED TO COSTS AND EXPENSES
---------------------------------------
FISCAL 1994 FISCAL 1995 FISCAL 1996
----------- ----------- -----------
<S> <C> <C> <C>
Maintenance and repairs.................................. $73,359 $75,242 $72,304
Depreciation and amortization of intangible assets....... $17,525 $18,841 $24,020
</TABLE>
Taxes, other than payroll taxes and income taxes, royalties and advertising
are not set forth since each such item does not exceed 1% of total net sales as
shown in the related consolidated statement of income.
58
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> JUN-30-1996
<PERIOD-START> JUL-01-1995
<PERIOD-END> JUN-30-1996
<CASH> 2,074
<SECURITIES> 0
<RECEIVABLES> 78,661
<ALLOWANCES> 1,949
<INVENTORY> 163,426
<CURRENT-ASSETS> 254,903
<PP&E> 331,079
<DEPRECIATION> 92,439
<TOTAL-ASSETS> 640,577
<CURRENT-LIABILITIES> 112,723
<BONDS> 273,956
<COMMON> 197
0
2
<OTHER-SE> 88,774
<TOTAL-LIABILITY-AND-EQUITY> 640,577
<SALES> 746,174
<TOTAL-REVENUES> 746,174
<CGS> 688,445
<TOTAL-COSTS> 688,445
<OTHER-EXPENSES> 95,871
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 17,424
<INCOME-PRETAX> (55,566)
<INCOME-TAX> (22,136)
<INCOME-CONTINUING> (33,430)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (33,430)
<EPS-PRIMARY> (1.69)
<EPS-DILUTED> (1.69)
</TABLE>
