<PAGE>
FORM 10-Q
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Quarterly Report Pursuant to Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the three month period ended September 30, 1998
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 (IRS Employer Identification No.)
incorporation or organization)
410 Oberlin Road, S.W.
Massillon, Ohio 44647 (330) 837-6000
- - --------------------------------------------------------------------------------
(Address of principal executive offices) (Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
X Yes ___ No
---
None of the voting securities of Republic Engineered Steels, Inc.
are held by non-affiliates.
<PAGE>
REPUBLIC ENGINEERED STEELS, INC.
TABLE OF CONTENTS
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
Condensed Consolidated Statements of Income for the three months
ended September 30, 1997, the period from July 1, 1998 to
September 7, 1998 and the period from September 8, 1998 to
September 30, 1998.............................................. 3
Condensed Consolidated Balance Sheets as of September 30, 1998 and
June 30, 1998................................................... 4
Condensed Consolidated Statements of Cash Flows for the three
months ended September 30, 1997, the period from July 1, 1998 to
September 7, 1998 and the period from September 8, 1998 to
September 30, 1998.............................................. 5
Notes to Consolidated Financial Statements...................... 6
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations........................................11-14
Item 3. Quantitative & Qualitative Disclosures About Market Risk....... 14
PART II - OTHER INFORMATION
Item 1. Legal Proceedings...............................................15
Item 2. Changes in Securities...........................................15
Item 3. Defaults Upon Senior Securities.................................15
Item 4. Submission of Matters to a Vote of Security Holders.............15
Item 5. Other Information...............................................15
Item 6. Exhibits and Reports on Form 8-K.............................15&16
Signatures......................................................17
2
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Item 1. Financial Statements
REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997,
THE PERIOD FROM JULY 1, 1998 TO SEPTEMBER 7, 1998 (PREDECESSOR COMPANY) AND
THE PERIOD FROM SEPTEMBER 8, 1998 TO SEPTEMBER 30, 1998
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY (Note 1(c))
---------------------------------------------
Period from
September 8, Period from Three Months
1998 to July 1, 1998 to Ended
September 30, September 7, September 30,
1998 1998 1997
---------------- ----------------- -----------------
<S> <C> <C> <C>
Net sales $ 53,213 $ 104,278 $ 158,886
Cost of products sold 50,490 99,206 143,835
--------- --------- ---------
Gross profit 2,723 5,072 15,051
Selling expenses 590 1,216 1,680
General and administrative expenses 4,443 17,233 7,174
Postretirement benefits charges 596 2,082 3,426
Non-cash ESOP charges -- -- 6,688
Other charges (credits), net
Interest expense 2,567 4,378 6,573
Interest income (60) (236) (133)
Miscellaneous, net (114) (153) (106)
--------- --------- ---------
Loss from continuing operations
before income taxes (5,299) (19,448) (10,251)
Income tax benefit -- -- 2,056
--------- --------- ---------
Loss from continuing operations (5,299) (19,448) (8,195)
Income (loss) from discontinued operations, net
of income tax benefit (expense) of $0 and ($129),
respectively -- (298) 489
--------- --------- ---------
Net loss $ (5,299) $ (19,746) $ (7,706)
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
3
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REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands of dollars)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
September 30, June 30,
1998 1998*
-------------------- --------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current Assets
Cash and cash equivalents $ 3,736 $ 22,675
Receivables, less allowance for doubtful accounts of
$1,592 and $1,575 respectively 57,121 61,038
Inventories 149,123 124,955
Prepaid expenses 2,549 2,844
Deferred income taxes -- 7,902
Assets held for resale 31,427 42,440
Other current assets 1,750 404
--------- ---------
Total Current Assets 245,706 262,258
Property, plant & equipment, net 264,852 290,721
Intangibles and other assets, net 10,941 24,471
Restricted cash 623 715
Deferred income taxes -- 46,927
Assets held for resale 11,687 11,903
Excess purchase price over net assets acquired 158,508 --
--------- ---------
Total Assets $ 692,317 $ 636,995
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Short term borrowings $ 65,045 $ --
Defined benefit pension obligation 52,285 --
Other current liabilities 103,737 103,121
--------- ---------
Total current liabilities 221,067 103,121
--------- ---------
Long-term debt, excluding current maturities 275,918 273,922
Other postretirement benefits 90,129 131,256
Defined benefit pension obligation -- 12,178
Accrued environmental costs 13,746 13,746
Other liabilities 1,301 1,301
--------- ---------
Total Liabilities 602,161 535,524
Stockholders' equity
Special preferred stock, $.01 par value; one share
authorized, one share issued and outstanding,
liquidation value of $1,500 -- 2
Common Stock, $0.01 par value; authorized 27,000,000
shares; issued and outstanding 19,707,923 shares 197 197
Additional paid-in-capital 95,258 275,270
Accumulated deficit (5,299) (173,990)
--------- ---------
90,156 101,479
Less treasury stock, at cost, 1,345 shares -- 8
--------- ---------
Total stockholders' equity 90,156 101,471
Commitments and contingencies -- --
--------- ---------
Total Liabilities and Stockholders' Equity $ 692,317 $ 636,995
========= =========
*Condensed from audited consolidated financial statements
The accompanying notes are an integral part of these statements.
</TABLE>
4
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REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTH PERIOD ENDED SEPTEMBER 30, 1997, THE PERIOD
FROM JULY 1, 1998 TO SEPTEMBER 7, 1998 (PREDECESSOR COMPANY)
AND THE PERIOD FROM SEPTEMBER 8, 1998 TO SEPTEMBER 30, 1998
(In thousands of dollars)
(Unaudited)
<TABLE>
<CAPTION>
PREDECESSOR COMPANY
-----------------------------------------
Period from Period from July Three Months
September 8, 1998 1, 1998 to Ended
to September 30, September 7, September 30,
1998 1998 1997
--------------------- ------------------ -------------------
<S> <C> <C> <C>
Cash flows from operating activities
Net loss $ (5,299) $ (19,746) $ (7,706)
Adjustments to reconcile net cash provided by
(used in) operating activities:
Depreciation and amortization 3,188 4,934 7,271
Non-cash ESOP charges -- -- 7,280
Deferred income tax benefit -- -- (1,927)
Change in operating assets and liabilities
(Increase) decrease in working capital 4,736 1,897 (6,170)
(Increase) decrease in other operating assets
and liabilities (1,230) 732 (1,112)
Total adjustments 6,694 7,563 5,342
--------- --------- ---------
Net cash provided by (used in) operating activities 1,395 (12,183) (2,364)
--------- --------- ---------
Cash flows from investing activities
Additions to property, plant and equipment (1,694) (6,139) (2,054)
Acquisition, net of cash acquired (156,458) -- --
--------- --------- ---------
Net cash used in investing activities (158,152) (6,139) (2,054)
--------- --------- ---------
Cash flows from financing activities
Proceeds from bridge loan 65,045 -- --
Capital contribution 95,455 -- --
Other financing activities (7) (312) 370
--------- --------- ---------
Net cash provided by (used in) financing activities 160,493 (312) 370
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 3,736 (18,634) (4,048)
Cash and cash equivalents-beginning of period -- 22,675 6,412
--------- --------- ---------
Cash and cash equivalents-end of period $ 3,736 $ 4,041 $ 2,364
========= ========= =========
Supplemental Cash Flow Information:
Cash paid for interest $ -- $ 4 10
========= ========= =========
Cash paid for income taxes $ -- $ -- $ --
========= ========= =========
</TABLE>
The accompanying notes are an integral part of these statements.
5
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REPUBLIC ENGINEERED STEELS, INC. AND SUBSIDIARIES
Notes to Condensed Consolidated Financial Statements
(All September 30, 1998 amounts are unaudited)
(1) Summary of Significant Accounting Policies And Other Related Information
(a) General
The condensed consolidated financial statements included herein have been
prepared by Republic Engineered Steels, Inc. ("Republic" or the "Company") and
are unaudited. Certain information and footnote disclosures normally prepared in
accordance with generally accepted accounting principles have been condensed or
omitted pursuant to the rules and regulations of the Securities and Exchange
Commission. Although management believes that all adjustments, including normal
recurring adjustments, necessary for a fair presentation have been made, interim
periods are not necessarily indicative of the results of operations for a full
year. As such, the condensed consolidated financial statements of the
Predecessor Company (see further discussion below) should be read in conjunction
with the audited financial statements and notes thereto for the fiscal year
ended June 30, 1998, included in the Company's Form 10-K, filed with the
Securities and Exchange Commission.
Republic is a major producer of special bar quality steel and specialty steel
bar products for the automotive, heavy equipment manufacturing, aerospace and
power generation industries. Special bar quality steel bars are higher quality
hot-rolled and cold-finished carbon and alloy steel bars, and specialty steels
are stainless, tool and vacuum re-melted steels. The Company is organized into
three operating divisions: hot-rolled, cold-finished and specialty steel. In
connection with the acquisition by RES Acquisition, as more fully described
below, the Company intends to sell its specialty steels division, and
accordingly, the accompanying condensed consolidated financial statements
reflect that division as discontinued operations in accordance with Accounting
Principles Board Opinion No. 30. Pursuant thereto, all revenues and expenses
related to the specialty steels division have been segregated from continuing
operations of Republic for all periods presented.
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.
(b) Organization
In 1989, the Company was formed to purchase substantially all of the assets of
LTV Steel Company Inc. ("LTV Steel") Bar Division. Until the initial public
offering in April 1995 of 8,050,000 shares of its common stock, the Company had
been wholly-owned by its employees through an employee common stock ownership
plan ("ESOP"). As of June 30, 1998, the ESOP held approximately 54% of all the
outstanding shares of common stock of the Company.
On September 8, 1998, Blackstone Management Associates II L.L.C. ("Blackstone")
and Veritas Capital Management, L.L.C. ("Veritas") serving as general partners
for limited partnerships acquired Republic in a cash tender offer of $7.25 for
each Republic common share (the "Acquisition"). RES Holding Corporation ("RES
Holding") and its wholly owned subsidiary, RES Acquisition Corporation ("RES
Acquisition") were formed for the purpose of acquiring Republic. The cash price
paid totaled approximately $160.5 million, including deal related expenses. The
sources of funds contributed to RES Acquisition consisted of i.) $95.5 million
in a capital contribution by RES Holding from the issuance of its common stock
to Blackstone and its affiliates, Veritas and HVR Holdings, L.L.C. and ii.)
borrowings of approximately $65.0 million under a short term bridge loan credit
facility dated September 8, 1998 between RES Holding and Chase Manhattan Bank,
as Administrative Agent. Republic was acquired by RES Acquisition on September
8, 1998 and was subsequently merged with RES Acquisition on September 21, 1998.
6
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The Acquisition has been accounted for as a purchase and, pursuant to the
provisions of SEC Staff Accounting Bulletin No. 54 ("SAB No. 54") and the rules
of pushdown accounting, the Acquisition gave rise to a new basis of accounting.
Given the timing of the Acquisition, fair value analysis of the net assets
acquired, including appraisals of property and equipment, are not yet
completed. However, the purchase price and related acquisition expenses exceeded
the preliminary assessment of the net assets acquired by approximately $159.2
million. Fair value adjustments, once finalized, may materially increase or
decrease this number. Pending completion of the fair value analysis, the
preliminary excess purchase price over the estimated value of the net
assets acquired is being amortized over 20 years. Upon completion of the fair
value analysis, adjustments will be made to depreciate the fair value of
acquired property, plant and equipment over their estimated useful lives and
to amortize goodwill over a period not to exceed 40 years.
In connection with the Acquisition, the Company has developed preliminary plans
to rationalize and discontinue operations at certain manufacturing locations,
and to eliminate certain general and administrative duties. Management is
conducting a detailed evaluation to finalize the timing and extent of the
further rationalization of the operations. Any adjustments arising from the
finalization of management's plans are expected to be reported as an adjustment
to the purchase price of the Acquisition.
Further, the Company has amended certain provisions of its pension plans,
modified certain assumptions used to fair value its pension and other
postretirement benefit obligations (OPEB), and substantially increased its
deferred tax valuation allowance given uncertainties as to whether it is more
likely than not that such deferred tax assets will be realized. As a result, the
Company's recorded pension and OPEB obligation increased (decreased) by
approximately $40.4 million and ($43.5) million respectively, and the deferred
tax valuation allowance was increased to eliminate all net deferred tax assets
($54.8 million).
(c) Basis of Presentation and Principles of Consolidation
The accompanying condensed consolidated financial statements for the period from
September 8, 1998 to September 30, 1998 and as of September 30, 1998, reflect
the new basis of accounting of the Acquisition. Periods prior to September 8,
1998 (Predecessor Company) have been presented under the historical cost basis
of Republic.
The condensed consolidated financial statement includes the accounts of Republic
Engineered Steels, Inc. and its wholly owned subsidiaries, Nimishillen &
Tuscarawas Railway Company and The Oberlin Insurance Company. All significant
intercompany balances have been eliminated.
(d) Cash Equivalents
The Company considers all short-term investments with maturities at date of
purchase of three months or less to be cash equivalents.
(e) Long-Lived Assets
Property, plant and equipment are 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.
(f) Intangibles and Other Assets
Intangible assets consist primarily of deferred loan and bond fees, and in the
case of the Predecessor Company, an intangible asset related to the Company's
pension plan. 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 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
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<PAGE>
a change in tax rates is recognized in income in the period that includes the
enactment date. Income taxes for the period subsequent to the Acquisition
reflect the pushdown impact on the consolidated tax position resulting from a
change of control.
(h) Environmental Costs
The Company and other basic steel companies have in recent years become subject
to increasingly demanding environmental laws and regulations. It is the policy
of the Company to endeavor to comply with applicable environmental laws and
regulations. The Company established a liability for an amount which the Company
believes is adequate, based on information currently available, to cover costs
of remedial actions it will likely be required to take to comply with existing
environmental laws and regulations.
(i ) 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 preparation of the condensed consolidated financial statements included
herein, the Company uses estimates for, among others, deferred income tax
benefits, defined benefit pension obligations, other postretirement benefit
obligations, environmental remediation and fair value adjustments related to the
Acquisition, all of which are significant to the condensed 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.
(j) Reclassifications
Certain previously reported amounts have been reclassified to conform to the
current presentation.
(2) Inventories
Inventories are carried at the lower of cost or market with cost determined
using the last-in, first-out (LIFO) method. In connection with the Acquisition,
inventories as of September 30, 1998 were adjusted to reflect a new LIFO base
cost as of September 8, 1998. Inventories are stated net of assets held for sale
and consist of the following:
<TABLE>
<CAPTION>
(in thousands)
Predecessor
Company
------------------
September 30, 1998 June 30, 1998
---------------------- ------------------
<S> <C> <C>
Raw materials $ 11,541 $ 12,157
Finished and semi-finished product 136,045 111,093
Supplies, molds and stools 1,537 1,705
===================== ==================
$ 149,123 $ 124,955
===================== ==================
</TABLE>
8
<PAGE>
(3) Long-Term Debt
Long-term debt of the Company consists of the following:
<TABLE>
<CAPTION>
(in thousands)
Predecessor
Company
--------------
September 30, 1998 June 30, 1998
-------------------- ----------------
<S> <C> <C>
9% Solid Waste Revenue Bonds, Series 1996, due June 1, 2021 $ 53,700 $ 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 202,000 200,000
Revolving Credit Agreement -- --
Other 18 22
-------------------- ----------------
275,918 273,922
Less current maturities of long-term debt -- --
==================== ================
$ 275,918 $ 273,922
==================== ================
</TABLE>
The Company's receivables, inventories, a subsidiary's stock, short-term
investments and certain intangible assets secure the Company's revolving credit
facility ("Revolving Credit Facility"), which has permitted borrowings up to
$115 million. As of September 30, 1998 and June 30, 1998 there were no
outstanding borrowings under the Revolving Credit Agreement. The Acquisition has
not adversely affected the Company's ability to borrow under its Revolving
Credit Agreement.
The Revolving Credit Agreement provides up to $50 million for letters of credit.
Borrowings under the Revolving Credit Agreement bear interest at a per annum
rate equal to, at the Company's option, (i) the higher of the base rate of
BankBoston or 1/2 percent above the Federal funds effective rate, plus 1/2
percent; or (ii) LIBOR plus 2 1/2 percent. The borrowing base under the
Revolving Credit Agreement is the sum of 55 percent of "Eligible Inventory" up
to a maximum of $75 million and 85 percent of "Eligible Accounts Receivable."
Fees of 2 1/2 percent per annum on the maximum drawing amount of each standby or
documentary letter of credit are payable on the date of issuance of such letter
of credit. A commitment fee of 3/8 percent per annum on the average unused
portion of the facility is payable quarterly. The Revolving Credit Agreement
contains certain limited negative and affirmative covenants, including failure
to pay interest or principal when due, inaccurate or false representations or
warranties and limitations on restricted payments.
On October 28, 1994, the Ohio Water Development Authority issued $20.2 million
of 8 1/4% Solid Waste Revenue 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 facility. Additionally, on June 1, 1996, the
Authority issued $53.7 million of 9.0% Solid Waste Revenue Bonds due June 1,
2021 in connection with the solid waste recycling facilities installed at the
CAST-ROLL facility. The proceeds of the 1996 Bonds were used to reduce
outstanding borrowings under the Revolving Credit Facility. As of September 30,
1998 the Company had available approximately $0.6 million from the 1996 Bonds
which is classified as restricted cash in the accompanying condensed
consolidated balance sheet, and zero from the 1994 Bonds.
The Company's $200,000 First Mortgage Notes ("Notes") represent long-term debt
which matures on December 15, 2001. As a result of the Acquisition, the Company
was required by the terms of the indenture to offer to purchase any and all of
the Notes at a purchase price of $1,010 per $1,000 principal amount, plus
accrued and unpaid interest (the "Change of Control Offer"). Such premium has
been recorded as a fair value adjustment to the liabilities assumed in the
Acquisition with a corresponding increase to the excess purchase price over net
assets acquired.
(4) 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
9
<PAGE>
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 $8,900 to $22,300 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 non-current environmental liabilities was
approximately $14.4 million for both September 30, 1998 and June 30, 1998,
substantially all of which is classified as a long-term obligation in the
accompanying condensed consolidated balance sheets.
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.
(5) Legal Proceedings
The Company is involved in various legal proceedings, including 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.
(6) Subsequent Events
On October 5, 1998, the Company commenced an offer to purchase any and all of
the Notes at a purchase price of $1,010 per $1,000 principal amount, plus
accrued and unpaid interest (the "Change of Control Offer"), which offer expired
on November 5 , 1998. The Change of Control Offer was made by the Company in
order to comply with the terms of the Indenture dated as of December 15, 1993,
between the Company and Bankers Trust Company, as trustee, governing the Notes.
Approximately $28.1million principal amount of Notes was tendered in accordance
with the Change of Control Offer. The purchase of the tendered Notes was
assigned to affiliates of the Lenders (as defined below).
On October 29, 1998 the Company commenced a new offer to purchase any and all of
the outstanding Notes at a purchase price of $1,042.30 per $1,000 principal
amount plus accrued and unpaid interest.The Offer is scheduled to expire on June
30, 1999.
For the purpose of funding the Change of Control Offer and the Offer, the
Company entered into an additional senior credit facility (the "Bridge
Facility") with The Chase Manhattan Bank, DLJ Bridge Finance, Inc. and
BankBoston N.A. (the "Lenders") which provides for $208.46 million of
borrowings. All loans made under the Bridge Facility convert into long term
loans one year from the date of initial borrowing, and accordingly the Notes
remain classified as long-term in the accompanying condensed consolidated
balance sheet as of September 30, 1998.
The Company recently entered into a five-year master collective bargaining
agreement (the "Master CBA") and related settlement agreement (the "Settlement
Agreement") with the United Steelworkers of America (the "USWA"). Management
believes that the Master CBA will offer the Company the flexibility to
rationalize its cost structure so that it may continue to invest in the business
to maintain a position as a low-cost supplier. The Settlement Agreement provides
for voluntary early retirement buyout packages ("ERBs") and a voluntary
severance plan ("VSP") for the purpose of permanently reducing the number of
USWA-represented hourly employees by more than 1,400 over the next four years.
The Master CBA allows the Company to reduce the number of job
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classifications at all USWA-covered facilities to five from over 34 at certain
facilities thereby permitting employees to be assigned a wider range of
responsibilities.
The Settlement Agreement provides for a voluntary "Early Retirement Buyout" and
a "Voluntary Severance Plan" which will be made available to hourly workers at
the Republic facilities. The purpose of these programs is to reduce the hourly
workforce at these facilities by a net reduction of over 1,400 hourly
employees. Because these programs are voluntary, however, it is uncertain
whether the Company will be able to effect the full headcount reduction
contemplated. Under the terms of the Settlement Agreement, if the programs are
not successfully implemented, the Company will have the flexibility to reduce
the hourly workforce by approximately 300 employees. Pursuant to the Master CBA,
USWA represented employees will be eligible for Supplemental Unemployment
Benefits (SUB) and the continuation of certain health insurance benefits.
The Company has entered into a memorandum of understanding with the Pension
Benefit Guarantee Corporation (the "PBGC") pursuant to which (1) the PBGC agreed
to forebear from instituting proceedings to terminate the USWA Defined Benefit
Plan as a result of the Acquisition or the prospective combination with Bar
Technologies Inc., (2) the Company will fund the pension plan with an
approximate $27 million initial contribution (or the establishment of a letter
of credit in such amount) and (3) the Company will make an additional
contribution to such pension plan in the amount of $20 million on or before July
1, 1999 (which is also supported by a letter of credit). On November 4, 1998,
the Company established letters of credit drawn under its Revolving Credit
Agreement in an aggregate amount of approximately $47 million in relation to
these obligations. Additional quarterly contributions will be made by the
Company commencing October 1, 1999 in accordance with the following schedule:
$7.5 million per quarter for the first four payments, $7.6 million per quarter
for the next four payments, $9.1 million per quarter for the next four payments
and $8.5 million per quarter for the final four payments. As a result, the
Company's aggregate pension obligation as of September 30, 1998 of $52.3 million
is classified as a current liability.
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Acquisition has been accounted for as a purchase and, pursuant to the
provisions of SEC Staff Accounting Bulletin No. 54 and the rules of pushdown
accounting, the Acquisition gave rise to a new basis of accounting. However, the
discussion below compares the three month period ended September 30, 1998 with
the three month period ended September 30, 1997. Even though there may be a new
basis of accounting, this comparison provides more meaningful information of the
core operations of the Company. Any significant acquisition related items
affecting operations are discussed where applicable.
Three months ended September 30, 1998 compared with the Three months ended
September 30, 1997
Net sales from continuing operations for the first quarter of fiscal year 1998
totaled approximately $157.5 million on 233,694 net tons of steel shipments
compared to net sales from continuing operations of approximately $158.9 million
and shipments of 240,830 net tons for a year ago quarter. Despite a 3.0%
decrease in shipping volume, sales revenue decreased only 0.9% as the Company's
average selling price per ton increased 2.1% to $674 per ton versus $660 per ton
in the year earlier quarter. The increase is the result of a higher percentage
of value added cold finished products and by generally higher selling prices for
hot rolled and cold finished products.
Cost of products sold in continuing operations increased to $149.7 million or
$641 per ton shipped versus $143.8 million or $597 per ton shipped for the year
ago quarter. The manufacturing costs for the year ago quarter benefited from a
credit of approximately $3.2 million reflecting an independent re-assessment of
probable environmental liabilities for certain historical waste disposal sites
and a $0.7 million gain representing proceeds in excess of expenses relating to
certain demolition projects. Manufacturing costs in 1998 include approximately
$3.0 million in signing bonuses and $0.7 million in defined benefit costs
associated with the new five-year labor agreement. In addition scrap and other
raw material costs moderated versus the year earlier quarter representing 19.2%
of total cost of goods sold compared to 25.4% in the year earlier quarter.
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Selling, general and administrative expenses totaled approximately $23.5 million
for the current quarter versus $8.9 million during the year earlier quarter and
represent approximately 14.9% and 5.6% of sales revenue, respectively. The
increase is primarily due to one-time costs related to the Acquisition of
approximately $13.8 million.
Net periodic postretirement benefit charges totaled approximately $2.7 million
for the quarter ended September 30, 1998, a decrease of approximately $1.0
million versus the same quarter one year ago. The net change was due primarily
to a reduction in the discount rate assumption from 8% to 7% and a reduction in
the medical rate trend assumption from 5.5% to 4.5%.
There was no charge for non-cash ESOP charges in the current quarter versus a
charge of $6.7 million in the year ago quarter. The decrease reflects the final
ESOP loan payment during the third quarter of fiscal year 1998.
Net cash interest expense totaled approximately $6.6 million for the first
quarter of fiscal 1999 versus $6.4 million for fiscal year 1998. The increase is
the result of increased borrowings associated with the Acquisition.
IMPACT OF INFLATION AND CHANGING PRICES
The Company does not believe that inflation has or will have a significant
impact on its results of operations.
LIQUIDITY AND CAPITAL RESOURCES
Cash and short-term investments as of September 30, 1998 totaled $3.7 million
compared to $22.7 million as of June 30, 1998..
The Company's Revolving Credit Agreement, which has permitted borrowings up to
$115 million expires on April 25, 2000, and is secured by the Company's
receivables, inventories, subsidiary stock, short-term investments and certain
intangible assets. As of September 30, 1998 and June 30, 1998 the Company had no
outstanding borrowings under the Revolving Credit Agreement
The Revolving Credit Agreement provides up to $50 million for letters of credit.
Borrowings under the Revolving Credit Agreement bear interest at a per annum
rate equal to, at the Company's option, (i) the higher of the base rate of Bank
Boston or 1/2 percent above the Federal funds effective rate, plus 1/2 percent;
or (ii) LIBOR plus 2 1/2 percent. The borrowing base under the Revolving Credit
Agreement is the sum of 55 percent of "Eligible Inventory" up to a maximum of
$75 million and 85 percent of "Eligible Accounts Receivable." Fees of 2 1/2
percent per annum on the maximum drawing amount of each standby or documentary
letter of credit are payable on the date of issuance of such letter of credit. A
commitment fee of 3/8 percent per annum on the average unused portion of the
facility is payable quarterly. The Revolving Credit Agreement contains certain
limited negative and affirmative covenants, including failure to pay interest or
principal when due, inaccurate or false representations or warranties and
limitations on restricted payments.
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 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
solid waste recycling facilities installed at the CAST-ROLL facility. The
proceeds of the 1996 Bonds were used to reduce outstanding borrowings under the
Revolving Credit Facility. As of September 30, 1998 the Company had available
$0.6 million from the 1996 Bonds which is classified as restricted cash in the
accompanying consolidated balance sheet, and zero from the 1994 Bonds.
The Acquisition by RES Acquisition of Republic was funded by a cash contribution
from RES Holding to RES Acquisition of approximately $160.5 million including
deal related expenses. The Republic Acquisition and related fees and expenses
were financed through i.) $95.5 million in a capital contribution by RES Holding
from the sale by RES Holding of its common stock to each Blackstone and its
affiliates, Veritas and HVR Holdings, L.L.C. ("HVR"), and ii.) borrowings of
approximately $65.0 million under the Credit Agreement, dated September 8, 1998
between RES Holding and Chase Manhattan Bank ("Chase"), as Administrative Agent.
12
<PAGE>
It is anticipated that the Company will refinance any remaining Notes and
additional indebtedness incurred in connection with the Acquisition, in order to
facilitate a business combination with Bar Technologies Inc. ("Bar Tech"), a
Delaware corporation also controlled by Blackstone and Veritas. Bar Tech
produces and markets hot rolled engineered and cold finished steel bar products
directly to the automotive, machinery, industrial equipment and tool industries,
and to cold finished bar producers, independent forgers and steel service
centers.
On October 5, 1998, the Company commenced an offer to purchase any and all of
the Notes at a purchase price of $1,010 per $1,000 principal amount, plus
accrued and unpaid interest, which offer expired on November 5, 1998. The Change
of Control Offer was made by the Company in order to comply with the terms of
the Indenture dated as of December 15, 1993 (the "Indenture"), between the
Company and Bankers Trust Company, as trustee, governing the Notes.
Approximately $28.1 million principal amount of Notes was tendered in accordance
with the Change of Control Offer. The purchase of the tendered Notes was
assigned to affiliates of the Lenders.
On October 29, 1998 the Company commenced a new offer to purchase any and all of
the outstanding Notes at a purchase price of $1,042.30 per $1,000 principal
amount plus accrued and unpaid interest (the "Offer"). The offer is scheduled to
expire on June 30, 1999. The Offer is irrevocable and, while subject to certain
conditions, is not subject to a financing condition. Borrowings under the Bridge
Agreement are subject to certain conditions. The inability on the part of the
Company to borrow under the Bridge Agreement to fund the Offer would likely have
a material adverse affect on the financial condition, results of operations and
business of the Company.
For the purpose of funding the Change of Control Offer and the Offer, the
Company entered into an additional senior credit facility (the "Bridge
Facility") with The Chase Manhattan Bank, DLJ Bridge Finance, Inc. and
BankBoston N.A. (the "Lenders") which provides $208.5 million of borrowings. In
connection with the Bridge Agreement, the Company granted the Lenders a lien on
the CAST ROLL(Trade Mark) facility, which lien is shared on an equal and ratable
basis with holders of the Notes. All loans made under the Bridge Facility
convert into long term loans one year from the date of initial borrowing, and
accordingly the Notes remain classified as long-term in the accompanying
condensed consolidated balance sheet.
The Company has entered into a memorandum of understanding with the Pension
Benefit Guarantee Corporation (the "PBGC") pursuant to which (1) the PBGC agreed
to forebear from instituting proceedings to terminate the USWA Defined Benefit
Plan as a result of the Acquisition or the prospective combination with Bar
Technologies Inc., (2) the Company will fund the pension plan with an
approximate $27 million initial contribution (or the establishment of a letter
of credit in such amount) and (3) the Company will make an additional
contribution to such pension plan in the amount of $20 million on or before July
1, 1999 (which is also supported by a letter of credit). On November 4, 1998,
the Company established letters of credit drawn under its Revolving Credit
Agreement in an aggregate amount of approximately $47 million in relation to
these obligations. Additional quarterly contributions will be made by the
Company commencing October 1, 1999 in accordance with the following schedule:
$7.5 million per quarter for the first four payments, $7.6 million per quarter
for the next four payments, $9.1 million per quarter for the next four payments
and $8.5 million per quarter for the final four payments.
The Company believes that its cash on hand, cash flows provided from operations
and borrowings available under its current financing arrangements will be
sufficient to meet its liquidity needs until payments become due under the
Bridge Facility, prior to which the Company intends to refinance substantially
all of its long and short term credit facilities. However, there can be no
assurance that the Company will successfully refinance its credit facilities at
that time.
CERTAIN FACTORS THAT MAY AFFECT FUTURE RESULTS
Many computer systems will experience problems handling dates beyond the year
1999. Certain of the Company's computer systems will be affected by the Year
2000 issue. The Company is currently in the process of replacing existing
computer systems in an effort to improve its processes relating to financial and
operational information. These initiatives include technology that will be Year
2000 compliant when implemented. Although the Acquisition has modified the
Company's Year 2000 compliance strategy, the Company is anticipating it will be
Year 2000 compliant in mid 1999, but the Company cautions that it might
encounter unexpected delays which could delay full compliance beyond that date.
Year 2000 contingency plans are currently being formulated by management.
Maintenance or modification costs will be expensed as incurred, while the cost
of new software will
13
<PAGE>
be capitalized and amortized over the software's useful life. The cost of the
systems upgrade is estimated at $10.0 million, of which $8.0 million has been
spent to date. The project is being funded through operating cash flows.
The Company is currently assessing the impact of the Year 2000 issue as it
relates to its suppliers and customers. There can be no assurance that the
systems of other companies on which the Company's business relies will be
converted timely and as a result, the Company's business and operations could be
materially adversely affected. The amount of any potential liability and/or lost
revenue to the Company cannot be reasonably estimated at this time.
Statements included in this filing with the Securities and Exchange Commission
(including those portions of Management's Discussion and Analysis that refer to
the future) may contain forward-looking statements that are not historical facts
but refer to management's intentions, beliefs, or expectations for the future.
It is important to note that the Company's actual results could differ
materially from those projected in such forward-looking statements. Certain
factors that could cause actual results to differ from those in such
forward-looking statements include, but are not limited to, the following: i.)
any substantial delay in the implementation of the Company's plans or
substantial unanticipated costs associated with its plans for the combination
of the Company with Bar Technologies Inc.; ii.) the ability of the Company to
sell its products in its targeted markets at gross margins necessary to produce
and maintain positive operating income. The Company's success is dependent on
its ability to increase its sales, maintain high product quality and provide for
customer service programs; iii.) the Company's ability to obtain favorable
financing for the combined company; and iv.) the Company is subject to a variety
of competitive factors such as international competition, the financial strength
of its competitors and the Company's ability to establish a favorable position
in the steel making and bar rolling industry. The Company's competitive position
could also be adversely affected by any consolidation of its competition in the
steel making industry.
In the event of a substantial delay in the implementation of its plans or
substantial unanticipated costs associated with the implementation of its plans,
the Company may need to borrow funds under its Revolving Credit Agreement or, to
the extent funds are not available thereunder, to obtain additional financing to
meet its cash flow requirements. The Company is already highly leveraged.
Restrictive covenants included in the indenture and other debt obligations may
have the effect of limiting the Company's ability to incur additional
indebtedness, sell assets, or acquire other entities and may otherwise limit the
operational and financial flexibility of the Company.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
The Company is exposed to market risk from changes in interest rates for its
Revolving Credit Agreement only with other debt instruments being fixed-rate.
The Company is not exposed to foreign exchange rates or market indexed raw
material price fluctuations.
14
<PAGE>
PART II - OTHER INFORMATION
Item 1. Legal Proceedings
The Company and its subsidiaries are occasionally involved in various legal
proceedings occurring in the ordinary course of business. It is the opinion of
management, after consultation with legal counsel, that these matters are not
expected to materially affect the Company's consolidated financial position or
results of operations.
Item 2. Changes in Securities
The Company and Bankers Trust Company, as Trustee have entered into a
Supplemental Indenture dated as of November 4, 1998 (the "Supplemental
Indenture") amending and supplementing certain terms of the Indenture dated
December 15, 1993 between the Company and the Trustee (the "Original Indenture")
relating to the 9 7/8% First Mortgage Notes Due 2001 (the "Notes").
The changes made by the Supplemental Indenture are summarized below. Capitalized
terms used herein but not otherwise defined have meanings ascribed thereto in
the Original Indenture.
1.The covenant regarding Change of Control Offers was revised to
expressly permit the Company to assign its rights under such covenant as they
may relate to all or any portion of the Notes tendered in a Change of Control
Offer. Pursuant to the terms of the Supplemental Indenture, to the extent of any
such assignment, the Company's obligations under the covenant to purchase Notes
shall be discharged if an assignee shall (i) purchase such Notes or portions
thereof validly tendered and not properly withdrawn pursuant to the Change of
Control offer as to which the assignment is made and (ii) deposit with the
Paying Agent money sufficient to pay the purchase price of all Notes or portions
thereof so tendered in connection with the assignment, whereupon such assignee
shall be entitled to have delivered to it or to its nominee the Notes so
purchased. Notwithstanding the foregoing, no such assignment shall relieve the
Company of its obligations under the Change of Control Offer covenant in the
event that an assignee shall fail to deposit with the Paying Agent money
sufficient to pay the purchase price in respect of Notes or portions thereof as
to which an assignment has been made. The Supplemental Indenture also indicates
that nothing contained in the covenant as amended shall imply or create any
liability by the assignee to any Holder should the assignee fail to make such
deposit and purchase the assigned Notes nor shall any assignee have any
liability in respect of the Change of Control Offer. The Supplemental Indenture
also requires any Notes acquired by an assignee pursuant to an assignment by the
Company or acquired by the Company and held for the account of the Company shall
take the form of certificated securities and that such certificated securities
bear a legend specifying certain applicable transfer restrictions.
2. The Supplemental Indenture also corrected a defect in the Original
Indenture by providing that the Company shall (i) accept for payment Notes or
portions thereof tendered pursuant to the Change of Control Offer, (ii) deposit
with the paying Agent money sufficient to pay the purchase price of all Notes or
portions thereof so tendered and accepted, on the Business Day immediately
following the Change of Control Payment Date (but in no event later than 60 days
following the Change of Control Date), provided that the payment for such Notes
shall include accrued and unpaid interest, if any, to such Business Day
immediately following the Change of Control Payment Date on which such purchase
price is paid. This provision corrects a defect in the Original Indenture which
called for the Change of Control Offer to remain open until 5:00 p.m. on the
Change of Control Payment Date, and thus requiring that payment be made after
the close of business and making it impossible to pay in immediately available
funds.
3. Finally, the Supplemental Indenture expanded the scope of one of the
Events of Default to provide that it shall be an Event of Default if the Company
defaults in performance of any tender offer made by the Company for the Notes
and such default or breach continues for a period of 30 days after written
notice to the Company by the Trustee or to the Company and the Trustee by the
holders of at least 25% in aggregate principal amount of the outstanding Notes.
15
<PAGE>
Item 3. Defaults Upon Senior Securities
None.
Item 4. Submission of Matters to a Vote of Security Holders
None.
Item 5. Other Information
In anticipation of the completion of the combination (the "Combination") of the
Company and Bar Technologies Inc. ("BarTech"), a consolidation plan (the
"Consolidation Plan") has been developed which will build on initiatives already
under way at BarTech and Republic. The Consolidation Plan is expected to create
a more efficient, higher quality base of production facilities operated by a
smaller and more flexible labor force under new labor agreements. The
Consolidation Plan will focus on reducing operating costs primarily through
headcount reductions and a multi-year capital investment program expected to
exceed $300 million with the objective of rationalizing and modernizing the
production facilities of the combined entity. To the extent that the Combination
is delayed, the timing for full implementation of the Consolidation Plan may be
extended and its cost may increase. There are several initiatives which the
Company expects to pursue regardless of the timing of the Combination and the
implementation of the Consolidation Plan. Depending on when the Combination is
completed, measures which the Company may take prior to the Combination may
include the closure of the Company's high-cost low productivity ingot route at
Canton, Ohio, the expansion of the capacity of the CAST-ROLL facility and the
closure of one hot-rolling mill and one cold-finishing mill, which closure may
be coupled with capital investments in new facilities and/or equipment.
In addition, in order to reduce overhead and improve customer service, the
Company and BarTech are combining their sales efforts and commencing marketing
their respective steel products jointly under the combined brand name "Republic
Technologies International" using a single sales force (however, each customer
purchase order for steel products continues to be entered into directly with
either the Company or BarTech, as appropriate). The cost of such joint marketing
efforts are borne ratably by the Company and BarTech based upon their respective
sales volumes achieved through such joint marketing.
The Company and BarTech anticipate forming a joint venture (the "Marketing JV")
in the near future to further formalize the foregoing arrangements and continue
to jointly market, advertise, promote and sell both companies' steel products to
each company's existing and potential customers. It is anticipated that the
Marketing JV will be named "Republic Technologies International Marketing, LLC",
will be owned by the Company and BarTech in proportions expected to be
determined based upon the companies' respective sales and will fill purchase
orders for steel products either by purchasing such steel products from the
Company and/or BarTech, as appropriate for a particular order (at a price based
upon the price paid for such steel production by the underlying customer, less a
specified "markup" designed to cover the Marketing JV's operating expenses), or
by in certain cases allocating such purchase orders to the Company or BarTech
and receiving a sales commission designed to cover the Marketing JV's operating
expenses.
Item 6. Exhibits and Reports on Form 8-K
a.) Exhibits
(10.27) Supplemental Indenture dated as of November 6, 1998
between the Company and Bankers Trust Company.
(10.28) Memorandum of Understanding dated November 2, 1998
between the Pension Benefit Guaranty Corporation and
RES Holding Corporation.
(27) Financial Data Schedule
(99.1) Offer to Purchase 9 7/8% First Mortgage Notes Due
2001 of the Company dated October 29, 1998.
(99.2) Letter of Transmittal to Tender 9 7/8% First Mortgage
Notes Due 2001 of the Company Pursuant to the Offer
to Purchase dated October 29, 1998.
b.) Reports on Form 8-K
A report on Form 8-K was filed on September 8, 1998 by the Company
announcing that the tender offer made by RES Acquisition Corporation
("RES Acquisition") was completed. RES Acquisition was formed by
limited partnerships for which Blackstone Capital Partners II Merchant
Banking Fund L. P. and Veritas Capital Partners L. P. serve as general
partners.
16
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
REPUBLIC ENGINEERED STEELS, INC.
By: /s/ Thomas N. Tyrrell
---------------------------------------
Thomas N. Tyrrell
Chief Executive Officer
By: /s/ John B. George
---------------------------------------
John B. George
Date: November 16, 1998 Vice President of Finance and Treasurer
<PAGE>
SUPPLEMENTAL INDENTURE dated as of November 4, 1998, between
REPUBLIC ENGINEERED STEELS, INC., a Delaware corporation, as Issuer (the
"Company") and BANKERS TRUST COMPANY, a New York banking corporation, as Trustee
(the "Trustee").
WHEREAS, the Company has executed and delivered an Indenture
dated as of December 15, 1993 (the "Original Indenture") between the Company and
the Trustee providing for the issuance of $200,000,000 principal amount of
9-7/8% First Mortgage Notes Due 2001 of the Company;
WHEREAS, Section 9.1(g) of the Original Indenture provides
that the Original Indenture may be amended without the consent of any
Securityholder to make any change that does not adversely affect the rights of
any Holder; and
WHEREAS, all things necessary to make this Supplemental
Indenture a valid and binding instrument in accordance with its terms and the
terms of the Original Indenture have been satisfied;
NOW, THEREFORE, in consideration of the premises and of the
mutual covenants herein contained, the Company and the Trustee hereby agree as
follows:
SECTION 1. Defined Terms. For all purposes of this
Supplemental Indenture, including the Recitals, except as otherwise expressly
provided or unless the context otherwise requires, all capitalized terms used
and not defined herein that are defined in the Original Indenture shall have the
meanings assigned to them in the Original Indenture.
SECTION 2. Assignment of Rights in respect of Change of
Control Offers. Section 4.15 is hereby amended by adding the following
paragraphs before the final paragraph of such Section:
Notwithstanding the foregoing, the Company may assign to any
Person (the "Assignee"), its rights pursuant to the foregoing paragraph
as they may relate to all or any portion of the Securities tendered in
a Change of Control Offer. To the extent of any such assignment, the
Company's obligations under Section 4.15 to purchase Notes shall be
discharged if the Assignee shall (i) purchase such Securities or
portions thereof validly tendered and not properly withdrawn pursuant
to the Change of Control Offer as to which the assignment is made and
(ii) deposit with the Paying Agent money sufficient to pay the purchase
price of all Securities or portions thereof so tendered in connection
with the assignment, whereupon the Assignee shall be entitled to have
delivered to it or to its nominee the Securities so purchased. Upon
completion of any Change of Control Offer in connection with which an
assignment is made, the Company shall deliver to the Trustee an
Officers' Certificate setting forth all of the Securities or portions
thereof tendered to and accepted for payment pursuant to the Change of
Control Offer. The Paying Agent shall promptly mail or deliver to the
Holders of Securities purchased by the Company or the Assignee payment
in an amount equal to the purchase price, and the
<PAGE>
2
Trustee shall promptly authenticate and mail or deliver to such Holders
a new Security equal in principal amount to any unpurchased portion of
the Security surrendered. No assignment made pursuant to this paragraph
shall relieve the Company of its obligations under the foregoing
paragraph in the event that the Assignee shall fail to deposit with the
Paying Agent money sufficient to pay the purchase price in respect of
Securities or portions thereof as to which an assignment has been made
pursuant to this paragraph. Nothing herein shall imply or create any
liability by the Assignee to any Holder should the Assignee fail to
make such deposit and purchase the assigned Securities nor shall any
Assignee have any liability in respect of the Change of Control Offer.
The delivery to the Trustee of Securities accepted for payment
pursuant to a Change of Control Offer may be for the purpose of
transfer of registration or exchange or for the purpose of
cancellation, as directed by the Company.
Any Securities acquired by the Assignee pursuant to an
assignment by the Company or acquired by the Company and held for the
account of the Company shall take the form of certificated securities
and shall bear substantially the following legend:
NEITHER THIS SECURITY NOR ANY INTEREST OR PARTICIPATION HEREIN MAY BE
REOFFERED, SOLD, ASSIGNED, TRANSFERRED, PLEDGED, ENCUMBERED OR
OTHERWISE DISPOSED OF IN THE ABSENCE OF REGISTRATION UNDER THE
SECURITIES ACT OF 1933, AS AMENDED (THE "SECURITIES ACT"), OR THE
SECURITIES LAWS OF ANY STATE OR OTHER JURISDICTION UNLESS SUCH
TRANSACTION IS EXEMPT FROM, OR NOT SUBJECT TO, SUCH REGISTRATION.
THE HOLDER OF THIS SECURITY BY ITS ACCEPTANCE HEREOF AGREES TO OFFER,
SELL OR OTHERWISE TRANSFER SUCH SECURITY, PRIOR TO THE DATE (THE
"RESALE RESTRICTION TERMINATION DATE") WHICH IS TWO YEARS AFTER THE
LATER OF THE [date of original assignment to Assignee] AND THE LAST
DATE ON WHICH THE COMPANY OR ANY AFFILIATE OF THE ISSUER WAS THE OWNER
OF THIS SECURITY (OR ANY PREDECESSOR OF SUCH SECURITY), ONLY (A) TO THE
COMPANY, (B) PURSUANT TO A REGISTRATION STATEMENT THAT HAS BEEN
DECLARED EFFECTIVE UNDER THE SECURITIES ACT, (C) FOR SO LONG AS THE
SECURITIES ARE ELIGIBLE FOR RESALE PURSUANT TO RULE 144A, TO A PERSON
IT REASONABLY BELIEVES IS A "QUALIFIED INSTITUTIONAL BUYER" AS DEFINED
IN RULE 144A UNDER THE SECURITIES ACT THAT PURCHASES FOR ITS OWN
ACCOUNT OR FOR THE ACCOUNT OF A QUALIFIED INSTITUTIONAL BUYER TO WHOM
NOTICE IS GIVEN THAT THE TRANSFER IS BEING MADE IN RELIANCE ON RULE
144A, (D) PURSUANT TO OFFERS AND SALES THAT OCCUR OUTSIDE THE UNITED
STATES WITHIN THE MEANING OF REGULATION S UNDER THE SECURITIES ACT, (E)
TO AN INSTITUTIONAL "ACCREDITED INVESTOR" WITHIN THE MEANING OF RULE
501(a)(1), (2),
<PAGE>
3
(3) OR (7) UNDER THE SECURITIES ACT THAT IS AN INSTITUTIONAL INVESTOR
ACQUIRING THE SECURITY FOR ITS OWN ACCOUNT OR FOR THE ACCOUNT OF SUCH
AN INSTITUTIONAL ACCREDITED INVESTOR, IN EACH CASE IN A MINIMUM
PRINCIPAL AMOUNT OF THE SECURITIES OF $250,000, FOR INVESTMENT PURPOSES
AND NOT WITH A VIEW TO OR FOR OFFER OR SALE IN CONNECTION WITH ANY
DISTRIBUTION IN VIOLATION OF THE SECURITIES ACT OR (F) PURSUANT TO ANY
OTHER AVAILABLE EXEMPTION FROM THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT, SUBJECT TO THE COMPANY'S AND THE TRUSTEE'S RIGHT PRIOR
TO ANY SUCH OFFER, SALE OR TRANSFER PURSUANT TO CLAUSES (D), (E) OR (F)
TO REQUIRE THE DELIVERY OF AN OPINION OF COUNSEL, CERTIFICATION AND/OR
OTHER INFORMATION SATISFACTORY TO EACH OF THEM. THIS LEGEND WILL BE
REMOVED UPON THE REQUEST OF THE HOLDER AFTER THE RESALE RESTRICTION
TERMINATION DATE.
SECTION 3. Amended Event of Default. Section 6.1(a) is hereby
amended by deleting clause (iii) and substituting the following new clause in
replacement thereof:
(iii) the Company defaults in the performance, or breach, of
any covenant in this Indenture (other than defaults specified in clause
(i) or (ii) above), or the Company defaults in performance of any
tender offer made by the Company for the Securities, and such default
or breach continues for a period of 30 days after written notice to the
Company by the Trustee or to the Company and the Trustee by the holders
of at least 25% in aggregate principal amount of the outstanding
Securities; or
SECTION 4. Correction of Defect in Section 4.15. The first
sentence of the penultimate paragraph of Section 4.15 is hereby amended to read
in its entirety as follows:
On the Business Day immediately following the Change of
Control Payment Date (but in no event later than 60 days following the
Change of Control Date), the Company shall (i) accept for payment
Securities or portions thereof tendered pursuant to the Change of
Control Offer, (ii) deposit with the Paying Agent money sufficient to
pay the purchase price of all Securities or portions thereof so
tendered and accepted, provided that the payment for such Securities
shall include accrued and unpaid interest, if any, to such Business Day
immediately following the Change of Control Payment Date on which such
purchase price is paid, and (iii) deliver to the Trustee the Securities
so accepted together with an Officers' Certificate setting forth the
Securities or portions thereof tendered to and accepted for payment by
the Company.
SECTION 5. Scope of Supplemental Indenture. Nothing in this
Supplemental Indenture, expressed or implied, is intended or shall be construed
to confer upon or give to any person or corporation, other than the parties
hereto and the holders of the Securities, any right, remedy or claim under or by
reason of this Supplemental Indenture or any covenant, stipulation, promise or
agreement contained herein; all the covenants, stipulations, promises and
agreements
<PAGE>
4
contained herein are for the sole and exclusive benefit of the parties hereto
and their successors, and the holders from time to time of the Securities.
SECTION 6. Ratification of Indenture. This Supplemental
Indenture shall form a part of the Original Indenture for all purposes and every
holder of Securities heretofore or hereafter authenticated and delivered under
the Original Indenture shall be bound hereby. The Original Indenture is hereby
in all respects ratified and confirmed.
SECTION 7. The Trustee. The Trustee, for itself and its
successor or successors, accepts the trust of the Indenture and agrees to
perform the same, but only upon the terms and conditions set forth in the
Indenture, including the terms and provisions defining and limiting the
liabilities and responsibilities of the Trustee, which terms and provisions
shall in like manner define and limit its liabilities and responsibilities in
the performance of the trust created by the Indenture, and, without limiting the
generality of the foregoing, the recitals contained herein shall be taken as the
statements of the Company, and the Trustee assumes no responsibility for their
correctness. The Trustee makes no representations as to the validity or
sufficiency of this Supplemental Indenture other than as to the validity of its
execution and delivery by the Trustee.
SECTION 8. Counterparts. This Supplemental Indenture may be
executed in any number of counterparts, each of which shall be an original; but
such counterparts shall together constitute but one and the same instrument.
SECTION 9. Governing Law. The laws of the State of New York
shall govern this Supplemental Indenture.
IN WITNESS WHEREOF, the parties hereto have caused this
Supplemental Indenture to be duly executed, all as of the date first written
above.
REPUBLIC ENGINEERED STEELS, INC.
as the Issuer
By: /s/ David Blitzer
______________________________
Name: David Blitzer
Title: Secretary
BANKERS TRUST COMPANY
as Trustee
By: /s/ Ednora Williams
______________________________
Name: Ednora Williams
Title: Senior Vice President
<PAGE>
RES - PBGC Memorandum of Understanding
The following are the key terms of the Agreement (the "Agreement")
between the Pension Benefit Guaranty Corporation ("PBGC") and RES Holding
Corporation ("RES"). The parties agree to be bound by these terms, subject to
definitive documentation.
1. PBGC Obligations
In consideration of RES obligations described in this term sheet. PBGC
will forebear from instituting proceedings to terminate the Republic Engineered
Steels, Inc. ("RESI") USWA Defined Benefit Plan, (the "Plan") (as further
defined below) or any single employer defined benefit pension plan of Bar
Technologies, Inc. ("BarTech") or its affiliates under section 4042(a)(4) of
ERISA as a result of (i) the acquisition of RESI by RES pursuant to a tender
offer (the "Tender Offer") by its wholly owned subsidiary, RES Acquisition
Corporation ("Acquisition") and the subsequent merger of Acquisition with and
into RESI (the "Merger" and, collectively with the Tender Offer, the
"Transaction"), (ii) the subsequent combination ("Combination") of RES and RESI
under a common ultimate parent corporation ("Ultimate Parent") with the
operating assets of BarTech (whether by merger or otherwise), including any
financings or refinancings by RES, RESI, BarTech and/or their affiliates in
connection therewith or resulting therefrom, and/or (iii) the plant closings
and/or discontinuations identified in the confidential memorandum (each, a
"Permitted Closure") as identified in Attachment A.
2. RES Obligations
RES shall cause RESI to comply with the requirements hereof.
3. RESI Obligations
(a) RESI shall make a cash contribution ("Required Contribution") to
the Nubar Plan i.e., the defined benefit pension plan that results from
the replacement or merger of the plan maintained by RESI with the plan
maintained by Nubar as referenced in I. E. 9 of the 1998 Settlement
Agreement between United Steelworkers of America, AFL-CIO and BarTech
and RES Acquisition Corporation (the "Plan") in the amount of $27
million within five (5) business days after January 1, 1999. Such
contribution shall be in addition to the $3.2 million paid in January
1998.
(b) Thereafter, one or more entities described in paragraph 6 below as
being liable for the Required Contribution shall make a Required
Contribution in the amounts and on the dates indicated by the following
chart. If at any time minimum funding contributions under IRC ss. 412
exceed the amount of the Required Contribution the contributions under
ss. 412 shall be made in lieu of the Required Contribution. All
Required Contributions are cash contributions to the Plan. The amounts
of Required Contributions under this agreement are
1
<PAGE>
based on projections that include the assumption that no shutdown
benefits will be granted and that certain liabilities will arise from
granting 1,000 ERBs.
Date Amount ($mill)
- - ---- --------------
no later than 7/1/99 $20.0
no later than 10/1/99 7.5
no later than 1/1/00 7.5
no later than 4/1/00 7.5
no later than 7/1/00 7.5
no later than 10/1/00 7.625
no later than 1/1/01 7.625
no later than 4/1/01 7.625
no later than 7/1/01 7.625
no later than 10/1/01 9.075
no later than 1/1/02 9.075
no later than 4/1/02 9.075
no later than 7/1/02 9.075
no later than 10/1/02 8.475
no later than 1/1/03 8.475
no later than 4/1/03 8.475
no later than 7/1/03 8.475
(c) Notwithstanding the provisions of paragraph 3(b), in the event
BarTech's employees are not participants in the Plan on any
Contribution Date listed above, then BarTech minimum funding
contribution under I.R.C. ss. 412 to the defined benefit plan in which
BarTech's employees participate on such Contribution Date rather than
to the Plan. If BarTech's employees are not participants in the Plan,
the Required Contribution shall be as follows:
2
<PAGE>
Date Amount ($mill)
- - ---- --------------
no later than 7/1/99 $20.0
no later than 10/1/99 7.5
no later than 1/1/00 7.5
no later than 4/1/00 7.5
no later than 7/1/00 7.5
no later than 10/1/00 7.5
no later than 1/1/01 7.5
no later than 4/1/01 7.5
no later than 7/1/01 7.5
no later than 10/1/01 7.55
no later than 1/1/02 7.55
no later than 4/1/02 7.55
no later than 7/1/02 7.55
no later than 10/1/02 7.55
no later than 1/1/03 7.55
no later than 4/1/03 7.55
no later than 7/1/03 7.55
(d) Any portion of the Required Contribution will not be required to
the extent that it is not tax-deductible. Determination of current
liability for tax deductibility purposes will be computed using the
interest rate that represents the lowest end of the permissible range.
RES will provide PBGC with evidence, at the date the particular payment
is due, that a particular portion of the Required Contribution is not
being made because it is not deductible. This evidence will be subject
to PBGC's review.
4. Letter of Credit
The portions of the Required Contribution due no later than (a) five
(5) business days after January 1, 1999, and (b) July 1, 1999, respectively (the
"Due Dates"), will be backed by a $47 million letter (or letters) of credit
("L/C") which will have been put in place within five (5) business days after
the date of this Agreement. The L/C shall provide that in the event a
Responsible Entity
3
<PAGE>
fails to make the Required Contribution due by the applicable Due Date, then
PBGC may draw down on the L/C for the benefit of the Plan in an amount equal to
the missed payment. If a Responsible Entity does make the applicable portion of
the Required Contribution on or before a Due Date the amount of the L/C will be
reduced to the remaining unpaid amounts due on any applicable Due Date.
5. Required Credit Balance
(a) At the end of any plan year beginning from January 1, 2004 through
the end of the agreement, the Plan's Required Credit Balance shall be
the sum of
(i) the Plan's December 31, 2003 funding standard account credit
balance, plus
(ii) interest on (i) above to the end of the plan year at the
funding standard account rate
(b) For each Plan Year beginning with January 1, 2004 through the end
of the Agreement, cash contributions will be made to the Plans during
the Plan Year so that the Plan's funding standard account credit
balance at the end of the Plan Year is at least equal to the Required
Credit Balance, provided, however, that nothing herein shall require
any contribution to be made to the extent any such contribution is not
tax deductible in accordance with the terms of Paragraph 3(d)
6. Joint and Several Liability
From the date hereof until the consummation of the Combination, RES,
and at all times thereafter, the Ultimate Parent (in each case "Holdings") and
each entity that is a member of the Holdings Controlled Group shall be jointly
and severally liable for each Required Contribution, provided, however, that (i)
such member shall not be so liable if it is acquired by Holdings or a member of
the Holdings Controlled Group subsequent to the closing of the Combination and
all of its financing in excess of $500,000, whether equity or debt, is
non-recourse to, and not guaranteed or contributed by, Holdings or any other
member of the Holdings Controlled Group, and (ii) no stockholder of Holdings
will be liable for any portion of the Required Contribution. This provision does
not apply to require minimum funding contributions under section 412 of the
I.R.C. or controlled group liability under ERISA upon termination of a plan.
7. Expiration of the Agreement
This Agreement will terminate upon the earliest to occur of (a), (b),
(c), or (d) below but in the case of (a), (b), or (c), no earlier than September
15, 2003
(a) The date on which Ultimate Parent obtains ratings on its unsecured
debt from Standard & Poor's and Moody's of at least BBB- and Baa3,
respectively,
(b) The date on which Ultimate Parent demonstrates to the PBGC that the
Plan has no unfunded benefit liability as determined under ERISA ss.
4001(a)(18) and relevant regulations as of the last day of the
Plan Year for any two consecutive Plan Years (the last day of the Plan
Year in the second consecutive year being the measurement date),
4
<PAGE>
(c) In the event there is no rating as provided in section (a) above,
the date on which Ultimate Parent obtains a private rating on a
hypothetical issue of unsecured debt at the rating level from S&P and
Moody's of at least BBB- and Baa3, respectively. For purposes of
obtaining such private ratings, the amount of the hypothetical debt
issue will equal at least $100 million; and
(d) The date on which PBGC receives a Post Distribution Certification
for the Plan pursuant to 20 C.F.R. ss. 4041.27(h) indicating that the
Plan has been successfully terminated in a standard termination under
ERISA ss. 4041(b).
8. Notice and Information Requirements and Other
Ultimate Parent shall provide PBGC the following:
(a) Form 5500 when filed with the IRS and Actuarial Valuation Report no
later than September 30 of the current plan year, for the Plan
(b) By July 1 of each Plan year beginning with 1999,
(i) a statement showing, as of May 31 of the current year, the
total number of ERBs offered and the total number of ERBs
accepted during the term of the agreement; and the market
value of Plan assets; and
(ii) a statement and detailed supporting schedules, certified by
the Plan's enrolled actuary, showing the following present
values as of September 30 of the current year. The present
values will be calculated based on participant data as of
January 1 of the current year (adjusted for any significant
events that have occurred or are expected to occur) and PBGC
plan termination assumptions as of March 31 of the current
year, guaranteed benefits; guaranteed benefits phased in
since the prior September 30, benefits that would be
guaranteed but are not yet phased in, and the phase in
dates for these benefits; total benefit liabilities of the
Plan, and beginning in 2003, non-guaranteed benefits payable
in Priority Category 3;
(iii) The present values in 8(b) may be calculated using
approximation techniques similar to those employed by the
Plan's enrolled actuary in the estimation of benefit
liabilities used by the parties in negotiating the Memorandum
of Understanding and outlined in a side letter. PBGC shall
have the right to receive actual calculations if the
approximation techniques described in Attachment B have not
been used.
(c) Certification from the Plan's enrolled actuary that individual
employee data is in sufficient detail to calculate participant benefits
in each Priority Category at the current January 1 valuation date is
being maintained, and that such data will be supplied to PBGC if
requested
(d) By December 31 of each plan year beginning with the 2003 plan year,
a certified actuarial statement, plus supporting calculations, that
specifies the Plan's Required
5
<PAGE>
Credit Balance and the amount of the contribution for that plan year
that is necessary to maintain the Plan's Required Credit Balance.
(e) Written notice of failure to make any Required Contribution within
five (5) business days after the due date.
(f) Written notice thirty (30) days prior to any change in any of the
Plan's actuarial assumptions or methods for the purpose of the minimum
funding standard of section 412 of the IRC, which change shall be
subject to the PBGC's consent in advance, such consent not to be
unreasonably withheld.
(g) Written notice sixty (60) days prior to any merger and/or any
transfers of liabilities or assets described in section 414(l) of the
IRC to or from the Plan (other than mergers or transfers involving
amounts less than 3% of assets or liabilities in any Plan year).
(h) Written notice thirty (30) days prior to any transaction that would
have the effect of transferring sponsorship of any of the Plan outside
of the Ultimate Parent Controlled Group.
(i) Written notice of any Plan amendment the earlier of (a) 30 days
prior to adoption or (b) at the same time the proposed amendment is
sent for ratification to union members; provided, however, that in the
case of an amendment to the Plan that is required by law, written
notice within 10 days after adoption of the amendment.
(j) Written notice within thirty (30) days after any Permitted
Closures.
(k) Written notice within thirty (30) days after delivery or receipt of
any notice of default under any debt instrument of RES or its
subsidiaries where the outstanding balance of such debt instrument
exceeds $10 million.
(l) Written notice thirty (30) days prior to any sale, transfer or
other disposition of assets of any member of the RES Controlled Group
where such entity's assets (i) represent 20% or more of the book value
of the assets of the RES Controlled Group on a consolidated basis, or
(ii) generated 20% or more of the consolidated revenues or operating
income.
(m) Annual audited consolidated financial statements and quarterly
financial statements.
(n) A copy of any reportable event notice to the Director of PBGC's
Corporate Finance and Negotiations Department at the same time such
notice is filed.
(o) A concurrent copy of the notice delivered to the USWA a stated in
Article XXXIV Section 1 of the 1998 Settlement Agreement between United
Steelworkers of America, AFL-CIO and BarTech and RES (or any successor
notice obligation) regarding a Company decision to "close permanently a
plant of discontinue permanently a department of a plant or substantial
portion thereof" other than a Permitted Closure.
9. Press Release
Before either party to this Agreement issues a press release concerning
this Agreement or its terms, that party shall provide that other party to the
Agreement a copy of that press release and a 24-hr time period to comment on
it.
6
<PAGE>
10. Execution of Agreement
PBGC and RES shall cooperate, in good faith, to attempt to finalize and
execute definitive documentation embodying the terms and conditions set forth
herein within thirty (30) days after the date of this Agreement.
Agreed and Accepted:
RES Holding Corporation Pension Benefit Guaranty Corporation
By: /s/ David Stockman By: /s/ Andrea E. Schneider
---------------------- -------------------------
Its: President Its: Chief Negotiator
Dated: November 2, 1998 Dated: October 30, 1998
7
<PAGE>
OFFER TO PURCHASE
REPUBLIC ENGINEERED STEELS, INC.
OFFER TO PURCHASE FOR CASH
ANY AND ALL OF ITS OUTSTANDING
9 7/8% FIRST MORTGAGE NOTES DUE 2001
AT A PRICE OF $1,042.30 PER $1,000 PRINCIPAL AMOUNT
PLUS ACCRUED AND UNPAID INTEREST TO BUT NOT INCLUDING THE PAYMENT DATE
------------------------
Republic Engineered Steels, Inc., a Delaware corporation (the "Company" or
"Republic"), hereby offers to purchase for cash, upon the terms and subject to
the conditions set forth in this Offer to Purchase (as it may be supplemented
from time to time, the "Offer to Purchase"), and in the accompanying Letter of
Transmittal (the "Letter of Transmittal" and, together with this Offer to
Purchase, the "Offer"), any and all of its outstanding 9 7/8% First Mortgage
Notes Due 2001 (the "Notes") at a purchase price of $1,042.30 per $1,000
principal amount of the Notes tendered, plus any accrued and unpaid interest up
to but not including the date of payment.
On October 5, 1998, the Company commenced an offer to purchase any and all
of the Notes at a purchase price of $1,010 per $1,000 principal amount, plus
accrued and unpaid interest (the "Change of Control Offer") , which offer, as
amended, expires at 12:00 midnight, New York City time, on November 4, 1998. The
Change of Control Offer has been made by the Company in order to comply with the
terms of the Indenture dated as of December 15, 1993 (the "Indenture"), between
the Company and Bankers Trust Company, as trustee (in such capacity, the
"Trustee"), governing the Notes. The purchase price offered in the new Offer
made hereby is equal to the initial redemption price for the Notes and is higher
than the price offered in the Change of Control Offer. Although the Offer will
expire on June 30, 1999, noteholders who do not tender in the Change of Control
Offer may receive a payment equal to the Offer purchase price prior to June 30,
1999 upon an earlier redemption of the Notes in connection with the
implementation of the Transactions. See "Purpose of the Offer" and "Background
of the Offer." NOTES PROPERLY TENDERED AND PURCHASED PURSUANT TO THE CHANGE OF
CONTROL OFFER MAY NOT BE PROPERLY TENDERED PURSUANT TO THE OFFER. ACCORDINGLY,
IF YOU WISH TO TENDER YOUR NOTES PURSUANT TO THE OFFER AND YOU HAVE PREVIOUSLY
TENDERED PURSUANT TO THE CHANGE OF CONTROL OFFER, YOU MUST WITHDRAW YOUR NOTES
FROM THE CHANGE OF CONTROL OFFER AS SOON AS POSSIBLE BUT IN ANY EVENT NOT LATER
THAN 12:00 MIDNIGHT, NEW YORK CITY TIME, ON NOVEMBER 4, 1998. DELIVERY OF A
LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION OF THE CHANGE OF CONTROL OFFER
SHALL CONSTITUTE A WITHDRAWAL OF THE NOTES WHICH ARE THE SUBJECT OF THE LETTER
OF TRANSMITTAL FROM THE CHANGE OF CONTROL OFFER, UNLESS OTHERWISE INDICATED.
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE 30, 1999, UNLESS EXTENDED BY THE COMPANY IN ORDER TO COMPLY
WITH APPLICABLE LAW (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"EXPIRATION DATE").
THE OFFER IS NOT SUBJECT TO A FINANCING CONDITION OR A MINIMUM CONDITION.
THE OFFER IS CONDITIONED ONLY UPON (1) THE NOTES NOT HAVING BEEN PREVIOUSLY
IRREVOCABLY CALLED FOR REDEMPTION PURSUANT TO THE INDENTURE AND (2) THE
COMPLETION OF THE OFFER NOT BEING SUBJECT TO INJUNCTIVE RELIEF OR BEING UNLAWFUL
OR BEING THE SUBJECT OF THREATENED OR PENDING PROCEEDINGS SEEKING SUCH RELIEF OR
DETERMINATIONS. SEE "CONDITIONS TO THE OFFER."
------------------------
The Dealer Managers for the Offer are:
CHASE SECURITIES INC.
DONALDSON, LUFKIN & JENRETTE
BANCBOSTON ROBERTSON STEPHENS INC.
October 29, 1998
<PAGE>
THE OFFER IS NOT BEING MADE TO (NOR WILL THE SURRENDER OF SECURITIES FOR
PURCHASE BE ACCEPTED FROM OR ON BEHALF OF) HOLDERS OF NOTES IN ANY JURISDICTION
IN WHICH THE MAKING OR ACCEPTANCE OF THE OFFER WOULD NOT BE IN COMPLIANCE WITH
THE LAWS OF SUCH JURISDICTION.
NONE OF THE COMPANY, THE DEALER MANAGERS, THE DEPOSITARY OR THE INFORMATION
AGENT MAKES ANY RECOMMENDATION AS TO WHETHER OR NOT HOLDERS SHOULD TENDER NOTES
IN RESPONSE TO THE OFFER.
------------------
IMPORTANT
Any Holder desiring to tender Notes should either (a) in the case of a
Holder who holds physical certificates evidencing such Notes, complete and sign
the Letter of Transmittal (or a facsimile thereof) in accordance with the
instructions therein, have his or her signature thereon guaranteed (if required
by Instruction 1 of the Letter of Transmittal) and send or deliver such manually
signed Letter of Transmittal (or a manually signed facsimile thereof), together
with certificates evidencing such Notes and any other required documents, to
Bankers Trust Company, as depositary (in such capacity, the "Depositary"), or
(b) in the case of a holder whose Notes are held in book-entry form, request
such holder's broker, dealer, commercial bank, trust company or other nominee to
effect the transaction for such holder. A beneficial owner who has Notes
registered in the name of a broker, dealer, commercial bank, trust company or
other nominee must contact such broker, dealer, commercial bank, trust company
or other nominee if such beneficial owner desires to tender Notes. To be valid,
tenders must be received by the Depositary at or prior to 5:00 p.m., New York
City time, on the Expiration Date. See "Procedures for Tendering Notes."
Any Holder who desires to tender Notes but who cannot comply with the
procedures set forth herein for tender on a timely basis or whose certificates
for Notes are not immediately available may tender the Notes by following the
procedures for guaranteed delivery set forth under "Procedures for Tendering
Notes-Guaranteed Delivery."
The Depository Trust Company ("DTC") has authorized DTC participants that
hold Notes on behalf of beneficial owners of Notes through DTC to tender their
Notes as if they were Holders. To effect a tender, DTC participants may, in lieu
of physically completing and signing the Letter of Transmittal, transmit their
acceptance to DTC through DTC's Automated Tender Offer Program ("ATOP"), for
which the transaction will be eligible, and follow the procedure for book-entry
transfer set forth in "Procedures for Tendering Notes." A beneficial owner of
Notes that are held of record by a custodian bank, depositary, broker, trust
company or other nominee must instruct such nominee to tender the Notes on the
beneficial owner's behalf. A Letter of Instructions is included in the materials
provided along with this Offer to Purchase which may be used by a beneficial
owner in this process to effect a tender of Notes. See "Procedures for Tendering
Notes."
Tendering Holders will not be obligated to pay brokerage fees or
commissions to the Dealer Managers, the Depositary, the Information Agent or the
Company.
NEITHER THE DELIVERY OF THIS OFFER TO PURCHASE NOR ANY ACCEPTANCE FOR
PAYMENT OF, OR PAYMENT FOR, NOTES SHALL UNDER ANY CIRCUMSTANCES CREATE ANY
IMPLICATION THAT THE INFORMATION CONTAINED HEREIN IS CORRECT AS OF ANY TIME
SUBSEQUENT TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN THE
INFORMATION SET FORTH HEREIN OR IN ANY ATTACHMENTS HERETO OR IN THE AFFAIRS OF
THE COMPANY OR ANY OF ITS SUBSIDIARIES OR AFFILIATES SINCE THE DATE HEREOF.
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS OFFER TO
PURCHASE AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MAY NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY THE COMPANY OR THE DEALER MANAGERS.
------------------
THIS OFFER TO PURCHASE AND THE LETTER OF TRANSMITTAL CONTAIN IMPORTANT
INFORMATION WHICH SHOULD BE READ BEFORE ANY DECISION IS MADE WITH RESPECT TO A
TENDER OF NOTES PURSUANT TO THE OFFER.
ii
<PAGE>
THIS OFFER TO PURCHASE, INCLUDING THE DOCUMENTS AND REPORTS INCORPORATED
HEREIN BY REFERENCE, CONTAINS CERTAIN FORWARD-LOOKING STATEMENTS WITHIN THE
MEANING OF SECTION 27A OF THE SECURITIES ACT OF 1933, AS AMENDED (THE
"SECURITIES ACT"), AND SECTION 21E OF THE SECURITIES EXCHANGE ACT OF 1934, AS
AMENDED (THE "EXCHANGE ACT").
ALL STATEMENTS REGARDING THE COMPANY'S EXPECTED FINANCIAL POSITION,
BUSINESS AND FINANCING PLANS ARE FORWARD-LOOKING STATEMENTS. ALTHOUGH THE
COMPANY BELIEVES THAT THE EXPECTATIONS REFLECTED IN SUCH FORWARD-LOOKING
STATEMENTS ARE REASONABLE, IT CAN GIVE NO ASSURANCE THAT SUCH EXPECTATIONS WILL
PROVE TO BE CORRECT. IMPORTANT FACTORS THAT COULD CAUSE ACTUAL RESULTS TO DIFFER
MATERIALLY FROM SUCH EXPECTATIONS ("CAUTIONARY STATEMENTS") ARE DISCLOSED IN
THIS OFFER TO PURCHASE, INCLUDING, WITHOUT LIMITATION, IN CONJUNCTION WITH THE
FORWARD-LOOKING STATEMENTS INCLUDED IN THIS OFFER TO PURCHASE AND UNDER
"BACKGROUND TO THE OFFER," "PURPOSE OF THE OFFER" AND "CERTAIN SIGNIFICANT
CONSIDERATIONS." ALL SUBSEQUENT WRITTEN AND ORAL FORWARD-LOOKING STATEMENTS
ATTRIBUTABLE TO THE COMPANY OR PERSONS ACTING ON ITS BEHALF ARE EXPRESSLY
QUALIFIED IN THEIR ENTIRETY BY THE CAUTIONARY STATEMENTS.
AVAILABLE INFORMATION; INCORPORATION
OF DOCUMENTS BY REFERENCE
The Company is subject to the periodic reporting requirements of the
Exchange Act, and in accordance therewith files reports and other information
with the Securities and Exchange Commission (the "SEC"). Such reports and other
information can be inspected and copied at the public reference facilities
maintained by the SEC at Room 1024, Judiciary Plaza, 450 Fifth Street, N.W.,
Washington, D.C. 20549, and at the SEC's regional offices at Citicorp Center,
500 West Madison Street, Suite 1400, Chicago, Illinois 60661 and 7 World Trade
Center, 13th Floor, New York, New York 10048. Copies of such information may be
obtained from the Public Reference Section of the SEC at Judiciary Plaza, 450
Fifth Street, N.W., Washington, D.C. 20549, at prescribed rates. Such material
may also be accessed electronically by means of the SEC's home page on the
Internet at http://www.sec.gov.
The following documents filed by the Company with the SEC are incorporated
herein by reference and shall be deemed to be a part hereof:
1. Annual Report of the Company on Form 10-K for the fiscal year ended
June 30, 1998; and
2. Current Reports of the Company on Form 8-K dated July 28, 1998,
September 16, 1998 and September 24, 1998.
Additionally, the following documents filed by RES Holding Corporation with
the SEC are incorporated herein by reference and shall be deemed to be a part
hereof:
1. Tender Offer Statement on Schedule 14D-1 dated July 30, 1998, as
amended by Amendment No. 1 dated August 27, 1998, Amendment No. 2 dated
September 8, 1998 and Final Amendment dated September 22, 1998.
All documents and reports filed by the Company with the SEC pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act after the date of this
Offer to Purchase and on or prior to the termination of the Offer shall be
deemed to be incorporated herein by reference and shall be deemed to be a part
hereof from the date of filing of such documents and reports. Any statement
contained in a document or report incorporated or deemed to be incorporated by
reference herein shall be deemed to be modified or superseded for purposes of
this Offer to Purchase to the extent that a statement contained herein or in any
subsequently filed document or report that also is or is deemed to be
incorporated by reference herein modifies or supersedes such statement. Any such
statement so modified or superseded shall not be deemed, except as so modified
or superseded, to constitute a part of this Offer to Purchase.
iii
<PAGE>
The Company will provide without charge, upon written or oral request, to
each person to whom a copy of this Offer to Purchase is delivered, a copy of any
of the documents of the Company (other than exhibits to such documents unless
such exhibits are specifically incorporated by reference) incorporated by
reference herein.
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
SUMMARY.................................................................................................... 1
PURPOSE OF THE OFFER....................................................................................... 3
BACKGROUND TO THE OFFER.................................................................................... 3
TERMS OF THE OFFER......................................................................................... 6
CERTAIN SIGNIFICANT CONSIDERATIONS......................................................................... 7
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR NOTES............................................................... 8
PROCEDURES FOR TENDERING NOTES............................................................................. 9
WITHDRAWAL OF TENDERS...................................................................................... 12
CONDITIONS TO THE OFFER.................................................................................... 12
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES............................................................... 13
THE DEALER MANAGERS, THE INFORMATION AGENT AND THE DEPOSITARY.............................................. 14
FEES AND EXPENSES.......................................................................................... 15
SOURCE AND AMOUNT OF FUNDS................................................................................. 15
MISCELLANEOUS.............................................................................................. 15
</TABLE>
iv
<PAGE>
SUMMARY
The following summary is provided solely for the convenience of the holders
of the Notes. This summary is not intended to be complete and is qualified in
its entirety by reference to the full text and more specific details contained
elsewhere in this Offer to Purchase and any amendments hereto and in the related
Letter of Transmittal. Holders of the Notes are urged to read this Offer to
Purchase and the related Letter of Transmittal in their entirety. Each of the
capitalized terms used in this Summary and not defined herein has the meaning
set forth elsewhere in this Offer to Purchase.
<TABLE>
<S> <C>
The Notes................................. The Offer is being made with respect to the Company's 9 7/8% First
Mortgage Notes Due 2001.
The Offer................................. The Company is offering to purchase for cash from each Holder, upon
the terms and subject to the conditions described herein, any and all
outstanding Notes. The consideration for each $1,000 principal amount
of Notes tendered and accepted for payment pursuant to the Offer
shall be equal to $1,042.30, plus accrued and unpaid interest to but
not including the Payment Date.
Purpose of the Offer...................... This Offer is being made by the Company in order to provide holders
of the Notes with an attractive alternative to the Change of Control
Offer such that holders will prefer to tender their Notes pursuant to
this Offer rather than the Change of Control Offer. The Company
intends to seek to consummate the Transactions (as defined below)
prior to the June 30, 1999 Expiration Date of this Offer. The
Transactions would involve a redemption of the Notes at the same
price being offered pursuant to the Offer. The Company expects that
the financing obtained in connection with the Transactions (including
the financing necessary to pay the redemption price of then
outstanding Notes) will be more favorable to the Company than the
terms of the financing expected to be available to pay the purchase
price of Notes acquired pursuant to the Change of Control Offer. The
Company believes that the prospect of the higher price offered hereby
may induce many Holders to tender their Notes pursuant to this Offer
rather than the Change of Control Offer, which would provide the
Company with additional time to effect the Transactions and obtain
the more favorable financing necessary to pay the redemption price of
Notes not acquired in the Change of Control Offer. This Offer is
intended to provide assurance to Holders that, even if the
Transactions are not consummated and such redemption does not occur
prior to June 30, 1999, they will be entitled to receive promptly
after June 30, 1999 the higher price offered hereby, which is the
same price as such redemption price.
Conditions to the Offer................... The Offer is conditioned only upon (1) the Notes not having been
previously irrevocably called for redemption pursuant to the
Indenture and (2) the completion of the Offer not being subject to an
injunction or restraining order or being unlawful or prohibited or
the Offer being the subject of threatened or pending proceedings
seeking such relief or determinations. See "Conditions to the Offer."
</TABLE>
1
<PAGE>
<TABLE>
<S> <C>
Expiration Date........................... The Offer will expire at 5:00 p.m., New York City time, on June 30,
1999, unless extended by the Company in order to comply with
applicable law. See "Terms of the Offer" and "Conditions to the
Offer."
Payment Date.............................. The Payment Date shall be promptly after the date the Company accepts
the Notes for purchase pursuant to the Offer.
How to Tender Notes....................... See "Procedures for Tendering Notes." For further information,
contact the Information Agent or the Dealer Managers at their
respective telephone numbers and addresses set forth on the back
cover of this Offer to Purchase or consult your broker, dealer,
commercial bank, trust company or custodian for assistance.
Withdrawal Rights......................... Tenders of Notes may be validly withdrawn at any time prior to
5:00 p.m., New York City time, on the Expiration Date by following
the procedures described herein. See "Withdrawal of Tenders."
Brokerage Commissions..................... No brokerage commissions are payable by Holders of the Notes to the
Dealer Managers, the Information Agent, the Company or the
Depositary.
Dealer Managers........................... Chase Securities Inc., Donaldson, Lufkin & Jenrette Securities
Corporation and BancBoston Robertson Stephens Inc.
Information Agent......................... MacKenzie Partners, Inc.
Depositary................................ Bankers Trust Company.
Further Information....................... Additional copies of this Offer to Purchase may be obtained by
contacting the Information Agent or the Dealer Managers at their
respective addresses and telephone numbers set forth on the back
cover of this Offer to Purchase. Questions about the Offer should be
directed to the Dealer Managers, at their addresses and telephone
numbers set forth on the back cover of this Offer to Purchase. Copies
of the other documents incorporated by reference herein may be
obtained as described herein under "Available Information;
Incorporation of Documents by Reference."
</TABLE>
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PURPOSE OF THE OFFER
This Offer is being made by the Company in order to provide holders of the
Notes with an attractive alternative to the Change of Control Offer such that
holders will prefer to tender their Notes pursuant to this Offer rather than the
Change of Control Offer. The Company intends to seek to consummate the
Transactions (as defined below) prior to the June 30, 1999 Expiration Date of
this Offer. The Transactions would involve a redemption of the Notes at the same
price being offered pursuant to the Offer. The Company expects that the
financing obtained in connection with the Transactions (including the financing
necessary to pay the redemption price of then outstanding Notes) will be more
favorable to the Company than the terms of the financing expected to be
available to pay the purchase price of Notes acquired pursuant to the Change of
Control Offer. The Company believes that the prospect of the higher price
offered hereby may induce many Holders to tender their Notes pursuant to this
Offer rather than the Change of Control Offer, which would provide the Company
with additional time to effect the Transactions and obtain the more favorable
financing necessary to pay the redemption price of Notes not acquired in the
Change of Control Offer. This Offer is intended to provide assurance to Holders
that, even if the Transactions are not consummated and such redemption does not
occur prior to June 30, 1999, they will be entitled to receive promptly after
June 30, 1999 the higher price offered hereby, which is the same price as such
redemption price.
BACKGROUND TO THE OFFER
The RES Acquisition. On July 23, 1998, RES Holding Corporation ("RES
Holding") and its subsidiary RES Acquisition Corporation ("RES Acquisition"),
new companies organized and controlled by Blackstone Capital Partners II
Merchant Banking Fund L.P. and certain affiliates ("Blackstone") and certain
other investors, entered into an Agreement and Plan of Merger (the "Republic
Merger Agreement") providing for the acquisition of all of the shares of common
stock of the Company by RES Holding for aggregate consideration of approximately
$144 million. Pursuant to the terms of the Republic Merger Agreement, on
September 8, 1998, RES Acquisition consummated a tender offer for shares of
common stock of the Company (the "Republic Tender Offer") pursuant to which RES
Acquisition acquired approximately 97.7% of the outstanding common stock of the
Company. The balance of the common stock of the Company was acquired by RES
Holding on September 21, 1998 pursuant to a merger (the "Republic Merger" and
together with the Republic Tender Offer, the "Republic Acquisition") of RES
Acquisition with and into the Company.
The Republic Acquisition and related fees and expenses were financed
through (i) a cash equity investment of $95.5 million by Blackstone and certain
other investors and (ii) $65.0 million of borrowings under a RES Holding credit
facility (the "RES Holding Facility"). The maturity of the RES Holding Facility
is currently June 8, 1999 but is expected to be extended to July 15, 1999. All
of the interest payable through maturity thereunder has been put into escrow by
RES Holding.
The Transactions. Pursuant to a merger agreement (the "Combination
Agreement") expected to be entered into among RES Holding, Bar Technologies Inc.
("BarTech"), a company controlled by Blackstone, and BarTech Merger Sub Inc., a
subsidiary of BarTech to be formed in connection with the Transactions, BarTech
Merger Sub Inc. is expected to merge with and into RES Holding (the
"Combination"). As a result of the Combination, the Company is expected to
become an indirect wholly-owned subsidiary of BarTech. BarTech is a producer of
hot-rolled and cold-finished special bar quality ("SBQ") steel. As part of a
strategy to pursue consolidation opportunities in the steel industry, BarTech
and Blackstone identified the Combination with the Company as a significant
opportunity to establish a leading position in the North American SBQ steel bar
market and to realize sizable potential cost savings and synergistic benefits.
Blackstone intends to complete the Combination as soon as practicable. The
consummation of the Combination is conditioned upon the completion of the
refinancing transactions referred to below (such transactions, together with the
Combination, the "Transactions"), and there is no assurance that the Combination
will be consummated or that it will be consummated on the terms described
herein.
In connection with the Combination, Blackstone intends, among other things,
to refinance through a new financing a majority of the indebtedness of BarTech
and its subsidiaries (including RES Holding and the Company) and to cause the
Company to call for redemption (the "Redemption") all of the then outstanding
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Notes at the applicable redemption price, which, for the year commencing on
December 15, 1998, is 104.23% of the principal amount thereof plus accrued and
unpaid interest to the redemption date. The refinancing, the Redemption
(assuming no Notes are tendered pursuant to the Change of Control Offer) and
related transactions are estimated to require in excess of $500 million and are
currently expected to be funded through the issuance of debt securities, bank
borrowings and from cash on hand. The refinancing and the Redemption are
expected to be subject to, among other things, the completion of the new
financing on terms satisfactory to Blackstone and a successful tender offer for
BarTech's outstanding 13 1/2% Senior Secured Notes due 2001 and the receipt by
BarTech of certain consents from the holders of a majority of the outstanding
principal amount of such notes.
The Change of Control Offer. The Republic Acquisition constituted a
"Change of Control" of the Company as defined in the Indenture. On October 5,
1998, in order to comply with the terms of the Indenture, the Company commenced
an offer to purchase any and all of the Notes at a purchase price of $1,010 per
$1,000 principal amount, plus accrued and unpaid interest (the "Change of
Control Offer"), which offer expires at 12:00 midnight, New York City time, on
November 4, 1998.
Bridge Facility. The amount of funds required by the Company to purchase
Notes tendered pursuant to the Change of Control Offer will not be known until
its expiration. If all outstanding Notes were tendered and purchased pursuant to
the Change of Control Offer, the aggregate amount of funds required would be
approximately $202 million in respect of principal and premium plus
$7.7 million in respect of accrued and unpaid interest (assuming that payment is
made on November 6, 1998). Based upon the available borrowing base at
October 23, 1998, up to approximately $107.8 million was available under the
Company's existing revolving credit facility. The Company has not determined the
extent to which it may utilize borrowings under its existing revolving credit
facility to purchase tendered Notes.
For the purpose of funding the Change of Control Offer, the Company also
expects to enter in an additional senior credit facility (the "Bridge Facility")
with The Chase Manhattan Bank, DLJ Bridge Finance, Inc. and BankBoston N.A. (the
"Lenders") which will provide up to approximately $208.5 million of borrowings
for the purpose of funding, among other things, the Change of Control Offer
("Change of Control Funding") and/or the Offer ("Offer Funding"). Set forth
below is a summary of certain expected terms of the Bridge Facility, the
definitive documentation and terms for which is currently being negotiated by
the Company and the Lenders.
The obligation of the Lenders to provide borrowings for the Offer Funding
is subject to the absence of bankruptcy or insolvency events, and other
customary conditions not related to the operation of the business, generally
intended to assure the Lenders as to the legality, enforceability and validity
of the loans made under the Bridge Facility and transactions contemplated by the
Bridge Facility and a first priority perfected security interest in all of the
assets currently securing the Notes, were the Notes to be repaid in their
entirety. The obligation of the Lenders to provide borrowings for the Change of
Control Funding is generally subject to customary conditions including
conditions related to the operations of the Company's business as well as
certain of the conditions applicable to the Offer Funding.
All loans made under the Bridge Facility would mature one year from the
date of initial borrowing (the "Maturity Date"). If loans are not repaid on the
Maturity Date, a Lender may extend the maturity date of its loan or require the
Company to issue new notes in exchange for the borrowed amounts (the "Exchange
Notes"). The Company expects that the interest rate on borrowings under the
Bridge Facility will be LIBOR (adjusted to include statutory reserves) plus a
margin, increased by 0.5% every three months, subject to a maximum rate of 15.5%
per annum. The Company expects to pay certain fees in the event of any
borrowings (subject to certain refunds if the Company refinances the Bridge
Facility). In connection with the Bridge Facility, RES Holding will make
available warrants representing the right to purchase a portion of the common
equity of the RES Holding (the "Warrants") in an escrow account for the benefit
of the Lenders. After the Maturity Date, the Warrants may either be sold with
such loans (and/or Exchange Notes) or released to the Lenders on certain terms
and conditions.
The Company expects to grant a first priority lien on its
CAST-ROLL(Trademark) facility located in Canton, Ohio to secure outstanding
borrowings under the Bridge Facility on an equal and ratable basis with the
Notes. The CAST-ROLL(Trademark) facility is the Company's primary melt shop
and has been in operation since 1996.
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<PAGE>
In connection with the Bridge Facility, the Company and the Lenders or
their Affiliates may enter into an assignment agreement (the "Assignment
Agreement") providing for, among other things, (1) at the direction and sole
option of the Lenders, the assignment (the "Assignment") by the Company to the
Lenders of the Company's right to purchase all or a portion of the Notes
tendered pursuant to the Change of Control Offer, (2) the availability to the
Lenders of certain fees, financial and other benefits that would have been
associated with a Change of Control Funding of a similar amount, and (3) upon an
event of default under the Bridge Facility, the ability of the Lenders to either
put their Notes to the Company at 101% of the principal amount plus accrued
interest or exchanging their Notes for loans under the Bridge Facility at a
ratio of $1,010 of loans for each $1,000 of Notes. The Company intends to enter
into an indenture supplement to the Indenture to provide for the Assignment. The
supplemental indenture will also provide that a default in the performance by
the Company of a tender offer (including the Offer) will constitute a covenant
event of default under the Notes, which is the treatment applicable to a default
in respect of the Change of Control Offer.
The Bridge Facility will provide that the Lenders may require, under
certain circumstances, that the Company redeem the Notes with the proceeds of
borrowings under the Bridge Facility (a "Redemption Funding"). Pursuant to the
terms of the Bridge Facility, the Lenders could require a call of the Notes for
redemption be made by the Company as early as concurrent with the funding of the
Change of Control Offer, in which case, the holders who tendered their Notes
pursuant to the Change of Control Offer would not be entitled to receive the
redemption price. In addition, the Lenders under certain circumstances have the
right to cause the Company to issue new high-yield notes (secured if required by
the Lenders) for gross proceeds sufficient to refinance all outstanding loans
under the Bridge Facility and all outstanding Notes at an interest rate
determined by the Lenders in light of the then prevailing market conditions (but
not to exceed 15.5% per annum) and on additional terms agreed to by the Company
and the Lenders.
In the event sufficient funds are not available to the Company and it
fails to purchase all Notes validly tendered and not properly withdrawn pursuant
to the Change of Control Offer or the Offer, an Event of Default would exist
under the Indenture permitting the acceleration of the Notes and potential
defaults or events of default could be triggered under other indebtedness of the
Company.
Recent Developments.
Fiscal First Quarter Results. While the Company has not yet finalized its
financial statements for the quarter ended September 30, 1998, the Company
believes that its core hot-rolled and cold-finished businesses generally
performed consistent with its business plans. However, the specialty steels
business experienced difficult operating conditions in the quarter. The Company
has recently entered into an exclusive non-binding letter of intent for the sale
of the specialty steels business in an asset sale. In addition, the Company
expects that results for the quarter will reflect one-time cash charges,
including severance costs, of approximately $15 million arising in relation to
the acquisition of the Company by RES Holding as well as other non-cash purchase
accounting charges.
PBGC Agreement. The Company is negotiating, and expects to enter into, an
agreement with the Pension Benefit Guaranty Corporation (the "PBGC") pursuant to
which (1) the PBGC would forebear from instituting proceedings to terminate its
USWA Defined Benefit Plan as a result of the Republic Acquisition or the
contemplated Combination, (2) the Company would fund a pension plan with an
approximate $27 million initial contribution (or the establishment of a letter
of credit in such amount) within five business days after entering into such
agreement and (3) the Company would make an additional contribution to such
pension plan in the amount of $20 million on or before July 1, 1999 (which
obligation must also be supported by a letter of credit established within five
business days after entering into the agreement). In addition, the Company is
expected to be required to make quarterly contributions to such pension plan
commencing October 1, 1999 in accordance with the following schedule:
$7.5 million per quarter for the first four payments, $7.6 million per quarter
for the next four payments, $9.1 million per quarter for the next four payments
and $8.5 million per quarter for the final four payments. While the agreement
will impact the Company's liquidity, the Company believes that the agreement is
a beneficial means of addressing the Company's unfunded liabilities in respect
of the USWA Defined Benefit Plan.
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TERMS OF THE OFFER
Upon the terms and subject to the conditions of the Offer (including, if
the Offer is extended or amended, the terms and conditions of any such extension
or amendment) set forth herein and in the accompanying Letter of Transmittal,
the Company is offering to purchase for cash any and all of its outstanding
Notes at a price equal to $1,042.30 per $1,000 principal amount of Notes, plus
accrued and unpaid interest to but not including the date of payment (the
"Payment Date").
All Notes validly tendered in accordance with the procedures set forth
under "Procedures for Tendering Notes" and not withdrawn in accordance with the
procedures set forth under "Withdrawal of Tenders" at or prior to 5:00 p.m., New
York City time, on the Expiration Date will, upon the terms and subject to the
conditions hereof, be accepted for payment by the Company, and payments will be
made therefor, promptly after the Expiration Date. All conditions to the Offer
will, if Notes are to be accepted for payment promptly after the Expiration
Date, be either satisfied or waived by the Company prior to the expiration of
the Offer on the Expiration Date.
Prior to the Expiration Date of the Change of Control Offer, the Company
will enter into an indenture supplement to the Indenture which will provide that
a default in performance of any tender offer made by the Company for the Notes
(including the Offer) shall constitute a covenant Event of Default under the
Indenture, which is the same treatment as applicable to a default in respect of
the Change of Control Offer.
Tenders of Notes may be validly withdrawn at any time prior to 5:00 p.m.,
New York City time, on the Expiration Date, but not thereafter. In the event of
a termination of the Offer, the Notes tendered pursuant to the Offer will be
promptly returned to the tendering Holder.
The Company's obligation to accept and pay for Notes validly tendered
pursuant to the Offer is conditioned only upon (1) the Notes not having been
previously irrevocably called for redemption pursuant to the Indenture and
(2) the completion of the Offer not being subject to an injunction or
restraining order or being unlawful or prohibited or the Offer is the subject of
threatened or pending proceedings seeking such relief or determinations. Subject
to applicable securities laws and the terms set forth in this Offer to Purchase,
the Company reserves the right, prior to the expiration of the Change of Control
Offer, to amend the Offer in any respect or to revoke and terminate the Offer.
In the event that the Offer is terminated on or before the expiration of the
Change of Control Offer, the Company will purchase and pay for Notes validly
tendered and not properly withdrawn in the Change of Control Offer on
November 6, 1998 and will extend the Change of Control Offer for an additional
period of ten business days. In the event that the Company is unable to borrow
under the Bridge Facility or otherwise to finance the purchase of Notes tendered
in the Change of Control Offer, the Company would breach the terms of such offer
and default under the Indenture as amended. Subject to applicable securities
laws and the terms set forth in this Offer to Purchase, the Company reserves the
right, prior to the expiration of the Offer on the Expiration Date, to the
extent necessary to lift any such injunction or cure any such illegality, to
extend or otherwise amend the Offer. See "Conditions to the Offer." If the
Company extends the Offer, or if, for any reason, the acceptance for payment of,
or the payment for, Notes is delayed or if the Company is unable to accept for
payment Notes pursuant to the Offer, then the Depositary may retain tendered
Notes which have not been previously withdrawn on behalf of the Company, and
such Notes may not be withdrawn except to the extent tendering Holders are
entitled to withdrawal rights as described under "Withdrawal of Tenders,"
subject to Rule 14e-1(c) under the Exchange Act (which requires that a bidder
pay the consideration offered or return the securities deposited by or on behalf
of holders of securities promptly after the termination or withdrawal of a
tender offer).
Any extension, termination or amendment will be followed as promptly as
practicable by public announcement thereof, the announcement in the case of an
extension of the Offer to be issued no later than 9:00 a.m., New York City time,
on the next business day after the previously scheduled Expiration Date. Without
limiting the manner in which any public announcement may be made, the Company
shall have no obligation to publish, advertise or otherwise communicate any such
public announcement other than by issuing a press release to the Dow Jones News
Service.
For purposes of the Offer, the term "business day" means any day, other
than a Saturday, Sunday or a federal holiday, and consists of the time period
from 12:01 a.m. through 12:00 midnight, New York City time.
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<PAGE>
The Company will disseminate additional Offer materials to the extent
required by law and may extend the Offer in order to comply with applicable law.
Under no circumstances will any interest be payable because of any delay in
the transmission of funds to Holders.
The Company expressly reserves the absolute right, in its sole discretion,
from time to time to purchase any Notes after the Expiration Date, through open
market or privately negotiated transactions, one or more additional tender or
exchange offers or otherwise on terms that may or may not differ materially from
the terms of the Offer.
CERTAIN SIGNIFICANT CONSIDERATIONS
The following considerations, in addition to the other information
described elsewhere herein or incorporated herein by reference, should be
carefully considered by each Holder before deciding whether to participate in
the Offer.
Financing for the Offer. The Offer is not subject to a financing
condition. While the conditions to the Bridge Facility do not include a
condition based upon the absence of a material disruption in the financial
markets and conditions relating to the Company are more limited than is
customarily the case, Holders must consider that under certain circumstances the
conditions under the Bridge Facility would not be met and the Company would be
unable to borrow thereunder. In the event that the Company was unable to satisfy
its obligations to purchase tendered Notes, the Company would breach the terms
of the Offer and default under the terms of the Indenture as amended.
To the extent that the Company borrows under its existing revolving credit
facility to finance the purchase of Notes tendered pursuant to the Offer or the
Change of Control Offer or incurs higher interest expense under the Bridge
Facility, the Company's liquidity may be impaired.
Effect on Trading of the Notes. The Notes are not traded in an established
market. Prices and trading volume for the Notes are not reported and are
difficult to monitor. To the extent that Notes are traded, prices of Notes may
fluctuate widely depending on, among other things, the trading volume and the
balance between buy and sell orders. If and to the extent that any Notes are
purchased pursuant to the Offer, the outstanding principal amount of Notes
available for trading would be reduced. A debt security with a smaller
outstanding principal amount available for trading (a smaller "float") may
command a lower price than would a comparable debt security with a greater
float. Because the principal amount of Notes, if any, purchased pursuant to the
Offer will reduce the float, the liquidity and market price of the Notes may be
adversely affected. A reduced float may also tend to make the trading price of
remaining Notes more volatile. The extent of the market for the Notes and the
availability of price quotations would depend upon the number of holders of
Notes remaining, the interest in maintaining a market in the Notes on the part
of securities firms and other factors.
Treatment of Notes Not Tendered in the Offer. From time to time in the
future, to the extent any Notes remain outstanding after the consummation or
expiration of the Offer, the Company may acquire any such Notes, through open
market purchases, privately negotiated transactions, tender offers, exchange
offers or otherwise, upon such terms and at such prices as it may determine,
which may be more or less than the price to be paid pursuant to the Offer and
could be for cash or other consideration. There can be no assurance as to which,
if any, of these alternatives (or combinations thereof) the Company may choose
to pursue in the future.
To the extent that Notes tendered in the Offer or the Change of Control
Offer remain outstanding, the proportionate interests of Holders in the
collateral pledged to secure the Notes would be unchanged. By virtue of the
pledge of the CAST-ROLL(Trademark) facility, which pledge will be shared on an
equal and rateable basis with the Lenders, the amount of collateral pledged to
secure the Notes will increase.
Fraudulent Transfer and Preference Considerations. Although the standards
may vary depending on the law of the jurisdiction applied, in general, if a
court were to find that, at the time the holders of Notes received consideration
pursuant to the Offer, either (i) the Company paid such amounts, or incurred the
related indebtedness or made other related distributions, with the intent of
hindering, delaying or defrauding creditors, or (ii) the Company (a) received
less than fair consideration or a reasonably equivalent value for paying such
amounts, or for incurring the related indebtedness or making other related
distributions and (b) either (w) was
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insolvent or rendered insolvent by reason of the distribution, payment or loan
of such amounts, the incurrence of such indebtedness or such related
distributions or payments, (x) was engaged, or about to engage, in a business
for which its remaining assets constituted an unreasonably small amount of
capital, (y) was acting with the intent or belief that it would incur debts
beyond its ability to repay such debts as they matured (as the foregoing terms
are defined in or interpreted under applicable federal and state fraudulent
conveyance statutes) or (z) was a defendant in an action for money damages, or
had a judgment for money damages docketed against it (if in either case, after
final judgment, the judgment were unsatisfied), then such court may find that
such payments involved the incurring of obligations or the transfers of
interests in property deemed to be a fraudulent conveyance under applicable law.
To the extent such payments were deemed to be a fraudulent conveyance, there is
a risk that such payments would be voided and that such holders of Notes would
be ordered by a court to turn over to the Company, or to a fund for the benefit
of the creditors of the Company or to judgment creditors of the Company, as the
case may be, some or all of the portion of the consideration paid to holders for
their Notes.
The measure of insolvency for purposes of the foregoing will vary depending
on the law of the jurisdiction that is being applied. Generally, however, a
corporation would be considered insolvent if either (i) the present fair
saleable value of its assets were less than the amount that would be required to
pay its probable liabilities on its existing debts as they became absolute and
matured or (ii) it were incurring debts beyond its ability to pay debts as they
matured. There can be no assurance as to what standard a court would use to
determine whether the Company was "solvent" in connection with such payments or
as to whether, whatever standard was used, the Company would be found to have
been solvent in such connection.
Separate and apart from any fraudulent conveyance challenge, any payments
made to holders in consideration for their Notes also may be subject to
challenge as a preference if such payments (a) are made within 90 days prior to
a bankruptcy filing by the Company, (b) are made when the Company is insolvent
and (c) permit the holders to receive more than they otherwise might receive in
a liquidation under applicable bankruptcy laws. If such payments were deemed to
be a preference, the full amount of such payments could be recovered by the
Company as debtor in possession or the trustee in bankruptcy, and holders would
be restored to their previous position as holders of Notes.
The Company believes that the payment of consideration for the Notes
pursuant to the Offer will be made for proper purposes and in good faith, and
that, based on present forecasts, asset valuations and other financial
information, the Company is and will be solvent, will have sufficient capital
for carrying on its business and will be able to pay its debts as they mature,
although no assurances can be given that this will be the case.
ACCEPTANCE FOR PAYMENT AND PAYMENT FOR NOTES
Upon the terms and subject to the conditions of the Offer (including if the
Offer is extended or amended, the terms and conditions of any such extension or
amendment) and applicable law, the Company will purchase, by accepting for
payment, and will promptly pay for, all Notes validly tendered pursuant to the
Offer (and not withdrawn, or if withdrawn validly retendered) at or prior to
5:00 p.m., New York City time, on the Expiration Date, such payment to be made
by the deposit of the Offer consideration in immediately available funds by the
Company promptly after the Expiration Date with the Depositary, which will act
as agent for tendering Holders for the purpose of receiving payment from the
Company and transmitting such payment to tendering Holders. Under no
circumstances will interest on the Offer consideration be paid by the Company by
reason of any delay on behalf of the Depositary in making payment.
The Company expressly reserves the right, in its sole discretion and
subject to Rule 14e-1(c) under the Exchange Act, to delay acceptance for payment
of or payment for Notes if any of the conditions to the Offer shall not have
been satisfied or waived, or in order to comply, in whole or in part, with any
applicable law. See "Conditions to the Offer." In all cases, payment by the
Depositary to Holders or beneficial owners of the Offer consideration for Notes
purchased pursuant to the Offer will be made only after timely receipt by the
Depositary of (i) certificates representing such Notes or timely confirmation of
a book-entry transfer of such Notes into the Depositary's account at DTC
pursuant to the procedures set forth under "Procedures for Tendering Notes,"
(ii) a properly completed and duly executed Letter of Transmittal (or manually
signed facsimile thereof) or a properly transmitted Agent's Message (as defined
below) and (iii) any other documents required by the Letter of Transmittal.
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Tendered Notes will be deemed to have been accepted for payment, if, as and
when the Company gives oral or written notice thereof to the Depositary. Subject
to the terms and conditions of the Offer, payment for Notes so accepted will be
made by deposit of the Offer consideration with the Depositary. The Depositary
will act as agent for tendering Holders for the purpose of receiving payment
from the Company and then transmitting payment to or at the discretion of such
Holders.
If any tendered Notes are not purchased pursuant to the Offer for any
reason, such Notes not purchased will be returned, without expense, to the
tendering Holder promptly (or, in the case of Notes tendered by book-entry
transfer, such Notes will be credited to the account maintained at DTC from
which such Notes were delivered) after the expiration or termination of the
Offer.
Tendering Holders will not be obligated to pay brokerage fees or
commissions to the Dealer Managers, the Information Agent, the Depositary or the
Company, or, except as set forth in Instruction 7 of the Letter of Transmittal,
transfer taxes on the purchase of Notes pursuant to the Offer.
The Company reserves the right to transfer or assign, in whole at any time
or in part from time to time, to one or more of its affiliates, the right to
purchase Notes tendered pursuant to the Offer, but any such transfer or
assignment will not relieve the Company of its obligations under the Offer or
prejudice the rights of tendering Holders to receive payment for Notes validly
tendered and accepted for payment pursuant to the Offer.
PROCEDURES FOR TENDERING NOTES
The tender by a Holder of Notes pursuant to one of the procedures set forth
below, together with the subsequent acceptance of such tender by the Company,
will constitute a binding agreement between such Holder and the Company in
accordance with the terms and subject to the conditions set forth herein and in
the Letter of Transmittal. Only Holders are authorized to tender their Notes.
The procedures by which Notes may be tendered by beneficial owners that are not
Holders will depend upon the manner in which the Notes are held. DELIVERY OF A
LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION OF THE CHANGE OF CONTROL OFFER
SHALL CONSTITUTE A WITHDRAWAL OF THE NOTES WHICH ARE THE SUBJECT OF THE LETTER
OF TRANSMITTAL FROM THE CHANGE OF CONTROL OFFER, UNLESS OTHERWISE INDICATED. To
the extent not otherwise withdrawn from the Change of Control Offer, holders may
withdraw Notes tendered pursuant thereto, in whole or in part, if Bankers Trust
Company, as the Paying Agent under the Change of Control Offer, receives, prior
to 12:00 midnight, New York City time, on November 4, 1998, a tested telex,
facsimile transmission or letter setting forth the name of the Holder, the
certificate number (if any) and principal amount (which shall be $1,000 or an
integral multiple thereof) of each Note delivered by the Holder for purchase in
respect of which such notice of withdrawal is being submitted, a statement that
the Holder is withdrawing its election to have such principal amount of such
Notes purchased by the Company and the principal amount (which shall be $1,000
or an integral multiple thereof), if any, of each Note that remains subject to
the original Change of Control Offer and that has been or will be delivered for
purchase by the Company. NOTES PROPERLY TENDERED AND NOT WITHDRAWN FROM THE
CHANGE OF CONTROL OFFER MAY NOT BE TENDERED PURSUANT TO THE OFFER.
Tender of Notes Held in Physical Form. To tender Notes held in physical
form effectively pursuant to the Offer, the Notes, together with a properly
completed Letter of Transmittal (or a facsimile thereof duly executed by the
Holder thereof), and any other documents required by the Letter of Transmittal,
must be received by the Depositary at its address set forth on the back cover of
this Offer to Purchase (or delivery of Notes may be effected through the deposit
of Notes with DTC and making book-entry delivery as set forth below) on or prior
to the Expiration Date; provided, however, that the tendering Holder may instead
comply with the guaranteed delivery procedure set forth below.
LETTERS OF TRANSMITTAL AND PHYSICAL SECURITIES MUST BE SENT ONLY TO THE
DEPOSITARY. DO NOT SEND LETTERS OF TRANSMITTAL OR PHYSICAL SECURITIES TO THE
COMPANY, THE INFORMATION AGENT, DTC OR THE DEALER MANAGERS.
Tender of Notes Held Through a Custodian. To tender Notes that are held of
record by a custodian bank, depositary, broker, trust company or other nominee
effectively pursuant to the Offer, the beneficial owner thereof must instruct
such custodian to tender the Notes on the beneficial owner's behalf. A Letter of
Instructions is
9
<PAGE>
included in the materials provided with this Offer to Purchase which may be used
by a beneficial owner in this process to effect the tender.
Tender of Notes Held Through DTC. To tender Notes that are held through
DTC effectively pursuant to the Offer, DTC participants may, in lieu of
physically completing and signing the Letter of Transmittal and delivering it to
the Depositary, electronically transmit their acceptance through ATOP, and DTC
will then edit and verify the acceptance and send an Agent's Message to the
Depositary for its acceptance. Delivery of tendered Notes must be made to the
Depositary pursuant to the book-entry delivery procedures set forth below or the
tendering DTC participant must comply with the guaranteed delivery procedures
set forth below.
The method of delivery of Notes and Letters of Transmittal, any required
signature guarantees and all other required documents, including delivery
through DTC and any acceptance of Agent's Message transmitted through ATOP, is
at the election and risk of the person tendering Notes and Letters of
Transmittal and, except as otherwise provided in the Letter of Transmittal,
delivery will be deemed made only when actually received by the Depositary. If
delivery is by mail, it is suggested that the Holder use properly insured,
registered mail with return receipt requested, and that the mailing be made
sufficiently in advance of the Expiration Date, to permit delivery to the
Depositary prior to such date.
Except as provided below, unless the Notes being tendered are deposited
with the Depositary at or prior to the applicable time on the Expiration Date
(accompanied by a properly completed and duly executed Letter of Transmittal or
a properly transmitted Agent's Message), the Company may, at its option, treat
such tender as defective for purposes of the right to receive the Offer
consideration. Payment for the Notes will be made only against deposit of the
tendered Notes and delivery of all other required documents.
Book-Entry Delivery Procedures. The Depositary will establish accounts
with respect to the Notes at DTC for purposes of the Offer within two business
days after the date of this Offer to Purchase, and any financial institution
that is a participant in DTC may make book-entry delivery of the Notes by
causing DTC to transfer such Notes into the Depositary's account in accordance
with DTC's procedures for such transfer. However, although delivery of Notes may
be effected through book-entry transfer into the Depositary's account at DTC,
the Letter of Transmittal (or manually signed facsimile thereof), with any
required signature guarantees or an Agent's Message in connection with a
book-entry transfer, and any other required documents, must, in any case, be
transmitted to and received by the Depositary at one or more of its addresses
set forth on the back cover of this Offer to Purchase at or prior to the
applicable time on the Expiration Date, or the guaranteed delivery procedure
described below must be complied with. Delivery of documents to DTC does not
constitute delivery to the Depositary. The confirmation of a book-entry transfer
into the Depositary's account at DTC as described above is referred to herein as
a "Book-Entry Confirmation."
The term "Agent's Message" means a message transmitted by DTC to, and
received by, the Depositary and forming a part of the Book-Entry Confirmation,
which states that DTC has received an express acknowledgment from the
participant in DTC tendering the Notes and that such participants have received
the Letter of Transmittal and agree to be bound by the terms of the Letter of
Transmittal (or, in the case of an Agent's Message relating to a guaranteed
delivery, that such participant has received and agrees to be bound by the
applicable Notice of Guaranteed Delivery) and that the Company may enforce such
agreement against such participants.
Signature Guarantees. Signatures on all Letters of Transmittal, if
necessary, must be guaranteed by a recognized participant in the Securities
Transfer Agents Medallion Program, the New York Stock Exchange Medallion
Signature Program or the Stock Exchange Medallion Program (a "Medallion
Signature Guarantor"), unless the Notes tendered thereby are tendered (i) by a
registered Holder of Notes (or by a participant in DTC whose name appears on a
security position listing as the owner of such Notes) who has not completed
either of the boxes entitled "Special Delivery Instructions" or "Special Payment
Instructions" on the Letter of Transmittal, or (ii) for the account of a member
firm of a registered national securities exchange, a member of the National
Association of Securities Dealers, Inc. ("NASD") or a commercial bank or trust
company having an office or correspondent in the United States (each of the
foregoing being referred to as an "Eligible Institution"). See Instruction 1 of
the Letter of Transmittal. If the Notes are registered in the name of a person
other than the signer of the Letter of Transmittal or if Notes not accepted for
payment or not tendered are to be returned to a person other than the registered
Holder, then the signatures on the Letters of Transmittal accompanying the
10
<PAGE>
tendered Notes must be guaranteed by a Medallion Signature Guarantor as
described above. See Instructions 1 and 5 of the Letter of Transmittal.
Guaranteed Delivery. If a Holder desires to tender Notes pursuant to the
Offer and time will not permit the Letter of Transmittal, certificates
representing such Notes and all other required documents to reach the
Depositary, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, such Notes may nevertheless be tendered, with the
effect that such tender will be deemed to have been received prior to the
Expiration Date if all the following conditions are satisfied:
(i) the tender is made by or through an Eligible Institution;
(ii) a properly completed and duly executed Notice of Guaranteed
Delivery, substantially in the form provided by the Company herewith, or an
Agent's Message with respect to guaranteed delivery that is accepted by the
Company, is received by the Depositary at or prior to 5:00 p.m., New York
City time, on the Expiration Date as provided below; and
(iii) the certificates for the tendered Notes, in proper form for
transfer (or a Book-Entry Confirmation of the transfer of such Notes into
the Depositary's account at DTC as described above), together with a Letter
of Transmittal (or manually signed facsimile thereof) properly completed
and duly executed, with any required signature guarantees and any other
documents required by the Letter of Transmittal or a properly transmitted
Agent's Message, are received by the Depositary within two business days
after the date of execution of the Notice of Guaranteed Delivery.
The Notice of Guaranteed Delivery may be sent by hand delivery, telegram,
facsimile transmission or registered or certified mail to the Depositary and
must include a guarantee by an Eligible Institution in the form set forth in the
Notice of Guaranteed Delivery.
Notwithstanding any other provision hereof, payment of the consideration
for Notes tendered and accepted for payment pursuant to the Offer will, in all
cases, be made only after timely receipt (i.e., on or prior to 5:00 p.m., New
York City time, on the Expiration Date) by the Depositary of the tendered Notes
(or Book-Entry Confirmation of the transfer of such Notes into the Depositary's
account at DTC as described above), and a Letter of Transmittal (or manually
signed facsimile thereof) with respect to such Notes, properly completed and
duly executed, with any required signature guarantees and any other documents
required by the Letter of Transmittal, or a properly transmitted Agent's
Message.
UNDER NO CIRCUMSTANCES WILL INTEREST BE PAID BY THE COMPANY BY REASON OF
ANY DELAY ON BEHALF OF THE DEPOSITARY IN MAKING PAYMENT TO ANY PERSON USING THE
GUARANTEED DELIVERY PROCEDURES. THE CONSIDERATION FOR NOTES TENDERED PURSUANT TO
THE GUARANTEED DELIVERY PROCEDURES WILL BE THE SAME AS THAT FOR NOTES DELIVERED
TO THE DEPOSITARY AT OR PRIOR TO 5:00 P.M. ON THE EXPIRATION DATE, EVEN IF THE
NOTES TO BE DELIVERED PURSUANT TO THE GUARANTEED DELIVERY PROCEDURES ARE NOT SO
DELIVERED TO THE DEPOSITARY, AND THEREFORE PAYMENT BY THE DEPOSITARY ON ACCOUNT
OF SUCH NOTES IS NOT MADE, UNTIL AFTER THE PAYMENT DATE.
Backup U.S. Federal Income Tax Withholding. To prevent backup U.S. Federal
income tax withholding, each tendering Holder of Notes must provide the
Depositary with such Holder's correct taxpayer identification number and certify
that such Holder is not subject to backup U.S. Federal income tax withholding by
completing the Substitute Form W-9 included in the Letter of Transmittal. For a
more detailed discussion of backup U.S. Federal income tax withholding, see
"Certain U.S. Federal Income Tax Consequences."
Determination of Validity. All questions as to the validity, form,
eligibility (including time of receipt) and acceptance of any tendered Notes
pursuant to any of the procedures described above will be determined by the
Company in the Company's sole discretion (whose determination shall be final and
binding). The Company reserves the absolute right to reject any or all tenders
of any Notes determined by it not to be in proper form or, in the case of Notes,
if the acceptance for payment of, or payment for, such Notes may, in the opinion
of the Company's counsel, be unlawful. The Company also reserves the absolute
right, in its sole discretion, to waive any of the conditions of the Offer or
any defect or irregularity in any tender with respect to Notes of any particular
Holder, whether or not similar defects or irregularities are waived in the case
of other Holders. The Company's interpretation of the terms and conditions of
the Offer (including the Letter of Transmittal and the Instructions thereto)
will be final and binding. None of the Company, the Depositary, the Dealer
Managers, the
11
<PAGE>
Information Agent, the Trustee or any other person will be under any duty to
give notification of any defects or irregularities in tenders or will incur any
liability for failure to give any such notification.
WITHDRAWAL OF TENDERS
Tenders of Notes may be withdrawn at any time prior to 5:00 p.m., New York
City time, on the Expiration Date (but not thereafter, except as otherwise
described below). In addition, tenders of Notes may be validly withdrawn if the
Offer is terminated without any Notes being purchased thereunder. In the event
of a termination of the Offer, the Notes tendered pursuant to the Offer will be
promptly returned to the tendering Holder (or, in the case of Notes tendered by
book-entry transfer, such Notes will be credited to the account maintained at
DTC from which such Notes were delivered).
For a withdrawal of a tender of Notes to be effective, a written,
telegraphic or facsimile transmission notice of withdrawal must be received by
the Depositary prior to 5:00 p.m., New York City time, on the Expiration Date at
its address set forth on the back cover of this Offer to Purchase. Any such
notice of withdrawal must (i) specify the name of the person who tendered the
Notes to be withdrawn, (ii) contain the description of the Notes to be withdrawn
and identify the certificate number or numbers shown on the particular
certificates evidencing such Notes (unless such Notes were tendered by
book-entry transfer) and the aggregate principal amount represented by such
Notes, (iii) be signed by the Holder of such Notes in the same manner as the
original signature on the Letter of Transmittal by which such Notes were
tendered (including any required signature guarantees), if any, or be
accompanied by (x) documents of transfer sufficient to have the Trustee register
the transfer of the Notes into the name of the person withdrawing such Notes and
(y) a properly completed irrevocable proxy that authorized such person to effect
such revocation on behalf of such Holder and (iv) specify the name in which such
Notes are to be registered if different from the person who tendered such Notes
pursuant to such documents of transfer. If the Notes to be withdrawn have been
delivered or otherwise identified to the Depositary, a signed notice of
withdrawal is effective immediately upon written or facsimile notice of
withdrawal even if physical release is not yet effected. Any Notes properly
withdrawn will be deemed to be not validly tendered for purposes of the Offer.
Withdrawal of Notes can be accomplished only in accordance with the
foregoing procedures.
Any permitted withdrawals of tenders of Notes may not be rescinded, and any
Notes so withdrawn will thereafter be deemed not validly tendered for purposes
of the Offer; provided, however, that withdrawn Notes may again be tendered by
following the procedures for tendering at or prior to the expiration of the
Offer on the Expiration Date.
Any Notes that have been tendered for purchase but which are withdrawn will
be returned to the Holder thereof without cost to such Holder or, in the case of
Notes tendered by book-entry transfer into the Depositary's accounts at DTC
pursuant to the book-entry transfer procedures described above, such Notes will
be credited to an account maintained with DTC for the Notes as soon as
practicable after withdrawal.
All questions as to the validity (including time of receipt) of notices of
withdrawal will be determined by the Company, in the Company's sole discretion
(whose determination shall be final and binding). None of the Company, the
Depositary, the Dealer Managers, the Information Agent, the Trustee or any other
person will be under any duty to give notification of any defects or
irregularities in any notice of withdrawal or incur any liability for failure to
give any such notification.
CONDITIONS TO THE OFFER
The Company shall not be required to accept for payment, purchase or pay
for, and may delay the acceptance for payment of, any tendered Notes, in each
event subject to Rule 14e-l(c) under the Exchange Act, only in the event that
(1) the Notes have been previously irrevocably called for redemption pursuant to
the Indenture or (2) consummation of the Offer on any scheduled Expiration Date
has been enjoined or become subject to a restraining order or would be unlawful
or prohibited or the Offer is the subject of threatened or pending proceedings
seeking such relief or determinations. In the case where the consummation of the
Offer on any scheduled Expiration Date is enjoined or is unlawful, the Offer
shall be extended and the Company shall use
12
<PAGE>
its best efforts to have any such injunction lifted or illegality cured as soon
as possible. See "Terms of the Offer."
The foregoing conditions are for the sole benefit of the Company and may be
asserted by the Company regardless of the circumstances giving rise to any such
condition (including any action or inaction by the Company) and may be waived by
the Company, in whole or in part, at any time and from time to time, in the sole
discretion of the Company. All conditions to the Offer will, if Notes are to be
accepted for payment, be either satisfied or waived by the Company prior to the
expiration of the Offer on the Expiration Date. The failure by the Company at
any time to exercise any of the foregoing rights will not be deemed a waiver of
any other right and each right will be deemed an ongoing right which may be
asserted at any time and from time to time.
CERTAIN U.S. FEDERAL INCOME TAX CONSEQUENCES
The following discussion is a summary of the material U.S. Federal income
tax consequences of the Offer to Holders of Notes. This discussion deals only
with Holders that are United States persons and assumes that the Notes are held
as capital assets (generally, property held for investment) within the meaning
of Section 1221 of the Internal Revenue Code of 1986, as amended (the "Code").
For these purposes, "United States person" means a person who or which is
(i) an individual who is a citizen or resident of the United States for U.S.
Federal income tax purposes, (ii) a corporation or other business entity taxable
as a corporation created or organized under the laws of the United States or any
state thereof (including the District of Columbia), (iii) an estate the income
of which is subject to U.S. Federal income tax regardless of its source, (iv) a
trust the administration of which is subject to the primary supervision of a
court within the United States and for which one or more U.S. persons have the
authority to control all substantial decisions or (v) a person whose worldwide
income or gain is otherwise subject to U.S. Federal income tax on a net income
basis.
This discussion is general in nature, and does not discuss all aspects of
U.S. Federal income taxation that may be relevant to a particular Holder in
light of the Holder's particular circumstances, or to certain types of Holders
subject to special treatment under U.S. Federal income tax laws (such as
insurance companies, tax-exempt organizations, financial institutions, brokers,
dealers in securities or foreign currency, banks, trusts, persons that hold
Notes as part of a straddle, hedge against currency risk or constructive sale or
conversion transaction, persons that have a functional currency other than the
U.S. dollar, investors in pass-through entities and taxpayers that are neither
citizens nor residents of the United States, or that are foreign corporations,
foreign partnerships or foreign estates or trusts as to the United States). In
addition, the discussion does not consider the effect of any foreign, state,
local or other tax laws, or any U.S. tax considerations (e.g., estate or gift
tax) other than U.S. Federal income tax considerations, that may be applicable
to particular Holders.
This summary is based on the Code and applicable Treasury Regulations,
rulings, administrative pronouncements and decisions as of the date hereof, all
of which are subject to change or differing interpretations at any time with
possible retroactive effect. The Company has not requested, and will not
request, a ruling from the Internal Revenue Service (the "IRS") with respect to
any of the U.S. Federal income tax consequences described below and, as a
result, there can be no assurance that the IRS will not disagree with or
challenge any of the conclusions set forth herein.
A sale of Notes by a Holder pursuant to the Offer will be a taxable
transaction to such Holder for U.S. Federal income tax purposes. A Holder will
generally recognize capital gain (subject to the market discount rules discussed
below) or loss on the sale of a Note in an amount equal to the difference
between (i) the amount of cash received for such Note, other than the portion of
such amount that is properly allocable to accrued interest, which will be taxed
as ordinary income, and (ii) the Holder's "adjusted tax basis" for such Note at
the time of sale. Generally, a Holder's adjusted tax basis for a Note will be
equal to the cost of the Note to such Holder, increased by any original issue
discount or market discount that the Holder elected to include in income, less
any premium or other payments (other than interest payments) received on the
Notes. Such gain or loss will constitute long-term capital gain or loss if the
underlying Notes have been held for more than 12 months as of the date of sale.
An exception to the capital gain treatment described above may apply to a
Holder who purchased a Note at a "market discount." Subject to a statutory de
minimis exception, market discount is the excess of a Note's stated redemption
price at maturity over the Holder's adjusted tax basis in such Note immediately
after its acquisition
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<PAGE>
by such Holder. In general, unless the Holder has elected to include market
discount in income currently as it accrues, any gain realized by a Holder on the
sale of a Note having market discount in excess of a de minimis amount will be
treated as ordinary income to the extent of the market discount that has accrued
(on a straight line basis or, at the election of the Holder, on a constant
interest basis) while such Note was held by the Holder.
The receipt of the Offer consideration by a Holder who tenders its Notes
may be subject to backup withholding at the rate of 31% with respect to such
payments unless such Holder (i) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (ii) provides a
correct taxpayer identification number, certifies as to no loss of exemption
from backup withholding and otherwise complies with applicable requirements of
the backup withholding rules. Any amount withheld under these rules will be
credited against the Holder's U.S. Federal income tax liability. A Holder who
does not provide its correct taxpayer identification number may be subject to
penalties imposed by the IRS, and gross proceeds of the Offer may be subject to
backup withholding at the rate currently in effect of 31%.
THE FOREGOING SUMMARY DOES NOT DISCUSS ALL ASPECTS OF U.S. FEDERAL INCOME
TAXATION THAT MAY BE RELEVANT TO PARTICULAR HOLDERS IN LIGHT OF THEIR PARTICULAR
CIRCUMSTANCES AND INCOME TAX SITUATIONS. HOLDERS SHOULD CONSULT THEIR TAX
ADVISORS AS TO THE PARTICULAR TAX CONSEQUENCES TO THEM OF THE OFFER, INCLUDING
THE EFFECT OF ANY FEDERAL, STATE, LOCAL, FOREIGN OR OTHER LAWS.
THE DEALER MANAGERS, THE INFORMATION AGENT AND THE DEPOSITARY
Chase Securities Inc. ("CSI"), Donaldson, Lufkin & Jenrette Securities
Corporation ("DLJ") and BancBoston Robertson Stephens Inc. ("BRS") have been
engaged to act as the Dealer Managers in connection with the Offer and to
provide certain financial advisory services to the Company in connection
therewith. In such capacities, the Dealer Managers may contact Holders of Notes
regarding the Offer and may request brokers, dealers, commercial banks, trust
companies and other nominees to forward the Offer to Purchase and related
materials to beneficial owners of Notes. At any given time, the Dealer Managers
may trade the Notes of the Company for their own account or for the accounts of
customers, and accordingly, may hold a long or short position in the Notes.
The Company has agreed to indemnify the Dealer Managers against certain
liabilities, including certain liabilities under the federal securities laws.
The Dealer Managers have provided in the past, and are currently providing,
other investment and commercial banking and financial advisory services to the
Company and certain of its affiliates. DLJ and CSI acted as dealer managers in
connection with the Republic Tender Offer. The Chase Manhattan Bank, an
affiliate of CSI, DLJ Capital Funding, Inc., an affiliate of DLJ, and BankBoston
N.A., an affiliate of BRS, are agents and lenders under the credit agreement
with RES Holding under which RES Holding made borrowings to provide a portion of
the funding required to complete the RES Acquisition. It is expected that CSI,
DLJ and BRS will be the managers of the offering of new debt securities to be
issued by one or more affiliates of the Company in connection with the
Transactions. The Chase Manhattan Bank, DLJ Bridge Finance, Inc. and BankBoston
N.A. will be agents and lenders under the Bridge Facility. The Chase Manhattan
Bank and BankBoston N.A. expect to be, and an affiliate of DLJ may be, agents
and lenders under a new credit facility to be entered into by the Company and
certain of its affiliates in connection with the Transactions.
Any Holder that has questions concerning the terms of the Offer may contact
the Dealer Managers at their addresses and telephone numbers set forth on the
back cover page of this Offer to Purchase.
MacKenzie Partners, Inc. has been appointed as Information Agent for the
Offer. Questions and requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent at its address and telephone number set
forth on the back cover page of this Offer to Purchase. Holders of Notes may
also contact their broker, dealer, commercial bank or trust company for
assistance concerning the Offer.
Bankers Trust Company has been appointed as Depositary for the Offer.
Letters of Transmittal and all correspondence in connection with the Offer
should be sent or delivered by each Holder or a beneficial owner's broker,
dealer, commercial bank, trust company or other nominee to the Depositary at one
of the addresses or the telephone number set forth on the back cover page of
this Offer to Purchase. Any Holder or beneficial owner that
14
<PAGE>
has questions concerning tender procedures or whose Notes have been mutilated,
lost, stolen or destroyed should contact the Depositary at one of the addresses
or the telephone number set forth on the back cover of this Offer to Purchase.
FEES AND EXPENSES
The Company will pay the Information Agent and the Depositary reasonable
and customary fees for their services and will reimburse them and the Dealer
Managers for their reasonable out-of-pocket expenses in connection therewith.
The Company will pay brokerage houses and other custodians, nominees and
fiduciaries the reasonable out-of-pocket expenses incurred by them in forwarding
copies of this Offer to Purchase and related documents to the beneficial owners
of Notes.
SOURCE AND AMOUNT OF FUNDS
The total amount of funds required by the Company to pay for the principal
of the Notes tendered pursuant to the Offer, assuming that all of the
outstanding Notes are tendered in the Offer and no Notes are tendered in the
Change of Control Offer, is $208.5 million (excluding any accrued interest). In
addition, assuming that all of the outstanding Notes are tendered in the Offer
and no Notes are tendered in the Change of Control Offer, interest on the Notes
is paid on December 15, 1998 and June 15, 1999 and the Offer expires on
June 30, 1999, the Company will also pay approximately $0.9 million in respect
of accrued but unpaid interest on the Notes (assuming that payment is made on
July 2, 1999). The required funds will be obtained by the Company from
borrowings under the Bridge Facility as described under "Background to the
Offer." Consummation of the Offer is not subject to a financing condition.
MISCELLANEOUS
The Company is not aware of any jurisdiction in which the making of the
Offer is not in compliance with applicable law. If the Company becomes aware of
any jurisdiction in which the making of the Offer would not be in compliance
with applicable law, the Company will make a good faith effort to comply with
any such law. If, after such good faith effort, the Company cannot comply with
any such law, the Offer will not be made to (nor will tenders of Notes be
accepted from or on behalf of) the beneficial owners of Notes residing in such
jurisdiction.
No person has been authorized to give any information or make any
representation on behalf of the Company not contained in this Offer to Purchase
or in the Letter of Transmittal and, if given or made, such information or
representation must not be relied upon as having been authorized.
REPUBLIC ENGINEERED STEELS, INC.
October 29, 1998
15
<PAGE>
The Depositary for the Offer is:
BANKERS TRUST COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile Transmission: By Hand Delivery:
(For Eligible Institutions Only) Bankers Trust Company
BT Services Tennessee, Inc. Corporate Trust and Agency Group
Reorganization Unit (615) 835-3701 123 Washington Street
P.O. Box 292737 Attention: Customer Service First Floor Window
Nashville, TN 37229-2737 New York, NY 10006
Confirm by Telephone to:
(615) 835-3572
By Overnight Delivery:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Rd.
Nashville, TN 37211
</TABLE>
Any questions or requests for assistance or additional copies of this Offer
to Purchase, the Letter of Transmittal or the Notice of Guaranteed Delivery may
be directed to the Information Agent at the telephone number and address listed
below. You may also contact the Dealer Managers at the telephone numbers set
forth below or your broker, dealer, commercial bank or trust company or nominee
for assistance concerning the Offer.
The Information Agent for the Offer is:
MACKENZIE PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
CALL TOLL-FREE (800) 322-2885
The Dealer Managers of the Offer are:
<TABLE>
<S> <C> <C>
CHASE SECURITIES INC. DONALDSON, LUFKIN & JENRETTE BANCBOSTON ROBERTSON STEPHENS INC.
270 Park Avenue, 4th Floor 277 Park Avenue 100 Federal Street
New York, New York 10017-2070 New York, New York 10172 Boston, Massachusetts 02110
Attention: Robert Berk Attention: OhSang Kwon Attention: Andrew Fay
Call: (212) 270-1100 (collect) Call: (212) 892-3875 (collect) Call: (617) 434-9204 (collect)
</TABLE>
<PAGE>
LETTER OF TRANSMITTAL
TO TENDER 9 7/8% FIRST MORTGAGE NOTES DUE 2001 OF
REPUBLIC ENGINEERED STEELS, INC.
PURSUANT TO THE OFFER TO PURCHASE
DATED OCTOBER 29, 1998
THE OFFER AND WITHDRAWAL RIGHTS WILL EXPIRE AT 5:00 P.M., NEW YORK CITY
TIME, ON JUNE 30, 1999, UNLESS EXTENDED BY THE COMPANY IN ORDER TO COMPLY
WITH APPLICABLE LAW (SUCH DATE, AS THE SAME MAY BE EXTENDED, THE
"EXPIRATION DATE").
The Depositary for the Offer is: BANKERS TRUST COMPANY
<TABLE>
<S> <C> <C>
By Registered or Certified Mail: By Facsimile Transmission: By Hand Delivery:
BT Services Tennessee, Inc. (For Eligible Institutions Only) Bankers Trust Company
Reorganization Unit (615) 835-3701 Corporate Trust and Agency Group
P.O. Box 292737 Attention: Customer Service 123 Washington Street
Nashville, TN 37229-2737 First Floor Window
Confirm by Telephone to: New York, NY 10006
(615) 835-3572
By Overnight Delivery:
BT Services Tennessee, Inc.
Corporate Trust and Agency Group
Reorganization Unit
648 Grassmere Park Rd.
Nashville, TN 37211
</TABLE>
DELIVERY OF THIS LETTER OF TRANSMITTAL TO AN ADDRESS OTHER THAN AS SET
FORTH ABOVE, OR TRANSMISSION OF INSTRUCTIONS VIA A FACSIMILE NUMBER OTHER THAN
AS LISTED ABOVE, WILL NOT CONSTITUTE A VALID DELIVERY.
All capitalized terms used herein and not defined herein shall have the
meanings ascribed to them in the Offer to Purchase.
This Letter of Transmittal is to be used by Holders of 9 7/8% First
Mortgage Notes Due 2001 (the "Notes") of Republic Engineered Steels, Inc. (the
"Company"). This Letter of Transmittal is to be used by such Holders if
(i) certificates representing Notes are to be physically delivered to the
Depositary herewith by such Holders; (ii) tender of Notes is to be made by
book-entry transfer to the Depositary's account at DTC pursuant to the
procedures set forth under the caption "Procedures for Tendering
Notes--Book-Entry Delivery Procedures" in the Offer to Purchase; or
(iii) tender of Notes is to be made according to the guaranteed delivery
procedures set forth under the caption "Procedures for Tendering Notes--
Guaranteed Delivery" in the Offer to Purchase; and, in each case, instructions
are not being transmitted through the DTC Automated Tender Offer Program
("ATOP").
Holders of Notes that are tendering by book-entry transfer to the
Depositary's account at DTC can execute the tender through ATOP. DTC
participants that are accepting the Offer must transmit their acceptance to DTC,
which will verify the acceptance and execute a book-entry delivery to the
Depositary's account at DTC. DTC will then send an Agent's Message to the
Depositary for its acceptance. Delivery of the Agent's Message by DTC will
satisfy the terms of the Offer as to execution and delivery of a Letter of
Transmittal by the participant identified in the Agent's Message. DTC
participants may also accept the Offer by submitting a notice of guaranteed
delivery through ATOP.
Delivery of documents to DTC does not constitute delivery to the
Depositary.
Prior to the Expiration Date, if a Holder desires to tender Notes pursuant
to the Offer and time will not permit this Letter of Transmittal, certificates
representing such Notes and all other required documents to reach the
Depositary, or the procedures for book-entry transfer cannot be completed, on or
prior to the Expiration Date, then such Holder must tender such Notes according
to the guaranteed delivery procedures set forth under the caption "Procedures
for Tendering Notes--Guaranteed Delivery" in the Offer to Purchase. See
Instruction 2.
<PAGE>
The undersigned should complete, execute and deliver this Letter of
Transmittal to indicate the action the undersigned desires to take with respect
to the Offer.
DELIVERY OF THIS LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION OF THE
CHANGE OF CONTROL OFFER MADE PURSUANT TO THE NOTICE OF CHANGE CONTROL AND CHANGE
OF CONTROL OFFER DATED OCTOBER 5, 1998 (AS SUPPLEMENTED, THE "CHANGE OF CONTROL
OFFER") SHALL CONSTITUTE A WITHDRAWAL OF THE NOTES WHICH ARE THE SUBJECT OF THIS
LETTER OF TRANSMITTAL FROM THE CHANGE OF CONTROL OFFER, UNLESS OTHERWISE
INDICATED. NOTES PROPERLY TENDERED AND NOT WITHDRAWN FROM THE CHANGE OF CONTROL
OFFER MAY NOT BE TENDERED PURSUANT TO THE OFFER.
TENDER OF NOTES
/ / CHECK HERE IF TENDERED NOTES ARE ENCLOSED HEREWITH.
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED BY BOOK-ENTRY TRANSFER
MADE TO THE ACCOUNT MAINTAINED BY THE DEPOSITARY WITH DTC AND COMPLETE
THE FOLLOWING (ONLY PARTICIPANTS IN DTC MAY DELIVER NOTES BY BOOK-ENTRY
TRANSFER):
Name of Tendering Institution: ________________________________________
Account Number: ________ Transaction Code Number: _______
/ / CHECK HERE IF TENDERED NOTES ARE BEING DELIVERED PURSUANT TO A NOTICE
OF GUARANTEED DELIVERY PREVIOUSLY SENT TO THE DEPOSITARY AND COMPLETE
THE FOLLOWING:
Name(s) of Registered Holder(s): _______________________________________________
Window Ticket Number (if any): _________________________________________________
Date of Execution of Notice of Guaranteed Delivery: ____________________________
Name of Eligible Institution that Guaranteed Delivery: _________________________
List below the Notes to which this Letter of Transmittal relates. If the
space provided is inadequate, list the certificate numbers and principal amounts
on a separately executed schedule and affix the schedule to this Letter of
Transmittal. Tenders of Notes will be accepted only in principal amounts equal
to $1,000 or integral multiples thereof. THE TENDER OF NOTES PURSUANT TO THIS
LETTER OF TRANSMITTAL PRIOR TO THE EXPIRATION OF THE CHANGE OF CONTROL OFFER
SHALL CONSTITUTE A WITHDRAWAL OF THE NOTES WHICH ARE THE SUBJECT OF THIS LETTER
OF TRANSMITTAL FROM THE CHANGE OF CONTROL OFFER, UNLESS OTHERWISE INDICATED.
<TABLE>
<CAPTION>
DESCRIPTION OF 9 7/8% FIRST MORTGAGE NOTES TENDERED
NAMES(S) AND ADDRESS(ES) OF
REGISTERED HOLDER(S) OR NAME OF
DTC PARTICIPANT AND PARTICIPANT'S AGGREGATE
DTC ACCOUNT NUMBER IN WHICH NOTES PRINCIPAL PRINCIPAL
ARE HELD CERTIFICATE AMOUNT AMOUNT
(PLEASE FILL IN IF BLANK) NUMBER(S)* REPRESENTED TENDERED**
<S> <C> <C> <C>
TOTAL PRINCIPAL AMOUNT AT MATURITY OF NOTES
</TABLE>
* Need not be completed by Holders tendering by book-entry transfer.
** Unless otherwise specified, it will be assumed that the entire aggregate
principal amount at maturity represented by the Notes described above is
being tendered. See Instruction 4. Only Holders may validly tender their
Notes pursuant to the Offer.
The names and addresses of the registered Holders should be printed, if not
already printed above, exactly as they appear on the Notes tendered hereby. The
Notes and the principal amount of Notes that the undersigned wishes to tender
should be indicated in the appropriate boxes.
<PAGE>
<TABLE>
DESCRIPTION OF 9 7/8% FIRST MORTGAGE NOTES
NOT WITHDRAWN FROM CHANGE OF CONTROL OFFER
PRINCIPAL
AMOUNT
AGGREGATE PREVIOUSLY
NAME OF DTC PARTICIPANT AND PRINCIPAL TENDERED
PARTICIPANT'S DTC ACCOUNT NUMBER AMOUNT AND NOT
IN WHICH NOTES ARE HELD REPRESENTED WITHDRAWN
<S> <C> <C>
TOTAL PRINCIPAL AMOUNT AT MATURITY OF NOTES
</TABLE>
NOTE: SIGNATURES MUST BE PROVIDED BELOW.
PLEASE READ THE ACCOMPANYING INSTRUCTIONS CAREFULLY.
Ladies and Gentlemen:
The undersigned hereby tenders to Republic Engineered Steels, Inc. (the
"Company"), upon the terms and subject to the conditions set forth in its Offer
to Purchase dated October 29, 1998 (the "Offer to Purchase"), receipt of which
is hereby acknowledged, and in accordance with this Letter of Transmittal
(which, together with the Offer to Purchase, constitutes the "Offer"), the
principal amount of Notes indicated in the table above entitled "Description of
9 7/8% First Mortgage Notes" under the column heading "Principal Amount
Tendered."
Subject to, and effective upon, the acceptance for payment of, and payment
for, the principal amount of Notes tendered herewith in accordance with the
terms and subject to the conditions of the Offer, the undersigned hereby sells,
assigns and transfers to, or upon the order of, the Company, all right, title
and interest in and to all of the Notes tendered hereby. The undersigned hereby
irrevocably constitutes and appoints the Depositary the true and lawful agent
and attorney-in-fact of the undersigned (with full knowledge that the Depositary
also acts as the agent of the Company) with respect to such Notes, with full
powers of substitution and revocation (such power of attorney being deemed to be
an irrevocable power coupled with an interest) to (i) present such Notes and all
evidences of transfer and authenticity to, or transfer ownership of, such Notes
on the account books maintained by DTC to, or upon the order of, the Company,
(ii) present such Notes for transfer of ownership on the books of the Company,
and (iii) receive all benefits and otherwise exercise all rights of beneficial
ownership of such Notes, all in accordance with the terms and conditions of the
Offer as described in the Offer to Purchase.
The undersigned understands that tenders of Notes may be withdrawn, by
written, telegraphic or facsimile notice of withdrawal received by the
Depositary only on or prior to 5:00 p.m., New York City time, on the Expiration
Date. In the event of a termination of the Offer, the Notes tendered pursuant to
the Offer will be returned to the tendering Holders promptly (or, in the case of
Notes tendered by book-entry transfer, such Notes will be credited to the
account maintained at DTC from which such Notes were delivered). The Company
will disseminate additional Offer materials to the extent required by law and
may extend the Offer in order to comply with applicable law.
The undersigned understands that tenders of Notes pursuant to any of the
procedures described in the Offer to Purchase and in the instructions hereto and
acceptance of such Notes by the Company will constitute a binding agreement
between the undersigned and the Company upon the terms and subject to the
conditions of the Offer. For purposes of the Offer, the undersigned understands
that validly tendered Notes (or defectively tendered Notes with respect to which
the Company has, or has caused to be, waived such defect) will be deemed to have
been accepted by the Company if, as and when the Company gives oral or written
notice thereof to the Depositary.
The undersigned represents and warrants that the undesigned has read and
agreed to the terms of the Offer. The undersigned hereby further represents and
warrants that the undersigned has full power and authority to tender, sell,
assign and transfer the Notes tendered hereby, and that when such tendered Notes
are accepted for purchase and payment by the Company, the Company will acquire
good title thereto, free and clear of all liens, security interests,
restrictions, charges and encumbrances and not subject to any adverse claim or
right. The undersigned will, upon request, execute and deliver any
<PAGE>
additional documents deemed by the Depositary or by the Company to be necessary
or desirable to complete the sale, assignment and transfer of the Notes tendered
hereby.
All authority conferred or agreed to be conferred by this Letter of
Transmittal shall not be affected by, and shall survive, the death or incapacity
of the undersigned, and any obligation of the undersigned hereunder shall be
binding upon the heirs, executors, administrators, trustees in bankruptcy,
personal and legal representatives, successors and assigns of the undersigned.
The undersigned understands that the delivery and surrender of any Notes is
not effective, and the risk of loss of the Notes does not pass to the
Depositary, until receipt by the Depositary of this Letter of Transmittal (or a
manually signed facsimile hereof), properly completed and duly executed,
together with all accompanying evidences of authority and any other required
documents in form satisfactory to the Company. All questions as to the form of
all documents and the validity (including time of receipt) and acceptance of
tenders and withdrawals of Notes will be determined by the Company, in its sole
discretion, which determination shall be final and binding.
Unless otherwise indicated herein under "A. Special Delivery Instructions,"
the undersigned hereby request(s) that any Notes representing principal amounts
not tendered or not accepted for purchase be issued in the name(s) of, and
delivered to, the undersigned (and in the case of Notes tendered by book-entry
transfer, by credit to the account of DTC). Unless otherwise indicated herein
under "B. Special Payment Instructions" the undersigned hereby request(s) that
any checks for payments of the Offer consideration to be made in connection with
the Offer be issued to the order of, and delivered to, the undersigned.
In the event that the "A. Special Delivery Instructions" box is completed,
the undersigned hereby request(s) that any Notes representing principal amounts
not tendered or not accepted for purchase be issued in the name(s) of, and be
delivered to, the person(s) at the address(es) therein indicated. The
undersigned recognizes that the Company has no obligation pursuant to the "A.
Special Delivery Instructions" box to transfer any Notes from the names of the
registered holder(s) thereof if the Company does not accept for purchase any of
the principal amount of such Notes so tendered.
In the event that the "B. Special Payment Instructions" box is completed,
the undersigned hereby request(s) that checks for payment of the Offer
consideration to be made in connection with the Offer be issued in the
name(s) of, and be delivered to, the person(s) at the address(es) therein
indicated.
THE UNDERSIGNED ACKNOWLEDGES AND AGREES THAT THE DELIVERY OF THIS LETTER OF
TRANSMITTAL PRIOR TO THE EXPIRATION OF THE CHANGE OF CONTROL OFFER SHALL
CONSTITUTE A WITHDRAWAL OF THE NOTES WHICH ARE THE SUBJECT OF THIS LETTER OF
TRANSMITTAL FROM THE CHANGE OF CONTROL OFFER. THE UNDERSIGNED REPRESENTS AND
WARRANTS THAT THE NOTES TENDERED PURSUANT TO THIS LETTER OF TRANSMITTAL HAVE NOT
BEEN TENDERED PURSUANT TO THE CHANGE OF CONTROL OFFER OR, IF SO TENDERED, SUCH
NOTES HAVE BEEN WITHDRAWN THEREFROM.
A. SPECIAL DELIVERY INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if Notes in a principal amount not tendered or not
accepted for purchase are to be issued in the name of someone other than the
person(s) whose signature(s) appear(s) within this Letter of Transmittal or to
be issued to an address different from that shown in the box entitled
"Description of 9 7/8% First Mortgage Notes"
Name ___________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
B. SPECIAL PAYMENT INSTRUCTIONS
(SEE INSTRUCTIONS 1, 5, 6 AND 7)
To be completed ONLY if the Offer consideration is to be made to someone other
than the person(s) whose signature(s) appear(s) within this Letter of
Transmittal or to an address different from that shown in the box entitled
"Description of 9 7/8% First Mortgage Notes" within this Letter of Transmittal.
Name ___________________________________________________________________________
(PLEASE PRINT)
Address ________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
________________________________________________________________________________
(TAX IDENTIFICATION OR SOCIAL SECURITY NUMBER)
(SEE SUBSTITUTE FORM W-9 HEREIN)
<PAGE>
PLEASE SIGN HERE
(TO BE COMPLETED BY ALL TENDERING HOLDERS OF NOTES REGARDLESS OF
WHETHER NOTES ARE BEING PHYSICALLY DELIVERED HEREWITH)
This Letter of Transmittal must be signed by the registered Holder(s)
exactly as the name of such Holder appears on certificate(s) for Note(s) or, if
tendered by a participant in DTC, exactly as such participant's name appears on
a security position listing as owner of Notes, or by person(s) authorized to
become registered Holder(s) by endorsements and documents transmitted herewith.
If signature is by trustees, executors, administrators, guardians,
attorneys-in-fact, officers of corporations or others acting in a fiduciary or
representative capacity, please set forth full title and see Instruction 5.
________________________________________________________________________________
________________________________________________________________________________
SIGNATURE(S) OF REGISTERED HOLDER(S) OR AUTHORIZED SIGNATORY
(See guarantee requirement below)
Dated __________________________________________________________________________
Name(s): _______________________________________________________________________
(PLEASE PRINT)
________________________________________________________________________________
Capacity _______________________________________________________________________
Address:________________________________________________________________________
________________________________________________________________________________
________________________________________________________________________________
(INCLUDE ZIP CODE)
Area Code and Telephone Number _________________________________________________
Tax Identification or Social Security No. ______________________________________
(COMPLETE ACCOMPANYING SUBSTITUTE FORM W-9)
MEDALLION SIGNATURE GUARANTEE
(IF REQUIRED--SEE INSTRUCTIONS 1 AND 5)
Authorized Signature ___________________________________________________________
Name of Form ___________________________________________________________________
[PLACE SEAL HERE]
<PAGE>
INSTRUCTIONS
FORMING PART OF THE TERMS AND CONDITIONS
OF THE OFFER
1. SIGNATURE GUARANTEES. Signatures on this Letter of Transmittal must be
guaranteed by a Medallion Signature Guarantor (as defined in the Offer to
Purchase), unless the Notes tendered hereby are tendered (i) by a registered
Holder of Notes (or by a participant in DTC whose name appears on a security
position listing as the owner of such Notes) that has not completed any of the
boxes entitled "Special Delivery Instructions" or "Special Payment Instructions"
on this Letter of Transmittal or (ii) for the account of an Eligible
Institution. If the Notes are registered in the name of a person other than the
signer of this Letter of Transmittal or if Notes not accepted for payment or not
tendered are to be returned to a person other than the registered Holder or if
payment is to be made to a person other than the registered Holder, then the
signatures on this Letter of Transmittal accompanying the tendered Notes must be
guaranteed by a Medallion Signature Guarantor as described above. See
Instruction 5.
2. DELIVERY OF LETTER OF TRANSMITTAL AND NOTES. This Letter of Transmittal
is to be completed by Holders if (i) certificates representing Notes are to be
physically delivered to the Depositary herewith by such Holders; (ii) tender of
Notes is to be made by book-entry transfer to the Depositary's account at DTC
pursuant to the procedures set forth under the caption "Procedures for Tendering
Notes--Book-Entry Delivery Procedures" in the Offer to Purchase; or
(iii) tender of Notes is to be made according to the guaranteed delivery
procedures set forth under the caption "Procedures for Tendering
Notes--Guaranteed Delivery" in the Offer to Purchase, and, in each case
instructions are not being transmitted through ATOP. All physically delivered
Notes, or a confirmation of a book-entry transfer into the Depositary's account
at DTC of all Notes delivered electronically, as well as a properly completed
and duly executed Letter of Transmittal (or manually signed facsimile thereof)
and any other documents required by this Letter of Transmittal, must be received
by the Depositary at its address set forth herein on or prior to the Expiration
Date, or the tendering Holder must comply with the guaranteed delivery
procedures set forth below. Delivery of documents to DTC does not constitute
delivery to the Depositary.
If a Holder desires to tender Notes pursuant to the Offer and time will not
permit this Letter of Transmittal, certificates representing such Notes and all
other required documents to reach the Depositary, or the procedures for
book-entry transfer cannot be completed, on or prior to the Expiration Date,
then such Holder must tender such Notes pursuant to the guaranteed delivery
procedures set forth under the caption "Procedures for Tendering Notes" in the
Offer to Purchase. Pursuant to such procedures, (i) such tender must be made by
or through an Eligible Institution, (ii) a properly completed and duly executed
Notice of Guaranteed Delivery, substantially in the form provided by the
Company, or an Agent's Message with respect to guaranteed delivery that is
accepted by the Company, must be received by the Depositary, either by hand
delivery, registered or certified mail, telegram or facsimile transmission, at
or prior to 5:00 p.m., New York City time, on the Expiration Date and (iii) the
certificates for all tendered Notes, in proper form for transfer (or
confirmation of a book-entry transfer of all Notes delivered electronically into
the Depositary's account at DTC pursuant to the procedures for such transfer set
forth in the Offer to Purchase), together with a properly completed and duly
executed Letter of Transmittal (or manually signed facsimile thereof) and any
other documents required by this Letter of Transmittal or a properly transmitted
Agent's Message, must be received by the Depositary within two business days
after the date of the execution of the Notice of Guaranteed Delivery.
THE METHOD OF DELIVERY OF THIS LETTER OF TRANSMITTAL, THE NOTES AND ALL
OTHER REQUIRED DOCUMENTS, INCLUDING DELIVERY THROUGH DTC AND ANY ACCEPTANCE OR
AGENT'S MESSAGE DELIVERED THROUGH ATOP, IS AT THE OPTION AND RISK OF THE
TENDERING HOLDER. If delivery is by mail, registered mail with return receipt
requested, properly insured, is recommended. In all cases, sufficient time
should be allowed for such documents to reach the Depositary. Except as
otherwise provided in this Instruction 2, delivery will be deemed made only when
actually received by the Depositary.
No alternative, conditional or contingent tenders will be accepted. All
tendering Holders, by execution of this Letter of Transmittal (or a facsimile
thereof), waive any right to receive any notice of the acceptance of their Notes
for payment.
3. INADEQUATE SPACE. If the space provided herein is inadequate, the
certificate numbers and/or the principal amount represented by Notes should be
listed on a separate signed schedule attached hereto.
4. PARTIAL TENDERS. (Not applicable to Holders who tender by book-entry
transfer.) Tenders of Notes will be accepted only in integral multiples of
$1,000. If Holders wish to tender with respect to less than the entire principal
amount evidenced by any Notes submitted, such Holders must fill in the principal
amount that is to be tendered in the column entitled "Principal Amount
Tendered." In the case of a partial tender of Notes, as soon as practicable
after the Expiration Date, new certificates for the remainder of the Notes that
were evidenced by such Holder's old certificates will be sent to such Holder.
Unless otherwise provided in the appropriate box of this Letter of Transmittal,
the entire principal amount that is represented by Notes delivered to the
Depositary will be deemed to have been tendered.
5. SIGNATURES ON LETTER OF TRANSMITTAL, INSTRUMENTS OF TRANSFER AND
ENDORSEMENTS. If this Letter of Transmittal is signed by the registered Holders
of the Notes tendered hereby, the signatures must correspond with the name(s) as
written on the face of the certificate(s) without alteration, enlargement or any
change whatsoever. If this Letter of Transmittal is signed by a participant in
DTC whose name is shown as the owner of the Notes tendered hereby, the signature
must correspond with the name shown on the security position listing as the
owner of the Notes.
If any of the Notes tendered hereby are registered in the name of two or
more Holders, all such Holders must sign this Letter of Transmittal. If any of
the Notes tendered hereby are registered in different names on several
certificates, it will be necessary to complete, sign and submit as many separate
Letters of Transmittal as there are different registrations of certificates.
If this Letter of Transmittal or any Notes or instrument of transfer is
signed by a trustee, executor, administrator, guardian, attorney-in-fact, agent,
officer of a corporation or other person acting in a fiduciary or representative
capacity, such person should so indicate when signing, and proper evidence
satisfactory to the Company of such person's authority to so act must be
submitted.
When this Letter of Transmittal is signed by the registered Holders of the
Notes listed and transmitted hereby, no endorsements of Notes or separate
instruments of transfer are required unless payment is to be made, or Notes not
tendered or purchased are to be issued, to a person other than the registered
Holders, in which case signatures on such Notes or instruments of transfer must
be guaranteed by a recognized member of the Medallion Signature Guarantee
Program.
IF THIS LETTER OF TRANSMITTAL IS SIGNED OTHER THAN BY THE REGISTERED HOLDERS
OF THE NOTES LISTED, THE NOTES MUST BE ENDORSED OR ACCOMPANIED BY APPROPRIATE
INSTRUMENTS OF TRANSFER, IN EITHER CASE SIGNED EXACTLY AS THE NAME OR NAMES OF
THE REGISTERED HOLDERS APPEAR ON THE NOTES AND SIGNATURES ON SUCH NOTES OR
INSTRUMENTS OF TRANSFER ARE REQUIRED AND MUST BE GUARANTEED BY A MEDALLION
SIGNATURE GUARANTOR, UNLESS THE SIGNATURE IS THAT OF AN ELIGIBLE INSTITUTION.
6. SPECIAL DELIVERY INSTRUCTIONS/SPECIAL PAYMENT INSTRUCTIONS. If a check
and/or certificates for unpurchased or untendered Notes are to be issued in the
name of a person other than the signer of this Letter of Transmittal, or if a
check is to be sent and/or such Notes are to be returned to someone other than
the signer of this Letter of Transmittal or to an address other than that shown
above, the applicable "Special Delivery Instructions" or "Special Payment
Instructions" box on this
<PAGE>
Letter of Transmittal should be completed. All Notes tendered by book-entry
transfer and not accepted for payment will be returned by crediting the account
at DTC designated above as the account for which such Notes were delivered.
7. TRANSFER TAXES. Except as set forth in this Instruction 7, the Company
will pay or cause to be paid any transfer taxes with respect to the transfer and
sale of Notes to it, or to its order, pursuant to the Offer. If the "Special
Delivery Instructions" box or the "Special Payment Instructions" box is
completed and payment of the Offer consideration is to be made to, or if Notes
not tendered or purchased are to be registered in the name of, any persons other
than the registered owners, or if tendered Notes are registered in the name of
any persons other than the persons signing this Letter of Transmittal, the
amount of any transfer taxes (whether imposed on the registered Holder or such
other person) payable on account of the transfer to such other person will be
deducted from the Offer consideration unless satisfactory evidence of the
payment of such taxes or exemption therefrom is submitted.
8. WAIVER OF CONDITIONS. The conditions of the Offer may be waived by the
Company, in whole or in part, at any time and from time to time in the Company's
sole discretion, in the case of any Notes tendered.
9. SUBSTITUTE FORM W-9. Each tendering Holder (or other payee) is required
to provide the Depositary with such Holder's correct taxpayer identification
number ("TIN"), generally the Holder's Social Security or federal employer
identification number, and with certain other information, on Substitute Form
W-9, which is provided under "Important Tax Information" below, and to certify
that the Holder (or other payee) is not subject to backup withholding. Failure
to provide the information on the Substitute Form W-9 may subject the tendering
Holder (or other payee) to a $50 penalty imposed by the Internal Revenue Service
and 31% federal income tax backup withholding on the payment of the Offer
consideration. Any amount withheld under these rules will be creditable against
the Holder's U.S. Federal income tax liability and, if such withholding results
in an overpayment of taxes, a refund may be obtained. The box in Part 3 of the
Substitute Form W-9 may be checked if the tendering Holder (or other payee) has
not been issued a TIN and has applied for a TIN or intends to apply for a TIN in
the near future. If the box in Part 3 is checked and the Depositary is not
provided with a TIN by the time of payment, the Depositary will withhold 31% on
all such payments of the Offer consideration until a TIN is provided to the
Depositary.
10. REQUESTS FOR ASSISTANCE OR ADDITIONAL COPIES. Any questions or
requests for assistance or additional copies of the Offer to Purchase, this
Letter of Transmittal or the Notice of Guaranteed Delivery may be directed to
the Information Agent at the telephone number and location listed below. A
Holder may also contact the Dealer Managers at their telephone numbers set forth
below or such Holder's broker, dealer, commercial bank or trust company or
nominee for assistance concerning the Offer.
11. WITHDRAWAL OF NOTES FROM CHANGE OF CONTROL OFFER. Delivery of this
Letter of Transmittal prior to the expiration of the Change of Control Offer
shall constitute a withdrawal of the Notes which are the subject of this Letter
of Transmittal from the Change of Control Offer, unless otherwise indicated.
NOTES PROPERLY TENDERED AND NOT WITHDRAWN FROM THE CHANGE OF CONTROL OFFER MAY
NOT BE TENDERED PURSUANT TO THE OFFER.
IMPORTANT TAX INFORMATION
Under U.S. federal income tax law, a Holder whose tendered Notes are
accepted for payment or exchange is required to provide the Depositary with such
Holder's TIN on Substitute Form W-9 below (or provide a basis for exemption from
backup withholding). If such Holder is an individual, the TIN is his or her
Social Security number. If the Depositary is not provided with the correct TIN,
the Holder or other payee may be subject to a $50 penalty imposed by the
Internal Revenue Service. In addition, any Offer consideration and accrued and
unpaid interest paid to such Holder or other payee with respect to Notes
purchased pursuant to the Offer may be subject to backup withholding tax at a
31% rate.
Certain Holders (including, among others, all corporations and certain
foreign individuals) are not subject to these backup withholding and reporting
requirements. In order to qualify as an exempt recipient, such a Holder must
submit to the Depositary a properly completed Internal Revenue Service Form W-8
(a "Form W-8"), signed under penalties of perjury, attesting to that
individual's exempt status. Such forms can be obtained from the Depositary. See
the enclosed "Guidelines for Certification of Taxpayer Identification Number on
Substitute Form W-9" for additional instructions.
If backup withholding applies, the Depositary is required to withhold 31% of
any Offer consideration and accrued and unpaid interest paid to the Holder or
other payee. Backup withholding is not an additional tax. Rather, the federal
income tax liability of persons subject to backup withholding will be reduced by
the amount of tax withheld. If withholding results in an overpayment of taxes, a
refund may be obtained from the Internal Revenue Service.
PURPOSE OF SUBSTITUTE FORM W-9
To prevent backup withholding on any Offer consideration and accrued and
unpaid interest paid to a Holder or other payee with respect to Notes purchased
pursuant to the Offer, the Holder is required to notify the Depositary of the
Holder's correct TIN (or the TIN of any other payee) by completing the
Substitute Form W-9 below, certifying that the TIN provided on Substitute Form
W-9 is correct (or that such Holder is awaiting a TIN), and that the Holder is
not subject to backup withholding because (i) the Holder has not been notified
by the Internal Revenue Service that the Holder is subject to backup withholding
as a result of failure to report all interest or dividends, (ii) the Internal
Revenue Service has notified the Holder that the Holder is no longer subject to
backup withholding or (iii) the Holder is exempt from backup withholding.
A nonexempt Holder may check the box in Part 3 of the attached Substitute
Form W-9 if such Holder has not been issued a TIN and has applied for a TIN or
intends to apply for a TIN in the near future. If a nonexempt Holder checks the
box in Part 3, such Holder must also complete the attached Certificate of
Awaiting Identification Number in order to prevent backup withholding.
Notwithstanding that a Holder complies with the foregoing, the Depositary will
withhold 31% of any Offer consideration and any accrued and unpaid interest paid
to a Holder or other payee with respect to the Notes prior to the time a
properly certified TIN is provided to the Depositary.
WHAT NUMBER TO GIVE THE DEPOSITARY
The Holder is required to give the Depositary the correct TIN (e.g., Social
Security number or Employer Identification Number) of the record owner of the
Notes. If the Notes are registered in more than one name or are not registered
in the name of the actual owner, consult the enclosed Guidelines for
Certification of Taxpayer Identification Number on Substitute Form W-9 for
additional guidance on which number to report.
<PAGE>
<TABLE>
<S> <C> <C>
PAYER'S NAME: BANKERS TRUST COMPANY, AS DEPOSITARY
SUBSTITUTE PART 1 -- PLEASE PROVIDE YOUR TIN IN THE BOX AT RIGHT AND ______________________________
FORM W-9 CERTIFY BY SIGNING AND DATING BELOW. Social Security Number
DEPARTMENT OF THE TREASURY OR
INTERNAL REVENUE SERVICE Employer Identification Number
______________________________
PAYER'S REQUEST FOR PART 2 PART 3
TAXPAYER CERTIFICATION -- Under penalties of perjury, I certify that: Awaiting TIN _________________
IDENTIFICATION (1) The number shown on this form is my correct taxpayer
NUMBER (TIN) identification number (or I am waiting for a number to
be issued to me); and
(2) I am not subject to backup withholding because (a) I am
exempt from backup withholding, or (b) I have not been
notified by the Internal Revenue Service (IRS) that I am
subject to backup withholding as a result of a failure
to report all interest or dividends, or (c) the IRS has
notified me that I am no longer subject to backup
withholding.
</TABLE>
<TABLE>
<S> <C>
CERTIFICATE INSTRUCTIONS -- You must cross out item (2) in Part 2 above if you have been
notified by the IRS that you are subject to backup withholding because of underreporting
interest or dividends on your tax return.
</TABLE>
SIGNATURE __________________________ DATE ____________________________________
NOTE: FAILURE TO COMPLETE AND RETURN THIS FORM MAY RESULT IN A $50 PENALTY
IMPOSED BY THE INTERNAL REVENUE SERVICE AND BACKUP WITHHOLDING OF 31% OF
ANY CASH PAYMENTS MADE TO YOU PURSUANT TO THE OFFER. PLEASE REVIEW THE
ENCLOSED GUIDELINES FOR CERTIFICATION OF TAXPAYER IDENTIFICATION NUMBER ON
SUBSTITUTE FORM W-9 FOR ADDITIONAL DETAILS.
YOU MUST COMPLETE THE FOLLOWING CERTIFICATE IF YOU CHECKED
THE BOX IN PART 3 OF SUBSTITUTE FORM W-9
CERTIFICATE OF AWAITING TAXPAYER IDENTIFICATION NUMBER
I certify under penalties of perjury that a taxpayer identification number has
not been issued to me, and either (1) I have mailed or delivered an application
to receive a taxpayer identification number to the appropriate Internal Revenue
Service Center or Social Security Administration Office or (2) I intend to mail
or deliver an application in the near future. I understand that if I do not
provide a taxpayer identification number by the time of payment, 31% of all
reportable cash payments made to me thereafter will be withheld until I provide
a properly certified taxpayer identification number to the Depositary.
SIGNATURE __________________________ DATE ____________________________________
The Information Agent for the Offer is:
MACKENZIE
PARTNERS, INC.
156 Fifth Avenue
New York, New York 10010
(212) 929-5500 (Call Collect)
CALL TOLL-FREE (800) 322-2885
The Dealer Managers of the Offer are:
<TABLE>
<S> <C> <C>
CHASE SECURITIES INC. DONALDSON, LUFKIN & JENRETTE BANCBOSTON ROBERTSON STEPHENS INC.
270 Park Avenue, 4th Floor 277 Park Avenue 100 Federal Street
New York, New York 10017-2070 New York, New York 10172 Boston, Massachusetts 02110
Attention: Robert Berk Attention: OhSang Kwon Attention: Andrew Fay
Call: (212) 270-1100 (collect) Call: (212) 892-3875 (collect) Call: (617) 434-9204 (collect)
(collect)
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<MULTIPLIER> 1,000
<CURRENCY> U.S. Dollars
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> JUN-30-1999
<PERIOD-START> JUL-1-1998
<PERIOD-END> SEP-30-1998
<EXCHANGE-RATE> 1
<CASH> 3,736
<SECURITIES> 0
<RECEIVABLES> 58,713
<ALLOWANCES> 1,592
<INVENTORY> 149,123
<CURRENT-ASSETS> 245,706
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 692,317
<CURRENT-LIABILITIES> 221,067
<BONDS> 275,918
0
0
<COMMON> 197
<OTHER-SE> 89,959
<TOTAL-LIABILITY-AND-EQUITY> 90,156
<SALES> 157,491
<TOTAL-REVENUES> 158,054
<CGS> 149,696
<TOTAL-COSTS> 149,696
<OTHER-EXPENSES> 26,160
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 6,945
<INCOME-PRETAX> (24,747)
<INCOME-TAX> 0
<INCOME-CONTINUING> (24,747)
<DISCONTINUED> (298)
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (25,045)
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
</TABLE>
