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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE
ACT OF 1934 [FEE REQUIRED]
For the fiscal year ended December 31, 1996
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
For the transition period from to
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Commission File Number 1-12852
ROUGE STEEL COMPANY
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(Exact name of registrant as specified in its charter)
DELAWARE 38-2386833
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(State or other jurisdiction of (IRS Employer
incorporation or organization) Identification No.)
3001 MILLER ROAD, DEARBORN, MICHIGAN 48121
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(Address of principal executive offices) (Zip Code)
(313) 317-8900
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(Registrant's telephone number, including area code)
Securities registered pursuant to Section 12(b) of the Act:
Name of each exchange
Title of each class on which registered
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Class A Common Stock, $0.01 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act:
None
Indicate by check mark whether registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports) and (2) has been subject to such
filing requirements for the past 90 days.
YES X NO
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]
Based upon the closing price of the Class A Common Stock on February 7,
1997, as reported on the New York Stock Exchange composite tape (as reported by
the Wall Street Journal), the aggregate market value of registrant's Class A
Common Stock held by nonaffiliates of registrant as of such date was
$254,782,355.
The number of shares of common stock issued and outstanding as of
February 7, 1997 was 21,913,999. This amount includes 14,351,599
shares of Class A Common Stock and 7,562,400 shares of Class B Common Stock.
DOCUMENTS INCORPORATED BY REFERENCE
Selected portions of the 1997 Proxy Statement of Rouge Steel Company are
incorporated by reference into Part III of this Form 10-K to the extent
provided herein.
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ROUGE STEEL COMPANY
ANNUAL REPORT ON FORM 10-K
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1996
TABLE OF CONTENTS
<TABLE>
<S> <C> <C>
PART I PAGE
Item 1. Business .......................................................... 3
Item 2. Properties ........................................................ 12
Item 3. Legal Proceedings ................................................. 13
Item 4. Submission of Matters to a Vote of Security Holders .............. 13
PART II
Item 5. Market for Registrant's Common Equity and Related Security
Holder Matters .................................................... 16
Item 6. Selected Financial Data ........................................... 18
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations ............................................. 20
Item 8. Financial Statements and Supplemental Data ........................ 30
Item 9. Changes in and Disagreements With Accountants on Accounting
and Financial Disclosure .......................................... 53
PART III
Item 10. Directors and Executive Officers of the Registrant ................ 54
Item 11. Executive Compensation ............................................ 54
Item 12. Security Ownership of Certain Beneficial Owners and Management .... 54
Item 13. Certain Relationships and Related Transactions .................... 54
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K .. 55
</TABLE>
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PART I
Item 1. Business.
GENERAL
Rouge Steel Company, a Delaware corporation ("Rouge Steel" or the
"Company"), is an integrated producer of high quality, flat rolled carbon steel
products consisting of hot rolled, cold rolled and electrogalvanized steel.
The Company was incorporated in 1981. In recent years, Rouge Steel has
emphasized the production of value-added flat rolled carbon steel products.
The Company's products generally command higher margins than commodity flat
rolled carbon steel products. The Company's products generally, and its
value-added products specifically, are sold primarily to customers in the
automotive industry who have exacting quality, delivery and service
requirements. The Company's ability to meet these standards and its extensive
participation in the development of new products designed for automotive
applications have enabled it to expand its sales to automotive customers. The
Company also sells its products to steel converters, service centers and other
end users.
PRODUCTS
Rouge Steel currently produces primarily three finished sheet steel
products: (i) hot rolled, which is sold as hot bands or is pickled to remove
surface scale, and is sold to automotive, converter and service center
customers and other end users; (ii) cold rolled, which is hot rolled steel that
is subsequently cold reduced in thickness, annealed and typically tempered to
enhance ductility and surface characteristics and is sold to automotive,
converter and service center customers and other end users; and (iii)
electrogalvanized, which is cold rolled steel that has been coated with either
pure zinc or a zinc/iron combination on one or both sides to make the steel
more corrosion resistant and is sold almost exclusively to automotive
customers.
The following table sets forth the percentage of Rouge Steel's steel
product revenues from hot rolled, cold rolled and electrogalvanized steel for
the years from 1994 through 1996.
1996 1995 1994
---- ---- ----
Hot Rolled 47.4% 49.8% 48.8%
Cold Rolled 30.6 28.4 30.3
Electrogalvanized 22.0 21.8 20.9
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
Approximately one-half of the Company's sales of hot rolled steel has been
to the automotive market for wheels and structural components such as
suspension arms, frames and seat frames. Rouge Steel also sells hot rolled
steel in the non-automotive end user markets for the manufacture of roof
decking, grating, guard rails and pipes and to converters and service centers
to be further processed or sold directly to other end users. Cold rolled steel
is sold by the Company for use in automotive parts, lighting fixtures, room
dividers and doors, and for unexposed applications such as the manufacture of
floor pans and tubing. Electrogalvanized products are sold to automotive
customers for use as major automotive body panels such as doors, quarter panels
and fenders.
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One of the Company's primary objectives is to increase its production and
sales of value-added higher margin products. In order to increase the
Company's capability to produce more sophisticated products, the Company has
entered into a joint venture with Shiloh Industries, Inc. ("Shiloh") to produce
engineered steel blanks which the Company anticipates selling to its automotive
customers (the "Shiloh Venture"), and a joint venture with a subsidiary of
Worthington Industries, Inc. (together with its subsidiaries, "Worthington") to
construct and operate a cold rolled hot dipped galvanizing line which will
provide the Company with additional coated steel products, primarily for
automotive applications ("Spartan Steel"). The Company has also reached an
agreement in principle to purchase an 11% interest in TWB Company ("TWB"), an
existing facility that produces laser welded blanks sold primarily for
automotive applications. Currently, Worthington and Thyssen Stahl of Germany
("Thyssen") are the participants in TWB which is located near Monroe, Michigan.
The Shiloh Venture has been financed by a $23 million credit facility, 20% of
which is guaranteed by the Company and the Company expects to invest
approximately $43 million and $6.5 million in Spartan Steel and TWB,
respectively. In addition, the Company has negotiated a steel supply and toll
coating agreement with Worthington with respect to Worthington's hot rolled hot
dipped galvanizing line being constructed near Delta, Ohio ("Delta
Galvanizing") which should provide the Company with an additional outlet for
its hot rolled and cold rolled steel and additional corrosion resistant steel
products, including framing and structural steel for the construction,
agricultural equipment and automotive makers. Rouge Steel's participation in
these joint ventures and the processing arrangement responds to the demand by
end users for increasingly complex products and is intended to mitigate the
erosion in sales that might occur if the Company were unable to provide these
products to its current customers. In addition, the Company's participation in
these joint ventures and the processing arrangement could provide opportunities
for the Company to supply new customers.
MARKETS AND CUSTOMERS
In light of the Company's goal to strengthen long-term customer
relationships, improved customer service is a key component of the Company's
strategy and Rouge Steel has devoted significant resources toward that end.
The Company has approximately 200 steel customers, virtually all of which are
located within 350 miles of Rouge Steel's single-site integrated facility. The
Company's primary customers are in the automotive, converter, service center
and other end user markets. The Company believes its proximity to its
customers allows it to provide focused customer service and resources. The
Company has improved its customer service through the addition of personnel in
the customer service and technical support departments. The Company's primary
goal in this respect is to maintain and improve its responsiveness to customer
needs in a continually changing competitive environment.
Ford Motor Company ("Ford") and Worthington, the Company's two largest
customers, accounted for approximately 30% and 12%, respectively, of total
sales in 1996 and 31% and 13%, respectively, of total sales in 1995. While the
loss of Ford or Worthington as a customer, or a significant reduction of either
company's business, would have a material adverse effect on the Company's
business, the Company believes that its relationships with Ford and Worthington
provide a stable sales base and the ability to expand its product capability
and concentrate on increasing margins. No other single customer of the Company
has accounted for more than 10% of the Company's total sales over the past five
years. The Company's ten largest customers in the aggregate accounted for
approximately 70% of total sales in 1996 and approximately 67% of total
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sales in 1995. For 1996, the Company estimates that its share of the domestic
flat rolled steel market, as measured by shipments, was approximately 5.8%.
The Company's primary customers are in the automotive, converter, service
center and other end user markets. The following table sets forth the
percentage of the Company's steel product revenues from various markets for the
years ended December 31, 1994 through 1996.
Year Ended December 31
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1996 1995 1994
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Automotive 61.7% 60.7% 58.9%
Converters 18.6 18.4 20.4
Service Centers 16.3 16.8 17.8
Other End User 3.4 3.1 2.9
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Exports - 1.0 -
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Total 100.0% 100.0% 100.0%
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Automotive. The Company is a significant supplier of hot rolled, cold
rolled and electrogalvanized steel to the automotive industry. Car and truck
manufacturers and their parts suppliers require sheets of steel with exact
dimensions, enhanced formability and defect-free surfaces. The Company's steel
products have been used in a variety of automotive applications including
exposed and unexposed panels and high strength parts for safety applications
and to achieve weight reduction. The Company supplies sophisticated steel
products to meet the demand for lighter, safer, and longer lasting vehicles
such as bake hardenable steel and steel for hot forming, which is used for high
strength and safety applications such as automotive door beams. In the past
five years Rouge Steel has made significant improvements in quality and
customer service. The automotive market comprised 61.7% of the Company's
steel product revenues in 1996 up from 58.9% in 1994.
Sales to Ford, the Company's largest customer, accounted for approximately
30% of total sales in 1996 and 31% of total sales in 1995 and 1994. In
addition to its relationship with Ford, the Company has diversified its
automotive customer base. Until the early 1990's, Rouge Steel sold only a small
amount of steel to Chrysler Corporation ("Chrysler") and had no direct sales to
General Motors Corporation ("GM"). The Company believes that its ability to
provide the complex grades of steel required for automotive applications
combined with its ability to provide competitive pricing, quality and delivery
caused Chrysler and GM to begin purchasing significant quantities of hot
rolled, cold rolled and electrogalvanized steel from the Company. Currently,
Chrysler and GM are both among the Company's five largest customers. The
Company is currently seeking to expand its customer base by penetrating the
automotive market further through the broadening of its steel product and
service capabilities.
Converters. The Company sells hot rolled and cold rolled steel to the
converter market, which includes customers that process steel into a more
finished state such as pipes, tubing and cold rolled strip steel. Although the
converter market is typically more price sensitive than the end user market due
to its reliance on purchases at prevailing prices, it provides the Company with
some sales stability during downturns in the automotive market.
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Sales to Worthington, a major steel fabricator and processor and the
Company's second largest customer and shareholder, were approximately 12%, 13%
and 15% of total sales in 1996, 1995 and 1994, respectively. Worthington owns
approximately 27.4% of the Company's Common Stock which represents a voting
interest of 19.9%.
Service Centers. The Company sells hot rolled and cold rolled steel to
service center customers that provide processing services such as slitting,
shearing and blanking for distribution primarily to automotive end users. Due
to the increased costs for processing services, steel service centers have
become a major factor in the distribution of flat rolled products to end users.
Direct Sales to Other End Users. The Company sells hot rolled steel to
manufacturers of roof decking, grating, guard rails and pipes. The Company
sells cold rolled steel to manufacturers of lighting fixtures, room dividers
and doors. Steel products are distributed by Rouge Steel principally through
its own sales organization.
Order Status. The order load was 667,000 net tons at December 31, 1996,
compared to 550,000 net tons at December 31, 1995. All orders related to the
order load at December 31, 1996 are expected to be shipped during the first
half of 1997. The order load represents orders received but not yet filled.
The increase in the order load reflects very strong demand for the Company's
products coupled with reduced blast furnace production due to its partial
reline of the "C" blast furnace and related operating problems.
RAW MATERIALS AND ENERGY SOURCES
The principal raw materials and energy sources used by Rouge Steel in its
production process are coke, steel scrap, iron ore pellets, natural gas,
electricity, steam and oxygen. Coke, coal, iron ore pellets, electricity,
steam, oxygen and nitrogen are predominantly purchased pursuant to long-term
agreements or annual agreements. The other raw materials are generally
purchased in the open market from various sources. Certain of the purchased
raw materials are not covered by long-term contracts and, therefore,
availability and price are subject to world market conditions.
Coke. Coke represents the Company's single largest raw material
expenditure. In 1996, approximately 61% of the Company's coke requirements
were provided by USX Corporation ("USX") pursuant to a one-year tolling
agreement. Through a similar tolling agreement with New Boston Coke
Corporation ("New Boston"), whose total productive capacity is dedicated to the
Company, the Company acquired approximately 38% of its coke requirements, and
the balance was purchased in the open market. Under the tolling agreements,
the Company provides the coal to USX and New Boston for processing into coke.
High volatile coal is acquired at competitive prices pursuant to a contract
with Massey Coal Sales Company, Inc. which expires on January 1, 1998. Rouge
Steel began purchasing coke from Bethlehem Steel Corporation ("Bethlehem") on
January 1, 1997 pursuant to a five-year agreement. Bethlehem is expected to
provide approximately 65% of the Company's coke requirements at a fixed price
for the first three years and at a price for the last two years to be
negotiated by the parties. The balance of Rouge Steel's coke requirements is
expected to be provided by New Boston. The Company does not produce coke and,
as a consequence, relies upon outside sources. During the past ten years, coke
production capacity in the United States has been reduced. Due to the
environmental liabilities associated with operating coke ovens, the Company
expects coke production capacity to be
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reduced further in the next ten years. The coke shortage that may result from
the reduction in capacity may cause the price that the Company pays for coke to
increase which may adversely affect the Company's results of operations.
Iron Ore Pellets. The Company has consumed an average of 2.8 million
gross tons of iron ore pellets annually over the three-year period ended
December 31, 1996, 12% of which were directly supplied by Eveleth or its
successor, Eveleth Mines LLC ("EVTAC"). In April 1995, Rouge Steel converted
to fluxed pellet use on both blast furnaces. The Company currently trades all
of the EVTAC acid pellets allocated to it and, in return, obtains fluxed
pellets and acid pellets with a higher manganese content, which EVTAC does not
produce and which are used to enhance blast furnace productivity. During the
three-year period ended December 31, 1996, the Company traded an average of 1.9
million gross tons of Eveleth/EVTAC pellets annually, which constituted 85% of
the Company's share of the pellets produced by Eveleth/EVTAC, in return for
fluxed pellets and pellets with a higher manganese content, which constituted
67% of the Company's requirements for pellets during this period. In order to
acquire fluxed pellets under the trade arrangement, the Company is required to
pay a cash premium, indexed to inflation factors, equal to the difference
between the market price of the fluxed pellets and the market price of EVTAC
acid pellets, in addition to providing the EVTAC acid pellets. The balance of
the Company's pellet requirements were purchased pursuant to a contract with
The Cleveland-Cliffs Iron Company.
The iron ore reserves of EVTAC are sufficient to provide the Company with
an estimated 25-year supply at the current level of utilization.
In a series of transactions (the "Restructuring") which were effective
December 1, 1996, Oglebay sold its interest in the entities that owned and
operated a mine and pellet producing facility (the "Eveleth Facility") to Rouge
Steel and AK Steel Corporation ("AK Steel") and resigned as manager of the
Eveleth Facility. Rouge Steel assigned substantially all of its share of the
operating assets and liabilities of the Eveleth Facility to Eveleth Mines LLC
("EVTAC"), the limited liability company which now owns and operates the
Eveleth Facility, in exchange for a 45% ownership interest in EVTAC.
Wholly-owned subsidiaries of AK Steel and Stelco, Inc. ("Stelco") together own
55% of EVTAC.
Prior to the Restructuring, Rouge Steel was able to acquire approximately
42% of the production of Eveleth Mines and was responsible for covering the
same percentage of the fixed costs of the operation. Following the
Restructuring, the Company is required to purchase 45% of the first 5.0 million
natural gross tons of pellets produced each year by EVTAC at world market
prices and has the right of first refusal to 45% of any pellets produced in
excess of 5.0 million natural gross tons. Similar contracts have been executed
with AK Steel and a wholly-owned subsidiary of Stelco. The Company is
committed to making additional capital contributions to EVTAC of $3.4 million
which, depending upon EVTAC's liquidity requirements, may be invested in the
first quarter of 1997.
A new management team has been retained to replace Oglebay as mine
manager. The new management team will focus on cost reduction and quality and
productivity improvements.
Scrap. The price of steel scrap has increased dramatically since the end
of 1992. The price of #1 industrial bundles, the steel scrap which makes up
the largest portion of the Company's scrap purchases, increased by 36% between
the end of 1992 and the end of 1996. The higher price reflects elevated demand
for steel scrap, which is a result of increased production at integrated
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steel mills and electric furnace based mini-mills. As long as the current
industry production level continues and new scrap intensive mini-mills come on
line, the Company does not expect any relief from high steel scrap prices. The
Company spent approximately $135 million to purchase steel scrap in 1996.
Other Raw Materials and Energy Sources. During 1996, natural gas,
electricity and steam constituted 51%, 35%, and 14%, respectively, of the
Company's total energy costs. Natural gas is acquired at prevailing market
prices from various producers. Rouge Steel purchases electricity from DTE
Energy for its ladle refining and Double Eagle facilities and, when they were
operating, for its electric arc furnaces. The Company owns a 60% interest in
the Powerhouse that is managed by Ford (which owns the other 40%). Pursuant to
an operating agreement with Ford (the "Powerhouse Joint Operating Agreement")
which expires December 31, 1999, the Powerhouse provides the rest of the
electricity consumed by the Company, as well as all of its steam requirements.
On December 15, 1996, the Company provided written notice to Ford of its
intention to terminate the Powerhouse Joint Operating Agreement. Rouge Steel
and Ford have agreed to participate in a joint study of the alternatives
available to Rouge Steel and Ford for utilities and services which are now
provided by the Powerhouse.
Effective November 15, 1995, the Company entered into a ten-year contract
for the supply of oxygen and nitrogen with Praxair, Inc. The contract contains
annual minimum oxygen and nitrogen purchase levels of $8.3 million and
$550,000, respectively.
COMPETITION
The Company is in direct competition with domestic and foreign flat rolled
carbon steel producers and producers of plastics, aluminum and other materials
which can be used in place of flat rolled carbon steel in manufactured
products. The Company competes principally on the basis of quality, price and
the ability to meet customers' product specifications and delivery schedules.
The Company believes, however, that its competitive position in the steel
industry is strengthened by, among other things, (i) improved manufacturing
capability, (ii) substantially reduced postretirement expenses resulting from
certain agreements with Ford, (iii) environmental indemnifications from Ford
until 2009, (iv) long-term relationships with Ford and Worthington, (v) a
single-site, geographically strategic location, and (vi) financial flexibility.
Imports. Domestic steel producers face significant competition from
foreign producers. Decisions by these foreign steel producers with respect to
production and sales may be influenced to a greater degree by political and
economic policy considerations than by prevailing market conditions.
Steel imports as a percentage of apparent domestic consumption, including
semifinished steel, were approximately 21% for the period from 1992 through
1996. The percentage peaked in 1994 at 25%. Attractive world export prices
and the improved international competitiveness of the domestic steel industry
have been factors in reducing import levels. A significant adverse change in
any of these factors could result in an increase in steel imports.
Domestic Steel Industry. The domestic steel industry is a cyclical
business that is highly competitive. Despite significant reductions in raw
steel production capability by major domestic integrated producers over the
last decade, the domestic industry continues to be adversely affected
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by excess world capacity. Over the last decade, extensive downsizings have
necessitated costly restructuring charges that, when combined with highly
competitive market conditions, have resulted in substantial losses for most
domestic integrated steel producers.
In the United States, the Company competes with many domestic integrated
steel companies. The Company also competes with mini-mills, which generally
target regional markets, have reduced environmental maintenance costs and
liabilities, and derive certain competitive advantages by utilizing less
capital intensive liquid steel processes. The capability of electric furnace
based, thin slab mini-mills to produce flat rolled steel products is
increasing. In the future, these mini-mills may provide increased competition
in the higher quality, value-added product lines now dominated by the
integrated steel producers. New mini-mills that produce flat rolled steel and
improvements in the production efficiencies of integrated mills have increased
overall production capacity in the United States, which has caused downward
price pressure. The ability of mini-mill producers to capture a significant
percentage of the sheet markets, which represented approximately half of
domestic industry shipments in 1996, cannot presently be determined due to
operating cost and product quality issues associated with thin-cast technology.
In addition, fluctuations in the cost of scrap, the primary element in the
production of steel by mini-mills, may influence the ability of mini-mills to
compete with domestic integrated producers.
A number of integrated steel producers have gone through bankruptcy
reorganizations. These proceedings have resulted in reduced operating costs
for these producers and may permit them to price their steel products at levels
below those that could otherwise be maintained by them. The Company believes,
however, that due to its reduced labor costs and reduced exposure to historical
environmental liabilities resulting from certain agreements with Ford, as well
as the absence of indebtedness since the Company's initial public offering, the
Company is in a better position to compete with these companies than many of
its competitors.
Steel Substitutes. In the case of many steel products, there is
substantial competition from other products, including plastics, aluminum,
ceramics, glass, wood and concrete. However, the Company, to a limited degree,
and certain other manufacturers of steel products have begun to compete in
recent years in markets not traditionally served by steel producers, including
the markets for steel construction studs and steel frames for houses.
EMPLOYEES
At December 31, 1996, the work force of Rouge Steel was comprised of
2,492 hourly and 627 salaried personnel, including Rouge Steel employees
working at Double Eagle. From 1986 to 1996, the Company reduced its work force
by over 1,300 employees, while increasing the level and quality of its
production. The Company's employment cost per ton shipped in 1996 was $87,
which the Company believes was one of the lowest among integrated steel
producers, and tons shipped per employee has grown to more than 900 tons per
year, which the Company believes is one of the highest in the steel industry.
Hourly employees of Rouge Steel are represented by the International
Union, United Automobile, Aerospace and Agricultural Implement Workers of
America, UAW (the "UAW"). Most of the hourly employees of the Company's
competitors are represented by the United Steelworkers of America ("USWA") and
are subject to USWA-patterned agreements. EVTAC
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workers, who are employed by Thunderbird Mining Company, a wholly-owned
subsidiary of EVTAC, are also represented by the USWA. On February 7, 1997,
the USWA ratified the terms of its economic reopener with Thunderbird
Mining Company. The agreement will continue in effect through July 31, 1999.
In 1995, Rouge Steel and the UAW executed a labor agreement with a five-year
term and no optional renegotiation prior to expiration. The labor agreement
includes provisions for employment security and profit sharing. The Company
believes that it maintains a good relationship with the UAW.
ENVIRONMENTAL CONTROL AND CLEANUP EXPENDITURES
The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these provisions and does not believe that future
compliance with such provisions will have a material adverse effect on its
results of operations or financial condition. The Company has incurred capital
expenditures in connection with matters relating to environmental control of
approximately $1.5 million during the past four years. In addition, the
Company has planned approximately $5.2 million in capital expenditures for
environmental compliance for the years 1996 through 2000. Since environmental
laws and regulations are becoming increasingly more stringent, the Company's
environmental capital expenditures and costs for environmental compliance may
increase in the future. In addition, due to the possibility of unanticipated
regulatory or other developments, the amount and timing of future environmental
expenditures may vary substantially from those currently anticipated. The
costs for current and future environmental compliance may also place domestic
steel producers at a competitive disadvantage with respect to foreign steel
producers, which may not be required to undertake equivalent costs in their
operations, and manufacturers of steel substitutes, which are subject to less
stringent environmental requirements.
Under the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Environmental Protection Agency (the
"EPA") has the authority to impose joint and several liability for remediation
of contaminated properties on waste generators, current and former site owners
and operators, transporters and other potentially responsible parties
regardless of fault or the legality of the original disposal activity. Many
states have statutes and other authorities similar to CERCLA. Domestic steel
producers have spent, and can be expected to spend in the future, substantial
amounts of money for compliance with these environmental laws and regulations.
Pursuant to the purchase and sale agreement (the "Purchase and Sale
Agreement") executed in connection with the acquisition of the Company from
Ford in 1989 (the "Acquisition"), Ford has agreed to indemnify the Company
(the "Ford Indemnity") for any liability arising out of an environmental
condition existing prior to the Acquisition or a subsequent change in law
relating to such condition that results in an environmental claim under any
federal or state environmental law, including CERCLA, the Resource Conservation
and Recovery Act ("RCRA"), the Clean Water Act, the Safe Drinking Water Act,
the Clean Air Act and the Occupational Safety and Health Act of 1970 or an
environmental claim based upon a release of a material of environmental
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concern. An environmental claim, as defined in the Purchase and Sale
Agreement, includes, among other things, the costs associated with the release
of any pollutants, contaminants, toxic substances and hazardous substances into
the environment. The Ford Indemnity provides that Ford shall pay the Company's
liabilities, including any penalties and attorneys' fees, in connection with
any environmental claim relating to a pre-Acquisition condition. The Ford
Indemnity terminates on December 15, 2009. Since the Acquisition, Ford has
indemnified the Company for environmental claims of approximately $5 million.
In some instances, Ford has acted proactively; in others, it has denied
responsibility. The submitted claims include asbestos removal, CERCLA
liabilities, National Pollution Discharge Elimination System ("NPDES") permit
violations, underground storage tank removal and transformer replacement.
Rouge Steel does not believe the rejection by Ford of any claims made under the
Ford Indemnity will have a materially adverse effect on the Company.
The Company has been identified as a potentially responsible party under
CERCLA and/or similar state statutes at the Carter Industrial, Inc., Wayne
County, Michigan site. The Company is subject to joint and several liability
imposed by CERCLA on potentially responsible parties. Based upon available
information, the Company does not anticipate that assessment and response costs
resulting from the Company being a potentially responsible party will have a
material adverse effect on the financial condition or result of operations of
the Company. However, as further information comes into Rouge Steel's
possession, the Company will continue to reassess such evaluations. In
addition, pursuant to the Ford Indemnity, Ford has accepted liability for, and
defense of, the Carter Industrial Site.
In late 1995, the existence of material containing polychlorinated
biphenyls ("PCB") was noted within a containment area of an electrical
substation in the cold mills. Subsequent investigation by the Company
disclosed the presence of an underground storage tank containing
PCB-contaminated oil below the floor of the substation. The tank was
subsequently isolated, drained and closed in accordance with Michigan's
underground storage tank program. Upon further investigation, the Company
discovered PCB contamination in the area is preceding. As of December 31,
1996, the Company had accrued approximately $1.7 million and spent
approximately $1 million for the investigation and cleanup. The Company
believes that these costs are subject to the Ford Indemnity and has filed a
claim with Ford. Negotiations with Ford continue with respect to this
indemnity claim. The Company has not recorded an asset in anticipation of
recovery pursuant to the Ford Indemnity.
In December 1992, the EPA conducted a multimedia inspection of the Rouge
Steel facility. The Company has obtained a copy of the inspection report which
identifies certain alleged violations at its facility. To date, the EPA has
raised no issue with the Company with the exception of an Administrative
Complaint under the Clean Air Act which the Company settled in May 1994. The
Company is not aware of any other outstanding issues with respect to this
inspection. The full extent of the cost of any required corrective measures,
if any, cannot be ascertained at this time. The Company believes that a
portion of any potential liability is attributable to pre-Acquisition
activities and pursuant to the Ford Indemnity has notified Ford of the
potential indemnity claim arising from this inspection.
The Company is currently operating in substantial compliance with a 1991
Consent Judgment between the Company and the Michigan Department of
Environmental Quality (the "DEQ") with respect to wastewater discharges at the
Schaefer Road wastewater treatment facility.
11
<PAGE> 12
The Company is also operating under a Consent Order with the DEQ in
connection with the federally mandated requirement to achieve the national
ambient air quality standards for particulate matter. This Consent Order
defines the Company's fugitive dust and particulate matter control programs.
The consent order does not impose any penalties on the Company or any
significant production restrictions on any of the Company's production
facilities. The Company has not incurred any costs associated with this issue,
except those required to negotiate the consent. Similarly, the Powerhouse is
operating under a 1988 Consent Order with the DEQ in connection with the
federally mandated requirement to achieve the national ambient air quality
standard for sulfur dioxide. The Powerhouse is currently negotiating several
proposed revisions to this Consent Order with the DEQ. These revisions
primarily involve sampling and analysis issues, and to the Company's knowledge,
do not involve significant production or capital expenditure issues.
In 1990, Congress passed amendments to the Clean Air Act which impose more
stringent standards on air emissions. Pursuant to Title V of the Clean Air Act
Amendments of 1990, the Company submitted an application for a facility
operating permit on January 24, 1997.
In 1996, the Company applied for renewal of its Clean Water Act NPDES
permit. The Company expects that it will be required to develop a program for
management of stormwater runoff in connection with the renewal application.
The Company does not expect costs associated with the permit renewal or any
resultant capital costs to be material.
RESEARCH AND DEVELOPMENT
The Company does not incur material expenses in research and development
activities but does participate in various research and development programs.
The Company addresses research and development requirements and product
enhancement by maintaining a staff of technical support, quality assurance and
engineering personnel. The Company also participates in joint projects with
the American Iron and Steel Institute and with various universities.
Item 2. Properties.
The Company's integrated single-site facility is located on a 457-acre
industrial site adjacent to Ford's stamping and assembly plants in Dearborn,
Michigan. The Rouge Steel facility is strategically located in the heart of
the automotive manufacturing region and in an area where many customers of flat
rolled steel are situated. The Company believes that its single-site location
is a strategic advantage because it permits reduced transportation costs,
increased efficiencies and better management response times.
The Company's facilities include three blast furnaces (one of which has
been idle since 1988), two basic oxygen furnaces, two electric arc furnaces
(which have been idle since 1992), two ladle refining facilities, a vacuum
degassing facility, one three-strand continuous caster, one computerized hot
strip mill, three pickle lines, one tandem mill, two annealing facilities (one
of which is a hydrogen annealing facility), two temper mills, two slitters and
one recoil welder. In addition, the Company owns: a 60% interest in a 315
megawatt powerhouse (the "Powerhouse") that is managed by Ford (which owns the
other 40%); a 50% interest in Double Eagle Steel Coating Company ("Double
Eagle") the world's largest electrogalvanizing facility; a 48% interest
12
<PAGE> 13
in Spartan Steel, a cold rolled hot dipped galvanizing facility which is being
constructed; a 20% interest in the Shiloh Venture, an engineered steel blanking
facility; and a 45% interest in EVTAC, an iron ore mining and pelletizing
facility.
Item 3. Legal Proceedings.
From time to time, Rouge Steel is involved in routine litigation
incidental to its business. The Company believes that none of such current
proceedings, individually or in the aggregate, will have a materially adverse
effect on the Company's results of operations or financial condition.
Item 4. Submission of Matters to a Vote of Security Holders.
There were no matters submitted to a vote of security holders during the
fourth quarter of 1996.
13
<PAGE> 14
EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth, as of December 31, 1996, certain
information with respect to the executive officers of the Company. Executive
officers are chosen by the Board of Directors of the Company at the first
meeting of the Board after each annual meeting of stockholders. Officers of
the Company serve at the discretion of the Board of Directors and are subject
to removal at any time. There is no family relationship among any of the
officers or directors.
<TABLE>
<CAPTION>
NAME AGE POSITION
- ---- --- --------
<S> <C> <C>
Carl L. Valdiserri ..... 60 Chairman and Chief Executive Officer
Louis D. Camino ........ 59 President and Chief Operating Officer
Gary P. Latendresse .... 53 Vice President and Chief Financial Officer
Dennis T. Crosby ....... 53 Vice President, Engineering and Technology
William E. Hornberger .. 50 Vice President, Employee Relations and Public Affairs
George T. Kilavos ...... 65 Vice President, Production Planning
Daniel A. Marion ....... 58 Vice President, Purchasing and Transportation
Ronald J. Nock ......... 44 Vice President, Sales and Marketing
Michael A. Weiss ....... 48 Secretary and General Counsel
</TABLE>
BUSINESS EXPERIENCE
Mr. Valdiserri has been Chairman and Chief Executive Officer of the
Company since 1989. From 1987 until 1989 he was an independent consultant
regarding the steel industry, principally to The Chase Manhattan Bank, N.A.
From 1982 until 1987, Mr. Valdiserri was Executive Vice President of Weirton
Steel Company. Mr. Valdiserri joined the Weirton Division of National Steel
Corporation in 1978. He was Chief Engineer in the Great Lakes Division of
National Steel Corporation from 1973 to 1978 and held various other engineering
positions from 1964 to 1972. He began his career with Wheeling-Pittsburgh
Steel Corporation in 1958. Mr. Valdiserri has 38 years of experience in the
steel manufacturing industry. Mr. Valdiserri is also a director of Champion
Enterprises, Inc.
Mr. Camino has served as President and Chief Operating Officer, as well as
a director of the Company, since 1990. Mr. Camino was Vice President of
Operations for Acme Steel Company from 1986 to 1990. Mr. Camino began his
career with Jones and Laughlin Steel Corporation as a supervisor in 1960, and
has 36 years of experience in the steel manufacturing industry.
Mr. Latendresse has been Vice President and Chief Financial Officer and a
director of the Company since 1992. He was Vice President, Finance and
Controller from 1987 until 1992. Mr. Latendresse has held various financial
positions with the Company and Ford for 28 years. Mr. Latendresse has 27 years
of experience in the steel manufacturing industry. Mr. Latendresse is also the
Treasurer and Assistant Secretary of the Company.
14
<PAGE> 15
Mr. Crosby has been Vice President, Engineering and Technology since 1989.
Mr. Crosby previously served as General Manager of Engineering and
Environmental Affairs at Inland Steel Company where he was employed between
1967 and 1989. Mr. Crosby has 29 years of experience in the steel
manufacturing industry.
Mr. Hornberger has been Vice President, Employee Relations and Public
Affairs since 1992. From 1987 to 1992, he was Vice President, Employee
Relations. Mr. Hornberger has held various employee relations positions at
Rouge Steel and Ford since 1973. He has 13 years of experience in the steel
manufacturing industry.
Mr. Kilavos has been Vice President, Production Planning since 1990. From
1984 to 1990, Mr. Kilavos was Director, Production Planning at Weirton Steel
Company. He previously held various materials management positions at Weirton
Steel Company and National Steel Corporation. Mr. Kilavos has 35 years of
experience in the steel manufacturing industry.
Mr. Marion has been Vice President, Purchasing and Transportation since
March 1, 1995. From 1988 to 1995, Mr. Marion was Procurement Manager,
Purchasing and Supply Staff, Ford Motor Company. He previously held various
purchasing positions during his 34 years with Ford, including more than ten
years of steel purchasing experience.
Mr. Nock has been Vice President, Sales and Marketing since 1988. Mr.
Nock held various positions at the Company since 1982, including Manager of
Sales and Sales Representative. He has 21 years of experience in the steel
manufacturing industry.
Mr. Weiss has served as Secretary and General Counsel since 1989. Mr.
Weiss is a director and a shareholder of the Pittsburgh, Pennsylvania law firm
of Doepken Keevican & Weiss Professional Corporation ("DK&W"), which is
engaged in the practice of law. He has been a shareholder of DK&W since 1988.
15
<PAGE> 16
PART II
Item 5. Market for Registrant's Common Equity and Related Security Holder
Matters.
As of December 31, 1996, there were (i) 14,341,136 shares of class A
common stock, par value $0.01 per share (the "Class A Common Stock"), issued
and outstanding and held by approximately 7,000 stockholders of record, and
(ii) 7,562,400 shares, of class B common stock, par value $0.01 per share (the
"Class B Common Stock" and together with the Class A Common Stock, the "Common
Stock"), issued and outstanding and held by two stockholders of record. As of
December 31, 1996, Carl L. Valdiserri and Worthington held 7,140,400 and
422,000 shares, respectively, of Class B Common Stock. The principal market
for the Class A Common Stock is the New York Stock Exchange, Inc. (the "NYSE").
The Class B Common Stock is not listed for trading on any securities exchange.
Quarterly cash dividends of $0.02 per share of Common Stock were paid on
July 29 and October 28, 1994 and January 27, April 28, July 28, and October 27,
1995. Quarterly cash dividends of $0.03 per share of common stock were paid on
January 26, April 26, July 26, and October 25, 1996 and January 24, 1997.
Future dividends on the Common Stock are payable in cash or shares of Class A
Common Stock, at the discretion of the Board of Directors of the Company. The
Company's Certificate of Incorporation provides that (i) no dividends be paid
on the Class B Common Stock unless a dividend (equal to the dividend declared
and paid to the holders of Class B Common Stock) is declared and paid on the
Class A Common Stock and (ii) any dividend paid on the Class B Common Stock
will be paid only in shares of Class A Common Stock or cash. Holders of Class
A Common Stock and Class B Common Stock will be entitled to share ratably, as a
single class, in any dividends paid on the Common Stock. The declaration and
payment of dividends on the Common Stock will be subject to a quarterly review
by the Board of Directors of the Company. The timing and amount of dividends,
if any, will depend, among other things, on the Company's funding obligations
with respect to profit sharing plans, results of operations, financial
condition, cash requirements, restrictions, if any, in loan agreements,
obligations with respect to preferred stock, if any, and other factors deemed
relevant by the Board of Directors. The holders of outstanding shares of Class
A Common Stock and Class B Common Stock are entitled to receive dividends out
of assets legally available therefor at such times and in such amounts as the
Board of Directors may from time to time determine.
16
<PAGE> 17
The Company's Class A Common Stock has been listed for trading on the NYSE
since March 29, 1994 under the symbol ROU. The following table sets forth, for
the periods indicated, the high and low sales prices of the Company's Class A
Common Stock on the NYSE as reported in the consolidated transaction reporting
system. The closing sale price of the Company's Class A Common Stock on the
NYSE on February 7, 1996, as reported in the consolidated transaction reporting
system, was $18-1/4.
1996 HIGH LOW
- ---- ---- ---
First Quarter (from March 29) ........... $25-1/8 $22
Second Quarter .......................... 23-3/8 21-1/8
Third Quarter ........................... 23-1/8 19-1/8
Fourth Quarter .......................... 22-3/4 20-1/8
1995 HIGH LOW
- ---- ---- ---
First Quarter ........................... $30-3/4 $21-7/8
Second Quarter .......................... 25-7/8 20-3/4
Third Quarter ........................... 27-3/8 23-1/8
Fourth Quarter .......................... 24-1/2 19-3/4
17
<PAGE> 18
Item 6. Selected Financial Data.
The Statement of Operations data and Balance Sheet data in the following
table present selected historical consolidated financial information derived
from the historical consolidated financial statements of the Company as of and
for each of the years in the five-year period ended December 31, 1996. This
information should be read in conjunction with the historical consolidated
financial statements of the Company and related notes thereto and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
beginning on page 20.
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(dollars in millions, except per share, per hour, per ton and per employee amounts)
<S> <C> <C> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Total Sales $1,307.4 $1,206.6 $1,236.1 $1,076.7 $ 984.0
Operating Income 24.7 121.6(1) 103.0 62.3 27.0
Net Interest Income (Expense) 4.8 5.4 (2.5) (11.2) (14.2)
Income Tax (Provision) Benefit (6.9) (33.5) 8.3 6.7 0.5
Income Before Changes in Accounting Principles 23.4 94.7(1) 105.6 53.0 14.1
Net Income (Loss) 23.4 94.7(1) 105.6 52.1 (5.1)
Per Share Data
Income Before Changes in Accounting Principles $ 1.07 $ 4.37 $ 5.21 $ 3.31 $ 0.71
Net Income (Loss) 1.07 4.37 5.21 3.26 (0.26)
Cash Dividends Declared 0.12 0.09 0.06 - -
Weighted Average Shares Outstanding (000) 21,845 21,677 20,262 16,000 19,704
<CAPTION>
At December 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
(amounts in millions)
<S> <C> <C> <C> <C> <C>
BALANCE SHEET DATA:
Working Capital $ 216.6 $ 294.2 $ 268.3 $ 84.4 $ 155.7
Property, Plant, and Equipment, Net 209.2 135.7 80.4 69.0 64.7
Total Assets 682.0 672.5 616.8 464.9 423.7
Long-Term Debt and Capitalized Lease
Obligation, Including Current Portion - - - 69.0 130.1
Stockholders' Equity 417.3 393.9 295.7 79.6 30.2
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------
1996 1995 1994 1993 1992
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
OTHER DATA:
Net Tons Shipped (000) 2,876 2,542 2,643 2,472 2,425
Raw Steel Production (millions of net tons) 2.6 2.9 3.0 2.9 2.8
Effective Capacity Utilization 84%(2) 96%(2) 102%(2) 107%(2) 83%
Continuously Cast Percentage 95 92 88 89 86
Number of Employees at Year-End(3) 3,119 3,167 3,194 3,225 3,254
Average Hourly Labor Rate $ 30.81 (4) $ 32.40 (4) $ 30.02 (4) $ 28.26 (4) $ 27.35
Total Sales per Employee (in thousands)(3) 419 381 387 334 302
Hours Worked per Net Ton Produced(3) 2.89 3.14 2.92 3.10 3.25
Operating Income per Net Ton Shipped $ 9 $ 48 (1) $ 39 $ 25 $ 11
Capital Expenditures(5) 101.5 69.4 29.2 11.8 13.1
</TABLE>
18
<PAGE> 19
____________
(1) Operating income, income before changes in accounting principles and net
income for the year ended December 31, 1995 include the effect of a $30.0
million (or $12 per net ton shipped) pre-tax gain from the settlement of
litigation.
(2) The effective capacities in 1996, 1995, 1994 and 1993 exclude 850,000 net
tons of electric furnace capacity. The Company's electric furnaces have
been idle since 1992.
(3) Includes all hourly and salaried employees.
(4) Includes $0.49 per hour in 1996, $1.94 per hour in 1995, $1.54 per hour in
1994 and $0.60 per hour in 1993 or accrued pursuant to the Profit Sharing
Plan for Hourly Employees.
(5) Includes capital expenditures paid or accrued and investments in joint
ventures.
19
<PAGE> 20
Item 7. Management's Discussion and Analysis of
Financial Condition and Results of Operations.
OVERVIEW
The following discussion should be read in conjunction with, and is
qualified in its entirety by reference to, the Consolidated Financial
Statements which begin on page 30.
Rouge Steel is an integrated producer of high quality, flat rolled steel
products consisting of hot rolled, cold rolled and electrogalvanized steel. In
recent years, the Company has emphasized the production of value-added flat
rolled carbon steel products that require additional processing and generally
command higher margins than commodity flat rolled carbon steel products. The
Company's products generally, and its value-added products specifically, are
sold primarily to customers in the automotive industry who have exacting
quality, delivery and service requirements. The Company also sells its
products to steel converters, service centers and other end users.
Since the acquisition of Rouge Steel from Ford in 1989 (the
"Acquisition"), Rouge Steel's current management has transformed the Company
from an adjunct to Ford's automotive manufacturing business into an
independent, debt-free, market-driven business. In order to strengthen
relationships with existing customers and establish relationships with new
customers, the Company has focused on a number of strategies designed to
improve the quality of its products, increase the efficiency of its operations,
reduce operating expenses and improve its product mix, including increased
sales of higher margin value-added steel products. The Company has reported
net income every year since the Acquisition except 1992 when the impact of
changes in accounting principles resulted in a $5.1 million loss. In the seven
years since the Acquisition, Rouge Steel has undertaken a capital investment
program designed to improve quality, product mix and productivity. In 1995,
the Company and USS expanded the capacity of Double Eagle, which has permitted
Rouge Steel to produce an additional 52,500 net tons of value-added
electrogalvanized steel product annually. In 1996, the Company launched the
second ladle refining facility ("LRF") and the third strand of its continuous
caster. These additions permit Rouge Steel to refine and continuously cast
100% of its liquid steel and eliminate the need to utilize the higher cost,
lower quality ingot process. Management anticipates that these two facilities
will permit the production of a greater proportion of value-added steel.
During the five-year period which commenced January 1, 1996, the Company's
strategic plan provides for approximately $390 million in capital expenditures
for facilities improvement and investment in joint ventures, approximately $101
million of which was spent in 1996. In addition to the recently completed
caster strand, the LRF and the "C" blast furnace partial reline and upgrade,
all of which were completed in 1996, these capital expenditures include adding
a raw material handling system in the Company's blast furnace area, upgrading
and maintaining the Company's finishing facilities, including its hot strip
mill and cold reduction mill, installing a new pickle line and upgrading one of
its existing pickle lines, undertaking a full reline and upgrade of its "B"
blast furnace and investing in strategic joint ventures.
The partial reline of the Company's "C" blast furnace and other furnace
improvements, including an upgraded cooling system, were completed in the
fourth quarter of 1996 at a cost of approximately $24 million. The Company has
scheduled a major reline of its "B" blast furnace to commence in September
1997, at an anticipated cost to the Company of approximately $40 million.
While in the short term, the outage caused by the scheduled reline of the
Company's "B" blast furnace will have a negative impact on the Company's
results of operations, upon completion this project, together with the addition
of a raw material handling system and the recently completed partial reline and
upgrade of the
20
<PAGE> 21
Company's larger "C" blast furnace, are expected to increase annual blast
furnace capacity to approximately 3.0 million net tons or approximately 20%
over the second quarter 1996 level.
Rouge Steel's operations are subject to the cyclicality of the steel
industry and the domestic economy as a whole. Domestic steel industry
production fell to approximately 87.9 million tons in 1991 from an annual
average during the prior three-year period of approximately 98.9 million tons,
a decrease of approximately 11.1%. This decrease was due primarily to a
deterioration of general economic conditions and decreased demand for durable
goods. For instance, the production of domestic cars and trucks in 1991 fell
to 8.8 million units from an annual average during the prior three-year period
of 10.6 million units. Consistent with these trends in the steel industry, the
Company's raw steel production in 1991 fell to 2.5 million tons from an average
of 2.9 million tons during the prior three-year period. Commencing in December
1991, the steel industry experienced a recovery in raw steel production and
finished shipments. Production and shipments continued an upward trend through
1996. Domestic raw steel production increased approximately 18% to
approximately 104 million tons in 1996 from 87.9 million tons in 1991.
Finished shipments increased over the same period to approximately 100 million
tons from 78.9 million tons, an increase of approximately 21%. Given the
inherent cyclicality of the domestic steel industry, the Company believes it is
important to maintain financial flexibility in order to take advantage of
opportunities to reduce costs and upgrade the quality and mix of its
products. Rouge Steel believes that the current absence of any debt combined
with its plan to reduce operating costs will position the Company to continue
to pursue its business strategy throughout the economic cycle and to respond to
the continually changing needs of its customers.
The following table summarizes the annual raw steel capacity, raw steel
production, utilization rates and finished shipment information for the
domestic steel industry (as reported by the AISI) and for Rouge Steel for the
years from 1994 through 1996:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
DOMESTIC INDUSTRY
Raw steel capacity 116.4 112.5 108.2
Raw steel production 104.0 104.9 100.6
Utilization 90.0% 93.3% 93.0%
Finished shipments 100.0 97.5 95.1
ROUGE STEEL
Raw steel capacity 3.0 3.0 2.9
Raw steel production 2.6 2.9 3.0
Utilization 84.3% 96.2% 101.7%
Finished shipments 2.9 2.5 2.6
</TABLE>
The cyclicality of the steel industry and the domestic economy affects the
prices for which the Company sells its steel products. To protect itself from
the volatile nature of prices in the domestic steel industry, the Company sells
approximately two-thirds of its steel products pursuant to fixed price
contracts, under which prices are typically set annually. In 1991, when
domestic steel industry production and shipments were low, the Company's steel
product prices reached a nine-year low. In 1993, prices began to rise and in
1994 they reached the highest level since 1988. By mid-1995, however, prices
began to soften despite the continuing strong demand for the Company's
products. During the second half of 1995, the Company lost approximately
one-half of the pricing gains which it
21
<PAGE> 22
realized in 1993 and 1994. Prices in 1996 made a modest recovery from late
1995 levels, but nevertheless remained lower than average 1995 prices.
Total Sales. The Company's total sales are a function of net tons
shipped, prices and mix of products. The following table sets forth the
percentage of the Company's steel product revenues represented by each of its
product types for each of the years from 1994 through 1996:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Hot rolled 47.4% 49.8% 48.8%
Cold rolled 30.6 28.4 30.3
Electrogalvanized 22.0 21.8 20.9
----- ----- -----
Total 100.0% 100.0% 100.0%
===== ===== =====
</TABLE>
During periods of high demand, the Company ships all of the steel products
it has the capacity to produce. The Company has been, and intends to continue,
increasing its capacity so it will be positioned to take advantage of any
increased demand. In order to more fully utilize its hot strip mill and
finishing facilities, the Company intends to continue to increase its steel
slab production capability in a cost effective manner by expanding the capacity
of its existing blast furnaces and utilizing the capability of its recently
expanded continuous caster. In the past five years, the Company has increased
its blast furnace production rate by utilizing improved raw materials, fuels
and energy sources and upgrading blast furnace operating procedures. In May
1996, Rouge Steel placed into service the third strand of its continuous
caster, which allows the company to continuously cast 100% of its liquid steel
and eliminates the need to utilize the higher cost, lower quality ingot
process. To maximize the continuous caster's capability, the Company intends
to further increase blast furnace efficiency and capacity by adding a new raw
material handling system and by fully relining and upgrading its smaller "B"
blast furnace during 1997. In fourth quarter of 1996, the Company completed
the scheduled partial reline and upgrade of its "C" blast furnace. In the
short term, the outages caused by the scheduled relines and upgrades of the
Company's blast furnaces have had and will have a negative impact on the
Company's results of operations in 1996 and 1997. Most recently, in the fourth
quarter of 1996, the Company suffered its first operating loss since 1991,
principally as a result of the "C" blast furnace partial reline and upgrade and
related outages. However, upon completion these projects, together with the
addition of a raw material handling system, are expected to increase annual
blast furnace capacity to approximately 3.0 million net tons or approximately
20% over the second quarter 1996 level. As a result of placing the third
strand of the continuous caster into service and increasing blast furnace
capacity, the Company believes that its steel slab production capacity will
increase to approximately 3.5 million net tons annually.
In addition to increasing finished capacity, the Company intends to
continue to improve product mix by increasing the capacity of its value-added
facilities. For example, the expansion of Double Eagle in 1995 allowed Rouge
Steel to increase shipments of value-added electrogalvanized steel products.
Total shipments will not necessarily increase, but they are expected to include
a higher proportion of value-added products. Likewise, the Company's
expenditures on joint ventures will not necessarily allow total shipments to
increase, but by permitting the Company to produce additional coated and
blanked steel products, the joint ventures are expected to improve Rouge
Steel's product mix.
22
<PAGE> 23
Approximately two-thirds of the Company's total sales are made pursuant to
fixed price contracts primarily with automotive customers, under which prices
are typically set annually. Sales to affiliates are comprised primarily of
sales to Worthington, Rouge Steel's second largest customer and shareholder.
Worthington owns approximately 27.4% of the Company's Common Stock which
represents a voting interest of 19.9%.
Costs of Goods Sold. The principal elements constituting Rouge Steel's
costs of goods sold are raw materials, labor and energy. Outside processing
costs represent a growing element of the Company's costs of goods sold. The
major raw materials and energy used by the Company in its production process
are coke, iron ore pellets, steel scrap, natural gas, electricity, steam,
oxygen and nitrogen. Iron ore pellets, coke, coal, electricity, steam, oxygen
and nitrogen predominantly are purchased pursuant to long-term or annual
agreements. The other raw materials are generally purchased in the open market
from various sources and their availability and price are subject to market
conditions.
Iron ore pellets are purchased from Eveleth Mines LLC ("EVTAC") pursuant
to a six-year pellet purchase agreement. The Company's wholly-owned
subsidiary, Eveleth Taconite Company ("Eveleth"), holds a 45% interest in
EVTAC.
The Company's hourly production and maintenance employees are represented
by the UAW and are working under a labor contract which expires on August 1,
2000. The collective bargaining agreement, which has a term of five years,
contains no option to renegotiate prior to its expiration.
Outside processing costs, which are principally costs for value-added
processing that Rouge Steel cannot perform at its integrated facility, have
always been an element of the Company's costs of goods sold. The joint
ventures involving Rouge Steel will increase the use of outside processing and
related costs. However, Rouge Steel believes that the incremental revenue
generated from additional sales of value-added products produced by the joint
ventures will exceed such cost increases.
A large component of the Company's costs of goods sold in 1997 will be the
purchase of steel slabs to augment its own production as a result of demand and
the blast furnace reline and outage. In 1996, the Company purchsed
approximately 850,000 net tons of steel slabs and during 1997, the Company
expects to purchase 400,000 to 450,000 net tons of steel slabs. By 1998,
Rouge Steel's blast furnace relines should be completed and, assuming blast
furnace capacity improves as anticipated, the Company plans to purchase only
100,000 net tons of steel slabs to balance production and demand based on
market conditions.
RESULTS OF OPERATIONS
YEAR ENDED DECEMBER 31, 1996 VERSUS YEAR ENDED DECEMBER 31, 1995
Total Sales. Total sales increased 8.4% in 1996 to $1,307.4 million from
$1,206.6 million in 1995, an increase of $100.8 million. The increase in total
sales was caused principally by higher shipments. Shipments increased 13.1% in
1996 to 2,876,000 net tons from 2,542,000 net tons in 1995, an increase of
334,000 net tons. Shipments were higher in 1996 because the Company was able
to add new customers and increase sales to its existing customers. Rouge Steel
purchased 843,000 net tons of slabs to augment its own production and
accommodate the demand for its products. The effect of
23
<PAGE> 24
higher shipments on total sales was partially offset by lower steel prices in
1996. Total sales per net ton shipped decreased 4.2% in 1996 to $455 from $475
in 1995, a decrease of $20 per ton.
Costs and Expenses. Total costs and expenses increased 18.2% in 1996 to
$1,282.7 million from $1,085.0 million in 1995, an increase of $197.7 million.
Costs of goods sold increased 15.6% in 1996 to $1,251.1 million from $1,082.1
million in 1995, an increase of $169.0 million. The increase in costs of goods
sold can be attributed primarily to four elements: (1) increased shipments of
steel products, (2) higher raw material, utility and labor costs, (3) the blast
furnace reline and other blast furnace problems, and (4) the purchased slabs
discussed above. In the first quarter of 1996, the larger of the Company's two
operating blast furnaces, "C" furnace, experienced lining-related operating
problems. A partial reline of "C" furnace was completed in the fourth quarter
of 1996. The newly-relined blast furnace experienced start-up problems which
delayed production for several days and had a negative impact on the Company's
results of operations. Costs of goods sold was 95.7% of total sales in 1996
compared to 89.7% of total sales in 1995. Depreciation and amortization
increased 17.8% in 1996 to $13.1 million from $11.1 million in 1995, an
increase of $2.0 million. The higher depreciation and amortization expense is
the result of continuing capital expenditures. Selling and administrative
expenses decreased 11.7% in 1996 to $24.3 million from $27.6 million in 1995, a
decrease of $3.3 million. The decrease in selling and administrative expenses
is primarily due to three factors: (1) lower Michigan single business tax,
which is a function of the Company's lower taxable income in 1996, (2) lower
profit sharing paid to the Company's administrative employees, which is also a
function of the Company's lower taxable income, and (3) less expense recorded
for the development of the Company's customer order management system. In
1995, Rouge Steel reached an agreement with the City of Dearborn, the Dearborn
Public School Board and the County of Wayne, Michigan which settled local
property tax litigation for tax years 1990 through 1995. The local taxing
authorities agreed to refund $25 million to Rouge Steel for over payment of
property taxes for tax years 1990 through 1993. In addition, the taxing
authorities reduced Rouge Steel's property tax assessment with respect to the
1994 and 1995 tax years. As a result of the settlement, the Company recorded a
pre-tax benefit of $30.0 million in 1995, net of profit sharing and inventory
valuation costs.
Operating Income. Primarily as a result of the lower steel prices, the
higher costs of goods sold discussed above, including costs related to the
blast furnace outages and related production problems, the absence of the
property tax litigation settlement, operating income decreased 79.7% in 1996 to
$24.7 million from $121.6 million, a decrease of $96.9 million. Operating
income represented 1.9% of total sales in 1996 compared to 10.1% of total sales
in 1995. Excluding the impact of the property tax litigation settlement in
1995, operating income represented 7.6% of total sales. The margin
deterioration in 1996 was attributable primarily to four factors: (1) higher
raw material, utility and labor costs, (2) the blast furnace outges and related
blast furnace problems, and (3) the absence of the $30.0 million property tax
litigation settlement, and (4) lower steel prices. Operating income per net
ton shipped was $9 in 1996 compared to $48 in 1995.
Income Tax Provision. The income tax provision decreased 79.3% in 1996 to
$6.9 million from $33.5 million in 1995, a decrease of $26.6 million. The
lower income tax provision was a function of lower taxable income in 1996.
Minority Interest in Net Loss of Consolidated Subsidiary. Minority
interest in net loss of consolidated subsidiary decreased in 1996 to $37,000
from $639,000 in 1995, a change of $602,000. This change reflects lower costs
resulting from increased rail shipments directly from Eveleth. Until November
30, 1996, Eveleth was 85% owned by Rouge Steel and 15% owned by Oglebay. The
24
<PAGE> 25
minority interest reflects Oglebay's share of Eveleth's earnings or losses.
Effective December 1, 1996, under the terms of a restructuring agreement,
Eveleth became a wholly-owned subsidiary of Rouge Steel and, in exchange for a
45% ownership interest in EVTAC, assigned substantially all of its operating
assets and liabilities to EVTAC. In the future, the impact of the Company's
ownership interest in EVTAC will be accounted for under the equity method and
Rouge Steel's Consolidated Statements of Operations will not show any minority
interest relating to EVTAC.
Equity in Income of Unconsolidated Subsidiaries. Equity in income of
unconsolidated subsidiaries was $50,000 in 1996 compared to $0 in 1995. The
amount in 1996 reflects the after-tax effect of the Company's share of the
Shiloh Venture's losses offset by one month's income generated by EVTAC. There
was no income or loss from unconsolidated subsidiaries during 1995. Rouge
Steel acquired its interest in the Shiloh Venture during 1996 and, as
previously discussed, treated Eveleth as a consolidated subsidiary until late
1996.
Net Income. Net income decreased 75.3% in 1996 to $23.4 million from
$94.7 million in 1995, a decrease of $71.3 million. The lower net income in
1996 reflects lower steel prices, higher costs of goods sold and the absence of
the property tax litigation settlement, partilly offset by a lower income tax
provision.
YEAR ENDED DECEMBER 31, 1995 COMPARED TO YEAR ENDED DECEMBER 31, 1994
Total Sales. Total sales decreased 2.4% in 1995 to $1,206.6 million from
$1,236.1 million in 1994, a decrease of $29.5 million. The decrease in total
sales was caused principally by lower shipments. Shipments decreased 3.8% in
1995 to 2,542,000 tons from 2,643,000 tons in 1994, a decrease of 101,000 tons.
Shipments were lower in 1995 partially because of lower car and truck
production and partially because of the inventory correction that took place
with certain of the Company's customers. The effect of lower shipments on
total sales was partially offset by higher steel prices in 1995. Although
Rouge Steel experienced a reduction of steel prices during 1995, overall prices
in 1995 were still higher than 1994 because of the annualized effect of price
increases which occurred in January and July, 1994 and January 1995. Total
sales per ton shipped increased 1.5% in 1995 to $475 from $468 in 1994, an
increase of $7 per ton.
Costs and Expenses. Total costs and expenses decreased 4.2% in 1995 to
$1,085.0 million from $1,133.0 million in 1994, a decrease of $48.0 million.
Costs of goods sold decreased 2.0% in 1995 to $1,082.1 million from $1,104.0
million in 1994, a decrease of $21.9 million. The reduction in costs of goods
sold was primarily a function of the lower shipments discussed above.
Additionally, the settlement of the local property tax litigation in the third
quarter of 1995 resulted in lower property tax expense. The effect of lower
shipments and property tax expense on costs of goods sold was partially offset
by unfavorable economics and efficiencies. The costs of raw materials were
generally higher in 1995 than in 1994. Additionally, the new five-year labor
contract between the Company and the UAW, which was ratified in 1995, resulted
in increased labor costs. Moreover, manufacturing efficiencies were
unfavorable in 1995 because of lower production volume and yield deterioration
in primary operations. Costs of goods sold was 89.7% of total sales in 1995
compared to 89.3% of total sales in 1994. Depreciation and amortization
increased 26.9% in 1995 to $11.1 million from $8.7 million in 1994, an increase
of $2.4 million. The higher depreciation and amortization expense is the
result of continuing capital expenditures. In August 1995, Rouge Steel reached
an agreement with the City of Dearborn, the Dearborn Public School Board and
the County of Wayne, Michigan which settled local property tax litigation for
tax years 1990 through 1995. The local taxing authorities agreed to refund
25
<PAGE> 26
$25 million to Rouge Steel for overpayment of property taxes for tax years 1990
through 1993. In addition, the taxing authorities reduced Rouge Steel's
property tax assessment with respect to the 1994 and 1995 tax years. As a
result of the settlement, the Company recorded a pre-tax benefit of $30.0
million, net of profit sharing and inventory valuation costs.
Operating Income. Primarily as a result of the property tax litigation
settlement partially offset by lower shipments and higher costs per ton,
operating income increased 18.1% in 1995 to $121.6 million from $103.0 million
in 1994, an increase of $18.6 million. Operating income represented 10.1% of
total sales in 1995 compared to 8.3% of total sales in 1994. Excluding the
impact of the property tax litigation settlement in 1995, operating income
represented 7.6% of total sales. The margin deterioration in 1995 without
consideration of the property tax litigation settlement is attributable
primarily to three factors: (1) higher raw material costs, (2) higher labor
costs resulting from the new labor contract between the Company and the UAW and
(3) lower production volumes and the corresponding unfavorable effects on
fixed cost absorption. These factors were partially offset by increased
prices. Operating income per net ton shipped was $48 in 1995 compared to $39
in 1994.
Interest Income. Interest income increased in 1995 to $5.7 million from
$2.6 million in 1994, an increase of $3.1 million. This increase was a
function of the cash and marketable securities balance as well as yield. In
1995, the average cash and marketable securities balance was $90.2 million
compared to $56.3 million in 1994. Rouge Steel's yield on its investments was
5.8% in 1995 compared to 4.8% in 1994.
Interest Expense. Interest expense decreased in 1995 to $326,000 from
$5.1 million in 1994, a decrease of $4.8 million. In 1995, Rouge Steel had no
outstanding indebtedness. The interest expense incurred by the Company in 1995
was primarily fees associated with its revolving credit facility. In April
1994, Rouge Steel repaid all of its outstanding indebtedness with a portion of
the proceeds of the Company's initial public offering of Class A Common Stock,
par value $0.01 per share (the "Public Offering").
Income Tax (Provision) Benefit. The income tax provision was $33.5
million in 1995 compared to an income tax benefit of $8.3 million in 1994. The
income tax benefit recorded in 1994 reflected a reduction in the valuation
allowance established in connection with Statement of Financial Accounting
Standards ("SFAS") No. 109, "Accounting for Income Taxes," which more than
offset income tax expense recorded for the year. During 1995, a further
reduction in the valuation allowance was recorded, but in an amount which did
not offset income tax expense for the year.
Minority Interest in Consolidated Subsidiary. Minority interest in net
loss of the consolidated subsidiary was $639,000 in 1995 compared to minority
interest in net income of the consolidated subsidiary of $5.4 million in 1994.
The change in minority interest is the result of three factors: (1) a
reduction in pellet shipments to Oglebay, Eveleth's minority owner, (2) an
increase in production costs at Eveleth and (3) a reduction in the market
price of pellets shipped to Oglebay.
Net Income. Net income decreased 10.4% in 1995 to $94.7 million from
$105.6 million in 1994, a decrease of $10.9 million. The lower net income
reflects lower shipments, higher raw material and labor costs, unfavorable
manufacturing efficiencies and an income tax provision partially offset by
higher net interest income and the property tax settlement.
26
<PAGE> 27
LIQUIDITY AND CAPITAL RESOURCES
Rouge Steel's liquidity needs arise predominantly from capital investments
and working capital requirements. Until April 1994, the Company met these
liquidity needs primarily with cash provided by operating activities and funds
provided by long-term borrowings. In April 1994, the Company consummated the
Public Offering. The net proceeds of the Public Offering were $112.9 million.
A portion of these proceeds ($68.5 million) was used to retire all outstanding
indebtedness and the Company has been debt-free since that time.
Cash, cash equivalents and marketable securities on December 31, 1996
totalled $27.0 million compared to $100.4 million on December 31, 1995, a
decrease of $73.4 million. This decrease was primarily due to cash used for
capital spending. The Company will continue to utilize the services of two
investment managers to invest its excess cash in fixed income interest-bearing
securities. The Company will use its cash to fund its working capital
requirements and its capital expenditure program.
Cash Flows from Operating Activities. Net cash provided by operating
activities decreased 79.3% in 1996 to $19.0 million from $92.1 million in 1995,
a decrease of $73.1 million. This decrease is primarily the result of lower
net income and higher inventories partially offset by higher accounts payable.
The increase in inventories can be explained by increased iron ore, steel scrap
and slab balances. Each of these inventory builds can be attributed to the "C"
blast furnace reline and the related start-up problems. The reduced
consumption of the blast furnace and, consequently, the basic oxygen furnace
led to an unanticipated build-up of iron ore and steel scrap inventories. The
reduced production of liquid steel, along with the high demand for the
Company's products caused the Company to purchase slabs, $13.3 million of which
remained in inventories at year end. The increase in accounts payable can
largely be attributed to accrued capital expenditures and purchased slabs.
Approximately $14.4 million was in accounts payable for purchased slabs at
December 31, 1996.
Credit Facility. Rouge Steel has a five-year, $100 million, unsecured
revolving loan commitment under a credit agreement (the "Credit Agreement")
among the Company, the banks named therein and The Chase Manhattan Bank, N.A.,
as administrative agent. The commitments of the lenders under the Credit
Agreement expire on November 29, 2001. The revolving loans provided for under
the Credit Agreement bear interest, at the option of the Company, at a rate
equal to either (i) the base rate, which is the higher of the prime rate or the
federal funds rate plus 0.5%, or (ii) the LIBOR Rate plus an applicable margin,
which varies with the Company's leverage ratio and can range from 0.250% to
0.675%. The Company had no borrowings under the facility as of December 31,
1996. The Company believes that net income and funds available under the
Credit Agreement will be adequate for its working capital and capital
expenditure requirements.
Capital Expenditures. Cash used for capital expenditures, including
investments in joint ventures, increased 29.0% in 1996 to $89.6 million from
$69.4 million in 1995, an increase of $20.2 million. The most significant of
the expenditures made in 1996 was for the completion of the third strand to the
Company's existing continuous slab caster which allows the Company to
continuously cast 100% of its steel product and eliminates the need to utilize
the higher cost, lower quality ingot process. Additionally, the Company
incurred capital expenditures in 1996 for the partial reline and upgrade of its
"C" blast furnace and the completion of the second LRF. The remaining
expenditures were made primarily to upgrade and modernize the Company's
facilities. During the five-year period commencing January 1, 1996, the
Company anticipates spending approximately $390 million on capital items and
investment in joint ventures including $101 million paid or accrued in 1996.
The planned capital
27
<PAGE> 28
expenditures are generally directed at improving and maintaining plant
efficiency and quality to position the Company to improve its competitive
position in the marketplace and, to a lesser extent, to enter into strategic
joint ventures. In 1997, the Company plans to spend approximately $117 million
on capital items and investment in joint ventures including a full reline and
upgrade of its "B" blast furnace completion of a raw material handling system
and investment in Spartan Steel. Rouge Steel entered into a steel blanking
joint venture with Shiloh and a cold rolled hot dipped galvanizing joint
venture with Worthington and is in the process of negotiating an additional
joint venture. The Shiloh Venture has been financed by a $23 million credit
facility, 20% of which is guaranteed by the Company. The Company expects to
invest (i) approximately $43 million in Spartan Steel, the cold rolled hot
dipped galvanizing venture with Worthington which is expected to be placed into
service in mid-1998 and (ii) approximately $6.5 million in TWB, an existing
venture with Worthington and Thyssen that produces laser welded blanks. The
Company has agreed to invest $9.0 million in EVTAC, $5.6 million of which was
invested at December 31, 1996 and the remainder of which the Company expects to
invest in the first quarter of 1997.
FUTURE ENVIRONMENTAL MATTERS
The Company's operations are subject to many federal, state and local
laws, regulations, permits and consent agreements relating to the protection of
human health and the environment. The Company believes that its facilities are
in material compliance with these laws and provisions and does not believe that
liabilities arising out of existing environmental conditions or future
compliance with environmental laws, regulations, permits and consent
requirements will have a material adverse effect on its results of operations
or financial condition. The Company has incurred capital expenditures in
connection with matters relating to environmental control of approximately $1.5
million during the past four years. In addition, the Company has planned
approximately $5.2 million in capital expenditures for environmental compliance
for the years 1996 through 2000.
Ford has agreed to indemnify the Company (the "Ford Indemnity") for any
liability arising out of an environmental condition existing prior to the
Acquisition or a subsequent change in law relating to such condition, which
results in an environmental claim under any federal or state environmental law,
including the Comprehensive Environmental Response Compensation and Liability
Act of 1980, as amended ("CERCLA"), the Resource Conservation and Recovery Act
("RCRA"), the Clean Water Act, the Safe Drinking Water Act, the Clean Air Act
and the Occupational Safety and Health Act of 1970. The Ford Indemnity
provides that Ford shall pay the Company's liabilities, including any penalties
and attorneys' fees, in connection with any environmental claim relating to
pre-Acquisition conditions and terminates on December 15, 2009. Since the
Acquisition, Ford has indemnified the Company for environmental claims totaling
approximately $5 million.
Since environmental laws and regulations are becoming increasingly more
stringent, the Company's environmental capital expenditures and costs for
environmental compliance may increase in the future. In addition, due to the
possibility of unanticipated regulatory or other developments, the amount and
timing of future environmental expenditures may vary substantially from those
currently anticipated.
RECENT DEVELOPMENTS
Shiloh Engineered Steel Blanking Joint Venture. In 1996, the Company
became a 20% owner of the Shiloh Venture, an engineered steel blank facility in
Romulus, Michigan. Shiloh owns 80% of the Shiloh Venture. The Shiloh Venture
was placed into service in the fourth quarter of 1996. When the facility is
producing at capacity, it is expected to process approximately 100,000 net tons
of steel
28
<PAGE> 29
annually. Rouge Steel expects to process approximately 20,000 net tons of
steel annually through the Shiloh Venture. Rouge Steel's investment in the
Shiloh Venture is $20,000 with the remainder of the facility financed by an
$80,000 investment from Shiloh and a $23 million credit facility, 20% of which
is guaranteed by the Company.
Spartan Steel Cold Rolled Hot Dipped Galvanizing Joint Venture. In 1996,
Rouge Steel acquired a 48% interest in Spartan Steel, a cold rolled hot dipped
galvanizing facility which is being constructed near Monroe, Michigan.
Worthington owns the remaining 52% of Spartan Steel. When the facility is
complete, which is expected to be in mid-1998, it will have the capacity to
coat approximately 450,000 net tons annually. Rouge Steel will be entitled to
80% of the annual output of the facility. In addition, the Company expects to
provide substantially all of the cold rolled substrate required by Spartan
Steel, 20% of which would be sold to Worthington at competitive prices for
processing through the facility. Rouge Steel's investment in Spartan Steel is
expected to be approximately $43 million.
EVTAC Iron Ore Pellet Producing Facility. In the Restructuring, Oglebay
sold its interest in the Eveleth Facility to Rouge Steel and AK Steel and
resigned as manager of the Eveleth Facility. Rouge Steel assigned substantially
all of its share of the operating assets and liabilities of the Eveleth Facility
to EVTAC in exchange for a 45% ownership interest in EVTAC. Wholly-owned
subsidiaries of AK Steel and Stelco together own 55% of EVTAC. Following the
Restructuring, Rouge Steel is committed to making additional capital
contributions of $3.4 million which, depending upon EVTAC's liquidity
requirements, may be invested in the first quarter of 1997, and is required to
purchase approximately 2.3 million natural gross tons of iron ore pellets
annually from EVTAC at the world market price.
Proposed Holding Company Reorganization. During the first half of 1997,
the Company intends to adopt a holding company organizational structure (the
"Reorganization"). Upon consummation of the Reorganization, the Company, as
operating subsidiary, will be held as a direct wholly-owned subsidiary of a
holding company ("Holdings"), a Delaware corporation. The holding company
organization structure would be implemented without shareholder approval
pursuant to Section 251(g) of the General Corporation Law of the State of
Delaware. In connection with the Reorganization, each issued and outstanding
share of Class A Common Stock of the Company would be converted into and
exchanged for a share of class A common stock of Holdings (on a share-for-share
basis) having the same designations, rights, powers, preferences,
qualifications, limitations and restrictions as the shares of the Company being
converted.
29
<PAGE> 30
Item 8. Financial Statements and Supplemental Data.
The following information is submitted pursuant to the requirements of
Item 8:
Page
----
Report of Independent Accountants ...................................... 31
Consolidated Balance Sheets as of December 31, 1996 and 1995 ........... 32
Consolidated Statements of Operations for the Years Ended
December 31, 1996, 1995 and 1994 ..................................... 34
Consolidated Statements of Changes in Stockholders' Equity for the Years
Ended December 31, 1996, 1995 and 1994 ............................... 35
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1996, 1995 and 1994 ..................................... 36
Notes to Consolidated Financial Statements ............................. 37
Schedule II - Valuation and Qualifying Accounts and Reserves ........... 51
30
<PAGE> 31
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors
and Stockholders of
Rouge Steel Company
In our opinion, the consolidated financial statements listed in the
accompanying index present fairly, in all material respects, the financial
position of Rouge Steel Company and its subsidiaries at December 31, 1996 and
1995, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 1996, in conformity with generally
accepted accounting principles. These financial statements are the
responsibility of the Company's management; our responsibility is to express an
opinion on these financial statements based on our audits. We conducted our
audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for the opinion expressed above.
PRICE WATERHOUSE LLP
Detroit, Michigan
January 29, 1997
31
<PAGE> 32
ROUGE STEEL COMPANY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
Assets
December 31
--------------------
1996 1995
---- ----
<S> <C> <C>
Current Assets
- --------------
Cash and Cash Equivalents $ 24,914 $ 57,036
Marketable Securities 2,039 43,324
Accounts Receivable
Trade and Other (Net of Allowances of $7,294 and $6,118) 102,593 115,561
Affiliates 9,995 8,640
Inventories 267,877 237,137
Other Current Assets 7,483 21,885
-------- --------
Total Current Assets 414,901 483,583
-------- --------
Property, Plant, and Equipment
Land - 261
Buildings and Improvements 16,942 11,497
Machinery and Equipment 186,851 123,893
Construction in Progress 32,545 46,745
-------- --------
Subtotal 236,338 182,396
Less: Accumulated Depreciation (27,176) (46,729)
-------- --------
Net Property, Plant, and Equipment 209,162 135,667
-------- --------
Investment in Unconsolidated Subsidiaries 15,590 19,313
-------- --------
Deferred Charges and Other 42,300 33,945
-------- --------
Total Assets $681,953 $672,508
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
32
<PAGE> 33
ROUGE STEEL COMPANY
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
December 31
-------------------------
1996 1995
---- ----
<S> <C> <C>
Current Liabilities
Accounts Payable
Trade $154,338 $145,093
Affiliates 8,188 892
Accrued Vacation Pay 11,243 11,264
Taxes Other than Income 4,580 10,438
Other Accrued Liabilities 19,921 21,709
-------- --------
Total Current Liabilities 198,270 189,396
-------- --------
Other Liabilities 49,342 59,543
-------- --------
Excess of Net Assets Acquired Over Cost 17,076 22,872
-------- --------
Minority Interest in Net Assets of Consolidated Subsidiary - 6,843
-------- --------
Commitments and Contingencies (Note 11)
Stockholders' Equity
Common Stock
Class A, 80,000,000 shares authorized with 14,341,136 and
13,084,965 issued and outstanding as of December 31, 1996
and 1995, respectively 143 131
Class B, 8,690,400 shares authorized with 7,562,400 and
8,690,400 issued and outstanding as of December 31, 1996
and 1995, respectively 76 87
Capital in Excess of Par Value 127,096 124,246
Retained Earnings 292,349 271,580
Additional Minimum Pension Liability Adjustment (2,399) (2,190)
-------- --------
Total Stockholders' Equity 417,265 393,854
-------- --------
Total Liabilities and Stockholders' Equity $681,953 $672,508
======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
33
<PAGE> 34
ROUGE STEEL COMPANY
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share amounts)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Sales
Unaffiliated Customers $ 1,125,722 $ 1,019,914 $ 1,029,167
Affiliates 181,676 186,652 206,886
----------- ----------- -----------
Total Sales 1,307,398 1,206,566 1,236,053
----------- ----------- -----------
Costs and Expenses
Costs of Goods Sold 1,251,114 1,082,077 1,103,984
Depreciation and Amortization 13,056 11,083 8,736
Selling and Administrative Expenses 24,339 27,569 26,118
Amortization of Excess of Net Assets Acquired Over Cost (5,796) (5,796) (5,796)
Property Tax Litigation Settlement (Note 10) - (29,974) -
----------- ----------- -----------
Total Costs and Expenses 1,282,713 1,084,959 1,133,042
----------- ----------- -----------
Operating Income 24,685 121,607 103,011
Interest Income 5,136 5,739 2,589
Interest Expense - Affiliate - - (4,415)
Interest Expense - Nonaffiliate (329) (326) (720)
Other - Net 728 459 2,313
----------- ----------- -----------
Income Before Income Taxes, Minority Interest
and Equity in Income of Unconsolidated Subsidiaries 30,220 127,479 102,778
Income Tax (Provision) Benefit (6,915) (33,455) 8,282
----------- ----------- -----------
Income Before Minority Interest and Equity in Income of
Unconsolidated Subsidiaries 23,305 94,024 111,060
Minority Interest in Consolidated Subsidiary 37 639 (5,446)
Equity in Income of Unconsolidated Subsidiaries 50 - -
----------- ----------- -----------
Net Income $ 23,392 $ 94,663 $ 105,614
=========== =========== ===========
Net Income Per Share $ 1.07 $ 4.37 $ 5.21
=========== =========== ===========
Weighted Average Shares Outstanding 21,844,864 21,677,435 20,261,899
=========== =========== ===========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
34
<PAGE> 35
ROUGE STEEL COMPANY
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
------------------------------------------
1996 1995 1994
---- ---- ----
<S> <C> <C> <C>
Class A and Class B Common Stock
Beginning Balance $ 218 $ 216 $ 160
Common Stock Issued for Employee
Benefit Plans 1 2 -
Public Offering - - 56
-------- -------- --------
Ending Balance 219 218 216
-------- -------- --------
Capital in Excess of Par Value
Beginning Balance 124,246 120,212 7,398
Common Stock Issued for Employee
Benefit Plans 2,811 3,955 -
Common Stock Issued for ODEP 39 79 -
Public Offering - - 112,814
-------- -------- --------
Ending Balance 127,096 124,246 120,212
-------- -------- --------
Retained Earnings
Beginning Balance 271,580 179,089 79,771
Purchase of Put Option - - (5,000)
Net Income 23,392 94,663 105,614
Cash Dividends Declared (2,623) (2,172) (1,296)
-------- -------- ---------
Ending Balance 292,349 271,580 179,089
-------- -------- --------
Additional Minimum Pension Liability Adjustment
Beginning Balance (2,190) (3,806) (6,692)
Required Minimum Liability Adjustment (209) 1,616 2,886
-------- -------- --------
Ending Balance (2,399) (2,190) (3,806)
-------- -------- ---------
Treasury Stock at Cost
Beginning Balance - - (1,000)
Retirement of 4,000,000 Shares of Class C
Common Stock - - 1,000
-------- -------- --------
Ending Balance - - -
-------- -------- --------
Total Stockholders' Equity $417,265 $393,854 $295,711
======== ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
35
<PAGE> 36
ROUGE STEEL COMPANY
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
<TABLE>
<CAPTION>
Years Ended December 31
-----------------------------------------
<S> <C> <C> <C>
1996 1995 1994
---- ---- ----
Cash Flows From Operating Activities
Net Income $23,392 $94,663 $105,614
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities:
Deferred Taxes 4,433 5,841 (17,958)
Depreciation and Amortization 13,056 11,083 8,736
Amortization of Capitalized Debt Costs 36 36 2,778
Equity in Income of Unconsolidated Subsidiaries (50) - -
Amortization of Excess of Net Assets Acquired Over Cost (5,796) (5,796) (5,796)
Minority Interest in Consolidated Subsidiary (37) (639) 5,446
Common Stock Issued for Benefit Plans 2,851 4,036 -
Changes in Assets and Liabilities:
Accounts Receivable 3,692 9,437 (34,455)
Inventories (42,802) 5,799 (6,029)
Prepaid Expenses 1,208 (7,252) 1,353
Accounts Payable and Accrued Liabilities 14,202 (14,124) 9,112
Restricted Cash - 4,121 (4,121)
Other - Net (182) (96) 12
Gain on Property Tax Settlement - (29,974) -
Proceeds from Property Tax Settlement 5,000 15,000 -
------- -------- --------
Net Cash Provided by Operating Activities 19,003 92,135 64,692
------- -------- --------
Cash Flows From Investing Activities
Capital Expenditures (80,339) (65,797) (20,241)
Purchase of Marketable Securities (30,276) (103,265) (28,281)
Sale of Marketable Securities 71,561 78,886 9,070
Investment in Unconsolidated Subsidiaries (9,222) (3,629) (8,915)
Other - Net (229) 45 93
------- -------- --------
Net Cash Used for Investing Activities (48,505) (93,760) (48,274)
------- -------- --------
Cash Flows From Financing Activities
Drawdowns on Revolving Line - Affiliate - - 83,500
Principal Payments on Revolving Line - Affiliate - - (123,500)
Principal Payments on Term Debt - Affiliate - - (10,000)
Principal Payments on Subordinate Debt - Nonaffiliate - - (19,000)
Purchase of Put Option - - (5,000)
Net Proceeds from Public Offering - - 112,870
Cash Dividend Payments (2,620) (1,952) (864)
------- -------- -------
Other - Net - - (5)
------- -------- --------
Net Cash (Used for) Provided by Financing Activities (2,620) (1,952) 38,001
------- -------- --------
Net (Decrease) Increase in Cash and Cash Equivalents (32,122) (3,577) 54,419
Cash and Cash Equivalents - Beginning of Year 57,036 60,613 6,194
------- -------- --------
Cash and Cash Equivalents - End of Year $24,914 $57,036 $60,613
======= ======== ========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
36
<PAGE> 37
ROUGE STEEL COMPANY
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES
Description of the Company
Rouge Steel Company is engaged in the production and sale of flat rolled steel
products principally to domestic automotive manufacturers and their suppliers.
Principles of Consolidation
The consolidated financial statements include the accounts of Rouge Steel
Company and its subsidiaries ("Rouge Steel" or the "Company"). Intercompany
transactions have been eliminated. Investments in business entities in which
the Company does not have control, but has the ability to exercise significant
influence over the operating and financial policies, are accounted for under
the equity method.
Financial Instruments
The carrying amount of the Company's financial instruments, which include cash
equivalents, marketable securities, accounts receivable and accounts payable,
approximates their fair market value at December 31, 1996 and 1995. The
Company considers all highly liquid debt instruments purchased with a maturity
of three months or less to be cash equivalents.
Concentration of Credit Risk
Financial instruments which potentially subject the Company to concentrations
of credit risk are cash equivalents, marketable securities and accounts
receivable. The Company attempts to limit its credit risk associated with cash
equivalents and marketable securities by utilizing outside investment managers
to place its investments with highly rated corporate and financial institutions.
With respect to accounts receivable, the Company limits its credit risk by
performing ongoing credit evaluations and, when deemed necessary, requiring
letters of credit, guarantees, or collateral. The Company's customer base is
comprised principally of domestic automotive manufacturers and their suppliers.
Management does not believe significant risk exists in connection with the
Company's concentrations of credit at December 31, 1996.
Significant Customers
The Company's significant customers are Ford Motor Company ("Ford") and
Worthington Industries, Inc. ("Worthington"). Sales to Ford, which are
primarily made pursuant to a ten-year steel purchase agreement, totaled
$397,723,000 in 1996, $376,605,000 in 1995 and $388,296,000 in 1994. The steel
purchase agreement expires on December 15, 1999.
Sales are made to Worthington, a stockholder of the Company, pursuant to a
seven-year steel purchase agreement which expires on December 15, 2003. Sales
to affiliates include $159,030,000, $162,372,000 and $186,478,000 to
Worthington for 1996, 1995, and 1994, respectively.
37
<PAGE> 38
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Inventories
Inventories are stated at the lower of cost or market with cost determined by
the last-in, first-out ("LIFO") method for raw materials, work-in-process and
finished goods and the first-in, first-out ("FIFO") method for nonproduction
and sundry. Costs in inventory include materials, direct labor, Double Eagle
electrogalvanizing (see Note 4) and applied manufacturing overhead.
Nonmonetary Transactions
The Company routinely exchanges iron ore inventory with other parties. Since
the exchanges involve similar productive assets and do not complete an earnings
process, the Company accounts for the exchanges on the cost basis of the
inventory relinquished without recognition of gain or loss.
Property, Plant, and Equipment
Property, plant, and equipment are recorded at cost. Replacements and major
improvements are capitalized; maintenance and repairs are expensed as incurred.
Gains or losses on asset dispositions are included in the determination of net
income.
Depreciation and Amortization
Depreciation of the Company's property, plant, and equipment is computed using
the straight-line method. The average estimated useful lives are as follows:
Years
-----
Buildings 35
Land Improvements 20
Steel-Producing Machinery and Equipment 18
Power Equipment 28
Office Furniture 12
The costs of relines to the blast furnaces and the refurbishment of turbo
generators are capitalized and amortized over their expected lives which are
eight to ten years and five years, respectively.
The Excess of Net Assets Acquired Over Cost, relating to the acquisition of the
Company from Ford (the "Acquisition") in 1989, is being amortized on a
straight-line basis over a ten-year period.
Environmental Accounting
Environmental expenditures are capitalized if the costs mitigate or prevent
future environmental contamination or if the costs improve existing assets'
environmental safety or efficiency. All other environmental expenditures are
expensed. Liabilities for environmental expenditures are accrued when it is
probable that such obligations have been incurred and the amounts can be
reasonably estimated.
38
<PAGE> 39
NOTE 1 - SIGNIFICANT ACCOUNTING POLICIES (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues and expenses.
Actual results could differ from those estimates.
Accounting for Stock-Based Compensation
During 1995, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 123, "Accounting for Stock-Based
Compensation." This statement sets forth standards for accounting for
stock-based compensation or allows companies to continue to account for
stock-based compensation under the requirements of Accounting Principles Board
("APB") Opinion No. 25 and make additional disclosure in the notes to the
financial statements. The Company elected to continue to account for
stock-based compensation in accordance with APB Opinion No. 25 and provide
additional disclosure in the notes to the financial statements.
Initial Public Offering
Proceeds from an initial public offering of 7,601,800 shares of the Company's
Class A Common Stock at a price of $22 per share were received in April 1994.
Of the 7,601,800 shares of Class A Common Stock sold, 5,601,800 shares were
sold by the Company and 2,000,000 shares were sold by Chase Manhattan
Capital Corporation ("CMCC"). No proceeds from the sale of shares by CMCC were
received by the Company. All business with CMCC and CMCC affiliates subsequent
to December 31, 1994 has been classified as nonaffiliate transactions.
Net proceeds to Rouge Steel from the public offering amounted to $112,870,000
after issuance costs and expenses of $2,359,000. The Company fully repaid its
revolving and term debt in the amount of $49,500,000 under the Amended and
Restated Credit Agreement dated June 7, 1990 and its $19,000,000 subordinated
debenture issued to Ford in connection with the Acquisition.
Reclassifications
Amortization of Excess of Net Assets Acquired Over Cost and Property Tax
Litigation Settlement have been reclassified to Costs and Expenses.
NOTE 2 - MARKETABLE SECURITIES
<TABLE>
<CAPTION>
Marketable securities are classified as follows (dollars in thousands):
December 31
-------------------
1996 1995
------- -------
<S> <C> <C>
Marketable Securities Per Consolidated Balance Sheets $ 2,038 $43,324
Marketable Securities Classified as Cash Equivalents 10,806 50,388
------- -------
Total Marketable Securities $12,844 $93,712
======= =======
</TABLE>
39
<PAGE> 40
NOTE 2 - MARKETABLE SECURITIES (continued)
The Company has the positive intent and ability to hold all purchased
securities to maturity. As of December 31, 1996 and 1995, the Company did not
own any securities with a maturity greater than one year.
Marketable securities include the following (dollars in thousands):
<TABLE>
<CAPTION>
December 31
------------------------------------------
1996 1995
------------------ -----------------
Carrying Market Carrying Market
Value Value Value Value
-------- ------- -------- -------
<S> <C> <C> <C> <C>
U.S. Treasury Securities $ 1,654 $ 1,654 $19,630 $19,634
Corporate Debt Securities 11,190 11,190 74,082 73,884
-------- ------- -------- -------
Total $12,844 $12,844 $93,712 $93,518
======== ======= ======== =======
</TABLE>
NOTE 3 - INVENTORIES
The major classes of inventories are as follows (dollars in thousands):
<TABLE>
<CAPTION>
December 31
-------------------
1996 1995
-------- --------
<S> <C> <C>
Production
Raw Materials $ 85,306 $ 58,481
Semifinished and Finished Steel Products 174,746 155,345
-------- --------
Total Production at FIFO 260,052 213,826
LIFO Reserves (14,390) (7,186)
-------- --------
Total Production at LIFO 245,662 206,640
Nonproduction and Sundry 22,215 30,497
--------- --------
Total Inventories $267,877 $237,137
======== ========
</TABLE>
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES
At December 31, 1996, the Company's investments in unconsolidated subsidiaries
consist of a 50 percent interest in Double Eagle Steel Coating Company ("Double
Eagle"), a 45 percent interest in Eveleth Mines LLC ("EVTAC"), a 20 percent
interest in Shiloh of Michigan, L.L.C., (the "Shiloh Venture") and a 48 percent
interest in Spartan Steel Coating, L.L.C. ("Spartan Steel"). All of the
Company's investments in unconsolidated subsidiaries are accounted for under
the equity method.
Double Eagle is an electrolytic galvanizing facility which is operated as a
cost center. Accordingly, Double Eagle records neither sales nor income.
Rouge Steel's proportionate share of Double Eagle's production costs,
$37,618,000, $34,976,000 and $35,581,000 for 1996, 1995 and 1994, respectively,
is included in the Company's costs and expenses and inventory. The Company is
committed to pay 50 percent of the fixed costs incurred and a pro rata share of
variable costs based on coatings applied to the Company's products. At
December 31, 1996, the Company's share of the underlying net assets of Double
Eagle exceeded its investment by $49,700,000. This excess results from
purchase accounting adjustments made on the consolidated accounts of the
Company at the time of the Acquisition and relates primarily to
40
<PAGE> 41
NOTE 4 - INVESTMENTS IN UNCONSOLIDATED SUBSIDIARIES (continued)
property, plant and equipment. This excess is being amortized as a reduction
of Rouge Steel's share of Double Eagle's costs over the remaining lives of the
property.
Until November 30, 1996, Eveleth Taconite Company ("Eveleth"), was 85 percent
owned by Rouge Steel and 15 percent owned by Oglebay Norton Company and
produced iron ore pellets at Eveleth Mines under collective operating
agreements with Eveleth Expansion Company. Effective December 1, 1996, under
the terms of a restructuring agreement, Eveleth became a wholly-owned
subsidiary of Rouge Steel and, in exchange for a 45 percent ownership interest
in EVTAC, assigned substantially all of its operating assets and liabilities to
EVTAC. No gain or loss was reported on the transaction and the impact of the
transfer of approximately $17,681,000 of assets and $30,253,000 of liabilities
by Eveleth to EVTAC has been excluded from the Statement of Cash Flows. At
December 31, 1996, the Company's share of the underlying net assets of EVTAC
exceeded its investment by $11,772,000. This excess is being amortized into
income over the estimated remaining useful lives of the contributed assets.
In 1996, Rouge Steel acquired a 20 percent joint venture interest in the Shiloh
Venture, which produces engineered steel blanks. Effective November 16, 1996,
QS Steel Inc., a wholly-owned subsidiary of Rouge Steel, acquired a 48 percent
interest in Spartan Steel, a cold rolled hot dipped facility which is being
constructed. Spartan Steel is expected to begin operation in mid-1998.
The table below sets forth summarized financial information for Rouge Steel's
unconsolidated subsidiaries (in thousands):
<TABLE>
<CAPTION>
December 31
-----------------
1996 1995
---- ----
<S> <C> <C>
Current Assets $ 51,987 $ 8,618
Noncurrent Assets 210,690 149,407
Current Liabilities 61,012 9,340
Noncurrent Liabilities 181,645 147,659
</TABLE>
For the year ended December 31, 1996, net sales, gross profit and net loss
recorded by Rouge Steel's unconsolidated subsidiaries were $16,268,000,
$446,000 and $498,000, respectively. For the years ended December 31, 1995 and
1994, the Company's unconsolidated subsidiaries had no reportable amounts.
NOTE 5 - DEBT
The Company had no long-term debt outstanding as of December 31, 1996 or 1995.
On November 29, 1994, the Company entered into an agreement for a $100,000,000,
unsecured revolving loan facility. No borrowings have yet been made under the
facility. Interest will be calculated using one of two methods. Loans under
the base rate option will be charged interest equal to the higher of
the prime rate or the federal funds rate plus 0.5%. Loans under the LIBOR
option will be charged interest at the London Interbank Offered Rate plus a
margin ranging from 0.25% to 0.675% depending on the
41
<PAGE> 42
NOTE 5 - DEBT (continued)
Company's leverage ratio at the time of borrowing. The interest rate option
will be chosen by the Company at the time of each borrowing and is thereafter
changeable under certain specified conditions. The facility bears a 0.2% per
annum fee on the entire amount of the facility and a fixed annual fee of
$30,000. The agreement, which expires on November 29, 2001, contains certain
financial covenants, each of which the Company was in compliance with on
December 31, 1996 and 1995.
No cash was paid to affiliates for interest in 1996 or 1995. Cash paid to
affiliates for interest was $1,691,000 in 1994. Cash paid to nonaffiliates for
interest was $350,000 in 1996, $285,000 in 1995 and $825,000 in 1994.
NOTE 6 - PENSIONS
The Company has four retirement plans. Two plans cover hourly employees
represented by the UAW and the remaining two plans cover salaried employees of
the Company. The hourly plans are noncontributory and provide benefits,
including early retirement supplements, based on the length of employee
service. The salaried plans provide similar noncontributory benefits and, for
employees who elect to contribute, pay related benefits combined with early
retirement supplements. The employees that were utilized at Eveleth prior to
the restructuring discussed in Note 4 participated in plans which provided
contributory and noncontributory retirement benefits. Eveleth recorded net
periodic pension expense of $276,000 in the eleven months ended November 30,
1996, $636,000 in 1995 and $321,000 in 1994. The following pension disclosures
do not reflect the benefits provided to the employees utilized by Eveleth.
The Company's funding policy is to contribute annually, at a minimum, amounts
required by applicable law, regulations, and union agreements. In 1995, the
Company made additional contributions to the plans in an effort to reduce the
unfunded pension liability and improve the funded status of the plans. Plan
assets consist principally of investments in common and preferred stock,
government securities, and other fixed income securities.
The following schedule sets forth the funded status of the plans at December 31
using a September 30 measurement date (dollars in thousands):
<TABLE>
<CAPTION>
Overfunded Plan(s) Underfunded Plan(s)
------------------------- --------------------------
1996 1995 1996 1995
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Actuarial Present Value of Benefit Obligations:
Vested $(15,850) $(39,353) $(38,710) $(4,969)
Nonvested (6,348) (27,081) (28,599) (5,832)
-------- -------- -------- --------
Accumulated Benefit Obligation $(22,198) $(66,434) $(67,309) $(10,801)
======== ======== ======== ========
Projected Benefit Obligation $(24,648) $(68,737) $(67,309) $(10,801)
Fair Value of Assets 24,583 69,494 63,146 8,504
-------- -------- -------- --------
Fair Value of Assets (Less Than)
in Excess of Projected Benefit Obligation (65) 757 (4,163) (2,297)
Unrecognized Net Loss 1,176 3,335 210 2,190
Unrecognized Prior Service Cost 1,028 10,270 8,229 -
Employer Contribution 1,387 22 4,733 -
Minimum Liability Adjustment - - (2,399) (2,190)
-------- -------- -------- --------
Prepaid Pension Cost (Unfunded Accrued) $ 3,526 $14,384 $ 6,610 $(2,297)
======== ======== ======== ========
</TABLE>
42
<PAGE> 43
NOTE 6 - PENSIONS (continued)
The following schedule sets forth the net pension cost (dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31
------------------------------------------
<S> <C> <C> <C>
1996 1995 1994
------ ------ ------
Service Cost $8,143 $6,795 $7,662
Interest Cost 6,541 4,952 4,022
Actual Return on Assets (9,325) (8,460) (440)
Net Amortization and Deferral 3,577 4,762 (1,854)
------ ------ ------
Net Pension Cost $8,936 $8,049 $9,390
====== ====== ======
</TABLE>
The projected benefit obligation was determined using a discount rate of 7.5%
for 1996 and 1995, an expected rate of return on plan assets of 9.0% and a rate
of compensation escalation for salaried plans of 3.7% for both years.
NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS
Postretirement Benefit Plans Other than Pensions
The Company provides certain health care and life insurance benefits for
retired employees. As part of the Acquisition, Ford assumed essentially all
liability for these benefits for Company retirees and certain employees nearing
retirement as of December 15, 1989.
Substantially all of the Company's employees may become eligible for benefits,
either at the Company's expense or, to the extent indicated above, at Ford's
expense, if they reach retirement age while still working for the Company.
Disclosures related to postretirement benefits include employees utilized by
Eveleth at December 31, 1995 and for the years ended December 31, 1995 and
1994. As a result of the change in the ownership structure relating to Eveleth
operations discussed in Note 4, disclosures related to postretirement benefits
at December 31, 1996 and for the year ended December 31, 1996 do not include
employees utilized by Eveleth. At December 31, 1995, the accrued
postretirement benefit cost included in the table below which related to
employees utilized by Eveleth was $16,160,000. The accrued postretirement
benefit cost is included in Other Liabilities. The following schedule presents
the funded status of the plans (dollars in thousands):
<TABLE>
<CAPTION>
December 31
------------------------
1996 1995
---- ----
<S> <C> <C>
Accumulated Postretirement Benefit Obligation:
Active Participants $(40,776) $(41,399)
Fully Eligible Participants (3,803) (5,287)
Retirees (2,610) (6,667)
------ ------
Total (47,189) (53,353)
Fair Value of Assets - 251
Benefit Payments and Contributions 27 26
Unrecognized Prior Service Cost 331 378
Unrecognized Net Loss 7,672 3,826
-------- --------
Accrued Postretirement Benefit Cost $(39,159) $(48,872)
======== ========
</TABLE>
43
<PAGE> 44
NOTE 7 - POSTRETIREMENT BENEFIT AND OTHER PLANS (continued)
The following schedule presents the net periodic postretirement benefit cost
(dollars in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Service Cost $2,992 $2,741 $3,034
Interest Cost 3,163 3,906 3,498
Actual Return on Assets - (6) -
Net Amortization 432 (112) 230
-------- -------- --------
Net Periodic Postretirement Benefit Cost $6,587 $6,529 $6,762
======== ======== ========
</TABLE>
For Rouge Steel plans, assumed health care trend rates of 7.0% and 8.0% were
used to measure the postretirement benefit obligation in 1996 and 1995,
respectively. By 1997, the assumed health care trend rate will be 6.0%. The
discount rate used by Rouge Steel to measure the postretirement benefit
obligation was 7.5% in 1996 and 1995. Assumed health care trend rates for the
Eveleth plans were 9.75% to measure the postretirement benefit obligation for
pre-age 65 retirees in 1995 and 7.25% to measure the postretirement benefit
obligation of post-age 65 retirees in 1995. The discount rate used to measure
the postretirement benefit obligation for the Eveleth plans was 7.5% in 1995.
If the health care trend rates assumed were increased by 1.0%, the effect on
the accumulated postretirement benefit obligation at December 31, 1996 and the
total 1996 service and interest cost components of net periodic postretirement
benefit cost would be increases of $9,782,000 and $1,641,000, respectively.
The effect of a 1.0% health care trend rate increase on the total accumulated
postretirement benefit obligation at December 31, 1995 and on the 1995 service
and interest cost components of net periodic postretirement benefit cost would
be increases of $11,195,000 and $1,802,000, respectively.
Profit Sharing Plans
The Company maintains profit sharing plans for hourly and salaried employees
which cover substantially all employees. Hourly and salaried profit sharing
expense amounted to $4,173,000, $12,306,000 and $12,909,000 in 1996, 1995 and
1994, respectively.
NOTE 8 - INCOME TAXES
The Company's income tax (provision) benefit arising wholly from federal
taxation since the Company neither has been, nor is presently, subject to state
or foreign income taxes, consists of the following components (dollars in
thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31
--------------------------------------------------
1996 1995 1994
------ ----- -----
<S> <C> <C> <C>
Current $(2,482) $(27,614) $(9,676)
Deferred (4,433) (5,841) 17,958
------- -------- -------
Total (Provision) Benefit $(6,915) $(33,455) $ 8,282
======= ======== =======
</TABLE>
44
<PAGE> 45
NOTE 8 - INCOME TAXES (continued)
The differences between the total (provision) benefit and the provision
computed using the Federal statutory income tax rate were as follows (dollars
in thousands):
<TABLE>
<CAPTION>
For the Years Ended December 31
------------------------------------------------
1996 1995 1994
-------- -------- --------
<S> <C> <C> <C>
Pre-Tax Income $30,220 $127,479 $102,778
======== ======== ========
Computed Provision $(10,577) $(44,618) $(35,972)
Source of Difference:
Percentage Depletion $ - $ - $ 3,404
Amortization of Negative Goodwill 2,029 2,029 2,029
Change in Valuation Allowance 1,800 12,000 39,600
Other (167) (2,866) (779)
-------- -------- --------
Total (Provision) Benefit $(6,915) $(33,455) $ 8,282
======== ======== ========
</TABLE>
Deferred tax assets (liabilities) are comprised of the following (dollars in
thousands):
<TABLE>
<CAPTION>
December 31
----------------------
1996 1995
------- -------
<S> <C> <C>
ASSETS
Property, Plant, and Equipment $ - $ 6,432
Basis of Consolidated Subsidiary 11,241 11,241
Postretirement and Other Benefits 21,167 20,513
Other 6,810 5,906
Operating Loss and Alternative
Minimum Tax Credit Carryforwards 25,925 23,553
------- -------
Gross Deferred Tax Assets 65,143 67,645
Valuation Allowance (23,900) (25,700)
------- -------
Gross Deferred Tax Assets
After Valuation Allowance 41,243 41,945
------- -------
LIABILITIES
Property, Plant, and Equipment (7,615) -
Inventories (10,924) (14,809)
Other (34) (33)
------- -------
Gross Deferred Tax Liabilities (18,573) (14,842)
------- -------
Total Net Deferred Tax Assets $22,670 $27,103
======= =======
</TABLE>
Regular tax loss carryforwards were fully utilized at December 31, 1995.
Alternative minimum tax credit carryforwards amounted to $25,925,000 at
December 31, 1996 and $23,553,000 at December 31, 1995.
A valuation allowance is recorded for deferred tax assets if it is more likely
than not that some or all of the deferred tax assets will not be realized. The
Company previously recorded a partial valuation allowance on certain deferred
tax assets. As a result of its utilization of net operating loss carryforwards
against
45
<PAGE> 46
NOTE 8 - INCOME TAXES (continued)
current taxable income, the valuation allowance was reversed through credits to
the tax provision. A significant portion of the remaining valuation allowance
at December 31, 1996 relates to specific items with essentially indefinite
reversal periods. Current deferred tax assets of $788,000 and $1,832,000 in
1996 and 1995, respectively, are recorded in Other Current Assets. The
remaining deferred tax assets are included in Deferred Charges and Other.
Cash paid for income taxes was $5,325,000 in 1996, $24,200,000 in 1995 and
$7,600,000 in 1994.
NOTE 9 - COMMON STOCK
Class A shares have a par value of $0.01. Each Class A share has one vote.
Class B shares have a par value of $0.01. Each Class B share has 2.5 votes.
Class C shares had a par value of $0.01. Class C shares had no voting rights.
The Company exercised its option to call these shares at the original issue
price of $1,000,000 and redeemed them from Ford on December 4, 1992. The
shares were retired during the first quarter of 1994.
In 1996, Worthington converted 878,000 shares of Rouge Steel's Class B Common
Stock to Class A Common Stock, thereby reducing its voting interest in the
Company's common stock from 22.8% to 19.9%.
On March 9, 1994, the stockholders of Rouge Steel approved the Rouge Steel
Company Outside Director Equity Plan ("ODEP") and the Rouge Steel Company Stock
Incentive Plan ("SIP"). These plans provide for stock option grants to the
Company's directors and employees, respectively, at fair market value on the
date of grant. Under the plans, the Company may grant options to its directors
and employees for up to 500,000 shares of common stock. These stock options
generally vest over a period of up to three years and are exercisable for a
period not exceeding ten years from the date of grant. The stock options may
be exercised subject to continued employment and certain other conditions.
The Company applies Accounting Principles Board Opinion No. 25 in accounting
for its stock-based compensation plans. Accordingly, no compensation cost has
been recognized for the ODEP and the SIP. If compensation cost for the ODEP
and the SIP had been determined based upon the fair value at the grant dates
for awards under these plans consistent with the method set forth in SFAS No.
123, the Company's net income and net income per share would have been reduced
to the pro forma amounts indicated below:
<TABLE>
<CAPTION>
Year Ended December 31
----------------------
1996 1995
---- ----
<S> <C> <C> <C>
Net Income As Reported $23,392 $94,663
Pro Forma 22,357 93,638
Net Income Per Share As Reported $ 1.07 $ 4.37
Pro Forma 1.02 4.32
</TABLE>
46
<PAGE> 47
NOTE 9 - COMMON STOCK (continued)
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes option-pricing model with the following weighted-average
assumptions for grants in 1996 and 1995, respectively: divided yield of 0.51%
and 0.42% and risk-free interest rates of 5.56% and 7.76%. An expected
volatility of 32.7% and an expected life of 7 years were used for both periods.
A summary of the status of the Company's two stock-based compensations plans as
of December 31, 1996 and 1995 and changes during the years then ended is
presented below:
<TABLE>
<CAPTION>
1996 1995
--------------------------- ----------------------------
Weighted-Average Weighted-Average
Shares Price Shares Price
------ ---------------- ------ ---------------
<S> <C> <C> <C> <C>
Outstanding at January 1 106,500 $28.33 4,000 $22.00
Granted 110,100 23.70 107,000 28.56
Exercised - - (500) 22.00
Forfeited (8,375) 24.77 (4,000) 28.88
------- -------
Outstanding at December 31 208,225 $26.03 106,500 $28.33
======= ====== ======= ======
Options Exercisable at Year-End 130,394 $26.47 54,000 $28.24
Weighted-Average Fair Value of
Options Granted During the Year 10.43 14.17
</TABLE>
The following table presents summarized information about stock options
outstanding at December 31, 1996:
Options Outstanding Options Exercisable
<TABLE>
<CAPTION>
Number Weighted-Average Weighted- Number Weighted-
Range of Outstanding at Remaining Average Exercisable at Average
Exercise Prices December 31, 1996 Contractual Life Exercise Price December 31, 1996 Exercise Price
----------------- ---------------- -------------- ----------------- --------------
<S> <C> <C> <C> <C> <C>
$22.00 to 23.00 6,750 8.4 years $22.49 4,875 $22.34
$23.01 to 24.00 106,850 9.0 years 23.73 54,550 23.72
$28.88 94,625 8.0 years 28.88 70,969 28.88
</TABLE>
NOTE 10 - PROPERTY TAX LITIGATION SETTLEMENT
On August 31, 1995, Rouge Steel reached an agreement with the City of Dearborn
(the "City"), the Dearborn Public School Board and the County of Wayne,
Michigan which settled local property tax litigation for tax years 1990 through
1995. The local taxing authorities agreed to refund $25 million to Rouge Steel
for overpayment of property taxes for tax years 1990 through 1993. In
addition, the taxing authorities reduced Rouge Steel's property tax assessment
with respect to the 1994 and 1995 tax years. As a result of the settlement,
the Company recorded a pre-tax benefit of $29,974,000, net of profit sharing
and inventory valuation costs, in the third quarter of 1995.
On September 29, 1995, Rouge Steel received the first $15 million installment
of the $25 million refund for tax years 1990 through 1993. A second
installment of $5 million was received on October 1, 1996 and the final
installment of $5 million is due by October 1, 1997.
47
<PAGE> 48
NOTE 10 - PROPERTY TAX LITIGATION SETTLEMENT (continued)
Since late 1994, a portion of the Company's property tax payments had been
placed into an escrow account by order of the Michigan Tax Tribunal. Such
amounts were expensed for financial reporting purposes. The escrow account
amounted to $4,121,000 on December 31, 1994. On October 13, 1995, the escrow
funds were released and Rouge Steel paid $2,004,000 to the City to discharge
its remaining liability for the 1994 tax year.
NOTE 11 - COMMITMENTS AND CONTINGENCIES
Commitments to Ford
The Company purchases various services including environmental, heavy equipment
repair, construction, and transportation from Ford. In addition, the Company
leases certain land, office space, and production support facilities from Ford
under cancelable operating leases with terms ranging from 1 to 99 years. The
costs of these services were approximately $25,643,000 in 1996, $29,791,000 in
1995 and $33,500,000 in 1994.
The Company also jointly operates a powerhouse facility with Ford, under a
renewable ten-year agreement expiring January 1, 2000. The powerhouse
generates electricity, steam, and other utilities.
The fixed assets of the powerhouse are owned 60 percent by the Company and 40
percent by Ford, with each party receiving a portion of the power generated.
The costs of operating the facility are allocated between the Company and Ford
based on consumption. The Company's share of the costs of this facility was
approximately $74,005,000 in 1996, $71,176,000 in 1995 and $76,269,000 in 1994.
In connection with the operation of the powerhouse, Ford purchases a portion of
the gas produced by the Company's blast furnaces for use at the powerhouse
based on a negotiated formula. Ford purchased $23,638,000, $22,251,000 and
$22,300,000 worth of blast furnace gas in 1996, 1995 and 1994,
respectively. Of these amounts, between 60 and 70 percent has been charged
back to the Company for its proportionate share of the cost of such gas.
During 1996, 1995 and 1994, the Company purchased scrap from Ford at a cost of
$31,401,000, $27,122,000 and $27,631,000, respectively. These purchases were
made under a supply agreement that expires in automotive model year 2000.
Spartan Steel Commitment
During 1996, the Company entered a joint venture with Worthington to construct
and operate Spartan Steel. The entire project is expected to cost
approximately $90,000,000. Rouge Steel will be responsible for 48% of the
total, or approximately $43,200,000. Through December 31, 1996, the Company
had invested $1,368,000 in Spartan Steel. Construction of the facility is
expected to be complete by mid-1998.
Other Commitments
Pursuant to a purchase and sale agreement executed in connection with the
restructuring of EVTAC described in Note 4, Rouge Steel is required to purchase
45% of the first 5.0 million natural gross tons of pellets produced each year
by EVTAC at world market prices. The Company also has the right of first
refusal to 45% of any pellets produced by EVTAC in excess of 5.0 million
natural gross tons.
48
<PAGE> 49
NOTE 11 - COMMITMENTS AND CONTINGENCIES (continued)
The Company has entered into a ten-year contract for the supply of oxygen and
nitrogen. The terms of the agreement were effective November 15, 1995. The
contract contains annual minimum oxygen and nitrogen purchases of $8.3 million
and $550,000, respectively. Oxygen and nitrogen purchases aggregated
approximately $11,707,000 in 1996, $9,769,000 in 1995, and $8,353,000 in 1994.
Shiloh of Michigan, L.L.C. Loan Guaranty
Rouge Steel executed a guaranty of payment in favor of certain banks to induce
them to extend a $23,000,000 line of credit to the Shiloh Venture, an
engineered steel blanking joint venture between the Company and Shiloh
Industries, Inc. Rouge Steel guaranteed 20 percent of the line of credit and
the Company's maximum exposure under the guaranty is $5,000,000. As of
December 31, 1996, the Shiloh Venture had borrowings of $20,000,000 outstanding
under its line of credit.
Environmental Matters
The Company is indemnified through December 15, 2009 for environmental
obligations relating to conditions arising prior to the Acquisition on December
15, 1989. It is the Company's practice to coordinate the resolution of such
obligations with Ford. Management believes that disputed or unresolved
obligations are immaterial in relation to the Company's Consolidated Statement
of Operations. The Company's environmental obligations relating to conditions
arising after the Acquisition, in the opinion of
management, will not have a materially adverse effect on the Company's
consolidated financial position or results of operations.
In late 1995, the existence of material containing polychlorinated biphenyls
("PCB") was noted within a containment area of an electrical substation in the
cold mills. Rouge Steel commenced an investigation into the presence of the
contamination. As a result of this investigation, an underground storage tank
("UST") was discovered beneath the floor of the substation. This UST was
subsequently determined to contain some PCB-contaminated oil. In making this
determination, the Company confirmed a release of PCB-contaminated liquid. An
emergency response was initiated and the UST was isolated and drained. Upon
isolation, sub-surface sampling was conducted. Analysis of these samples
demonstrated either non-detectable levels of concentration or concentrations
below clean-up levels required by Michigan's Department of Environmental
Quality the ("DEQ"). Based upon this analysis, the Company submitted a UST
closure report to the State of Michigan on January 19, 1996. The DEQ opted not
to audit the site within the six months after receipt of the closure report.
Therefore, it is assumed to be acceptable.
A trace of PCB-containing material has also been found in certain electrical
manholes. The Company has accrued $1.5 million for the investigation and
clean-up of the substation, closure of the UST, fingerprinting various oils to
match the PCB contaminated oils, and the clean-up of manholes. An additional
$200,000 was accrued in 1995 for legal expenses related to this project.
Through December 31, 1996, approximately $1,000,000 has been spent on
investigation, cleanup and legal efforts. The Company resubmitted a notice of
indemnity claim to Ford in September, 1996, for all costs associated with the
clean-up of PCB contamination in this substation. Discussions are ongoing
with Ford, however, no final determination has yet been made by Ford with
respect to this notice of claim. The Company has not recorded an asset in
anticipation of recovery pursuant to the Ford indemnity.
49
<PAGE> 50
NOTE 11 - COMMITMENTS AND CONTINGENCIES (continued)
Litigation
The Company is involved in routine litigation incidental to its business. In
management's opinion, none of such current proceedings, individually or in the
aggregate, will have a materially adverse effect on the Company's consolidated
financial position or results of operations.
50
<PAGE> 51
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS AND RESERVES
Accounts Receivable Allowances (amounts in thousands):
<TABLE>
<CAPTION>
Charged
Balance (Credited) to Balance
Year Ended at Beginning Cost and at End
December 31 of Period Expenses Write-Offs of Period
----------- ------------ ---------------- ------------- ---------
<S> <C> <C> <C> <C>
1996 $6,118 $1,248 $(72) $7,294
1995 6,790 1,804 (2,476) 6,118
1994 7,890 (995) (105) 6,790
</TABLE>
51
<PAGE> 52
SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
<TABLE>
<CAPTION>
First Second Third Fourth
Quarter Quarter Quarter(1) Quarter
---------- ---------- ---------- ----------
(in thousands, except per share amounts)
<S> <C> <C> <C> <C>
1996
Total Sales $320,185 $348,967 $320,153 $318,093
Gross Margin 11,418 20,757 22,016 (10,963)
Net Income 6,668 11,805 13,387 (8,468)
Net Income Per Share 0.31 0.54 0.61 (0.39)
1995
Total Sales $320,316 $298,533 $282,591 $305,126
Gross Margin 41,807 37,675 20,865 13,059
Net Income 25,974 25,276 33,645 9,768
Net Income Per Share 1.20 1.17 1.55 0.45
</TABLE>
- ---------------
(1) A pre-tax gain of $30.0 million was recorded in the third quarter of
1995 to reflect the settlement of litigation.
52
<PAGE> 53
Item 9. Changes in and Disagreements With Accountants
on Accounting and Financial Disclosure.
None.
53
<PAGE> 54
PART III
Item 10. Directors and Executive Officers of the Registrant.
Information regarding the Company's Directors is incorporated by reference
to the information contained under the caption "Proposal No. 1 - Election of
Directors" in the Company's 1997 Proxy Statement (the "Proxy Statement"), which
will be filed with the Securities and Exchange Commission not later than April
30, 1997. Information regarding the Company's Executive Officers is set forth
in Part I of this Form 10-K pursuant to Instruction G of Form 10-K.
Item 11. Executive Compensation.
Incorporated by reference to the information contained under the caption
"Executive Compensation" in the Company's Proxy Statement, which will be filed
with the Securities and Exchange Commission not later than April 30, 1997.
Item 12. Security Ownership of Certain Beneficial Owners and Management.
Incorporated by reference to the information contained under the caption
"Security Ownership" in the Company's Proxy Statement, which will be filed with
the Securities and Exchange Commission not later than April 30, 1997.
Item 13. Certain Relationships and Related Transactions.
Incorporated by reference to the information contained under the caption
"Certain Relationships and Related Transactions" in the Company's Proxy
Statement, which will be filed with the Securities and Exchange Commission not
later than April 30, 1997.
With the exception of the information specifically incorporated by
reference, the Company's Proxy Statement is not to be deemed filed as part of
this report for purposes of this Part III.
54
<PAGE> 55
PART IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K.
(a) Documents filed as part of this Report:
(1) A list of the financial statements filed as part of
this report is submitted as a separate section, the index to
which is located on page 30.
(2) A list of financial statement schedules required to be
filed by Item 8 is located on page 30.
(3) Exhibits:
The following exhibits are included in this report or incorporated herein
by reference:
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the Company's 1994
Annual Report on Form 10-K (Commission File Number 1-12852) (the "1994
Form 10-K")).
3.2 Amended and Restated By-Laws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the 1994 Form 10-K).
10.1 Credit Agreement dated as of November 29, 1994 (the "Credit Agreement"),
among the registrant, the banks named therein and The Chase Manhattan
Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to the 1994
Form 10-K).
10.2 Purchase and Sale Agreement dated as of December 15, 1989, between Ford
Motor Company ("Ford") and Marico Acquisition Corp. ("Marico")
(incorporated herein by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 33-74698) (the "S-1
Registration Statement")).
10.3* Amended and Restated Stockholders Agreement dated as of November 14, 1996
(the "Stockholders Agreement"), among the Registrant, Carl L. Valdiserri
and Worthington Industries, Inc. ("Worthington").
10.4 Oxygen, Nitrogen and Argon Supply Agreement dated as of November 16,
1993, between Praxair, Inc. and the Registrant (incorporated herein by
reference to Exhibit 10.4 to the 1994 Form 10-K).
10.5 Electric Service Agreement dated as of January 11, 1995 between Minnesota
Power & Light Company and Eveleth Expansion Company and Eveleth Taconite
Company (incorporated herein by reference to Exhibit 10.5 to the 1994 Form
10-K).
</TABLE>
<PAGE> 56
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.6 Steel Purchase Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.16 to
the S-1 Registration Statement).
10.7 Steel Products Purchase Agreement dated as of December 15, 1989, between
the Registrant and Worthington (the "Worthington Agreement") (incorporated
herein by reference to Exhibit 10.17 to the S-1 Registration Statement).
10.8 Letter dated February 20, 1996 confirming Exercise of Option to Extend
Term of Worthington Agreement.
10.9 Technical and Transportation Services Agreement dated as of December 15,
1989, between the Registrant and Ford (incorporated herein by reference to
Exhibit 10.18 to the S-1 Registration Statement).
10.10 Railroad Services Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.19 to
the S-1 Registration Statement).
10.11 Scrap Sale Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.20 to
the S-1 Registration Statement).
10.12 Powerhouse Joint Operating Agreement dated as of December 15, 1989,
between the Registrant and Ford (incorporated herein by reference to
Exhibit 10.21 to the S-1 Registration Statement).
10.13 Transitional Services Agreement dated as of December 15, 1989, between
the Registrant and Ford (incorporated herein by reference to Exhibit 10.22
to the S-1 Registration Statement).
10.14 Joint Venture Agreement dated as of November 30, 1984 (the "Joint
Venture Agreement"), between United States Steel Corporation ("USS") and
the Registrant (incorporated herein by reference to Exhibit 10.23 to the
S-1 Registration Statement).
10.15 Amendment to Joint Venture Agreement (incorporated herein by reference
to Exhibit 10.24 to the S-1 Registrant Statement).
10.16 Operating Agreement for Shiloh of Michigan, LLC dated as of January 2,
1996 by and among Shiloh of Michigan LLC, the Registrant and Shiloh
Industries, Inc. (incorporated herein by reference to Exhibit 10.16 to the
Company's 1995 Annual Report on Form 10-K (Commission File Number 1-12852)
(the "1995 Form 10-K).
10.17 Natural Gas Operating Agreement dated as of December 15, 1989 between
the Registrant and Ford (incorporated herein by reference to Exhibit 10.25
to the S-1 Registrant Statement).
</TABLE>
<PAGE> 57
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.18* Operating Agreement of Spartan Steel Coating, LLC dated as of November
14, 1996 among QS Steel, Inc. and Worthington Steel of Michigan, Inc.
10.19* Eveleth Mines Exit Agreement dated as of November 25, 1996 among Oglebay
Norton Company, ONCO Eveleth Company, Eveleth Taconite Company, Eveleth
Expansion Company, AK Steel Corporation, Virginia Horn Taconite Company,
Rouge Steel Company, Stelco, Inc., Ontario Eveleth Company and Eveleth
Mines LLC
10.20* Pellet Sale and Purchase Agreement dated as of January 1, 1997 by and
between Eveleth Mines LLC and Rouge Steel Company.
10.21* Member Control Agreement of Eveleth Mines LLC dated as of December 2,
1996 between Virginia Horn Taconite Company, Rouge Steel Company and
Ontario Eveleth Company.
10.22* Letter Agreement dated as of October 25, 1996 between Worthington
Industries and Rouge Steel Company.
10.23* Furnace Coke Supply Agreement dated as of October 31, 1996 between Rouge
Steel Company and Bethlehem Steel Corporation.
10.24 Pellet Sale and Purchase and Trade Agreement dated as of January 1, 1991
by and between The Cleveland-Cliffs Iron Company and the Registrant
(incorporated herein by reference to Exhibit 10.31 to the S-1 Registration
Statement).
10.25 Agreement for Production, Sale and Purchase of Coal dated as of January
15, 1975 ("Coal Purchase Agreement") by and among Ford, Blackberry Creek
Coal Company ("Blackberry") and A.T. Massey Coal Company, Inc. ("Massey")
(incorporated herein by reference to Exhibit 10.32 to the S-1 Registration
Statement).
10.26 Amendment No. 1 to the Coal Purchase Agreement dated as of January 1,
1987 by and among the Registrant (as successor to Ford), Blackberry and
Massey Coal Sales Company, Inc. (as successor to Massey) (incorporated
herein by reference to Exhibit 10.33 to the S-1 Registration Statement).
10.27 Coke Tolling Agreement dated December 22, 1993 between U.S.S. Subsidiary
of USX Corporation and the Registrant (incorporated herein by reference to
Exhibit 10.34 to the S-1 Registration Statement).
10.28 Agreement for the Provision of Tolled Coke dated December 22, 1992
between New Boston Coke Corporation. and the Registrant (incorporated
herein by reference to Exhibit 10.35 to the S-1 Registration Statement).
</TABLE>
<PAGE> 58
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.29 Purchase Agreement among Rouge Steel Company, Stelco Inc. and Ontario
Eveleth Company dated March 1, 1993 (incorporated herein by reference to
Exhibit 10.36 to the S-1 Registration Statement).
10.30** Rouge Steel Company Savings Plan for Salaried Employees (incorporated
herein by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (Registration No. 33-88520) (the "Form S-8 Registration
Statement")).
10.31 Rouge Steel Company Tax-Efficient Savings Plan for Hourly Employees
(incorporated herein by reference to Exhibit 4.2 to the Form S-8
Registration Statement).
10.32 Rouge Steel Company Profit Sharing Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.38 to the S-1 Registration
Statement).
10.33** Rouge Steel Company Short-Term Incentive Program (incorporated herein
by reference to Exhibit 10.39 to the S-1 Registration Statement).
10.34** Rouge Steel Company Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.40 to the S-1 Registration Statement).
10.35** Rouge Steel Company's Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the S-1 Registration
Statement).
10.36** Rouge Steel Company Outside Director Equity Plan (incorporated herein
by reference to Exhibit 10.41.1 to the S-1 Registration Statement).
10.37 Lease between Ford and Registrant dated January 1, 1982 (the "Lease")
(incorporated herein by reference to Exhibit 10.42 to the S-1 Registration
Statement).
10.38 First Amendment to the Lease dated as of July 1, 1992 (incorporated
herein by reference to Exhibit 10.43 to the S-1 Registration Statement).
10.39 Second Amendment to the Lease dated as of January 1, 1992 (incorporated
herein by reference to Exhibit 10.44 to the S-1 Registration Statement).
10.40 Third Amendment to the Lease dated as of June 27, 1994 (incorporated
herein by reference to Exhibit 10.39 to the 1995 Form 10-K).
21* List of Subsidiaries.
23* Consent of Price Waterhouse LLP.
27* Financial Data Schedule for the Year Ended December 31, 1996.
</TABLE>
<PAGE> 59
____________
* Filed herewith.
** Compensatory plans in which the Registrant's directors and executive
officers participate.
(b) On December 4, 1996, the Company filed a Current Report on Form 8-K
disclosing a series of problems the Company had encountered with its
largest blast furnace.
(c) The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
(d) The financial statement schedule listed under Item 14(a)(2) is
filed herewith.
<PAGE> 60
SIGNATURES
Pursuant to the requirements of Section 13 of 15(a) of the Securities
Exchange Act of 1934, as amended, the Registrant has duly caused this report to
be signed in its behalf by the undersigned, thereunto duly authorized, on the
10th day of February 1997.
ROUGE STEEL COMPANY
By: /s/ Carl L. Valdiserri
----------------------------
Name: Carl L. Valdiserri
Title: Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, this report has been signed by the following persons on behalf of
Registrant in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signatures Title Date
---------- ----- ----
<S> <C> <C>
/s/ Carl L. Valdiserri Chief Executive Officer and Chairman of February 10, 1997
- ----------------------- the Board
/s/ Louis D. Camino President, Chief Operating Officer and February 10, 1997
- ----------------------- Director
/s/ Gary P. Latendresse Vice President, Chief Financial Officer February 10, 1997
- ----------------------- and Director
/s/ Dominick C. Fanello Director February 10, 1997
- -----------------------
/s/ John E. Lobbia Director February 10, 1997
- -----------------------
/s/ Peter J. Pestillo Director February 10, 1997
- -----------------------
/s/ Clayton P. Shannon Director February 10, 1997
- -----------------------
</TABLE>
60
<PAGE> 61
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------- ----------------------
<S> <C>
3.1 Amended and Restated Certificate of Incorporation of the Registrant
(incorporated herein by reference to Exhibit 3.1 to the Company's 1994
Annual Report on Form 10-K (Commission File Number 1-12852) (the "1994
Form 10-K")).
3.2 Amended and Restated By-Laws of the Registrant (incorporated herein by
reference to Exhibit 3.2 to the 1994 Form 10-K).
10.1 Credit Agreement dated as of November 29, 1994 (the "Credit Agreement"),
among the registrant, the banks named therein and The Chase Manhattan
Bank, N.A. (incorporated herein by reference to Exhibit 10.1 to the 1994
Form 10-K).
10.2 Purchase and Sale Agreement dated as of December 15, 1989, between Ford
Motor Company ("Ford") and Marico Acquisition Corp. ("Marico")
(incorporated herein by reference to Exhibit 10.10 to the Company's
Registration Statement on Form S-1 (Registration No. 33-74698) (the "S-1
Registration Statement")).
10.3* Amended and Restated Stockholders Agreement dated as of November 14, 1996
(the "Stockholders Agreement"), among the Registrant, Carl L. Valdiserri
and Worthington Industries, Inc. ("Worthington").
10.4 Oxygen, Nitrogen and Argon Supply Agreement dated as of November 16,
1993, between Praxair, Inc. and the Registrant (incorporated herein by
reference to Exhibit 10.4 to the 1994 Form 10-K).
10.5 Electric Service Agreement dated as of January 11, 1995 between Minnesota
Power & Light Company and Eveleth Expansion Company and Eveleth Taconite
Company (incorporated herein by reference to Exhibit 10.5 to the 1994 Form
10-K).
</TABLE>
<PAGE> 62
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.6 Steel Purchase Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.16 to
the S-1 Registration Statement).
10.7 Steel Products Purchase Agreement dated as of December 15, 1989, between
the Registrant and Worthington (the "Worthington Agreement") (incorporated
herein by reference to Exhibit 10.17 to the S-1 Registration Statement).
10.8 Letter dated February 20, 1996 confirming Exercise of Option to Extend
Term of Worthington Agreement.
10.9 Technical and Transportation Services Agreement dated as of December 15,
1989, between the Registrant and Ford (incorporated herein by reference to
Exhibit 10.18 to the S-1 Registration Statement).
10.10 Railroad Services Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.19 to
the S-1 Registration Statement).
10.11 Scrap Sale Agreement dated as of December 15, 1989, between the
Registrant and Ford (incorporated herein by reference to Exhibit 10.20 to
the S-1 Registration Statement).
10.12 Powerhouse Joint Operating Agreement dated as of December 15, 1989,
between the Registrant and Ford (incorporated herein by reference to
Exhibit 10.21 to the S-1 Registration Statement).
10.13 Transitional Services Agreement dated as of December 15, 1989, between
the Registrant and Ford (incorporated herein by reference to Exhibit 10.22
to the S-1 Registration Statement).
10.14 Joint Venture Agreement dated as of November 30, 1984 (the "Joint
Venture Agreement"), between United States Steel Corporation ("USS") and
the Registrant (incorporated herein by reference to Exhibit 10.23 to the
S-1 Registration Statement).
10.15 Amendment to Joint Venture Agreement (incorporated herein by reference
to Exhibit 10.24 to the S-1 Registrant Statement).
10.16 Operating Agreement for Shiloh of Michigan, LLC dated as of January 2,
1996 by and among Shiloh of Michigan LLC, the Registrant and Shiloh
Industries, Inc. (incorporated herein by reference to Exhibit 10.16 to the
Company's 1995 Annual Report on Form 10-K (Commission File Number 1-12852)
(the "1995 Form 10-K).
10.17 Natural Gas Operating Agreement dated as of December 15, 1989 between
the Registrant and Ford (incorporated herein by reference to Exhibit 10.25
to the S-1 Registrant Statement).
</TABLE>
<PAGE> 63
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.18* Operating Agreement of Spartan Steel Coating, LLC dated as of November
14, 1996 among QS Steel, Inc. and Worthington Steel of Michigan, Inc.
10.19* Eveleth Mines Exit Agreement dated as of November 25, 1996 among Oglebay
Norton Company, ONCO Eveleth Company, Eveleth Taconite Company, Eveleth
Expansion Company, AK Steel Corporation, Virginia Horn Taconite Company,
Rouge Steel Company, Stelco, Inc., Ontario Eveleth Company and Eveleth
Mines LLC
10.20* Pellet Sale and Purchase Agreement dated as of January 1, 1997 by and
between Eveleth Mines LLC and Rouge Steel Company.
10.21* Member Control Agreement of Eveleth Mines LLC dated as of December 2,
1996 between Virginia Horn Taconite Company, Rouge Steel Company and
Ontario Eveleth Company.
10.22* Letter Agreement dated as of October 25, 1996 between Worthington
Industries and Rouge Steel Company.
10.23* Furnace Coke Supply Agreement dated as of October 31, 1996 between Rouge
Steel Company and Bethlehem Steel Corporation.
10.24 Pellet Sale and Purchase and Trade Agreement dated as of January 1, 1991
by and between The Cleveland-Cliffs Iron Company and the Registrant
(incorporated herein by reference to Exhibit 10.31 to the S-1 Registration
Statement).
10.25 Agreement for Production, Sale and Purchase of Coal dated as of January
15, 1975 ("Coal Purchase Agreement") by and among Ford, Blackberry Creek
Coal Company ("Blackberry") and A.T. Massey Coal Company, Inc. ("Massey")
(incorporated herein by reference to Exhibit 10.32 to the S-1 Registration
Statement).
10.26 Amendment No. 1 to the Coal Purchase Agreement dated as of January 1,
1987 by and among the Registrant (as successor to Ford), Blackberry and
Massey Coal Sales Company, Inc. (as successor to Massey) (incorporated
herein by reference to Exhibit 10.33 to the S-1 Registration Statement).
10.27 Coke Tolling Agreement dated December 22, 1993 between U.S.S. Subsidiary
of USX Corporation and the Registrant (incorporated herein by reference to
Exhibit 10.34 to the S-1 Registration Statement).
10.28 Agreement for the Provision of Tolled Coke dated December 22, 1992
between New Boston Coke Corporation. and the Registrant (incorporated
herein by reference to Exhibit 10.35 to the S-1 Registration Statement).
</TABLE>
<PAGE> 64
<TABLE>
<CAPTION>
Exhibit
Number Description of Exhibit
- ------ ----------------------
<S> <C>
10.29 Purchase Agreement among Rouge Steel Company, Stelco Inc. and Ontario
Eveleth Company dated March 1, 1993 (incorporated herein by reference to
Exhibit 10.36 to the S-1 Registration Statement).
10.30** Rouge Steel Company Savings Plan for Salaried Employees (incorporated
herein by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-8 (Registration No. 33-88520) (the "Form S-8 Registration
Statement")).
10.31 Rouge Steel Company Tax-Efficient Savings Plan for Hourly Employees
(incorporated herein by reference to Exhibit 4.2 to the Form S-8
Registration Statement).
10.32 Rouge Steel Company Profit Sharing Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.38 to the S-1 Registration
Statement).
10.33** Rouge Steel Company Short-Term Incentive Program (incorporated herein
by reference to Exhibit 10.39 to the S-1 Registration Statement).
10.34** Rouge Steel Company Long-Term Incentive Plan (incorporated herein by
reference to Exhibit 10.40 to the S-1 Registration Statement).
10.35** Rouge Steel Company's Retirement Plan for Salaried Employees
(incorporated herein by reference to Exhibit 10.41 to the S-1 Registration
Statement).
10.36** Rouge Steel Company Outside Director Equity Plan (incorporated herein
by reference to Exhibit 10.41.1 to the S-1 Registration Statement).
10.37 Lease between Ford and Registrant dated January 1, 1982 (the "Lease")
(incorporated herein by reference to Exhibit 10.42 to the S-1 Registration
Statement).
10.38 First Amendment to the Lease dated as of July 1, 1992 (incorporated
herein by reference to Exhibit 10.43 to the S-1 Registration Statement).
10.39 Second Amendment to the Lease dated as of January 1, 1992 (incorporated
herein by reference to Exhibit 10.44 to the S-1 Registration Statement).
10.40 Third Amendment to the Lease dated as of June 27, 1994 (incorporated
herein by reference to Exhibit 10.39 to the 1995 Form 10-K).
21* List of Subsidiaries.
23* Consent of Price Waterhouse LLP.
27* Financial Data Schedule for the Year Ended December 31, 1996.
</TABLE>
<PAGE> 65
____________
* Filed herewith.
** Compensatory plans in which the Registrant's directors and executive
officers participate.
(b) On December 4, 1996, the Company filed a Current Report on Form 8-K
disclosing a series of problems the Company had encountered with its
largest blast furnace.
(c) The exhibits listed under Item 14(a)(3) are filed herewith or
incorporated herein by reference.
(d) The financial statement schedule listed under Item 14(a)(2) is
filed herewith.
<PAGE> 1
EXHIBIT 10.3
AMENDED AND RESTATED
STOCKHOLDERS AGREEMENT
Dated as of November 14, 1996
Among
CARL L. VALDISERRI,
ROUGE STEEL COMPANY,
and
WORTHINGTON INDUSTRIES, INCORPORATED
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
Page
<S> <C>
Section 1. DEFINITIONS AND SCOPE OF AGREEMENT . . . . . . . . . . . . . . . . . . . . . . 1
1.01 Certain Defined Terms . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.02 Scope of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 2. STOCK HOLDINGS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
Section 3. ACQUISITION OF VOTING STOCK; TRANSFERS BY MANAGEMENT INVESTOR . . . . . . . . . . 5
3.01 Acquisition of Voting Stock . . . . . . . . . . . . . . . . . . . . . . . . . . 5
3.02 Transfers by Management Investor . . . . . . . . . . . . . . . . . . . . . . . 5
Section 4. DIRECTORS OF THE COMPANY . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.01 Voting of Management Investor . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.02 Voting of Worthington . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
4.03 Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.04 Competitors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY . . . . . . . . . . . . . . . . . . 7
5.01 Organization and Standing . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.02 Capitalization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
5.03 Due Authorization; Valid and Binding Agreement . . . . . . . . . . . . . . . . 7
5.04 Governmental Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.05 Compliance with Other Instruments . . . . . . . . . . . . . . . . . . . . . . . 8
5.06 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.07 Accurate and Complete Disclosure . . . . . . . . . . . . . . . . . . . . . . . 8
Section 6. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS . . . . . . . . . . . . . . . . . 8
6.01 Representations of Worthington . . . . . . . . . . . . . . . . . . . . . . . . 8
6.02 Representations of Management Investor . . . . . . . . . . . . . . . . . . . . 9
Section 7. REPORTING AND INFORMATION REQUIREMENTS . . . . . . . . . . . . . . . . . . . . . 9
7.01 Information Reporting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 8. CORPORATE GOVERNANCE PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.01 Certificate of Incorporation . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.02 Board of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
8.03 Stockholder Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
Section 9. REGISTRATION RIGHTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.01 Requests for Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
9.02 Registrations on Forms S-2 and S-3 . . . . . . . . . . . . . . . . . . . . . . 10
9.03 Company Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.04 Obligations of the Company . . . . . . . . . . . . . . . . . . . . . . . . . . 11
9.05 Furnish Information . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.06 Underwriting Requirements . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.07 Delay of Registration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
</TABLE>
i
<PAGE> 3
<TABLE>
Page
<S> <C>
9.08 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
9.09 Reports Under Securities Laws . . . . . . . . . . . . . . . . . . . . . . . . . . 14
9.10 Certain Limitations in Connection with Future Grants of Registration Rights . . . 14
9.11 Market Stand-Off Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
Section 10. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.1 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
10.2 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.3 Successors, Assigns and Transferees . . . . . . . . . . . . . . . . . . . . . . . 15
10.4 Automatic Conversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.5 Legend . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
10.6 Opinion of Counsel; Conditions of Transfer . . . . . . . . . . . . . . . . . . . 16
10.7 No Waiver; Remedies Cumulative; Specific Performance . . . . . . . . . . . . . . 16
10.8 Further Assurances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.9 Survival of Representations and Warranties . . . . . . . . . . . . . . . . . . . 16
10.10 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
10.11 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.12 Prior Understandings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.13 Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.14 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.15 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
10.16 Jurisdiction; Service of Process; Waiver of Jury Trial; etc. . . . . . . . . . 17
</TABLE>
Exhibit A ---- Restated Certificate of Incorporation
Exhibit B ---- Subscriptions, Options, Calls, etc.
Exhibit C ---- Proposed Restated Certificate of Incorporation
Exhibit D ---- Board of Directors
Exhibit E ---- Joinder Agreement
ii
<PAGE> 4
This Amended and Restated Stockholders Agreement made as of the 14th
day of November, 1996 amends and restates the Amended and Restated Stockholders
Agreement (the "1994 Agreement") made as of the 28th day of February, 1994 by
and among Rouge Steel Company, a Delaware corporation (the "Company"), Carl L.
Valdiserri (the "Management Investor"), Worthington Industries, Incorporated,
an Ohio corporation (together with its successors, "Worthington") and Chase
Manhattan Capital Corporation, a Delaware corporation ("CMCC").
WHEREAS, CMCC is no longer a stockholder of the Company;
WHEREAS, the Company has filed a registration statement on Form S-3
(Registration No. 333-16183) under the Securities Act in connection with the
sale of certain shares of its Class A Common Stock owned by Worthington to the
public pursuant to the terms of the __% Exchangeable Notes due ___________,
1999 (the "DECS") of Worthington;
WHEREAS, the parties hereto desire to amend and restate their
respective rights and obligations in view of the DECS and other changed
circumstances;
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, and intending to be legally bound hereby, the parties hereto do
hereby agree as follows:
Section 1. DEFINITIONS AND SCOPE OF AGREEMENT.
1.01 Certain Defined Terms. Capitalized terms used in this Agreement
and defined in the recitals to this Agreement shall have the respective
meanings given to such terms in such recitals. In addition, as used herein,
the following terms shall have the following respective meanings (all terms
defined in this Section 1.01 or in other provisions of this Agreement in the
singular to have the same meanings when used in the plural and vice versa):
"Affiliate" shall mean, as to any Person, any other Person that
directly or indirectly controls, or is under common control with, or is
controlled by, such Person, and if such Person is an individual, any member of
the immediate family (including parents, siblings, spouse and children, whether
by birth or by adoption) of such individual and any trust whose principal
beneficiary is such individual or one or more members of such immediate family
and any Person who is controlled by any such member or trust. As used in this
definition, "control" (including, with its correlative meanings, "controlled
by" and "under common control with") shall mean possession, directly or
indirectly, of power to direct or cause the direction of management or policies
(whether through ownership of securities or partnership or other ownership
interests, by contract or otherwise).
"Business Day" shall mean any day on which commercial banks are not
authorized or required to close in New York City, New York.
"Chief Executive Officer" of any Person shall mean the senior Executive
Officer of such Person who is primarily responsible for the overall policies
and practices of such Person.
"Class A Common Stock" shall mean the Company's Class A Common Stock,
par value $.01 per share.
"Class B Common Stock" shall mean the Company's Class B Common Stock,
par value $.01 per share.
<PAGE> 5
"Class I Director," "Class II Director" and "Class III Director" shall
have the meanings set forth in the Company's Restated Certificate of
Incorporation.
"Common Stock" shall mean the Class A Common Stock and the Class B
Common Stock.
"Competitor" means any Person (other than Worthington and its
Affiliates as of the date of this Agreement) that competes with the Company in
primary steel making or any 5% or greater stockholder or owner of such Person
(other than Worthington and its Affiliates as of the date of this Agreement)
that competes with the Company in primary steel making. For the purposes of
this definition, any Person owned 50% or more by Worthington and its Affiliates
shall be deemed an Affiliate of Worthington.
"Credit Agreement" shall mean that certain credit agreement by and
among the Company, the banks named therein and The Chase Manhattan Bank, N.A.,
as administrative agent.
"Designated Transferee" shall mean (a) for Worthington, any transferee
of any capital stock of the Company who is an Affiliate of Worthington and (b)
for the Management Investor, (i) members of his immediate family, (ii) any one
or more charitable trusts or other trusts which are established in connection
with the estate planning of the Management Investor or in connection with the
Management Investor's estate, in each case where the beneficiaries of such
trusts are the beneficiaries of the Management Investor's estate, (iii) any one
or more trusts for the sole benefit of the Management Investor or one or more
of the Persons referred to in clause (i) of this definition, (iv) any
corporation all of whose issued and outstanding voting capital stock is held
legally and beneficially and of record by the Management Investor or his
Designated Transferee; provided, that in each case the Management Investor
retains sole voting power with respect to the Class B Common Stock held by any
person or entity referred to in clause (b)(i), (b)(ii), (b)(iii) or (b)(iv);
and (v) his estate.
"Disinterested Director" means any member of the Board of Directors of
the Company who (1) is unaffiliated with, and not a nominee of, Worthington or
the Management Investor and (2) is not an employee of the Company or
Worthington.
"Effective Date" shall mean the date of this Agreement.
"Equity Holdings" shall mean, as to any Stockholder, the percentage of
the total number of issued and outstanding shares of Common Stock held by such
Stockholder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended and in effect from time to time, together with any successor statutes.
"GAAP" shall mean generally accepted accounting principles applied on a
consistent basis.
"Group" shall have the meaning given to such term in Section 13 of the
Exchange Act.
"Issued Securities" shall mean the shares of Class A Common Stock and
Class B Common Stock issued to the Stockholders and outstanding on the
Effective Date.
"Joint Venture" shall mean Double Eagle Steel Coating Company, a
Michigan general partnership.
2
<PAGE> 6
"Lien" shall mean, with respect to any asset or property, any mortgage,
lien, pledge, charge, security interest or encumbrance of any kind in respect
of such asset or property. For purposes of this Agreement, a Person shall be
deemed to own subject to a Lien any asset or property that it has acquired or
holds subject to the interest of a vendor or lessor under any conditional sale
agreement, capital lease or other title retention agreement relating to such
asset or property.
"Management Investor Minimum Investment" means Equity Holdings of at
least 27%.
"Original Stockholders" shall mean the Management Investor and
Worthington.
"Percentage Limitation" has the meaning set forth in Section 3.01.
"Person" shall mean any individual, corporation, company, voluntary
association, partnership, joint venture, trust, incorporated organization or
government (or any agency, instrumentality or political subdivision thereof).
"register," "registered" and "registration," when used with respect to
the capital stock of the Company, shall refer to a registration effected by
preparing and filing a registration statement in compliance with the Securities
Act and the declaration or ordering of effectiveness of such registration
statement by the SEC.
"Registrable Securities" shall mean (a) Issued Securities and (b) any
securities of the Company issued as a dividend on or other distribution with
respect to any Issued Securities; provided that, as to any Registrable
Securities, such Registrable Securities cease to be "Registrable Securities"
for the purposes of this Agreement when they have been Transferred other than
to Designated Transferees.
"Requisite Stockholders" shall mean Stockholder(s) requesting the
registration of Registrable Securities representing not less than 10% of the
number of all Registrable Securities issued and outstanding at such time.
"Restricted Period" has the meaning set forth in Section 3.02.
"Rule 144" shall mean, as of any date, Rule 144 or any successor or
similar rule then in force promulgated by the SEC under the Securities Act.
"SEC" shall mean the Securities and Exchange Commission and any
successor agency responsible for the administration and enforcement of the
Securities Act and the Exchange Act.
"Securities Act" shall mean the Securities Act of 1933, as amended and
in effect from time to time, together with any successor statutes.
"Shelf Registration" shall have the meaning given to such term in
Section 11.04 hereof.
"Short-Form Registrant" shall have the meaning given to such term in
Section 11.02(a) hereof.
"Stockholders" shall mean the Original Stockholders and any of their
respective Designated Transferees.
3
<PAGE> 7
"Subsidiary" shall mean, with respect to any Person, any corporation or
other entity of which such Person or one or more of its Subsidiaries has,
directly or indirectly, Voting Control. Notwithstanding anything in this
definition to the contrary, the Joint Venture shall, for the purposes of this
Agreement, be a Subsidiary of the Company.
"Transfer" shall mean the conveyance, sale, lease, assignment, granting
of any Lien on or other transfer or disposition of any shares of capital stock
of the Company (or any legal or beneficial interest therein); provided,
however, that a pledge of capital stock shall not be deemed a "Transfer"
hereunder if the pledgor retains beneficial ownership of the stock and the
Management Investor retains sole voting power with respect to the stock, but
any Transfer by the pledgee shall be deemed a Transfer within the meaning of
this definition. Any shares of capital stock of the Company held by a
Designated Transferee that ceases to meet the definition of Designated
Transferee shall be deemed to be the subject of a Transfer within the meaning
of this definition on the date such stockholder ceases to meet the definition
of Designated Transferee. The terms "Transfer" and "Transferred" when used as
verbs shall have correlative meanings.
"Voting Control" shall mean, at any time, the ownership or control,
whether direct or indirect, by one Person of outstanding shares of capital
stock of another Person that, at such time, have by the terms thereof ordinary
voting power to elect a majority of the members of the board of directors of
such other Person (excluding voting power of the holders of preferred stock
arising upon the occurrence of a contingency).
"Voting Stock" means shares of stock of all classes and series of the
Company entitled to vote generally in the election of directors.
"Worthington Minimum Investment" means Equity Holdings of at least 18%.
1.02 Scope of Agreement.
(a) As of the Effective Date this Agreement shall supersede and amend
and restate in its entirety the 1994 Agreement.
(b) The parties acknowledge that prior to the Effective Date
Worthington has exchanged 828,000 shares of Class B Common Stock for 828,000
shares of Class A Common Stock and has resigned its two seats on the Board.
(c) The parties acknowledge that any Common Stock beneficially owned by
Worthington but which is deliverable by Worthington in exchange for
indebtedness in connection with the DECS shall, for purposes of this Agreement,
be deemed to be owned by Worthington until such time, if any, that Worthington
actually delivers such Common Stock in exchange for its indebtedness under the
DECS or otherwise Transfers such shares to any Person other than a Designated
Transferee.
(d) All of the Common Stock beneficially owned by the Management
Investor and his Designated Transferees and all of the Common Stock
beneficially owned by Worthington and its Designated Transferees shall be the
only Common Stock covered by this Agreement.
Section 2. STOCK HOLDINGS. As of the Effective Date, each of
Worthington and the Management Investor will own that number of shares of Class
A Common Stock and Class B Common Stock set forth below opposite his or its
name.
4
<PAGE> 8
<TABLE>
<CAPTION>
Original Number of Shares of Number of Shares of
Stockholder Class A Common Stock Class B Common Stock
- ----------- -------------------- --------------------
<S> <C> <C>
Management
Investor 8,515 7,390,400
Worthington 5,527,600 472,000
</TABLE>
Section 3. ACQUISITION OF VOTING STOCK; TRANSFERS BY MANAGEMENT
INVESTOR.
3.01 Acquisition of Voting Stock. During the term of this
Agreement, Worthington, without the prior written consent of a majority of the
Disinterested Directors specifically expressed in a resolution, will not
acquire, or agree to acquire, directly or indirectly, by purchase or otherwise,
or form, join or in any way participate in a Group to acquire or agree to
acquire, any shares of Voting Stock, or direct or indirect rights or options to
acquire (through purchase, exchange, conversion or otherwise) any shares of
Voting Stock, if, immediately after any such acquisition, the aggregate Equity
Holdings of Worthington and its Affiliates or any group which it forms, joins
or in any way participates in, would exceed 35% (the "Percentage Limitation");
provided, however, that notwithstanding anything to the contrary contained in
this Agreement, the foregoing restriction shall not be deemed to be violated if
the aggregate Equity Holdings of Worthington and its Affiliates are increased
as a result of a recapitalization of the Company, a repurchase of securities by
the Company or any other action taken by the Company; provided further,
however, that if as a result of any such recapitalization, repurchase or other
action, the aggregate Equity Holdings of Worthington and its Affiliates shall
be increased to more than 35%, then the Percentage Limitation shall be
increased to such percentage. For purposes of this Section 3.01, Worthington
and the Management Investor shall not be deemed to constitute a Group.
3.02 Transfers by Management Investor. Until the first
anniversary of the date of this Agreement and during each year after such first
anniversary (each such one-year period being referred to as a "Restricted
Period"), the Management Investor and his Designated Transferees shall not
Transfer, offer to Transfer or agree to Transfer more than 18% of the Equity
Holdings of the Management Investor and his Designated Transferees during such
Restricted Period unless the Management Investor gives written notice to
Worthington of such Transfer, offer to Transfer or agreement to Transfer at
least 30 days prior to such Transfer, offer to Transfer or agreement to
Transfer. Notwithstanding the foregoing, the Management Investor shall not be
required to give notice to Worthington with respect to the following:
(i) Transfers to Designated Transferees of the
Management Investor;
(ii) Transfers in connection with a public
offering, including pursuant to a registration statement on Form S-1,
S-2 or S-3 (or any successor forms regardless of designation) filed
with the SEC;
(iii) Transfers pursuant to or in connection with a
tender offer, exchange offer or similar transaction involving the
Company; or
(iv) Transfers pursuant to a merger,
consolidation, sale of all or substantially all the assets of the
Company or other business combination involving the Company.
5
<PAGE> 9
Section 4. DIRECTORS OF THE COMPANY.
4.01 Voting of Management Investor.
(a) So long as Worthington, collectively with its
Designated Transferees, owns at least the Worthington Minimum Investment, the
Management Investor and his Designated Transferees shall vote all their shares
of Voting Stock in favor of the election of two designees of Worthington (each
of whom shall be an employee of Worthington or of an Affiliate of Worthington)
as directors of the Company, one of whom shall be a Class I Director and one of
whom shall be a Class III Director. So long as Worthington, collectively with
its Designated Transferees, owns at least half the Worthington Minimum
Investment, the Management Investor and his Designated Transferees shall vote
all their shares of Voting Stock in favor of the election of one designee of
Worthington (who shall be an employee of Worthington or of an Affiliate of
Worthington) as a Class I Director of the Company. The designee(s) of
Worthington shall serve until their successors are duly elected and qualified
or until their earlier death, resignation or removal. In the event that any
such designee shall cease to serve as a director for any reason (including,
without limitation, the expiration of his term and his failure to be
reelected), the Company, subject to the fiduciary duty of the Board of
Directors of the Company, the Management Investor and his Designated
Transferees shall use their best efforts to cause the vacancy resulting thereby
to be filled by a designee of Worthington (who shall be an employee of
Worthington or of an Affiliate of Worthington), and the Company shall not take
any action to interfere with the fulfillment of such obligations by the
Management Investor and his Designated Transferees with respect to such
vacancy.
(b) In the event Worthington provides notice to the
Company that it will not name a designee as a director of the Company as
provided under this Section 4.01, then such directorship shall be filled by a
person selected in the same manner as the other directors of the Company, who
are not designees of the Management Investor. The person elected as a director
in lieu of a Worthington designee shall remain as a director until the
expiration of his or her term or until earlier death, resignation or removal.
In the event Worthington elects not to designate a director and a replacement
is elected, Worthington may again exercise its right to name a designee to fill
such directorship by giving written notice to the Company no later than January
31 of the year in which the replacement's term expires. In the event of the
death, resignation or removal of the person serving as a director in a position
previously held by a designee of Worthington, Worthington may, upon written
notice to the Company given within 30 days after it receives notice of such
event, designate a person to fill the vacancy so created.
(c) Worthington agrees that its rights to name designees
as directors of the Company shall be suspended for as long as any of the DECS
are outstanding.
4.02 Voting of Worthington. So long as the Management
Investor owns at least the Management Investor Minimum Investment (including
Common Stock held by Designated Transferees as to which the Management Investor
retains sole voting power), Worthington and its Designated Transferees shall
vote all their shares of Voting Stock in favor of the election of three
designees of the Management Investor (each of whom shall be an employee of the
Company) as directors of the Company, one of whom shall be a Class I Director,
one of whom shall be a Class II Director and one of whom shall be a Class III
Director. So long as the Management Investor owns at least two-thirds of the
Management Investor Minimum Investment (including Common Stock held by
Designated Transferees as to which the Management Investor retains sole voting
power), Worthington and its Designated Transferees shall vote all its shares of
Voting Stock in favor of the election of two designees of the Management
Investor (each of whom shall be an employee of the Company) as directors of the
Company, one of whom shall be a Class I Director and one of whom shall be a
Class III Director. So long as the Management Investor owns at least one-third
of the Management Investor Minimum Investment (including Common Stock held
6
<PAGE> 10
by Designated Transferees as to which the Management Investor retains sole
voting power), Worthington and its Designated Transferees shall vote all their
shares of Voting Stock in favor of the election of one designee of the
Management Investor (who shall be an employee of the Company) as a Class III
Director. The designee(s) of the Management Investor shall serve until their
successors are duly elected and qualified or until their earlier death,
resignation or removal. In the event that any such designee shall cease to
serve as a director for any reason (including, without limitation, the
expiration of his term and his failure to be reelected), the Company, subject
to the fiduciary duty of the Board of Directors of the Company, Worthington and
its Designated Transferee shall use their best efforts to cause the vacancy
resulting thereby to be filled by a designee of the Management Investor (who
shall be an employee of the Company), and the Company shall not take any action
to interfere with the fulfillment of such obligation by Worthington and its
Designated Transferees with respect to such vacancy.
4.03 Information. The Company agrees that any designee(s)
of the Management Investor or Worthington who are elected to serve on the Board
of the Directors of the Company shall be furnished with all information
generally provided to other members of the Board of the Directors of the
Company, shall have full access to information regarding the Company on a basis
equal to that of the other directors and shall be entitled to the same
perquisites as the other directors, except for employees of the Company.
4.04 Competitors. The parties agree that no designee to
be nominated for election by the stockholders as a member of the Board of
Directors shall be an officer, director or employee of a Competitor.
Section 5. REPRESENTATIONS AND WARRANTIES OF THE COMPANY.
The Company represents and warrants to each Original Stockholder that:
5.01 Organization and Standing. Each of the Company and
its Subsidiary (i) is a corporation (or, in the case of the Joint Venture, a
general partnership) duly organized, validly existing and in good standing
under the laws of the jurisdiction of its state or organization or formation,
(ii) has the power and authority to own its property and assets and to transact
the business in which it is engaged or presently proposed to engage and (iii)
has duly qualified and is authorized to do business and is in good standing as
a foreign corporation (or, in the case of the Joint Venture, a foreign
partnership) in every jurisdiction in which it owns or leases real property or
in which the nature of its business requires it to be so qualified.
5.02 Capitalization. On the Effective Date hereof, (a)
the authorized capital stock of the Company is fully described in its Restated
Certificate of Incorporation, a true, correct and complete copy of which is
attached as Exhibit A hereto and (b) except as set forth on Exhibit B hereto
there are no outstanding subscriptions, options, warrants, calls, rights
(including, without limitation, preemptive rights) or other agreements or
commitments of any nature relating to any capital stock of the Company, except
for the rights created by this Agreement.
5.03 Due Authorization; Valid and Binding Agreement. All
corporate action on the part of the Company and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of all obligations of the Company under this Agreement and for the
authorization, issuance and delivery of the securities of the Company being
sold concurrently herewith and subject to this Agreement has been taken prior
to the execution and delivery hereof. This Agreement constitutes the legal,
valid and binding obligation of the Company, enforceable against the Company in
accordance with its terms except as such enforcement may be limited by
bankruptcy, insolvency or other
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laws of general application relating to or affecting creditor's rights or by
general principles of equity limiting the availability of equitable remedies.
5.04 Governmental Consents. All consents, approvals,
orders of authorizations of, or registrations, qualifications, designations,
declarations or filings with, any federal, state or local governmental
authority on the part of the Company required in connection with the
consummation of the transactions contemplated hereby (assuming without
independent investigation the accuracy of each Original Stockholder's
representations in Section 6 hereof) have been obtained.
5.05 Compliance with Other Instruments. The Company is
not in violation of any provisions of its Restated Certificate of Incorporation
or Amended and Restated By-Laws in effect on and as of the date hereof, or of
any provision of any mortgage, indenture, agreement, instrument or contract to
which it is a party or by which any of its properties or assets is bound, or of
any provision of any federal, state or local judgment, writ, decree, order,
statute, rule or governmental regulation applicable to the Company. The
execution, delivery and performance of this Agreement will not result in any
such violation or be in a conflict with or constitute a default under any such
provision.
5.06 Litigation. There is no action, suit, proceeding or
investigation pending or, to the best knowledge of the Company, threatened
against the Company or any of its employees before any court or administrative
agency (or any basis therefor known to the Company) seeking to enjoin the
transactions contemplated by this Agreement.
5.07 Accurate and Complete Disclosure. No representation
or warranty made by the Company under this Agreement and no statement made by
the Company in any financial statement, certificate, report, exhibit or other
document furnished pursuant hereto, when taken together with all other
statements, certificates, reports, exhibits and other documents so furnished,
is knowingly false or misleading in any material respect (including, without
limitation, by omission of material information necessary to make such
representation, warranty or statement not misleading).
Section 6. REPRESENTATIONS AND WARRANTIES OF STOCKHOLDERS.
6.01 Representations of Worthington. Worthington hereby
represents and warrants to the Management Investor and the Company as follows:
(a) Due Authorization; Valid and Binding Agreement. All corporate
action on the part of Worthington and its officers, directors and
shareholders necessary for the authorization, execution, delivery and
performance of all its obligations under this Agreement have been taken
prior to the execution and delivery hereof. This Agreement, when executed
and delivered, shall constitute the legal, valid and binding obligation of
Worthington enforceable against Worthington in accordance with its terms
except as such enforcement may be limited by bankruptcy, insolvency or
other laws of general application relating to or affecting creditors'
rights or by general principles of equity limiting the availability of
equitable remedies.
(b) Governmental Consents. All consents, approvals, orders or
authorizations of, or registrations, qualifications, declarations or
filings with, any federal, state or local governmental authority on the
part of Worthington required in connection with the consummation of the
transactions contemplated hereby (assuming, without independent
investigation, the accuracy of the Company's representations in Section 5
hereof and the accuracy of the Management Investor's representations in
this Section 6) shall have been obtained.
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(c) No Conflicts. The execution, delivery and performance of this
Agreement will not result in a violation of Worthington's charter documents
or bylaws (or equivalent documents), as presently in effect or any
provision of any federal, state or local judgment, writ, decree, order,
statute, rule or governmental regulation applicable to Worthington.
(d) No Litigation. There is no presently pending or, to the best
knowledge of Worthington threatened action, suit, proceeding or
investigation before any court or administrative agency (or any basis
therefor known to Worthington) involving Worthington seeking to enjoin the
transactions contemplated by this Agreement.
6.02 Representations of Management Investor. The Management
Investor hereby represents and warrants to Worthington and the Company that (i)
this Agreement constitutes the legal, valid and binding obligation of the
Management Investor enforceable against him in accordance with its terms except
as such enforcement may be limited by bankruptcy, insolvency or other laws of
general application relating to or affecting creditors' rights or by general
principles of equity limiting the availability of equitable remedies and that
the execution, delivery and performance of this Agreement will not conflict
with or violate any agreement, instrument or contract to which he is a party or
of any provision of any writ, decree, order, statute, rule or governmental
regulation applicable to him; (ii) there is no presently pending or, to the
best knowledge of the Management Investor threatened action, suit, proceeding
or investigation before any court or administrative agency (or any basis
therefor known to the Management Investor) involving the Management Investor
seeking to enjoin the transactions contemplated by this Agreement; and (iii)
all consents, approvals, orders or authorizations of or registrations,
qualifications, designations, declarations or filings with, any federal, state
or local governmental authority on the part of the Management Investor required
in connection with the consummation of the transactions contemplated hereby
(assuming without independent investigation the accuracy of the representations
of the Company in Section 5 hereof and the accuracy of Worthington's
representations in this Section 6) shall have been obtained.
Section 7. REPORTING AND INFORMATION REQUIREMENTS.
7.01 Information Reporting. The Company will furnish to each
Stockholder (so long as such Stockholder holds any Common Stock), as soon as
publicly available, copies of all financial statements and information,
reports, notices and proxy statements sent by the Company in a general mailing
to all its stockholders or otherwise made publicly available and of all reports
on Forms 10-Q, 8-K and 10-K filed by the Company under the Exchange Act. In
addition, the Company shall furnish such additional financial statements and
information as Worthington shall reasonably request for its financial reporting
purposes.
Section 8. CORPORATE GOVERNANCE PROVISIONS.
8.01 Certificate of Incorporation. Each Stockholder agrees to vote
his or its shares of Voting Stock in favor of the adoption of the proposed
Restated Certificate of Incorporation of the Company, in the form of Exhibit C
hereto.
8.02 Board of Directors. The present members of the Board of
Directors are set forth on Exhibit D hereto.
8.03 Stockholder Meetings. Each Stockholder hereby agrees to be
present in Person or represented by proxy at all meetings of the stockholders
of the Company so that all shares of Common
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Stock then owned by such Stockholder may be counted for purposes of determining
the presence of a quorum at such meetings.
Section 9. REGISTRATION RIGHTS.
9.01 Requests for Registration.
(a) If the Company shall, at any time, receive a request from
Requisite Stockholders that the Company file a registration statement or
similar document under the Securities Act, then the Company shall promptly (i)
notify all other Stockholders of such request and (ii) use its best efforts to
cause all Registrable Securities that all Stockholders, in such original
request or by notice to the Company not later than 30 Business Days following
the date on which the Company gives the notice required to be given by the
Company under this Section 9.01(a), have requested to be so registered under
the Securities Act to be so registered under the Securities Act.
(b) With respect to each registration pursuant to this Section
9.01 in which the expected aggregate purchase price to the public of all
Registrable Securities to be sold pursuant to such registration equals or
exceeds $5,000,000; the Company shall pay, and shall reimburse each holder of
Registrable Securities whose Registrable Securities are included in such
registration for paying, any expenses incurred in connection with such
registration, including, without limitation, all registration, qualification,
printing and accounting fees and all fees and disbursements of counsel for such
holder and counsel for the Company, except that such holder shall pay all
underwriting discounts and commissions applicable to its Registrable Securities
included in such registration unless the Company pays any such discount or
commissions applicable to securities included in such registration for any
other stockholder of the Company.
(c) The Company shall be obligated to effect only four
registrations pursuant to this Section 9.01. Any registration under this
Section 9.01 must be for an underwritten public offering to be managed by an
underwriter or underwriters of recognized national standing reasonably
satisfactory to the Requisite Stockholders making the request for such
registration. If the Stockholders making a request for registration under this
Section 9.01 shall withdraw their request before the registration statement
pursuant to their request becomes effective, the request shall nevertheless be
counted as a registration pursuant to this Section 9.01; provided that such
Stockholders may withdraw such request if the audited financial statements of
the Company materially and adversely differ from the information known to such
Stockholders at the time of their request, in which event such request shall
not count as a registration pursuant to this Section 9.01 for the purpose of
the first sentence of this Section 9.01(c).
9.02 Registrations on Forms S-2 and S-3.
(a) If (i) a Stockholder or any Designated Transferee of such
Stockholder (each, a "Short-Form Registrant") requests (specifying that such
request is being made pursuant to this Section 9.02) that the Company file a
registration statement on Form S-2 or S-3 (or any successor form to such
respective Forms regardless of designation) for a public offering of
Registrable Securities and (ii) the Company is a registrant entitled to use
Form S-2 or S-3 (or any successor form to such respective Forms regardless of
designation) to register such Registrable Securities, then the Company shall
use its best efforts to cause such shares to be registered on the applicable
Form (or any successor).
(b) The Company shall pay, and shall reimburse (i) each
Stockholder and (ii) each other Short-Form Registrant whose Equity Holdings
exceed 5% for paying, any expenses incurred in connection with a registration
requested pursuant to this Section 9.02, including, without limitation, all
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registration, qualification, printing and accounting fees and all fees and
disbursements of counsel for the Stockholders and such Short-Form Registrants
requesting such registration and counsel for the Company, except that such
Persons shall pay all underwriting discounts and commissions applicable to its
Registrable Securities included in such registration unless the Company pays
any such discount or commissions applicable to securities included in such
registration for any other stockholder of the Company.
9.03 Company Registration.
(a) If, at any time, the Company proposes to register any of its
securities under the Securities Act in connection with the public offering of
such securities solely for cash the Company shall, each such time, promptly
give each Stockholder notice of such determination. Upon the request of any
Stockholder given within 15 days after mailing of any such notice by the
Company, the Company shall use its best efforts to cause to be registered under
the Securities Act the Registrable Securities held by such Stockholder
requested to be registered in such request.
(b) The Company shall pay, and shall reimburse each Stockholder
for paying, any expenses incurred in connection with a registration requested
pursuant to this Section 9.03, including, without limitation, all registration,
qualification, printing and accounting fees and all fees and disbursements of
counsel for such Stockholders and counsel for the Company, except that such
Stockholders shall pay all underwriting discounts and commissions applicable to
its Registrable Securities included in such registration unless the Company
pays any such discount or commissions applicable to securities included in such
registration for any other stockholder of the Company.
9.04 Obligations of the Company. Whenever required under this
Section 9 to use its best efforts to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become and remain effective for at least 30
days; provided that (i) in connection with any proposed registration
intended to permit an offering of any securities from time to time ( i.e.,
a so-called "Shelf Registration"), the Company shall be obligated to cause
any such registration to remain effective for at least 90 days and (ii)
upon request of any Stockholder, the Company shall cause any registration
statement filed pursuant to this Section 9.04(a) to remain effective beyond
the minimum 30-day or 90-day period, as the case may be, and such
Stockholder shall bear any expenses incurred by the Company in maintaining
the effectiveness of such registration beyond such minimum period;
(b) prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
(c) furnish to each selling Stockholder and deliver as directed by
such selling Stockholder such numbers of copies of a prospectus, including
a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such selling Stockholder may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by such selling Stockholder; and
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(d) register and qualify the Registrable Securities of each
selling Stockholder covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by such selling Stockholder for the distribution of the
Registrable Securities covered by the registration statements to be sold by
such selling Stockholder; provided that (i) the Company shall not be
required in connection therewith or as a condition thereto to qualify to do
business or to file a general consent to service of process in any such
states or jurisdictions and (ii) anything in this Agreement to the contrary
notwithstanding with respect to the payment of expenses, if any
jurisdiction in which the securities shall be qualified shall require that
expenses incurred in connection with the qualification of the securities in
that jurisdiction be borne by selling Stockholders, then such expenses
shall be payable by all selling Stockholders pro rata, to the extent
required by such jurisdiction.
9.05 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 9 that
the selling Stockholders shall furnish to the Company such information
regarding them, the Registrable Securities held by them, and the intended
method of disposition of such securities, as the Company shall reasonably
request or as shall be reasonably required in connection with the action to be
taken by the Company.
9.06 Underwriting Requirements.
(a) The Company shall not be required under Section 9 hereof to
include any of the Registrable Securities of any Stockholder electing to
participate in any underwriting unless such Stockholder accepts the terms of
the underwriting as agreed upon by the underwriter or underwriters selected as
provided herein.
(b) If the total amount of securities that all selling
Stockholders request to be included in an offering pursuant to Section 9.03
hereof exceeds the amount of securities that the underwriters reasonably
believe compatible with the success of the offering, the Company shall only be
required to include in the offering so many of the securities of the selling
Stockholders as the underwriters reasonably believe will not jeopardize the
success of the offering (the securities so included to be apportioned pro rata
among the selling Stockholders according to the total amount of Registrable
Securities held by said selling Stockholders).
9.07 Delay of Registration. No Stockholder shall take any action
to restrain, enjoin or otherwise delay any registration as the result of any
controversy that might arise with respect to the interpretation or
implementation of this Section 9.
9.08 Indemnification. Subject to Section 9.06 hereof, if any
Registrable Securities are included in a registration statement filed with the
SEC pursuant to this Section 9:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Stockholder requesting or joining in a registration and
each of its directors, officers and controlling persons and each
underwriter within the meaning of the Securities Act or the Exchange Act
(each, an "indemnified person") against any losses, claims, damages or
liabilities, joint or several, to which they may become subject under the
Securities Act, the Exchange Act, any other statute, at common law or
otherwise, insofar as such losses, claims, damages or liabilities (or
actions in respect thereof) arise out of or are based on any untrue or
alleged untrue statements of any material fact contained in such
registration statement, including any preliminary prospectus or final
prospectus, or any amendments or supplements thereto, or arise out of or
are based upon the omission or alleged omission to state therein a material
fact required to be stated
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therein, or necessary to make the statements therein not misleading or arise
out of any violation by the Company of any rule or regulation promulgated under
the Securities Act or the Exchange Act applicable to the Company and relating
to action or inaction required of the Company in connection with any such
registration; and will reimburse each such indemnified person for any legal or
other expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability or action; provided that the
indemnity agreement contained in this Section 9.08(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld or delayed) nor shall the Company be
liable in any such case for any such loss, claim, damage, liability, action or
expense to the extent that they arise out of or are based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
connection with such registration statement, preliminary prospectus, final
prospectus or amendments or supplements thereto, in reliance upon and in
conformity with written information furnished for use in connection with such
registration by any such indemnified person.
(b) To the extent permitted by law, each Stockholder requesting or
joining in a registration will indemnify and hold harmless the Company, each of
its directors, each of its officers who have signed the registration statement
and each person, if any, who controls the Company within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities joint or several, to which the Company or any such director,
officer or controlling person may become subject. under the Securities Act, the
Exchange Act, any other statute, at common law or otherwise, insofar as such
losses, claims, damages or liabilities (or actions in respect thereto) arise
out of or are based upon any untrue statement or alleged untrue statement of
any material fact contained in such registration statement, including any
preliminary prospectus or final prospectus, or any amendments or supplements
thereto, or arise out of or are based upon the omission or alleged omission to
state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading, in each case to the extent, but
only to the extent, that such untrue statement or alleged untrue statement or
omission or alleged omission was made in such registration statement,
preliminary or final prospectus, or amendments or supplements thereto, in
reliance upon and in conformity with written information furnished by such
Stockholder expressly for use in connection with such registration; and each
such Stockholder will reimburse any legal or other expenses reasonably incurred
by the Company or any such director, officer or controlling person in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided that the indemnity agreement contained in this
Section 9.08(b) shall not apply to amounts paid in settlement of any such loss,
claim, damage, liability or action if such settlement is effected without the
consent of such Stockholder (which consent shall not be unreasonably withheld
or delayed).
(c) Promptly after receipt by an indemnified party under this
Section 9.08 of notice of the commencement of any action or the threat of such
action, such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this paragraph, notify the
indemnifying party in writing of the commencement or threat thereof and (unless
the interest of the indemnifying party conflicts with that of the indemnified
party) the indemnifying party shall have the right to participate in, and, to
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the investigation or defense
thereof with counsel mutually satisfactory to the parties, at which time the
indemnifying party will no longer be obligated to pay any expenses incurred by
such indemnified party.
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9.09 Reports Under Securities Laws. With a view to making
available to the Stockholders the benefits of Rule 144, the Company shall:
(a) file with the SEC in a timely manner all reports and other
documents required of the Company under the Exchange Act (at any time after
it has become subject to such reporting requirements); and
(b) furnish to any Stockholder so long as such Stockholder owns
any of the Registrable Securities upon request a written statement by the
Company that it has complied with the reporting requirements of the
Securities Act or the Exchange Act (at any time after it has become subject
to such reporting requirements), a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so
filed by the Company as may be reasonably requested in availing any
Stockholder of any rule or regulation of the SEC permitting the selling of
any such securities without registration.
9.10 Certain Limitations in Connection with Future Grants of
Registration Rights. From and after the Effective Date of this Agreement, the
Company shall not enter into any agreement for the infusion of capital into the
Company with any holder or prospective holder of any securities of the Company
providing for the granting to such holder of registration rights with respect
to such securities unless such registration rights, if more favorable than
those granted herein, are extended to the Stockholders under this Agreement.
9.11 Market Stand-Off Agreement.
(a) The Stockholders agree that they will not, to the extent
requested by the Company, effect any public sale or distribution of any
securities of the Company during the period commencing seven days prior to and
ending 180 days following the effective date of any registration statement of
the Company (except as part of such registration) if, in the reasonable opinion
of the managing underwriter for such offering, such public sale or distribution
by the Stockholders is likely to materially and adversely affect the marketing
of the registered securities.
(b) The Company agrees not to effect any public sale or
distribution of its securities during the period commencing seven days prior to
and ending 180 days following the effective date of any registration statement
of the Company (except as part of such registration) if, in the reasonable
opinion of the managing underwriter for such offering, such public sale or
distribution by the Company is likely to materially and adversely affect the
marketing of the registered securities.
Section 10. MISCELLANEOUS.
10.1 Termination. This Agreement shall terminate: (a) upon the
consent of each of the parties hereto; (b) upon the sale of all or
substantially all of the assets of the Company and the distribution of the
proceeds thereof to the stockholders at such time (to the extent otherwise
permitted by this Agreement); (c) as to any share of Common Stock, when such
share is Transferred other than to a Designated Transferee; (d) as to any
Stockholder, when such Stockholder shall cease to hold any Common Stock (or any
legal or beneficial interest therein) other than by reason of a breach of this
Agreement; or (e) on February 28, 2004; provided that the obligations of the
Company under (i) Section 9.08 hereof, and (ii) Sections 9.01(b), 9.02(b) and
9.03(b) hereof (to the extent said Sections relate to the obligation of the
Company to pay expenses of the Stockholders in respect of the period prior to
any such termination) shall survive; and provided further that the provisions
of Section 10.04 (and the elections and consents contained therein) shall
survive.
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10.2 Governing Law. THIS AGREEMENT SHALL BE GOVERNED BY, CONSTRUED
AND ENFORCED IN ACCORDANCE WITH THE LAW OF THE STATE OF DELAWARE.
10.3 Successors, Assigns and Transferees. Except as herein
specifically provided to the contrary, this Agreement shall be binding upon and
inure to the benefit of the Company and the Stockholders and their respective
successors, assigns and transferees.
Prior to Transferring any Common Stock or any interest (legal or
beneficial) therein to a Designated Transferee, the Stockholder making the
Transfer shall take all necessary steps to assure that the proposed transferee,
prior to such Transfer, if not already a party to this Agreement, agrees, by
the execution of a Joinder Agreement substantially in the form of Exhibit E
hereto and for the benefit of the Company and the Stockholders, to be bound by
the terms of this Agreement to the same extent and in the same manner as the
transferor of such shares or interest, whereupon such transferee shall become a
"Stockholder" hereunder. Any purported transfer in violation of this paragraph
shall be null and void and of no effect.
If any Stockholder who is a Designated Transferee at the time of any
Transfer of any shares of Common Stock, or any legal or beneficial interest
therein, to such Stockholder shall at any time following such Transfer cease to
be a Person described in the definition of "Designated Transferee" in Section
1.01 hereof or shall cease to own any Common Stock, then such Stockholder shall
cease to be a party to this Agreement.
10.4 Automatic Conversion. The Management Investor and his
Designated Transferees hereby irrevocably elect and irrevocably consent to the
automatic conversion, pursuant to Article Fourth, Section 8(ii) of the
Company's Restated Certificate of Incorporation, of all shares of Class B
Common Stock held by the Management Investor and his Designated Transferees
upon the death or permanent disability (as defined in the Restated Certificate
of Incorporation) of the Management Investor or, if earlier, at the time the
Management Investor voluntarily ceases to be employed as the Chairman of the
Board of Directors of the Company. The Management Investor may not transfer
any shares of Class B Stock to any Designated Transferee unless such Designated
Transferee agrees to be bound by this Section 10.04 and irrevocably consents to
such automatic conversion provided for herein. The election and consent by the
Management Investor and his Designated Transferees as provided for herein shall
be irrevocably, and the provisions of this Section 10.04 (and the election and
consent provided for herein) shall survive any termination of this Agreement.
10.5 Legend. Each party hereto agrees that all certificates
representing all shares of capital stock of the Company which at any time are
subject to any of the provisions of this Agreement shall have endorsed upon
them, a legend, substantially as follows:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE
"ACT"), OR ANY STATE BLUE SKY LAW OR REGULATION (THE "STATE
ACT"). THESE SECURITIES MAY NOT BE OFFERED FOR SALE, SOLD OR
TRANSFERRED UNLESS THEY HAVE FIRST BEEN REGISTERED UNDER THE
ACT AND UNDER ANY APPLICABLE STATE ACT OR UNLESS COUNSEL
REASONABLY ACCEPTABLE TO THE COMPANY HAS GIVEN AN OPINION THAT
SUCH REGISTRATION IS NOT REQUIRED OR UNLESS THE COMPANY
RECEIVES SUCH OTHER EVIDENCE
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REASONABLY ACCEPTABLE TO THE COMPANY THAT SUCH
REGISTRATION IS NOT REQUIRED. IN ADDITION, THE SECURITIES
REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN
RESTRICTIONS UNDER THE TERMS OF THAT CERTAIN AMENDED AND
RESTATED STOCKHOLDERS AGREEMENT ENTERED INTO BY THE COMPANY AND
CERTAIN STOCKHOLDERS, A COPY OF WHICH IS ON FILE AND MAY BE
EXAMINED AT THE PRINCIPAL OFFICE OF THE COMPANY BY ANY PERSON
WHO CAN DEMONSTRATE AN INTEREST THEREIN TO THE SATISFACTION
OF OFFICERS OF THE COMPANY. ANY TRANSFER OF SECURITIES
REPRESENTED BY THIS CERTIFICATE IN CONTRAVENTION OF SUCH
AGREEMENT IS VOID.
10.6 Opinion of Counsel; Conditions of Transfer. No Transfer of
any of the capital stock of the Company subject to this Agreement may be made
unless and until (a) the same have been registered under applicable federal,
state and foreign securities laws or (b) the Company has received the opinion
of counsel, or such other assurances, reasonably satisfactory to the Company
that such capital stock may be Transferred without registration under, or
pursuant to an exemption from, such securities laws and any conditions
contained in such opinion, or such other assurances, have been complied with.
The Company shall not transfer upon its books any shares of Common Stock held
or owned by any of the Stockholders to any Person except in accordance with
this Agreement.
10.7 No Waiver; Remedies Cumulative; Specific Performance. No
failure on the part of any party hereto to exercise and no delay in exercising,
and no course of dealing with respect to, any right, power or privilege under
this Agreement shall operate as a waiver thereof, nor shall any single or
partial exercise of any right, power or privilege under this Agreement preclude
any other or further exercise thereof or the exercise of any other right, power
or privilege. The remedies provided herein are cumulative and not exclusive of
any remedies provided by law. Each Stockholder and the Company acknowledges and
agrees that in the event of a breach of any provision of this Agreement, (a)
damages may not be capable of ready determination, (b) the non-breaching
Stockholders and the Company will be irreparably harmed and (c) the remedy at
law for such breach would be inadequate. Accordingly, in any suit to enforce
the provisions of this Agreement, equitable remedies, including, without
limitation, specific performance, shall be available (it being agreed that the
availability of such remedies shall not be construed to limit any right or
remedy of the Company or any Stockholder to enforce this Agreement in law or in
equity).
10.8 Further Assurances. Each party hereto shall do and perform,
or cause to be done and performed, all such further acts and things, and shall
execute and deliver all such other agreements, certificates, instruments and
documents, as any other party hereto may reasonably request in order to carry
out the purposes of this Agreement and the consummation of the transactions
contemplated hereby.
10.9 Survival of Representations and Warranties. The
representations and warranties of each party hereto which are contained herein
or in any certificate or other document delivered pursuant hereto shall survive
the execution of this Agreement.
10.10 Notices. All notices and other communications provided for
herein (including, without limitation, any modifications of, or waivers,
requests or consents under, this Agreement) shall be given or made in writing
(which may be telex or telecopy) delivered to the intended recipient at the
"Address for Notices" specified below its name on the signature pages hereof
or, as to any party, at such
16
<PAGE> 20
other address as shall be designated from time to time by such party in a
notice to each other party. Except as otherwise provided in this Agreement, all
such communications shall be deemed to have been duly given when transmitted by
telex or telecopier, delivered to the telegraph or cable office or personally
delivered or, in the case of a mailed notice, upon receipt, in each case given
or addressed as aforesaid.
10.11 Severability. If any provisions hereof shall be held invalid
or unenforceable in whole or in part in any jurisdiction such provisions shall,
as to such jurisdiction, be ineffective as to the extent of such invalidity or
unenforceability without in any manner affecting the validity or enforceability
thereof in any other jurisdiction or the remaining provisions hereof and
thereof in any jurisdiction.
10.12 Prior Understandings. This Agreement supersedes all prior
understandings and agreements, whether written or oral, among the parties
hereto relating to the transactions provided for herein.
10.13 Amendments. This Agreement may not be amended except by a
writing signed by each of the Stockholders.
10.14 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be identical and all of which, when taken
together, shall constitute one and the same instrument, and any of the parties
hereto may execute by signing any such counterpart.
10.15 Captions. The table of contents and the captions in this
Agreement are for convenience of reference only and shall not control or affect
the meaning or construction of any provisions hereof.
10.16 Jurisdiction; Service of Process; Waiver of Jury Trial; etc.
EACH OF THE PARTIES HERETO HEREBY CONSENTS TO THE JURISDICTION OF ANY
STATE OR FEDERAL COURT LOCATED WITHIN THE STATE OF DELAWARE, AND IRREVOCABLY
AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT MAY BE
LITIGATED IN SUCH COURTS, AND EACH OF THE PARTIES HERETO WAIVES ANY OBJECTION
WHICH ANY OF THEM MAY HAVE BASED ON IMPROPER VENUE OR FORUM NON CONVENIENS TO
THE CONDUCT OF ANY PROCEEDING IN ANY SUCH COURT AND WAIVES PERSONAL SERVICE OF
AND ANY AND ALL PROCESS UPON IT, AND CONSENTS THAT ALL SUCH SERVICE OF PROCESS
BE MADE BY MAIL OR MESSENGER DIRECTED TO THE ADDRESS SPECIFIED BELOW ITS NAME
OR TO ITS AGENT REFERRED TO BELOW AT SUCH AGENT'S ADDRESS SET FORTH BELOW AND
THAT SERVICE SO MADE SHALL BE DEEMED TO BE COMPLETED UPON THE EARLIER OF ACTUAL
RECEIPT OR FIVE (5) BUSINESS DAYS AFTER THE SAME SHALL HAVE BEEN POSTED TO SUCH
PARTY'S OR SUCH PARTY'S AGENT'S ADDRESS, AS THE CASE MAY BE, IN ACCORDANCE
HEREWITH. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY APPOINTS CT
CORPORATION SYSTEM, WITH AN OFFICE ON THE DATE HEREOF AT 1209 ORANGE STREET,
WILMINGTON, DELAWARE, AS ITS AGENT FOR THE PURPOSE OF ACCEPTING SERVICE OF ANY
PROCESS WITHIN THE STATE OF DELAWARE. EACH OF THE PARTIES HERETO HEREBY
IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT
TO TRIAL BY JURY IN ANY LEGAL PROCEEDING ARISING OUT OF OR RELATING TO THIS
AGREEMENT OR THE TRANSACTIONS CONTEMPLATED HEREBY.
17
<PAGE> 21
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed as of the day and year first above written.
ROUGE STEEL COMPANY
By: Carl L. Valdiserri
----------------------
Title: Chairman
Address for Notices:
3001 Miller Road
Dearborn, Michigan 48121
Telecopy No.: (313) 323-2270
Telephone No.: (313) 323-1540
Attn.: Chairman
With copies to:
Samuel M. Feder
Rogers & Wells
200 Park Avenue
New York, New York 10166
Michael A. Weiss
Doepken Keevican & Weiss
Professional Corporation
37th Floor, USX Tower
600 Grant Street
Pittsburgh, PA 15219
By: Carl L. Valdiserri
---------------------
Carl L. Valdiserri
Address for Notices:
Telecopy No.:
Telephone No.:
With a copy to:
George J. Anetakis, Esquire
Frankovitch & Anetakis
337 Penco Road
Weirton, West Virginia 26062
18
<PAGE> 22
WORTHINGTON INDUSTRIES,
INCORPORATED
By: D. H. Malenick
--------------------------
Title:
President
Address for Notices:
1205 Dearborn Drive
Columbus, Ohio 43085
Telecopy No.: (614) 840-3706
Telephone No.: (614) 438-3210
Attn.: General Counsel
With a copy to:
Philip C. Johnston, Esquire
Vorys, Sater, Seymour and Pease
52 East Gay Street
P.O. Box 1008
Columbus, Ohio 43216
Telecopy No.: (614) 464-6350
Telephone No.: (614) 464-6210
19
<PAGE> 1
EXHIBIT 10.18
OPERATING AGREEMENT
OF
SPARTAN STEEL COATING, L.L.C.
A Michigan Limited Liability Company
Dated as of November 14, 1996
<PAGE> 2
OPERATING AGREEMENT
OF
SPARTAN STEEL COATING, L.L.C.
TABLE OF CONTENTS
PAGE
ARTICLE I
DEFINITIONS
1.1 Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II
FORMATION AND NAME, OFFICE, STATUTORY AGENT,
PURPOSE, PARTNERSHIP STATUS, POWERS AND TERM
2.1 Formation and Name . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 Registered Office and Resident Agent . . . . . . . . . . . . . . . 6
2.4 Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.5 Partnership Status. . . . . . . . . . . . . . . . . . . . . . . . . 6
2.6 Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 Initial Costs . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.9 Equipping the Facility . . . . . . . . . . . . . . . . . . . . . . 7
2.10 Toll Processing . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.11 Quarterly Fee . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.12 Supply Agreement . . . . . . . . . . . . . . . . . . . . . . . . 8
2.13 Employees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE III
MEMBERS AND CAPITAL
3.1 Capital Contributions; Additional Members . . . . . . . . . . . . . 9
3.2 Additional Funds . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.3 Loans by Members . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.4 No Priority Among Members . . . . . . . . . . . . . . . . . . . . . 10
3.5 No Interest on Capital Contributions; No Withdrawal of Capital. . . 10
3.6 Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.7 Actions of Members; Meetings of Members . . . . . . . . . . . . . . 11
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<PAGE> 3
3.8 No Requirement to Restore Deficit in Capital Account . . . . . . . . 11
3.9 Limited Liability of Members . . . . . . . . . . . . . . . . . . . . 11
3.10 Confidentiality . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.11 Competition Matters . . . . . . . . . . . . . . . . . . . . . . . . 12
3.12 Investment Representations . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 Allocation of Profits and Losses . . . . . . . . . . . . . . . . . . 13
4.2 Special Allocations and Other Provisions
Relating to Allocations . . . . . . . . . . . . . . . . . . . . . . 14
4.3 Cash Distributions . . . . . . . . . . . . . . . . . . . . . . . . . 15
4.4 Distributions of Liquidation Proceeds Upon Liquidation . . . . . . . 15
4.5 Distributions in Kind on Liquidation . . . . . . . . . . . . . . . . 15
4.6 Certain Provisions of the Act Superseded . . . . . . . . . . . . . . 16
ARTICLE V
POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF
THE BOARD OF GOVERNORS
5.1 Management and Control of Company's Business
and Affairs by Governors . . . . . . . . . . . . . . . . . . . . . 16
5.2 Power and Authority of Governors . . . . . . . . . . . . . . . . . 16
5.3 Prohibited Actions . . . . . . . . . . . . . . . . . . . . . . . . 16
5.4 Management and Services Agreement . . . . . . . . . . . . . . . . 17
5.5 Management Personnel . . . . . . . . . . . . . . . . . . . . . . . 17
5.6 Compensation and Expenses . . . . . . . . . . . . . . . . . . . . . 18
5.7 Budgets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.8 Corporate Allocation . . . . . . . . . . . . . . . . . . . . . . . 19
5.9 Meetings of Governors . . . . . . . . . . . . . . . . . . . . . . . 19
5.10 Liability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.11 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . 19
5.12 Insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.13 Bank Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
5.14 Tax Matters Member . . . . . . . . . . . . . . . . . . . . . . . . 20
5.15 Certain Provisions of the Act Superseded . . . . . . . . . . . . . 21
ARTICLE VI
TRANSFERS OF INTERESTS BY MEMBERS; SUBSTITUTION OF MEMBERS
6.1 Transfer of Interests by Members . . . . . . . . . . . . . . . . . . 22
6.2 Additional Restrictions on Transfers . . . . . . . . . . . . . . . . 22
6.3 Requirements for Substitution . . . . . . . . . . . . . . . . . . . . 22
6.4 Obligations and Rights of Transferees . . . . . . . . . . . . . . . . 23
ii
<PAGE> 4
6.5 Distributions and Allocations in Respect
of Transferred Interests . . . . . . . . . . . . . . . . . . . . . . 23
6.6 Continuation Upon Transfer . . . . . . . . . . . . . . . . . . . . . 24
6.7 Restrictions Reasonable . . . . . . . . . . . . . . . . . . . . . . . 24
6.8 Certain Provisions of the Act Superseded . . . . . . . . . . . . . . 24
7.1 Liquidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
7.2 Operations During Liquidation . . . . . . . . . . . . . . . . . . . . 24
7.3 Time for Liquidation . . . . . . . . . . . . . . . . . . . . . . . . 24
7.4 Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE VIII
BOOKS AND RECORDS, BANK ACCOUNTS
8.1 Maintenance of Books and Accounting Method . . . . . . . . . . . . . 25
8.2 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
8.3 Reports to the Members . . . . . . . . . . . . . . . . . . . . . . . 25
8.4 Tax Elections; Special Basis Adjustments . . . . . . . . . . . . . . 26
ARTICLE IX
AMENDMENTS AND MAJOR DECISIONS
9.1 Amendments Requiring Unanimous Consent of Members Holding
Seventy-Five Percent of the Percentage Interests . . . . . . . . . 26
9.2 Major Decisions . . . . . . . . . . . . . . . . . . . . . . . . . . 26
ARTICLE X
DISSOLUTION
10.1 Events of Dissolution - General . . . . . . . . . . . . . . . . . . 27
10.2 Events of Dissolution - Elective . . . . . . . . . . . . . . . . . 27
10.3 Events of Dissolution - Default . . . . . . . . . . . . . . . . . . 27
10.4 Notice of Dissolution . . . . . . . . . . . . . . . . . . . . . . . 28
10.5 Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
10.6 Buy-Out Procedures. . . . . . . . . . . . . . . . . . . . . . . . . 28
10.7 Necessary Approvals . . . . . . . . . . . . . . . . . . . . . . . . 29
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<PAGE> 5
ARTICLE XI
GENERAL PROVISIONS
11.1 Non-Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.2 Additional Documents and Instruments . . . . . . . . . . . . . . . . 30
11.3 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.4 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.5 Provisions Binding . . . . . . . . . . . . . . . . . . . . . . . . . 30
11.6 Captions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.7 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.8 Word Meanings . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.9 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . 31
11.10 Dispute Resolution . . . . . . . . . . . . . . . . . . . . . . . . 31
Exhibit 1 -- Description of Facility
Exhibit 2 -- Members and Percentage Interests
Exhibit 3 -- Major Decisions
Exhibit 4 -- Processing Agreement
Exhibit 5 -- Management and Services Agreement
Exhibit 6 -- Supply Agreement
Exhibit 7 -- Leased Employees Agreement
iv
<PAGE> 6
OPERATING AGREEMENT OF SPARTAN STEEL COATING, L.L.C.
THIS OPERATING AGREEMENT OF SPARTAN STEEL COATING, L.L.C. (this
"Agreement"), entered into as of this 14th day of November, 1996 by and between
QS Steel Inc., a Michigan corporation, ("QS Steel"), and Worthington Steel of
Michigan, Inc., a Michigan corporation ("WSMI");
W I T N E S S E T H:
WHEREAS, the Members desire to enter into this Agreement and to cause
articles of organization to be filed with the Administrator of the Michigan
Department of Consumer and Industry Services, Corporations, Securities and Land
Development Bureau, thereby forming a limited liability company under the laws
of the State of Michigan, which limited liability company shall be a party to
this Agreement and a signatory hereto; and
WHEREAS, this Agreement shall constitute the "Operating Agreement" of
Spartan Steel Coating, L.L.C., within the meaning of that term as used in the
Act;
NOW, THEREFORE, it is mutually agreed as follows:
ARTICLE I
DEFINITIONS
1.1 DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings ascribed to them as follows:
Act means the Michigan Limited Liability Company Act, Mich. Corp. Laws
Ann. Section 450.4101 et seq., Mich. Stat. Ann. Section 21.198 et seq.,
governing, among other matters, certain aspects of the formation, operation and
dissolution of limited liability companies in Michigan, as the same may be
amended from time to time.
Adjusted Capital Account Deficit means the deficit balance, if any, in a
Member's Capital Account at the time in question, after (i) reducing the amount
of such deficit by the amount, if any, of such Member's Restoration Obligation
and (ii) increasing the amount of such deficit by the amount, if any, of the
items described in paragraphs (4), (5) and (6) of Section 1.704-1(b)(2)(ii)(d)
of the Allocation Regulations. The determination of a Member's Adjusted
Capital Account Deficit is made for purposes of Section 1.704-1(b)(2)(ii)(d) of
the Allocation Regulations and shall be made consistently therewith.
Affiliate of a Person means an Entity which, directly or indirectly
through one or more intermediaries, controls, or is controlled by, or is under
common control with, such Entity.
Agreement means this Operating Agreement, as the same may be modified,
amended, supplemented and/or restated from time to time in accordance with its
terms and applicable law.
<PAGE> 7
Allocation Regulations means the Income Tax Regulations promulgated under
Code Section 704(b) (regarding partners' distributive shares of partnership tax
items), as currently in effect, and as modified and clarified by amendment,
successor regulation, ruling, court decision or other Income Tax Regulation
relating to partners' distributive shares.
Articles of Organization means the Articles of Organization of the Company
filed with the Department upon execution of this Agreement as required by the
Act, as amended and/or restated from time to time in accordance with the terms
of this Agreement and applicable law.
Bankruptcy, in reference to a Member, means that event and date when (i)
the Member makes an assignment for the benefit of creditors; (ii) the Member
files a voluntary petition in bankruptcy; (iii) the Member is adjudicated a
bankrupt or insolvent; (iv) the Member files a petition or answer seeking for
itself any reorganization, arrangement, composition, readjustment, liquidation,
dissolution or similar relief under any statute, law, or regulation; (v) the
Member files an answer or other pleading admitting or failing to contest the
material allegations of a petition filed against it in any proceeding of the
type referred to in clause (iv); (vi) the Member seeks, consents to, or
acquiesces in the appointment of a trustee, receiver, or liquidator of such
Member or of all or any substantial part of its property; (vii) ninety (90)
days or more have elapsed after the commencement of any proceeding against the
Member seeking reorganization, arrangement, composition, readjustment,
liquidation, dissolution or similar relief under any statute, law, or
regulation, if the proceeding has not been dismissed prior thereto; (viii)
ninety (90) days or more have elapsed after the appointment without its consent
or acquiescence of a trustee, receiver, or liquidator of the Member or of all
or any substantial part of its property, if such appointment has not been
vacated or stayed prior thereto; or (ix) ninety (90) days have elapsed after
the expiration of any such stay, if such appointment has not been vacated.
Capital Account has the meaning specified in Section 3.6.
Capital Contribution means the total amount of cash and/or property
contributed to the Company by each Member as shown in Schedule OA-2, as such
Schedule OA-2 may be modified, supplemented or amended from time to time in
accordance with this Agreement and applicable law, plus any other contributions
to the capital of the Company made by a Member, in such Member's capacity as a
Member, pursuant to the terms of this Agreement, in respect of the Interest of
such Member in the Company. Any reference in this Agreement to the Capital
Contribution of a Member shall include a Capital Contribution previously made
by any predecessor Member with respect to the Interest owned by the Member.
Code means the Internal Revenue Code of 1986, as amended, or the
corresponding provisions of any subsequent federal income tax law.
Company means Spartan Steel Coating, L.L.C., a Michigan limited liability
company.
Company Minimum Gain means "partnership minimum gain" as set forth in
Sections 1.704-2(b)(2) and 1.704-2(d) of the Allocation Regulations.
2
<PAGE> 8
Confidential Information means all records and accounts of the Company,
and any technical data or other know-how or information which, prior to or
subsequent to the date of this Agreement, has been or may be disclosed by a
Member or any of its Affiliates, directly or indirectly, to any other Member or
an Affiliate of any other Member (a) in writing and identified in writing as
being confidential at the time of or prior to such disclosure or (b) orally and
identified at the time of disclosure as confidential and promptly thereafter
identified and described in writing as confidential or (c) is so obviously
confidential that no such identification is necessary.
Consent of a Member or a Governor means the consent of such Member or
Governor, which shall be deemed to have been given if: (a) such consent is
given in a vote (either in person or by proxy) at a duly called meeting of the
Member or Governors, as the case may be, called and held in accordance with the
provisions of this Agreement, or (b) such consent is delivered in writing to
each other Member, in the case of a Member, or to each other Governor, in the
case of a Governor. Such consent may be withheld by any Member or Governor, in
such Member's or Governor's sole and absolute discretion, for any reason or for
no reason at all.
Department means the Administrator of the Michigan Department of Commerce,
Consumer and Industry Services, Corporation Securities and Land Development
Bureau.
Entity means any limited liability company, general partnership, limited
partnership, corporation, joint venture, trust, real estate investment trust,
business trust, estate or association.
Facility means the facility of the Company as defined in Section 2.4.
General Manager means the General Manager appointed and serving from time
to time in accordance with Section 5.5, if any.
Governor means an individual appointed and serving as a Governor in
accordance with Section 5.1 of this Agreement. The Board of Governors shall be
deemed to be the "Managers" in respect of the Company, within the meaning of
that term as used in the Act.
Income Tax Regulations means those regulations promulgated under the Code.
Whenever reference is made to any Income Tax Regulation, unless otherwise
specified, such reference shall include any amendments or successor regulations
thereto.
Initial Capital Contribution shall mean, for purposes of Section 2.11, the
amount of WSMI's Capital Contribution determined as of six months after
production start-up for the Facility. Any capitalized pre-production costs
shall be excluded.
Interests means the interests in the Company of the Members, including
such Members' respective shares of, and rights to receive distributions and
allocations of, the business, property, assets, capital, profits and losses of
the Company, subject to and as provided in this Agreement and the Act. The
holder of an Interest shall have no right to participate in the management of
the business and affairs of the Company under the terms of this Agreement
unless such holder is also a Member.
3
<PAGE> 9
Losses means the net losses of the Company for federal income tax purposes
(or as may be otherwise required to comply with the Allocation Regulations) as
determined as of the close of the Company's fiscal year and, when the context
requires, related items of deduction or loss, tax preference, credits and
depreciation, provided that "Losses" shall include items described in Code
Section 705(a)(2)(B) or required by the Income Tax Regulations to be treated as
so described.
Major Decisions means any of the decisions, actions or inactions referred
to in Section 3.7 and described in Exhibit 3 hereto.
Member means each Entity identified as a member on Exhibit 2, as such
Exhibit 2 may be modified, supplemented or amended from time to time in
accordance with this Agreement and applicable law, and any Entity which may be
admitted as an additional or Substitute Member as provided herein. Unless the
context otherwise requires, the term "Member" refers to any one of the Members
and to all the Members.
Member Loan shall mean a loan made by a Member to the Company in
accordance with the provisions of this Agreement.
Member Nonrecourse Debt shall mean "partner nonrecourse debt" as set forth
in Section 1.704-2(b)(4) of the Allocation Regulations.
Member Nonrecourse Debt Minimum Gain shall mean "partner nonrecourse debt
minimum gain" as set forth in Section 1.704-2(i) of the Allocation Regulations.
Member Nonrecourse Deductions shall mean "partner nonrecourse deductions"
as set forth in Sections 1.704-2(i)(1) and 1.704-2(i)(2) of the Allocation
Regulations.
Nonrecourse Deductions has the meaning set forth in Sections 1.704-2(b)(1)
and 1.704-2(c) of the Allocation Regulations.
Nonrecourse Liability has the meaning set forth in Section 1.704-2(b)(3)
of the Allocation Regulations and Section 1.752-1(a)(2) of the Income Tax
Regulations.
Owning Party has the meaning specified in Section 3.10(a).
Percentage Interests means the percentage interests of the Members in the
Company as set forth on Exhibit 2, as amended from time to time.
Person means any natural person or Entity.
Profits means the net profits of the Company for federal income tax
purposes (or as may otherwise be required to comply with the Allocation
Regulations) as determined as of the close of the Company's fiscal year, and,
when the context requires, related items of income or gain, provided that
Profits shall include income exempt from tax.
Quarter means a fiscal quarter of the Company.
4
<PAGE> 10
Related Agreements means the Management and Services Agreement, the
Processing Agreement, the Supply Agreement and the Leased Employees Agreement
to be executed in connection with this Agreement.
Restoration Obligation means, with respect to any Member, the sum of (i)
the amount of any express, unconditional obligation of such Member pursuant to
this Agreement to restore to the Company the amount of any deficit in such
Member's Capital Account, which meets the timing requirements of the Allocation
Regulations, and (ii) the amount of any deficit balance in such Member's
Capital Account which such Member is treated as obligated to restore pursuant
to (A) Section 1.704-1(b)(2)(ii)(c) of the Allocation Regulations and (B) the
penultimate sentences of Sections 1.704-2(g)(1) and 1.704-2(i)(5) of the
Allocation Regulations. Computation of the amount of a Member's Restoration
Obligation, and any determinations related thereto, shall be made in accordance
with the Allocation Regulations.
Retirement means, with respect to any Member, (i) the Bankruptcy of such
Member; (ii) the Member's retirement, resignation, expulsion or other
withdrawal from the Company; (iii) the Transfer by the Member of all of the
Member's Interest in compliance with this Agreement (other than (A) an
assignment merely of its right to receive distributions or (B) a pledge,
hypothecation or other collateral assignment of its rights before the time such
pledge, hypothecation or other collateral assignment becomes absolute); (iv) if
such Member is a corporation, the filing of a certificate of dissolution, or
its equivalent, for said corporation, or the revocation of its charter; or (v)
if such Member is a separate limited liability company or partnership, the
dissolution and termination of such separate limited liability company or
partnership. If this Operating Agreement is amended to permit individuals to
be Members, the death or incapacity of such individual shall also be a
Retirement.
Schedules means the Schedules for the Operating Agreement, the Management
and Services Agreement, the Processing Agreement and the Supply Agreement,
which shall be included in a separate "Schedule Packet."
Site means the land on which the Facility, and all fixtures and
improvements from time to time added to the Facility is built, including a
permanent easement of ingress and egress at all times over roads and
transmission facilities providing access to the Facility.
Substitute Member means any Entity which acquires an Interest from a
Member and is admitted to the Company as a Member.
Tax Matters Member means the Entity at the time designated as such
pursuant to Section 5.14 of this Agreement.
Transfer means a sale, assignment, transfer, conveyance, pledge,
encumbrance, grant, gift or other disposition, whether direct or indirect,
voluntary, involuntary or by operation of law, or with or without
consideration.
Worthington means Worthington Industries, Inc. and its subsidiaries.
5
<PAGE> 11
ARTICLE II
FORMATION AND NAME, OFFICE, REGISTERED OFFICE AND RESIDENT AGENT,
PURPOSE, PARTNERSHIP STATUS, POWERS AND TERM
2.1 FORMATION AND NAME. The Company shall be and is formed upon the
filing of the original Articles of Organization with the Department in
accordance with the provisions of the Act, under the name of SPARTAN STEEL
COATING, L.L.C., as a limited liability company under the Act.
2.2 OFFICE. The principal offices of the Company at which its books and
records shall be kept shall be maintained at 11700 Worthington Drive, Taylor,
Michigan 48180, or at such other location as the Governors may from time to
time determine. The Governors shall notify the Members of any change in the
principal offices of the Company.
2.3 REGISTERED OFFICE AND RESIDENT AGENT. The Registered Office of the
Company shall be maintained at 11700 Worthington Drive, Taylor, Michigan
48180. The Resident Agent of the Company shall be Tom Flannery, an individual
resident of Michigan whose business address is 11700 Worthington Drive, Taylor,
Michigan 48180. The Governors have the right, power and authority to change
the location of the Registered Office and to revoke the appointment of the
Resident Agent of the Company from time to time, and to appoint a substitute or
replacement Resident Agent, in accordance with applicable law. The Governors
shall notify the Members of any change in the Registered Office of Resident
Agent of the Company.
2.4 PURPOSE. The purpose of the Company is to construct, equip, own and
operate a steel galvanizing facility, as more particularly described in Exhibit
1 hereto (the "Facility) on the Site in Frenchtown Charter Township, Michigan,
which Facility shall generally be constructed and equipped as described in
Schedule OA-1, and to engage in any and all acts or activities incidental
thereto for which limited liability companies legally may be formed in the
State of Michigan.
2.5 PARTNERSHIP STATUS. It is intended that the Company be treated as a
partnership for federal income tax purposes (but not for liability purposes).
Accordingly, this Agreement shall be construed in a manner that ensures the
Company's classification as a partnership for federal income tax purposes at
all times, and any provision of this Agreement that would have the effect of
preventing the Company from being classified as a partnership for federal
income tax purposes shall be null and void. The Members shall take all
actions, and execute, acknowledge and deliver all documents, including without
limitation any tax election forms, which in the judgment of the Governors, or
in the opinion of counsel satisfactory to the Governors, are necessary or
desirable to obtain and/or maintain the Company's classification as a
partnership for such tax purposes at all times.
2.6 POWERS. In furtherance of the Company's purposes, the Company shall
have all of the powers granted or permitted to a limited liability company
under the laws of the State of Michigan, including, without limitation, the
powers specifically enumerated in the Act.
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2.7 TERM. The term of the Company commenced with the filing of Articles
of Organization with the Department. The Company shall continue until
dissolved upon the occurrence of the earliest of (a) December 31, 2045, (b) the
passage of ninety (90) days from the sale or other disposition of all or
substantially all of the assets of the Company unless the Governors elect to
continue the Company for the sole purpose of collecting the proceeds of such
sale or other disposition, (c) the Retirement of any Member, unless the Company
is continued as provided in Section 6.6 or a Substitute Member is admitted and
all Members consent to a continuation of the Company; (d) the voluntary or
elective dissolution of the Company; (e) at any time when there are less than
two Members of the Company, unless the sole remaining Member admits a
Substitute Member to the Company; or (f) the entry of a judicial decree of
dissolution; and shall terminate as soon as the winding up of its affairs upon
such dissolution has been completed. The provisions of this Section 2.7 are
intended to and shall, to the fullest extent permitted by law, supersede the
provisions of the Act regarding the dissolution of limited liability companies.
2.8 INITIAL COSTS. The anticipated initial capital, funding and other
costs and cash needs for the Company are as set forth on Schedule OA-1. The
parties shall amend Schedule OA-1 from time to time prior to start-up of the
facility to reflect any changes in such costs or cash needs. Schedule OA-1
shall also be amended after actual costs of the Company assets have been
determined and periodically amended throughout the term of construction and
installation. The Members shall each bear their own management time and
attorneys fees incurred in connection with the preparation of this Agreement
and the related documents.
It is the intent of the Company to develop and maintain a working cash
flow analysis and required cash contributions on the first working day of each
month based on the cash flow analysis. Adjustments to the cash flow analysis
will be communicated to each Member based on the estimated cash shortages or
cash surplus. If additional cash is required, the Company will give a notice
of five working days to each Member before the cash is required.
2.9 EQUIPPING THE FACILITY. Members have agreed upon the design and
equipping of the Facility as set forth in Schedule OA-1. Any changes to or
improvement of the Facility shall require approval of the Board of Governors.
2.10 TOLL PROCESSING.
(a) The Members intend that the Company will not sell finished coils from
its galvanizing line, but will instead act solely as a toll processor for the
Members. QS Steel, WSMI and the Company shall enter into a Processing
Agreement substantially in the form set forth in Exhibit 4 hereto whereby the
Company shall provide such toll processing services for the Members. Such
agreement shall cover among other things, line times available to the Members,
a method for determining toll processing charges, billing and steel supply.
(b) Unless otherwise provided in the Processing Agreement: (i) toll
coating for non-Member companies shall require the mutual consent by the
Members, which consent shall not be unreasonably withheld; and (ii) all such
non-Member coating shall be
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booked through a Member and, regardless of the end customer, the Company shall
bill only through a Member for such toll coating.
(c) A toll coating pricing schedule shall be established by the Company
based on processing costs, market prices for various cold rolled galvanized
steel products, return on investment considerations and other relevant factors
all of which shall be set forth in the Processing Agreement.
(d) It is intended that QS Steel shall take approximately 80% of the line
time and WSMI shall take 20% of the line time, unless otherwise provided in the
Processing Agreement.
2.11 QUARTERLY FEE . WSMI shall be paid a Quarterly Fee by the Company
determined as follows:
TONNAGE PROCESSED QUARTERLY
FOR THE QUARTER FEE
-------------------------------------------------------------
50,000 tons or less $1,000,000
50,001 - 100,000 tons $ 750,000
greater than 100,000 tons $ 375,000
Such Quarterly Fee shall be paid by the Company to WSMI within 30 days after
the end of the applicable Quarter, commencing with the production of salable
product.
Once WSMI has received total cash from the Company from a combination of
Quarterly Fees and cash distribution pursuant to Section 4.3 hereof (both net
of taxes) in an amount equal to its Initial Capital Contribution to the
Company, then the Quarterly Fee shall be fixed at $375,000 per Quarter, and the
above table shall no longer apply.
2.12 SUPPLY AGREEMENT. The Members or their Affiliates shall enter into a
Supply Agreement, substantially in the form of Exhibit 6, whereby Rouge Steel
Company will agree to sell to WSMI and its Affiliates full hard steel substrate
in amount sufficient to supply WSMI substrate for its 20% of the Company's line
time. Prices for such steel shall be those agreed upon based on the March 1996
proforma market conditions, adjusted as provided in the Supply Agreement.
2.13 EMPLOYEES. Most of the employees will be employed by the Company
directly. However, either Member may supply certain employees to the Company
on a lease type basis from time to time and the cost (including benefits) will
be charged to the Company and paid to the appropriate Member. The Company and
QS Steel and Rouge Steel Company shall enter into a Leased Employees Agreement
in the form of Exhibit 7 to cover employees leased from those
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entities. Employees leased from WSMI will be covered under the Management and
Services Agreement referred to in Section 5.4.
ARTICLE III
MEMBERS AND CAPITAL
3.1 CAPITAL CONTRIBUTIONS; ADDITIONAL MEMBERS.
(a) Capital Contributions. The total initial Capital Contribution to the
Company to be made by the Members shall be to fund the Venture's cash needs as
set forth in Schedule OA-1, with each Member paying its prorata share thereof,
in accordance with its Percentage Interest. Accordingly, WSMI's total initial
contribution shall be 52% and QS Steel's total initial capital contributions
shall be 48% of the Company's initial cash needs as set forth in Schedule OA-1.
The initial capital contributions shall be made by the Members either in lump
sums or in periodic payments as determined by the Board of Governors. Payments
of the Capital Contributions shall be made by the Members within ten business
days after the request of the Board of Governors.
(b) Failure to Contribute. Should either Member fail to pay all or a
portion of its Capital Contribution on time, the other Member may, but need
not, loan such funds to the Company. If a Member fails to make its capital
contribution, it shall be obligated to pay to the Company interest compounded
monthly at the prime interest rate in effect on date the payment was due,
quoted by Bank One Columbus, as publicly announced, plus 3%, or the maximum
amount as may be permitted by applicable law, whichever is less. Such interest
shall accrue on the date the contribution was due and shall cease to accrue on
the date the contribution is finally made to the Company by the
non-contributing Member. Upon receipt by the Company of such funds from the
previously non-contributing Member, the Member who covered for the
non-contributing Member shall be repaid by the Company for the amount covered,
plus interest as set forth above. In addition, during such period of
non-contribution, the covering Member shall have a lien on the Capital Account
of the non-contributing Member for the amount of its cover.
In addition to the foregoing, at any time a non-contributing Member has
not paid its appropriate Capital Contribution, it shall be considered in
default of its obligations under the Operating Agreement. Accordingly, the
non-defaulting Member shall be entitled, by written notice to the
non-contributing Member, to call the non-contributing Member in default and if
payment is not made within 15 business days after such notice, then the
provisions of Section 10.3 may be invoked by the non-defaulting Member and once
such provisions have been invoked, the non-contributing Member shall no longer
be able to cure its failure to make its contribution.
3.2 ADDITIONAL FUNDS . Any funds required by the Company in excess of the
Capital Contributions by the Members shall be obtained from borrowings by the
Members which shall be presented and approved by the Board of Governors.
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Pre-production costs (Schedule OA-1) shall be funded by the Members based
on their respective Percentage Interests (Exhibit 2).
3.3 LOANS BY MEMBERS. Any Member may, but is not obligated to, loan to
the Company such sums as the Governors determine to be appropriate for the
conduct of the Company's business. Any such Member loans shall be made on such
terms and for such maturities as are approved by the Consent of the Governors.
3.4 NO PRIORITY AMONG MEMBERS. No Member shall have priority over any
other Member either as to the return of its original capital contribution or as
to distributions by the Company, except as specifically provided in this
Agreement.
3.5 NO INTEREST ON CAPITAL CONTRIBUTIONS; NO WITHDRAWAL OF CAPITAL. No
interest shall be paid by the Company to any Member with respect to any Capital
Contribution. Except as otherwise specifically set forth in this Agreement, no
Member shall have the right to (a) demand to receive property other than cash
in return for its Capital Contribution or as distributions of income, (b)
withdraw any part of its Capital Contribution (regardless of whether or not
such Member has withdrawn from the Company), or (c) demand to receive any funds
or property of the Company.
3.6 CAPITAL ACCOUNTS. A single Capital Account shall be established,
determined and maintained for each Member on the books and records of the
Company in accordance with the provisions of the Allocation Regulations. The
property of the Company shall be revalued on the books of the Company in any
case in which such revaluation is required by the Allocation Regulations and
may be revalued in any case where such revaluation is permitted by the
Allocation Regulations and such revaluation is determined to be appropriate by
the Members. Any such revaluation shall be carried out in accordance with the
principles and methodology agreed to by the Members. In the event any Company
property is revalued on the books of the Company in accordance with the
Allocation Regulations, the Members' Capital Accounts shall be adjusted in
accordance with the Allocation Regulations to reflect such revaluations and for
allocations to them of Profits and Losses, and items thereof, as computed for
book purposes, with respect to such property. In the event the property of the
Company is revalued on the books of the Company, all Company property shall be
valued for such purpose at its fair market value, as determined by the Members.
3.7 ACTIONS OF MEMBERS; MEETINGS OF MEMBERS. Any Major Decision shall
require the prior Consent of all Members. Any other action or inaction by
Consent of Members holding greater than 50% of the Percentage Interests shall
constitute an action of the Members. In the event of a deadlock by the
Members, then the subject of such deadlock may be addressed under the Dispute
Resolution Procedures referred to in Section 11.10. Except as otherwise
provided, no Member, acting alone, shall have the power or authority to bind
the Members, the Governors or the Company. Any Member may from time to time by
written notice to each other Member call a meeting of the Members. Upon
receipt of a written request for such a meeting, the Members shall promptly,
and in any event not later than ten (10) days after receipt of such request,
fix a place and time for such meeting. To the extent possible, such meeting
shall be held
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at a place convenient to all the Members. Such meeting shall be held not less
than fifteen (15) nor more than sixty (60) days after receipt of a request for
a meeting unless the Members otherwise agree. In the absence of agreement of
Members, such meeting shall be held at 10:00 a.m. local time on the first
business day falling on or after the fifteenth (15th) day after receipt of a
request for a meeting at the principal place of business of the Company.
Meetings of the Members may be held through any communications equipment if all
those participating can hear each other and participation in any such meeting
shall constitute presence thereat.
3.8 NO REQUIREMENT TO RESTORE DEFICIT IN CAPITAL ACCOUNT. Nothing
contained in this Agreement shall be construed to require any Member to restore
any deficit in its Capital Account.
3.9 LIMITED LIABILITY OF MEMBERS. Subject to the provisions of the Act,
the liability of a Member for the debts and obligations of the Company shall be
limited to the amount of such Member's Capital Contribution, and no Member
shall be obligated to contribute money to the Company or to otherwise answer
for an obligation of the Company beyond such Member's obligation to pay such
Member's Capital Contribution, except to the extent required by law.
3.10 CONFIDENTIALITY.
(a) Restrictions on Disclosure. Each Member, on behalf of itself and its
Affiliates, agrees with respect to the Confidential Information of the Company
or the other Member (the "Owning Party"), to:
(i) treat in strict confidence such Confidential Information and
use reasonable efforts to ensure that its employees and others subject
directly or indirectly to its control shall not reproduce, disclose or
make available to any third party any of such Confidential Information;
(ii) limit access to such Confidential Information to such of its
employees and representatives, including without limitation members of
each Member's outside law and accounting firms, as may be reasonably
required in connection with the activities of the Company as contemplated
by this Agreement; and
(iii) not use such Confidential Information for any purpose other
than the activities of the Company as contemplated by this Agreement;
unless the Owning Party otherwise consents thereto in writing. Without
limiting the generality of the foregoing, each Member and its Affiliates
specifically agrees not to directly or indirectly use or disclose Confidential
Information in any judicial or administrative proceeding, unless (i) served
with compulsory process or otherwise required by law, or (ii) consented to by
the other Member.
(b) Exceptions. The obligations of each Member and its Affiliates set
forth in Section 3.10(a) shall not apply to Confidential Information which:
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(i) is or becomes generally available to the public other than as a
result of disclosure by the Member or its Affiliates in whom the
Confidential Information is confided;
(ii) becomes available to the confidant Member on a
non-confidential basis from a source other than the Owning Party, or its
Affiliates, and provided that such source has represented to the
confidant Member (and which confidant Member has no reason to disbelieve
after due inquiry) that it is entitled to disclose the Confidential
Information; or
(iii) was known to the confidant Member on a non-confidential basis
prior to the disclosure thereof to the confidant Member by the Owning
Party or its Affiliates.
(c) Return of Confidential Information. All Confidential Information
furnished by any Member to the other Member shall be returned by such other
Member to the Owning Party immediately upon the request of the Owning Member.
The confidentiality obligations and restrictions on use contained in this
Section 3.10 shall survive this Agreement.
3.11 COMPETITION MATTERS.
(a) Acknowledgment of Competitive Situation. Each Member acknowledges
that it and its Affiliates now are and/or hereinafter may be engaged in
businesses which may compete with, relate to or are similar to the businesses
of each other. Each Member acknowledges that it may compete with or
potentially may compete with the other Member in the manufacture or sale or
galvanizing steel products and services. Because the Members may compete with
each other in various areas, no Member shall be obligated to render any
information to any other Member, on demand or otherwise, if the Member
reasonably believes it to be inappropriate to disclose such information to a
competitor.
(b) Dealing with Company. Nothing in this Agreement shall be construed to
prevent a Member, or its Affiliates, or entity in which a Member, or its
Affiliates, shall have an interest, from dealing with the Company in good faith
as vendor, customer or otherwise in a manner not specifically covered by this
Agreement, provided the Member or entity shall have given notice of such
interest to the Governors, and the Governors designated by the unaffiliated
Member shall have approved or ratified such dealing.
3.12 INVESTMENT REPRESENTATIONS .
(a) Each Member represents and warrants to the other Member and the
Company as follows: (i) such Member is duly organized, validly existing and in
good standing under the laws of the jurisdiction of its organization; (ii) such
Member has full power and authority to execute, deliver and perform such
Member's obligations under this Agreement and the Related Agreements; (iii)
such Member has duly authorized, executed and delivered this Agreement and has
duly authorized the performance of such Member's obligations under this
Agreement and the Related Agreements; and (iv) such Member's authorization,
execution, delivery and performance under this Agreement and the Related
Agreements do not and will not conflict with any
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organizational document, agreement or law applicable to such Member or by which
such Member is bound.
(b) Each Member further represents and warrants to the Company that such
Member is acquiring such Member's Interest for such Member's own account and
not with a view toward the distribution or resale thereof, and each Member
agrees that such Member will not sell or offer to sell all or any portion of
its Interest, or negotiate in respect thereof with any Person or Persons
whomsoever, so as thereby to bring the transaction in which such Member
acquired such Member's Interest or any other offering of interests in the
Company within the provisions of Section 5 of the Securities Act of 1933, as
amended, or the registration requirement of any other federal or state
securities statute.
(c) Each Member further represents and warrants to the other Member and
the Company that (i) such Member has been given access to all information
concerning the Company and the terms and conditions of the Interest such Member
is purchasing hereby; (ii) such Member understands and acknowledges that the
Interest such Member is purchasing hereby is a speculative investment and
involves a high degree of risk and that no federal or state agency has made any
finding or determination as to the fairness for public or private investment
in, nor any recommendations or endorsement of, such Interest as an investment;
(iii) such Member has such knowledge and experience in business and financial
matters that such Member is capable of evaluating the merits and risks of an
investment in such Interest; and (iv) such Member's financial situation is such
that such Member can afford the risks of an investment in such Interest.
ARTICLE IV
ALLOCATIONS AND DISTRIBUTIONS
4.1 ALLOCATION OF PROFITS AND LOSSES. Except as provided in Section 4.2,
Profits and Losses shall be allocated among the Members in proportion to their
respective Percentage Interests.
4.2 SPECIAL ALLOCATIONS AND OTHER PROVISIONS RELATING TO ALLOCATIONS.
(a) Allocation of Nonrecourse Deductions. Any Member Nonrecourse
Deductions for any fiscal year shall be specially allocated to the Members who
bear the economic risk of loss with respect to the Member Nonrecourse Debt to
which such Member Nonrecourse Deductions are attributable in accordance with
the Allocation Regulations. Such Members shall be specially allocated items of
Company income and gain as are required by the "chargeback of partner
nonrecourse debt minimum gain" requirements of the Allocation Regulations.
(b) Manner of Allocation. Nonrecourse Deductions for any fiscal year
shall be specially allocated to the Members (with the Members intending to
satisfy the reasonable consistency requirement contained in the Allocation
Regulations as a result of this allocation) in
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proportion to their respective Percentage Interests. Such Members shall be
specially allocated items of Company income and gain as are required by the
"minimum gain chargeback" requirements of the Allocation Regulations.
(c) Disallowed Deduction. If the deduction of all or any part of any fee
paid by the Company to a Member is disallowed by recharacterizing such fee as a
distribution to such Member, such Member shall be, to the extent permitted by
the Code, allocated items of Company income and gain for the taxable year in
which such disallowed deduction was claimed by the Company in the amount of
such disallowed deduction.
(d) Qualified Income Offset. In the event any Member's unexpected receipt
of any adjustments, allocations or distributions described in Sections
1.704-1(b)(2)(ii)(d)(4), 1.704-1(b)(2)(ii)(d)(5) or 1.704-1(b)(2)(ii)(d)(6) of
the Allocation Regulations causes such Member to have (or increases) an
Adjusted Capital Account Deficit, items of Company income and gain shall be
specially allocated to each such Member in an amount and manner sufficient to
eliminate, to the extent required by the Allocation Regulations, the Adjusted
Capital Account Deficit of such Member as quickly as possible, provided that an
allocation pursuant to this Section 4.2(d) shall be made only if and to the
extent that such Member would have an Adjusted Capital Account Deficit after
all other allocations provided for in this Article IV have been tentatively
made as if this Section 4.2(d) were not in the Agreement.
(e) Curative Allocations. The allocations set forth in paragraphs (a),
(b) and (d) of this Section 4.2 (the "Regulatory Allocations") are intended to
comply with certain requirements of the Allocation Regulations. It is the
intent of the Members that, to the extent possible, all Regulatory Allocations
will be offset either with other Regulatory Allocations or with special
allocations of other items of Company income, gain, loss or deduction pursuant
to this Section 4.2(e). Therefore, notwithstanding any other provision of this
Article IV (other than the Regulatory Allocations), the Members shall make such
offsetting special allocations in whatever manner the Members determine
appropriate so that, after such offsetting allocations are made, each Member's
Capital Account balance is, to the extent possible, equal to the Capital
Account balance such Member would have had if the Regulatory Allocations were
not part of this Agreement and all Company items were allocated pursuant to
Section 4.1. In exercising its discretion under this Section 4.2(e), the
Members may take into account future Regulatory Allocations under the last
sentence of each of Sections 4.2(a) and 4.2(b) that, although not yet made, are
likely to offset other Regulatory Allocations previously made under the first
sentence of each of Sections 4.2(a) and 4.2(b), respectively.
4.3 CASH DISTRIBUTIONS. Cash shall be distributed to the Members from the
Company in such amounts and at such times as the Governors may determine,
consistent with the Act. Each distribution of cash shall be made to the
Members in proportion to their respective Percentage Interests in the Company
at the time of such distribution. The Company shall distribute to the Members
any cash in excess of the Company's current and reasonably anticipated future
cash needs. It is the intent of the Company, to the extent cash is available,
to make sufficient cash distributions to the Members to fund federal income tax
payments which may become owing by the Members on the Company's Profits.
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4.4 DISTRIBUTIONS OF LIQUIDATION PROCEEDS UPON LIQUIDATION. Upon the
liquidation of the Company, the Governors shall attempt to liquidate the assets
of the Company and the proceeds of such liquidation shall be applied and
distributed in the following order of priority:
(a) First, to creditors, including Members who are creditors, to the
extent permitted by law, in satisfaction of liabilities of the Company (other
than liabilities to Members for distributions of cash to which they may be
entitled), and to the expenses of liquidation;
(b) Second, to the setting up of reserves that the Governors determine are
necessary to pay all contingent, conditional or unmatured claims and
obligations that are known to the Company and all claims and obligations that
are known to the Company but with respect to which the claimant or obligee is
unknown; such reserves may be paid over by the Governors to any attorney at law
or other party selected by the Governors, as escrow agent to be held for
disbursement in payment of any of the aforementioned liabilities or
obligations, or at the expiration of such period as shall be deemed advisable
by the Governors, for distribution in accordance with clause (c) of this
Section 4.4;
(c) Thereafter, to the Members in accordance with their respective
positive Capital Account balances, determined after all allocations pursuant to
Sections 4.1 through 4.2 (including, without limitation, allocations to reflect
the gain or loss recognized upon the sale of the Company's assets) and all
distributions pursuant to Section 4.3 have been made, but before any
distributions pursuant to this Section 4.4(c) are made.
4.5 DISTRIBUTIONS IN KIND ON LIQUIDATION. Upon the liquidation of the
Company, to the extent the Company's assets are not sold or otherwise disposed
of, such assets (if any) may be distributed in kind to the Members as follows:
the value of such assets shall be appraised (by an appraiser selected by the
Governors) to determine the Profits and Losses that would have resulted if such
assets had been sold; the Capital Account of each Member shall be credited or
debited with such Member's respective share of the hypothetical gains or losses
resulting from such assumed sales in the same manner as such Capital Account
would have been credited or debited on the actual disposition of such assets;
and such assets shall be distributed in accordance with the Members' Capital
Account balances as thus adjusted, each Member taking an undivided interest in
such assets subject to a pro rata share of the Company's liabilities.
4.6 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding allocations and distributions among the Members are
intended to and should, to the fullest extent permitted by law, supersede the
provisions of the Act regarding allocations and distributions.
ARTICLE V
POWER, AUTHORITY, RIGHTS, DUTIES AND OBLIGATIONS OF THE BOARD OF GOVERNORS
5.1 MANAGEMENT AND CONTROL OF COMPANY'S BUSINESS AND AFFAIRS BY GOVERNORS.
Subject to the restrictions hereinafter set forth, the Governors shall have
full and exclusive right,
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power and authority to conduct the business and manage the affairs of the
Company in accordance with the terms and conditions of this Agreement. Any
action or inaction by Consent of Governors designated by Members holding
greater than 50% of the Percentage Interests, other than for a Major Decision,
shall constitute the action of the Governors and shall bind all of the
Governors and the Company. A Major Decision shall require the Consent of all
the Members. In the event of a deadlock by the Governors, then the subject of
such deadlock may be addressed under the Dispute Resolution Procedures referred
to in Section 11.10. No Governor, acting alone, shall have the power or
authority to bind the Governors or the Company. The Governors may delegate
such power and authority by Consent of Governors designated by Members holding
a majority of the Percentage Interests. WSMI shall be entitled to designate
three Governors and QS Steel shall be entitled to designate three Governors.
Each Governor shall serve at the pleasure of the Member entitled to designate
such Governor. All designations and removals of Governors shall be made by
written notice by the designating or removing Member, as the case may be, to
the other Members.
5.2 POWER AND AUTHORITY OF GOVERNORS. The Governors shall have all power
and authority necessary to carry out the purposes, business and objectives of
the Company.
5.3 PROHIBITED ACTIONS .The Company may not:
(i) change the nature of the business of the Company or enter into
any business other than or in addition to that contemplated by this
Agreement:
(ii) sell, exchange, transfer, convey, assign, mortgage, lease or
otherwise dispose of all or substantially all of the assets of the
Company except to secure loans of the Company;
(iii) enter into any merger of or consolidation involving the
Company, whether or not the Company shall be the survivor thereof;
(iv) authorize or undertake a major capital expansion of the
Company's facilities beyond that originally contemplated; and
(v) add new Members, except as permitted under Article VI hereof.
5.4 MANAGEMENT AND SERVICES AGREEMENT . QS Steel and WSMI agree that the
Company shall enter into a Management and Services Agreement with WSMI
substantially in the form set forth in Exhibit 5 hereto, pursuant to which WSMI
will provide certain management and other services to the Company.
5.5 MANAGEMENT PERSONNEL .
(a) The Governors shall have the authority to employ and dismiss from
employment any and all Company management personnel, subject to Major Decisions
made by the Members. Company management personnel shall serve at the pleasure
of the Governors and
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may be removed at any time by the Governors, subject to Major Decisions made by
the Members and guidelines and policies established by the Governors from time
to time.
(b) WSMI may nominate the Company's management personnel and shall
consider candidates proposed by QS Steel. Such nominations shall be subject to
the approval of the Governors. WSMI agrees to withdraw the nomination of any
individual as to whom QS Steel objects for legitimate business reasons.
(c) The Company's management personnel shall provide general management
and supervision for the Company and have such power and duties as the Governors
may assign. Initially, the Company's General Manager or other designated
management personnel shall have the powers and duties set forth as follows,
subject to the Governors authority to amend such powers and duties;
(i) oversee the operations of the business of the Company;
(ii) execute and implement the plans and policies of the Governors;
(iii) authorize the making of unbudgeted capital expenditures in
amounts not exceeding the dollar limitations as set by the Governors;
(iv) authorize the execution, delivery and performance of any contract
or agreement to be entered into by the Company in the ordinary course of
business, involving an aggregate amount of not more than the dollar
limitations set by the Governors, or consistent with approved budgets;
(v) execute and deliver on behalf of the Company any and all
contracts and agreements as shall have been approved by the Governors if
required under this Agreement or as provided in clause (iv);
(vi) approve all expenditures and the payment of all obligations of
the Company in accordance with the authority provided by or consistent with
approved budgets and the plans and policies of the Governors;
(vii) employ and dismiss from employment any and all Company
personnel, other than management personnel designated from time to time
by the Governors;
(viii) prepare or arrange for the preparation of financial
statements concerning the Company;
(ix) propose and prepare annual budgets and operational plans of the
Company;
(x) make recommendations to the Governors concerning appropriate
policies, procedures, facilities and equipment;
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(xi) arrange for the obtaining of insurance by the Company;
(xii) authorize the opening of bank accounts and the establishment of
other depository relationships on behalf of the Company with such
signatories and on such terms as the Governors shall deem appropriate;
(xiii) oversee the preparation of financial statements and tax
information concerning the Company and its business, and the preparation
and filing of all Company tax returns, subject to the authority of the Tax
Matters Member;
(xiv) supervise the procurement, construction, erection and
installation of facilities and improvements to the facilities of the
Company, consistent with approved budgets; and
(xv) authorize the employment and dismissal from employment of any
and all Company agents, independent contractors, consultants, attorneys and
accountants for amounts not in excess of the dollar limitations as set by
the Governors.
5.6 COMPENSATION AND EXPENSES. The philosophy and guidelines with respect
to the salary, benefits and other terms and conditions of employment of the
Company's management shall be established and reviewed from time to time by the
Governors, subject to Major Decisions of the Members.
5.7 BUDGETS. The Governors shall consider and approve from time to time
budgets for the Company, subject to the right of Members to approve Major
Decisions. Upon approval of a budget by the Governors, the management
personnel of the Company, shall have the right without further consent or
approval by the Governors, to incur and pay on behalf of the Company the
expenses set forth in such approved budget.
5.8 CORPORATE ALLOCATION . WSMI shall be entitled to receive an amount
for a corporate allocation to be charged to the Company in an amount agreed
between the parties, based on cost as are detailed in Schedule OA-3 and
reviewed, amended and approved by the Board of Governors periodically.
5.9 MEETINGS OF GOVERNORS . Any Governor may by written notice to each
other Governor call a meeting of all the Governors. Upon receipt of a written
request for such a meeting, the Governors shall promptly, and in any event not
later than ten (10) days after receipt of such request, fix a place and time
for such meeting. To the extent possible, such meeting shall be held at a
place convenient to all the Governors. Such meeting shall be held not less
than fifteen (15) nor more than sixty (60) business days after receipt of a
request for a meeting. In the absence of agreement by a majority of the
Governors, such meeting shall be held at 10:00 a.m. local time on the fifteenth
(15th) business day after receipt of a request for a meeting at the principal
place of business of the Company. Meetings of the Governors may be held
through any communications equipment if all those participating can hear each
other and participation in any such meeting shall constitute presence thereat.
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5.10 LIABILITY. When acting with respect to the Company, the Governors
shall not be liable to the Company or to any Member for any mistake or error in
judgment or for any act or omission believed in good faith to be within the
scope of the authority conferred by this Agreement. When acting with respect
to the Company, the Governors shall be liable only for willful misconduct or
failure to act in good faith.
5.11 INDEMNIFICATION. The Company shall, to the fullest extent permitted
under the Act and other applicable law, indemnify any Person who is a party, or
is threatened to be made a party, to any threatened, pending or completed
civil, criminal, administrative or investigative action, suit or proceeding
because such Person is or was a Member, Affiliate of a Member, Governor,
General Manager, officer, employee or agent of the foregoing or is or was
serving at the request of the Company as a member, manager, director, trustee,
partner, officer, employee or agent of another limited liability company,
corporation, partnership, joint venture, trust or other enterprise, against
costs, claims, damages, losses, judgments, fines and expenses (including
without limitation, reasonable attorneys' fees, filing fees, court reporters'
fees and transcript costs) actually and reasonably incurred by such Person in
connection with such action, suit or proceeding if such Person's act or
omission giving rise to any claim for indemnification under this Section 5.11
was not occasioned by such Person's fraud, willful misconduct, gross negligence
or intent to cause injury to the Company or by such Person's reckless disregard
for the best interests of the Company, and in respect of any criminal action or
proceeding, such Person had no reasonable basis to believe such Person's
conduct was unlawful.
5.12 INSURANCE . The Company shall, with the assistance of WSMI arrange
for the necessary and desirable insurance coverages with respect to Company and
its business, the type of policies and the amounts of coverage to be determined
by the Board of Governors. Such policies may be separate policies of the
Company, or if approved by the Board of Governors, may be maintained under
blanket insurance policies maintained by WSMI or its Affiliates. The premiums
and deductibles for such insurance shall be paid by the Company. If insurance
is obtained under blanket policies, premiums shall be pro rated according to
Worthington's standard practices and reimbursed to WSMI (or its Affiliates),
and any deductibles, copayment or other self-insured amounts applicable to
claims of or against the Company shall be the responsibility of the Company.
5.13 BANK ACCOUNTS .
(a) ESTABLISHMENT. All funds received in connection with the
operation of the Company shall be deposited in such bank account or
accounts as approved by the Board of Governors. The Company shall also
create and designate one or more disbursing accounts from which the
obligation owing by the Company shall be paid. Such account may be the
same as or separate from the collection account. The operating expenses
of the Company shall be paid out of such disbursing account.
(b) WORKING CAPITAL. No monies received from the Company are to be
commingled with Member funds unless approved by all Members of the
Company. The Members may agree to advance funds to the Company in order
to make disbursements or for other purposes. A revolving line of credit
shall be established with
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each Member and the Member shall be entitled to a reasonable interest
expense allocation, as agreed upon by the parties for such funds. Any
advances obtained by the Company from the Members shall be repaid with
interest before any cash dividend will be distributed.
(c) SIGNATORIES. The Board of Governors shall designate the persons
permitted access to the bank accounts of the Company.
5.14 TAX MATTERS MEMBER. The Tax Matters Member (referred to as the "tax
matters partner" in Section 6231(a)(7) of the Code) initially shall be WSMI.
The Tax Matters Member may at any time resign as the Tax Matters Member, and
the Tax Matters Member may be removed as the Tax Matters Member by Consent of
Members. In the event that the Tax Matters Member resigns or is removed, a new
Tax Matters Member shall be appointed with the Consent of Members. The Tax
Matters Member shall represent the Company and the Members, at Company expense,
in any administrative or judicial proceeding with the Internal Revenue Service.
Any other Member may, at such Member's own expense, participate in such
proceeding to the extent permitted by the Code. If an administrative
proceeding results in the issuance of a "final partnership administrative
adjustment" ("FPAA"), as that term is used in Sections 6223 et seq. of the
Code, the Tax Matters Member shall determine whether the Company shall seek
judicial review of such FPAA. If the Tax Matters Member determines that the
Company shall not seek judicial review, such Member shall promptly notify each
Member of this determination and each Member shall be entitled, at such
Member's own expense, to pursue whatever rights such Member may have under the
Code. Any amounts paid by the Tax Matters Member on behalf of the Company in
connection with any administrative or judicial proceeding shall be considered a
loan to the Company, and not a contribution to capital. The Tax Matters Member
shall not be liable to the Company or the other Members for any action such
Member takes or fails to take in connection with any such judicial or
administrative proceeding, including, without limitation, the agreement to or
failure to agree to a settlement or the extension of, or failure to extend the
relevant statutes of limitations, unless such action or failure constitutes
willful misconduct or failure to act in good faith.
5.15 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the management of the Company and the power, authority,
rights, duties and obligations of the Members are intended to and shall, to the
fullest extent permitted by law, supersede the provisions of the Act regarding
the management of a limited liability company and the power, authority, rights,
duties and obligations of limited liability company members set forth in the
Act.
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ARTICLE VI
TRANSFERS OF INTERESTS BY MEMBERS; SUBSTITUTION OF MEMBERS
6.1 TRANSFER OF INTERESTS BY MEMBERS .
General. No Member may Transfer its Interest to any Person without the
Consent of the other Member, provided, however, that the other Member shall not
unreasonably withhold consent to a transfer to a wholly-owned subsidiary of
Worthington Industries, Inc. or Rouge Steel Company. Any transfer permitted by
this Section 6.1 shall be subject to the further limitations set forth in
Section 6.2 and the admission of a Substitute Member shall be subject to
Section 6.3.
6.2 ADDITIONAL RESTRICTIONS ON TRANSFERS. Notwithstanding anything in
this Article VI to the contrary, the following additional restrictions apply to
the Interests:
(a) Unless the other Member consents, no Member shall make any assignment
or transfer of any Interest if the transfer would, when considered with all
other assignments and transfers during the same applicable twelve-month period,
cause a termination of the Company for federal income tax purposes.
(b) No Member shall make an assignment or transfer to a tax-exempt Entity
under Section 168(h) of the Code.
(c) No Member shall make any assignment or transfer of any Interest unless
such Member gives a copy of this Agreement to the assignee or transferee before
such assignment or transfer is effected.
6.3 REQUIREMENTS FOR SUBSTITUTION. Notwithstanding anything in this
Article VI to the contrary, upon the assignment or transfer of any Interest, no
assignee or transferee shall have the right to become a Substitute Member in
place of its assignor or transferor unless the conditions of Sections 6.1 and
6.2 have been satisfied and:
(a) the assignor or transferor has evidenced in a written instrument of
assignment or transfer its intention that the assignee or transferee be
admitted as a Substitute Member pursuant to the provisions hereof;
(b) Consent shall have been given by the remaining Member which consent
may be withheld by such remaining Member in its sole and absolute discretion,
for any reason or for no reason at all, except in the case of a transfer to an
Affiliate, in which case consent may not be unreasonably withheld;
(c) the assignee or transferee has adopted and agreed in writing to be
bound by all of the provisions hereof, as the same may have been amended; and
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(d) all documents reasonably required by the Governors to effect the
substitution of the assignee or transferee as a Member shall have been
executed.
When and if all of the provisions of this Section 6.3 have been complied with,
the assignee or transferee shall thereupon become a Member of the Company.
6.4 OBLIGATIONS AND RIGHTS OF TRANSFEREES. Whether or not an Entity which
acquires an interest in the Company has accepted in writing the terms and
provisions of this Agreement and assumed in writing the obligations hereunder
of its predecessor in interest, such Entity shall be deemed, by such
acquisition of such interest, to have agreed to be subject to and bound by all
the obligations of this Agreement with the same effect as any predecessor in
interest of such Entity. An Entity acquiring an interest in the Company shall
have only such rights and shall be subject to all the obligations as provided
in this Agreement, and, without limiting the foregoing, such Entity shall not
have the right to have the value of its interest ascertained or receive the
value of such interest or, in lieu thereof, profits attributable to any right
in the Company, except as set forth in this Agreement.
6.5 DISTRIBUTIONS AND ALLOCATIONS IN RESPECT OF TRANSFERRED INTERESTS. If
any Interest is sold, assigned or transferred during any accounting period in
compliance with the provisions of this Article VI, Profits, Losses, each item
thereof and all other items attributable to such Interest for such period shall
be divided and allocated between the transferor and the transferee by taking
into account their varying interests during the period in accordance with Code
Section 706(d), using any conventions permitted by law and selected by the
Governors. Unless otherwise determined by Governors, all distributions made on
or before the date thirty (30) days following the date on which the Company
receives written notice of such transfer (accompanied by the transfer
documents) shall be made to the transferor, and all distributions made
thereafter shall be made to the transferee. Solely for purposes of making such
allocations and distributions, the Company shall recognize such transfer not
later than the end of the calendar month during which it is given notice of
such transfer, provided that if the Company does not receive a notice stating
the date such Interest was transferred and such other information as the
Governors may reasonably require within thirty (30) days after the end of the
accounting period during which the transfer occurs, then, at the Governors'
option, all of such items shall be allocated, and all distributions shall be
made, to the Entity which, according to the books and records of the Company,
on the last day of the accounting period during which the transfer occurs, was
the owner of the Interest. Neither the Company nor the Governors shall incur
any liability for making allocations and distributions in accordance with the
provisions of this Section 6.5, whether or not the Governors or the Company
have knowledge of any transfer of ownership of any Interest.
6.6 CONTINUATION UPON TRANSFER. The Company shall be dissolved upon the
Transfer of the Interest of a Member in compliance with the Agreement (other
than (i) an assignment merely of its right to receive distributions or (ii) a
pledge, hypothecation or other collateral assignment of its rights before the
time such pledge, hypothecation or other collateral assignment becomes
absolute); provided, however, that the Company and its business shall be
continued after such Transfer if the transferee becomes a Substitute Member in
accordance with the
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provisions of this Agreement including the Consent of all remaining Members.
In the event the Company's business has been validly continued as provided in
the preceding sentence, such business shall be continued in the form of a
successor limited liability company, which shall be deemed constituted and
continued on the terms and conditions in this Agreement except as may be
modified by the Agreement of the Members as provided in Article IX hereof; and
the assets of the Company shall not be liquidated. Each Member hereby agrees
to execute and deliver all documents necessary to effectuate the purposes of
this Section.
6.7 RESTRICTIONS REASONABLE. Each Member acknowledges and agrees that the
restrictions or the transfer of Interests imposed by this Agreement are imposed
to accomplish legitimate purposes of the Company, and that such restrictions
are not more restrictive than necessary to accomplish those purposes.
6.8 CERTAIN PROVISIONS OF THE ACT SUPERSEDED. The provisions of this
Agreement regarding the Transfer of a Member's Interest are intended to and
shall, to the fullest extent permitted by law, supersede the provisions of the
Act regarding the withdrawal of a member set forth in the Act.
ARTICLE VII
PROCEDURE ON DISSOLUTION
7.1 LIQUIDATION. Upon the dissolution of the Company, unless the Company
is continued or reformed as provided in this Agreement, the Members shall
proceed to liquidate the Company and to apply and distribute the proceeds of
liquidation as set forth in Sections 4.4 and 4.5 and as is consistent with the
Act.
7.2 OPERATIONS DURING LIQUIDATION. Upon the determination that the
Company is to be dissolved and liquidated, the business of the Company during
the period of liquidation shall be carried on by the Governors, or by a
designee of the Governors, who shall possess all the powers of the Governors to
the extent necessary to wind up the business and affairs of the Company.
7.3 TIME FOR LIQUIDATION. In the event the Company is "liquidated" within
the meaning of the Allocation Regulations, distributions shall be made pursuant
to Section 4.4 in compliance with the timing requirements of the Allocation
Regulations; provided, however, that if, in the opinion of counsel satisfactory
to the Governors, failure to comply with the Allocation Regulations would not
cause the allocations of Profits and Losses (or any item thereof) to the
respective Members to lack substantial economic effect within the meaning of
Section 704(b) of the Code, then distributions need not be made in compliance
with the timing requirements of the Allocation Regulations.
7.4 TERMINATION. Upon compliance with the foregoing distribution plan
(including payment over to an escrow agent or trustee, if deemed appropriate by
the Governors and if there be sufficient funds therefor), the Company shall
cease to be such, and the Governors and/or the
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Members shall execute, acknowledge and cause to be filed a certificate of
dissolution of the Company with the Department, including the name of the
Company and the effective date of its dissolution subject to and in accordance
with applicable law.
ARTICLE VIII
BOOKS AND RECORDS, BANK ACCOUNTS
8.1 MAINTENANCE OF BOOKS AND ACCOUNTING METHOD. The Governors shall keep
or cause to be kept the following: (i) a current list of the name and last
known business or residence addresses of all Members and Governors; (ii) a copy
of the Articles of Organization, including any amendments thereof and any
written powers of attorney relating to the execution thereof; (iii) a copy of
this Agreement, including any amendments thereof and any written powers of
attorney relating to the execution thereof; (iv) copies of federal, state and
local income tax returns and reports of the Company for the three (3) most
recent years; (v) copies of any financial statements of the Company for the
three (3) most recent years; and (vi) copies of any records that would enable a
Member to determine the Member's relative share of the Company's distributions
and the Member's relative voting rights. Such books and records shall be
maintained at the Registered Office of the Company or at such other place as
the Governors may designate and shall be available upon reasonable notice, at
reasonable times, for inspection and examination by the Members or their duly
authorized agents or representatives. Such books and records shall be
consistent with the rules referred to in Section 3.7 of this Agreement. The
books and records of the Company shall be kept in accordance with accounting
policies and methods unless other policies or methods are selected by the
Governors.
8.2 FISCAL YEAR. The fiscal year of the Company shall end on May 31.
8.3 REPORTS TO THE MEMBERS.
(a) On a quarterly basis (or on a monthly basis if the Governors so
determine), the Governors shall cause to be prepared and shall send to each
Member: (i)(A) a statement of operations of the Company and (B) a statement of
cash flows of the Company for the preceding period (and year-to-date through
and including such period); and (ii) a balance sheet of the Company as of the
close of such period. The annual financial statements of the Company will be
audited by the outside auditing firm of the Tax Matters Member, or such other
independent accounting firm as may be selected by the Governors, unless all
Members agree that no audit is necessary.
(b) The Governors shall cause to be prepared and distributed to each
Member, in a timely manner copies of all Single Business Tax and other state
and local tax returns prior to filing the same with the respective tax
authorities, as well as the Member's Schedule K-1 (Form 1065) and all other
information reasonably necessary for the preparation of such Member's federal,
state and local tax returns.
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(c) No cause of action shall accrue to any Member under this Section 8.3
if the Governors shall have acted in good faith in attempting to meet its
obligations under this Section yet failed to deliver any required statements,
reports, returns or information within the specified time period.
(d) In the event of any dispute among the Members relating to the
financial statements or accounting for the Company, the dispute shall be
submitted, at the request of any Member involved, to the public accounting firm
which has been engaged to audit the books of the Company, or if no accounting
firm has been so engaged, then to a public accounting firm to be selected as
provided in Section 8.3(a). In the case of any such disputes, the
determination of the accounting firm shall be final and binding on the Members.
8.4 TAX ELECTIONS; SPECIAL BASIS ADJUSTMENTS. The Tax Matters Member
shall make all tax elections on behalf of the Company. In the event of a
transfer of all or any part of the Interest of any Member for an amount in
excess of the adjusted basis for such interest for federal income tax purposes,
the Governors may elect, pursuant to Section 754 of the Code (or corresponding
provisions of succeeding law), to enable an adjustment to be made to the basis
of the Company's property. Any costs incurred by the Company in connection
with such Section 754 election shall be borne by the Member seeking a transfer
of its Interest. Any adjustments made pursuant to an election under Section
754 shall affect only the successor in Interest to the transferring Member.
Each Member will furnish the Company with all information necessary to give
effect to such election.
ARTICLE IX
AMENDMENTS AND MAJOR DECISIONS
9.1 AMENDMENTS REQUIRING UNANIMOUS CONSENT OF MEMBERS . The Members may
amend this Agreement or the Articles of Organization only with the Consent of
all Members.
9.2 MAJOR DECISIONS. Major decisions shall require the Consent of all
Members, subject to the provisions of Section 11.10.
ARTICLE X
DISSOLUTION
10.1 EVENTS OF DISSOLUTION - GENERAL. The Company will be terminated upon
the mutual written agreement of the Members that the Company be dissolved and
the term of the Agreement ended.
10.2 EVENTS OF DISSOLUTION - ELECTIVE. The Company may be dissolved, at
the election of a Member as follows:
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(a) Any Member may elect to dissolve the Company upon the occurrence of
any event or the existence of any condition beyond the reasonable control of
the Members which prevents the Company from producing commercially acceptable
products consistent with the purpose of the Company or the Company is otherwise
unable to carry out its purpose, and such event or condition cannot be
corrected within a reasonable time, at a reasonable expense.
(b) (i) WSMI may elect to dissolve the Company if there is a change
of control of QS Steel so that QS Steel is no longer a member of the same
"controlled group of corporations" (as that term is defined in Section
1563(a) of the Code) as Rouge Steel Company. An election to dissolve due
to a change in control of QS Steel must be made by written notice from
WSMI to QS Steel within 90 days after WSMI is notified by QS Steel that a
change of control has occurred or will occur.
(ii) QS Steel may elect to dissolve the Company if there is a change
of control of WSMI so that WSMI is no longer a member of the same
"controlled group of corporations" (as that term is defined in Section
1563(a) of the Code) as Worthington. An election to dissolve due to a
change in control of WSMI must be made by the written notice from QS
Steel to WSMI within 90 days after QS Steel is notified by WSMI that a
change of control has occurred or will occur.
(c) Either Member may elect to dissolve the Company as of December 31,
2005 or as of the end of any year thereafter. Such election to dissolve must
be made at least 24 months before the end of such year.
(d) QS Steel may elect to dissolve the Company if WSMI invokes its right
to break a deadlock under Section 11.10(c). Such election may be made by
written notice from QS Steel to WSMI within 90 days after WSMI invokes such
right.
10.3 EVENTS OF DISSOLUTION - DEFAULT. The non-defaulting Member may elect
to terminate and dissolve the Company in the event of a default, as specified
below, by the other Member. The occurrence of any of the following events
shall constitute a default by a Member:
(a) A Member shall have defaulted in its obligation to make any capital
contribution or to provide financial support as required in Section 3.1 hereof
and such default shall continue to exist for a period of fifteen (15) business
days after the other Member gives such defaulting Member notice of such
default.
(b) A Member or its Affiliate shall materially default in the observance
or performance of any material agreement, covenant, or condition contained in
this Agreement or in any material agreement with or relating to the Company and
such default shall continue to exist for a period of 30 days after the other
Member or the Company gives such defaulting Member or its Affiliate written
notice of such Default;
(c) A representation or warranty made by the Member herein (or in any
certificate or financial or other statement furnished by such Member to the
other pursuant to the
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terms hereof) or by the Member's Affiliate in connection herewith shall prove
to be false or misleading in any material respect when made;
(d) The Bankruptcy of such Member.
10.4 NOTICE OF DISSOLUTION. If a Member is entitled to dissolve the
Company, it may do so by giving notice to the other Member, in writing, that it
is electing to dissolve the Company.
10.5 WINDING UP. If the Company is to be dissolved, then the Members
shall proceed jointly to wind up the affairs of the Company; provided, however,
that if the dissolution is occurring pursuant to Section 10.3, then the
non-defaulting Member may unilaterally wind up the affairs of the Company if it
so chooses.
10.6 BUY-OUT PROCEDURES.
(a) If an election is made by WSMI to dissolve the Company pursuant to
Section 10.3 above (i.e. for Default), WSMI may also elect, by written notice
given within ninety (90) days of the date of the election to dissolve, to
either (i) purchase Rouge's Interest in the Company for an amount equal to
ninety (90) percent of the fair market value of Rouge's interest, or (ii)
require Rouge to purchase WSMI's Interest in the Joint Venture for an amount
equal to 110% of the fair market value of Rouge's Interest.
(b) If an election is made by QS Steel to dissolve the Company pursuant to
Section 10.3 above (i.e. for Default) QS Steel may also elect by written notice
given within 90 days of the election to dissolve, to either (i) purchase WSMI's
Interest in the Company for an amount equal to ninety percent (90%) of the fair
market value of WSMI's Interest, or (ii) require WSMI to purchase QS Steel's
Interest in the Company for an amount equal to 110% of the fair market value of
QS Steel's Interest.
(c) If an election is made by a Member (the "Terminating Member") to
dissolve the Company pursuant to Section 10.2(a) or (c), the other Member may
elect, by written notice given within 90 days of the date of the election to
dissolve, to continue the business of the Company by acquiring the Terminating
Member's interest in the Company for an amount equal to one hundred percent
(100%) of the fair market value of the Terminating Member's Interest.
(d) If the Company's "income before tax" return on assets falls below 15%
for two or more consecutive fiscal years after the first three years of
operation, WSMI may elect to require Rouge to purchase WSMI's Interest in the
Company for an amount equal to 100% of the fair market value of WSMI's
Interest. (Any capitalized pre-production costs; see Schedule OA1, and any
depreciation thereof, shall be excluded in these calculations.) Such election
must be made by written notice to Rouge within 90 days after the Board of
Governors confirms that the Company has not met such performance level.
(e) If an election is made by a Member (the "Terminating Member") to
dissolve the Company pursuant to Section 10.2 (b) (i.e. due to a change in
control), the
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Terminating Member may elect, by written notice given within 90 days of the
date of the election to dissolve, to either (i) continue the business of the
Company by acquiring the other Member's interest in the Company for an amount
equal to one hundred percent (100%) of the fair market value of the other
Member's Interest; or (ii) require the other Member to purchase the Terminating
Member's Interest in the Company for an amount equal to 100% of the fair market
value of the Terminating Member's Interest.
(f) If an election is made by QS Steel to dissolve the Company pursuant to
Section 10.2(d), QS Steel may also elect in its notice of dissolution to
require WSMI to purchase QS Steel's Interest in the Company for an amount equal
to 100% of the fair market value of QS Steel's Interest.
(g) If the Company is dissolved pursuant to Section 10.1 above, either
Member may elect, by written notice given within ninety (90) days of the date
of dissolution, to continue conducting the business of the Company. Unless the
Members otherwise agree, the acquiring Member shall purchase the Terminating
Member's interest in the Company for an amount equal to one hundred percent
(100%) of the fair market value of the Terminating Member's interest.
(h) In case of any election under this Agreement requiring the
determination of fair market value of the Company, the Members shall use their
best efforts to agree as to the fair market value of the Company. If the
Members fail to agree on such fair market value within sixty (60) days
following the election which requires such a determination, then the Members
shall attempt to agree upon a single appraiser to determine fair market value.
If the parties fail to agree on a single appraiser within 15 days, each Member
shall appoint a reputable appraiser, and the two appraisers shall appoint a
third appraiser. The appraiser or appraisers shall then determine in good
faith such fair market value(s), with such determination to be due within 60
days. In the event three appraisers are appointed and the appraisers cannot
agree upon a fair value, each of the three appraisers shall set forth, in good
faith, their own valuation, and the highest and lowest valuations shall be
discarded and the middle of the three valuations shall be deemed to be the fair
value.
10.7 NECESSARY APPROVALS The provisions as to liquidation of the Company
and the purchase of the business of the Company and the purchase of the
business of the Company shall be subject to any necessary governmental
approvals, and the Members shall agree upon such reasonable extensions of time
with respect to such provisions as may be reasonably necessary in order to
obtain any such approvals.
ARTICLE XI
GENERAL PROVISIONS
11.1 NON-WAIVER. No provision of this Agreement shall be deemed to have
been waived unless such waiver is contained in a written notice given by the
party granting such waiver to the party claiming such waiver and no such waiver
shall be deemed to be a waiver of
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any other or further obligation or liability of the party or parties in whose
favor the waiver was given or a waiver by any party not executing such waiver
of any of its rights.
11.2 ADDITIONAL DOCUMENTS AND INSTRUMENTS. The Members shall execute and
deliver to each other such other and further documents and instruments as may
be necessary to carry out the purposes of this Agreement and which are required
by the Governor, or any federal, state or local governmental agency having
jurisdiction over the Company.
11.3 SEVERABILITY. If any provision or provisions of this Agreement (or
any part thereof) or the application thereof to any particular facts or
circumstances shall be illegal and unenforceable by reason of any statute or
rule of law, or shall be deemed null and void pursuant to Section 2.5 of this
Agreement, the remaining provisions (or parts thereof) of this Agreement or the
application of the particular provision or provisions (or parts thereof) to
other facts or circumstances shall not be affected thereby and shall remain in
full force and effect. It is the intention of the provisions of this Section
to make clear that the agreement of the parties to this Agreement is that this
Agreement shall be enforced insofar as it may be enforced consistent with
applicable statutes and rules of law.
11.4 ENTIRE AGREEMENT. This Agreement and any schedules and exhibits
annexed hereto, each of which is made a part hereof by this reference,
constitute the entire operating agreement of the Company within the meaning of
the Act and contain the entire understanding and agreement between the parties
upon the subject matter of this Agreement and may only be amended or changed in
a writing executed by Members holding the requisite Percentage Interests as
specified in Article IX. Any prior understandings and agreements between the
parties are merged herein, except only as herein otherwise expressly stated.
11.5 PROVISIONS BINDING. This Agreement shall inure to the benefit of and
be binding upon the parties and their respective heirs, executors,
administrators, successors and assigns and any additional or Substitute Members
(except as may otherwise be specifically provided herein).
11.6 CAPTIONS. The table of contents and captions set forth herein are
for convenience and reference only and are not intended to modify, limit,
describe or affect in any way the contents, scope or intent of this Agreement.
11.7 COUNTERPARTS. This Agreement may be executed in several counterparts
and all so executed shall constitute one and the same agreement binding on all
parties hereto, notwithstanding that all parties have not signed the same
counterpart or that any such counterpart does not have attached copies of all
signature pages attached hereto that constitute part of this Agreement.
11.8 WORD MEANINGS. The words such as "herein," "hereinafter," "hereof"
and "hereunder" refer to this Agreement as a whole and not merely to a
subdivision in which such words appear unless the context otherwise requires.
The singular shall include the plural, and the masculine gender shall include
the feminine and neuter, and vice versa, unless the context otherwise requires.
29
<PAGE> 35
11.9 APPLICABLE LAW. This Agreement and the rights of the parties hereto
shall be construed under and enforced in accordance with the laws of the State
of Michigan (exclusive of its choice of law principles).
11.10 DISPUTE RESOLUTION.
(a) Initial Procedure. Any claim, dispute, difference or controversy
arising out of or relative to this Agreement or the operation of the Company
and any deadlock in voting relative to the operation of the Company which
cannot be settled by mutual understanding between the Members or their
Governors, will first be submitted to the chief executive officers of the
Members, who will meet and attempt to resolve such dispute.
(b) Formal Dispute Resolution. Should said claim, dispute, difference or
controversy or the deadlock not be resolved as above provided within sixty (60)
days after submission to the named persons, then at the written request of the
Company or any Member involved, the said claim, dispute, difference or
controversy or the deadlock shall be submitted to Alternative Dispute
Resolution in Michigan in accordance with a procedure to be agreed upon by the
Members.
(c) Breaking a Deadlock. If there is a deadlock between the Members
concerning the operation of the Company, which is not resolved despite attempts
to do so under the provisions of Section 11.10(a) or (b), then WSMI may, but is
not required, by 30 days written notice to QS Steel, elect to break the
deadlock, in which case WSMI's position shall prevail. If WSMI invokes its
right to break a deadlock, then the provisions of Sections 10.2(e) and 10.6(e)
will apply.
This Section (c) shall apply only to breaking deadlocks in operating the
Company and not to resolving claims, disputes, differences or controversies
between (i) the Members or the Members and the Company or (ii) relating to a
party's rights under this Agreement or other agreements relating to the
Company.
30
<PAGE> 36
IN WITNESS WHEREOF, the undersigned have duly executed this Operating
Agreement of Spartan Steel Coating, L.L.C.
QS STEEL INC., a Michigan corporation WORTHINGTON STEEL OF
MICHIGAN, INC., a Michigan corporation
By:____________________________ By:_______________________________
Printed Name:__________________ Printed Named:____________________
Title: ________________________ Title:____________________________
SPARTAN STEEL COATING, L.L.C.,
a Michigan limited liability company
By:_____________________________
Printed Name:___________________
Title:__________________________
31
<PAGE> 1
EXHIBIT 10.19
================================================================================
EVELETH MINES EXIT AGREEMENT
dated as of
November 25, 1996
among
OGLEBAY NORTON COMPANY
ONCO EVELETH COMPANY
EVELETH TACONITE COMPANY
EVELETH EXPANSION COMPANY
AK STEEL CORPORATION
VIRGINIA HORN TACONITE COMPANY
ROUGE STEEL COMPANY
STELCO, INC.
ONTARIO EVELETH COMPANY
and
EVELETH MINES, LLC
================================================================================
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
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ARTICLE 1. PURCHASE AND SALE OF ETCO SHARES, EXCO INTERESTS AND ONTAC SHARES; CONSIDERATION . . . . . . . . . 3
1.1 Purchase and Sale of ETCO Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.2 Purchase and Sale of EXCO Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.3 Purchase and Sale of ONTAC Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.4 Consideration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.5 Known Liabilities Defined . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
1.6 Other Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
1.7 Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE 2. REPRESENTATIONS AND WARRANTIES OF OGLEBAY . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.1 Organization and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.2 Authorization and Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
2.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.5 Beneficial Ownership . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.6 Subsidiary; Capital Stock; Officers and Directors . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.7 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
2.8 ONTAC Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.9 Litigation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.10 Additional Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
2.11 Definitions as they apply to Section 2.10 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
ARTICLE 3. REPRESENTATIONS AND WARRANTIES OF NEWCO, AK STEEL, ROUGE, ETCO, STELCO, AKS SUB AND STELCO SUB . . 11
3.1 Organization and Power . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.2 Authorization and Effect of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.3 No Conflicts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.4 Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
3.5 ETCO Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
ARTICLE 4. CERTAIN COVENANTS OF THE PARTIES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.1 Filings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.2 Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.3 Best Efforts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 Notification of Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.5 Preservation of Accuracy of Representations and Warranties . . . . . . . . . . . . . . . . . . . . 13
4.6 Specific Performance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 Third Party Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 Assets to Newco . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
ARTICLE 5. CLOSING DATE; EFFECTIVE DATE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.1 Closing Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 Suspension and Termination of Mining and Other Agreements . . . . . . . . . . . . . . . . . . . . . 14
5.3 Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 Simultaneous Transactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
</TABLE>
i
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<TABLE>
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ARTICLE 6. OTHER AGREEMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.1 Interests in Mining Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.2 Royalties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.3 Management . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
6.4 Pellet Sales . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(a) 1996 Pellet Commitments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(b) Production Cost . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
(c) Termination of Pellet Sales Agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.5 Liability for Unassumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
6.6 Working Capital Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(a) Preliminary Working Capital Settlement . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(b) Definitive Working Capital Statement . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
(c) Owner Receivables . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.7 Pending Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.8 Ongoing Assistance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.9 Certain Real Estate Holdings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.10 Certain Intellectual Property . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
6.11 Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 7. INDEMNIFICATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.1 AK Steel and Rouge Indemnity for Assumed Liabilities . . . . . . . . . . . . . . . . . . . . . . . 21
7.2 Indemnification by Newco and Remaining Companies . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.3 Indemnification by Oglebay and ONCO . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
7.4 Procedures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
ARTICLE 8. CONDITIONS TO CLOSING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
8.1 Conditions Precedent to the Obligations of the Remaining Companies and Newco . . . . . . . . . . . 23
(a) Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(b) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(c) No Obstructive Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(d) Consents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
(e) Documents and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(f) Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
8.2 Conditions Precedent to the Obligations of Oglebay and ONCO . . . . . . . . . . . . . . . . . . . . 24
(a) Representations and Warranties True . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(b) Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(c) No Obstructive Proceeding . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
(d) Consents and Leases . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(e) Documents and Proceedings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
(f) Closing Deliveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 9. MISCELLANEOUS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.1 Notices . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
9.2 Execution of Further Documents; Cooperation . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
9.3 No Public Announcements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.4 Expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.5 Waiver . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.6 Entire Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.7 Amendments, Supplements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.8 Applicable Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
9.9 Counterparts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
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<TABLE>
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9.10 Titles and Headings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.11 Binding Effect . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.12 Validity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
9.13 Enforcement of Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 29
EXHIBITS
Exhibit A: Barr Study
Exhibit B: Environmental Liabilities List
Exhibit C: Officers and Directors of ONTAC
Exhibit D: Form of Opinion of Counsel for Oglebay and ONCO
Exhibit E: Form of Opinion of Counsel for Remaining Companies and Newco
SCHEDULES
Schedule 2.4 Oglebay and ONCO Consents
Schedule 2.9 Litigation
Schedule 2.10(a) ONTAC Plans and Benefit Arrangements
Schedule 2.10(g) Multiemployer Plans of ONTAC
Schedule 3.4 Remaining Companies, EXCO, ETCO and Newco Consents
Schedule 6.1 Mining Equipment
Schedule 6.2 Royalty Arrangements
Schedule 6.4(a) Pellet Sales Agreement with Geneva Steel
Schedule 6.4(c) Pellet Sales Agreements to be terminated
Schedule 6.6 Form of Preliminary Working Capital Settlement
Schedule 6.9 Real Estate
Schedule 6.10 Intellectual Property
</TABLE>
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EVELETH MINES EXIT AGREEMENT
This Eveleth Mines Exit Agreement (this "Agreement"), dated as of
November 25, 1996, by and between Oglebay Norton Company ("Oglebay"), a
Delaware corporation, ONCO Eveleth Company ("ONCO"), a Minnesota corporation
and wholly-owned subsidiary of Oglebay, Eveleth Taconite Company ("ETCO"), a
Minnesota corporation, Eveleth Expansion Company ("EXCO"), a Minnesota
partnership, AK Steel Corporation ("AK Steel"), a Delaware corporation,
Virginia Horn Taconite Company ("AKS Sub"), a Minnesota corporation, Rouge
Steel Company ("Rouge"), a Delaware corporation, Stelco, Inc. ("Stelco"), a
Canadian corporation, Ontario Eveleth Company ("Stelco Sub"), a Minnesota
corporation, and Eveleth Mines, LLC, a Minnesota limited liability company
("Newco") owned by AKS Sub, ETCO and Stelco Sub. (Rouge, ETCO, Stelco, Stelco
Sub, AK Steel and AKS Sub are hereinafter sometimes referred to as the
"Remaining Companies".)
W I T N E S S E T H :
WHEREAS, Oglebay and Rouge are the stockholders of ETCO (the
"Stockholders"), with Oglebay owning 15% of the outstanding voting shares of
ETCO (the "ETCO Shares") and Rouge owning the remaining 85%; and the Amended
and Restated Taconite Company Stockholders Agreement dated as of January 1,
1977 and the Taconite Company Restated Modified Term Stockholders Agreement,
dated as of January 1, 1991 (collectively the "Stockholders Agreements") govern
the relationship between the Stockholders;
WHEREAS, ONCO, Stelco Sub and AKS Sub are the partners in EXCO (the
"Partners"), with ONCO owning a 20.5% partnership interest (the "EXCO
Interest") therein; and the Restated Partnership Agreement, dated January 2,
1974, the Partnership Operating Agreement, dated as of January 2, 1974 and the
Restated Modified Term Partnership Operating Agreement, dated as of January 1,
1991 (collectively the "Partnership Agreements") govern the relationship
between the Partners and the operations of EXCO.
WHEREAS, ETCO and EXCO each own a portion of certain taconite ore
mining rights in mines located in St. Louis County, Minnesota, and related
surface rights, together with facilities for the mining, crushing,
concentrating and pelletizing of taconite ore (the "Eveleth Mines");
WHEREAS, the Stockholders (or their predecessors), the Partners (or
their predecessors), ETCO and EXCO have entered into a Stockholders and
Partners Agreement and accompanying Guarantees, each dated January 2, 1974,
which sets forth certain rights and obligations among the parties with respect
to the management, lease and operations of the Eveleth Mines (the "S&P
Agreement"), and a Restated Modified Term Stockholders and Partners Agreement,
dated as of January 1, 1991, which primarily
<PAGE> 6
sets forth a nomination procedure for determining annual production capacity
and allocation (the "Term S&P Agreement");
WHEREAS, Oglebay has served as manager (the "Manager") of the Eveleth
Mines pursuant to the Eveleth Mines Management Agreement, dated as of January
2, 1974 as amended on December 1, 1976 (the "Management Agreement") and the
Restated Modified Term Management Agreement dated as of January 1, 1991 (the
"Term Management Agreement");
WHEREAS, the Manager, pursuant to Article 10.4 of the Management
Agreement, has given Notice of Termination, and, on the Closing Date (as
defined herein), Oglebay will cease to act as Manager of the Eveleth Mines
retroactive to November 30, 1996;
WHEREAS, cancellation of the Management Agreement pursuant to Section
6.8 of this Agreement constitutes a cancellation of any and all managing
agreements, including, but not limited to, the Term Management Agreement, by
and between the parties or their successors except to the extent that they
expressly survive termination, including, but not limited to, for purposes of
Section 6.5 hereunder;
WHEREAS, Oglebay owns all of the issued and outstanding shares of
capital stock (the "ONTAC Shares") of Oglebay Norton Taconite Company
("ONTAC"), a Minnesota corporation and employer of employees under the Eveleth
Mines Employment Services Agreement, dated as of January 1, 1977 (the
"Employment Agreement");
WHEREAS, the parties hereto have agreed that Oglebay and ONCO will
cease to participate in the ownership, management and operations of the Eveleth
Mines (the "Exit Transaction") and in connection therewith, among other things,
Oglebay and ONCO will sell to Newco and Newco will purchase from Oglebay and
ONCO, as appropriate, all of the ONTAC Shares and the EXCO Interests; Oglebay
shall sell to Rouge and Rouge shall purchase from Oglebay the ETCO Shares;
Oglebay will terminate its services as the Manager; and, the parties hereto
will terminate the Stockholders Agreements, the Partnership Agreements, the S&P
Agreement, the Term S&P Agreement, the Management Agreement, the Term
Management Agreement, the Construction and Management Agreement, the Pellet
Sales Contracts, the Employment Agreement and the Royalty Arrangements (as
defined in Section 6.2) payable to Oglebay (collectively, the "Mining
Agreements") to the extent set forth herein.
NOW, THEREFORE, in consideration of the promises and mutual covenants
herein and other good and valuable consideration, the receipt and sufficiency
of which are hereby acknowledged, the parties hereto agree as follows:
2
<PAGE> 7
ARTICLE 1.
PURCHASE AND SALE OF ETCO SHARES,
EXCO INTERESTS AND ONTAC SHARES; CONSIDERATION
1.1 Purchase and Sale of ETCO Shares. Subject to the terms and
conditions of this Agreement, at the Closing described in Section 5.1 hereof,
Oglebay shall sell, assign, transfer and convey to Rouge and Rouge shall
purchase from Oglebay, all of Oglebay's right, title and interest in and to the
ETCO Shares free and clear of all liens, mortgages, pledges, claims, options,
proxies, voting agreements, charges or encumbrances of whatever nature.
1.2 Purchase and Sale of EXCO Interests. Subject to the terms and
conditions of this Agreement, at the Closing described in Section 5.1 hereof,
ONCO shall sell, assign, transfer and convey to Newco and Newco shall purchase
from ONCO, all of ONCO's right, title and interest in and to the EXCO Interests
free and clear of all liens, mortgages, pledges, claims, options, proxies,
voting agreements, charges or encumbrances of whatever nature.
1.3 Purchase and Sale of ONTAC Shares. Subject to the terms and
conditions of this Agreement, at the Closing described in Section 5.1 hereof,
Oglebay shall sell, assign, transfer and convey to Newco and Newco shall
purchase from Oglebay, all of Oglebay's right title and interest in and to the
ONTAC Shares free and clear of all liens, mortgages, pledges, claims, options,
proxies, voting agreements, charges or encumbrances of whatever nature.
1.4 Consideration. In consideration of the sale and purchase of
the ETCO Shares, the EXCO Interests and the ONTAC Shares, the transfer of
mining equipment, the cancellation of the Pellet Sales Contracts, the
cancellation of the Royalty Arrangements (as hereinafter defined), Oglebay's
and ONCO's capital contribution to ETCO and EXCO immediately prior to the
Closing as discussed in Section 1.7 of this Agreement, and Oglebay's payment of
their share of the 1996 taconite production taxes booked on ETCO's and EXCO's
balance sheets through the settlement of the Definitive Working Capital
Statement (as hereinafter defined), (i) the Remaining Companies and Newco shall
pay an aggregate of U.S. $5,000,000, as adjusted for the working capital
settlement referred to in Section 6.6 of this Agreement (the "Purchase Price")
to Oglebay and ONCO at the Closing, by wire transfer in immediately available
United States funds, as is set forth in Article 5.3(b), and (ii) Newco shall
assume, as of the Closing, all Known Liabilities, as defined in Section 1.5,
relating to or arising from the ownership and operation of the Eveleth Mines
(the "Assumed Liabilities").
1.5 Known Liabilities Defined. For all purposes of this
Agreement, "Known Liabilities" shall be defined as all liabilities and
obligations relating to or arising out of:
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(a) all contracts, leases, permits, licenses and other
agreements used in the operations and business of the Eveleth Mines (the
"Contract Liabilities");
(b) certain Environmental Liabilities (as defined in
Section 1.5(b)(iv)), as follows:
(i) All Environmental Liabilities identified in
the Barr Study attached hereto as Exhibit A.
(ii) All Environmental Liabilities referred to in
the minutes of the Eveleth Mines Environmental Committee (or any
predecessors thereto) or the Eveleth Mines Operating Advisory
Committee (or any predecessors thereto) or otherwise referred to in
correspondence or other documents directed from Oglebay or its
affiliates to other present or former owners of the Eveleth Mines.
(iii) All Environmental Liabilities set forth on the
Environmental Liabilities list attached hereto as Exhibit B.
(iv) As used in this Section 1.5(b),
"Environmental Liabilities" means any liabilities attributable to (A)
the presence on or under any of the facilities or properties owned or
used by ETCO or EXCO or the escape, seepage, leakage, spillage,
discharge, emission, or release from any such facilities or
properties, of any hazardous materials on or before the Closing Date,
or (B) the violation or alleged violation by ETCO or EXCO of any
environmental laws. As used in the preceding sentence, the term
"hazardous materials" means any pollutant or contaminant regulated by
any governmental unit; petroleum or petroleum products, including
crude oil; asbestos or other material containing asbestos; and other
hazardous waste, substance, or material defined as such in the
Comprehensive Environmental Response, Compensation and Liability Act,
as amended ("CERCLA"), and the term "environmental laws" means any
federal, state, and local laws, rules, regulations, ordinances, and
permits, licenses and applications for permits and licenses relating
to the regulation, prohibition, or control of hazardous materials or
wastes, including, but not limited to, CERCLA, the Resource
Conservation and Recovery Act of 1976, the Federal Water Pollution
Control Act, the Clean Air Act, the Hazardous Materials Transportation
Act, the Clean Water Act, and all amendments and modifications of any
of the foregoing in effect on or before the Closing Date.
(c) Reclamation Liabilities arising out of or relating to
the mining activities of the Eveleth Mines conducted in conjunction with
ongoing operations or in connection with the full or partial closure of the
Eveleth Mines. As used in this Section 1.5(c) "Reclamation Liabilities" means
any liabilities arising under any reclamation laws and "reclamation laws" means
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any federal, state, or local laws, rules, regulations, ordinances, and permits,
licenses and application for permits and licenses relating to the reclamation
of mines or mineland, including, but not limited to, the Surface Mining Control
and Reclamation Act of 1977, Minnesota Rules, Chapter 6130 on Mineland
Reclamation, Minnesota Statutes, Chapter 93, on Mineral Lands, and all
amendments and modifications of any of the foregoing in effect on or before the
Closing Date;
(d) liabilities arising out of a change in law, except
for any such liabilities attributable to events that occurred prior to the
Closing Date and that would have resulted in liability to the operators of the
Eveleth Mines if it were assumed that the Eveleth Mines were permanently closed
on the Closing Date;
(e) any obligation of ONCO or Oglebay to pay taconite
production taxes with respect to the Eveleth Mines; and
(f) effective as of the tenth anniversary of the Closing
Date, all liabilities and obligations relating to or arising out of the
business or operations of the Eveleth Mines and not otherwise identified in
Section 1.5(a) through (e).
1.6 Other Liabilities. Newco acknowledges that there are
liabilities arising out of pension or other employee benefit plans in each
case, for both salaried and hourly employees, an Agreement between ONTAC and
the United Steelworkers of America dated January 8, 1994 (the "Union Contract")
and workers compensation program related to the Eveleth Mines (collectively the
"Employee Liabilities") and, subject to the terms of the Union Contract, in
connection with such Employee Liabilities:
(a) Newco will cause ONTAC to recognize and discharge its
liabilities and obligations under the Union Contract with, and the ongoing
discussions with the office and technical bargaining unit of, the United Steel
Workers of America; and in connection with the Exit Transaction Newco shall
cause ONTAC to, recognize the applicable United Steelworkers local as
representative for the employees within the bargaining units, including the
office and technical unit and, if necessary, Newco will comply with the
successor provisions of the Union Contract and any that may result from
discussions with the office and technical unit.
(b) Newco shall cause ONTAC to recognize and discharge
all liabilities and obligations related to or arising out of the ONTAC Pension
Plans and the ONTAC Thrift and Savings Plans and, in connection with the Exit
Transaction, Newco shall cause ONTAC to, immediately following the Closing
Date, continue to be the sponsor of such ONTAC Pension Plans and the ONTAC
Thrift and Savings Plans.
(c) Newco will cause ONTAC to recognize and discharge all
liabilities for the cost of processing and for the payment of
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all workers compensation claims arising from injuries, conditions, or
occupational diseases that occurred prior to the Closing Date.
(d) Newco will cause ONTAC to recognize and discharge all
liabilities arising out of retiree medical and life insurance benefits (FAS
106) and post employment benefits (FAS 112) of ONTAC.
1.7 Capital Contribution. Oglebay and ONCO hereby agree to make,
immediately prior to Closing, a capital contribution to the capital of EXCO and
ETCO in the approximate amount of $1.4 million.
ARTICLE 2.
REPRESENTATIONS AND WARRANTIES OF OGLEBAY
Oglebay and/or ONCO, as appropriate, make the following
representations and warranties, which shall survive the Closing.
2.1 Organization and Power. Oglebay is a corporation duly
organized, validly existing and in good standing under the laws of the State of
Delaware and ONCO and ONTAC are corporations duly organized, validly existing
and in good standing under the laws of the State of Minnesota.
2.2 Authorization and Effect of Agreement. Oglebay and ONCO have
all requisite capacity, power and authority to enter into and to perform their
respective obligations under this Agreement. The execution and delivery of
this Agreement and the consummation of the transactions contemplated hereby
have been duly authorized by all necessary corporate action of Oglebay and
ONCO, as appropriate, and no other corporate proceeding is necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement constitutes a valid and binding obligation of both Oglebay and ONCO,
enforceable in accordance with its terms.
2.3 No Conflicts. The execution and delivery of this Agreement
and the consummation of the transactions contemplated hereby will not (i)
violate or conflict with any provisions of the existing Charter or by-laws of
Oglebay or ONCO, (ii) violate, conflict with or result in a breach of the
terms, conditions or provisions of, or constitute a default or cause for
cancellation under, any material judgment, order or decree of any court or
administrative or other governmental body or any material instrument,
agreement, lease, mortgage or other evidence of indebtedness or restriction to
which either Oglebay or ONCO is a party or by which either Oglebay or ONCO is
bound or any statute, regulation, rule or other law applicable to either
Oglebay or ONCO, nor will it create any encumbrances on or with respect to any
assets used in the business of the Eveleth Mines. No filing with, notice to,
or approval or authorization of any court or any federal, state, county,
municipal or local governmental
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department, commission, board, bureau, agency or instrumentality, domestic or
foreign ("Governmental Agency") or other person, is required for Oglebay and
ONCO to enter into and to perform their respective obligations under this
Agreement other than those that have been made or obtained.
2.4 Consents. Except as set forth on Schedule 2.4, no consent,
approval, exemption or authorization is required to be obtained from, no notice
is required to be given to, no action is required to be taken by, and no filing
is required to be made with, any court or any Governmental Agency or any other
person by either Oglebay or ONCO in connection with the execution and delivery
of this Agreement and the consummation of the transactions contemplated hereby.
2.5 Beneficial Ownership. Oglebay is the record and beneficial
owner of the ETCO Shares and the ONTAC Shares and ONCO is the record and
beneficial owner of the EXCO Interests. Except for any restrictions set forth
in the Mining Agreements, Oglebay has good and valid title to the ETCO Shares
and the ONTAC Shares and ONCO has good and valid title to the EXCO Interests,
free and clear of all liens, encumbrances and equities of whatever character,
each with full power and authority to transfer, sell, exchange or otherwise
dispose of such shares and interests as contemplated hereby.
2.6 Subsidiary; Capital Stock; Officers and Directors.
(a) ONTAC is a wholly-owned subsidiary of Oglebay.
(b) The authorized capital stock of ONTAC consists of
1,000 shares of Common Stock, without par value, all of which are issued and
outstanding (and are referred to in this Agreement as the "ONTAC Shares").
Except for the foregoing, there are no classes or series of stock authorized by
ONTAC's Articles of Incorporation, as amended. There are no outstanding or
authorized subscriptions, options, warrants, calls, rights, commitments or any
other agreements of any character obligating ONTAC to issue any additional
shares of its common stock or any securities convertible into or evidencing the
right to subscribe for any shares of common stock, nor are there any voting
trusts or any other agreements or understandings with respect to the voting
common stock of ONTAC.
(c) The ONTAC Shares have been duly authorized, validly
issued and are fully paid and nonassessable.
(d) Exhibit C hereto sets out a true and complete list of
the officers and directors of ONTAC, all of whom will provide written
resignations to Newco at Closing.
2.7 Taxes. ONTAC as a member of Oglebay's Consolidated Group has
prepared, timely filed, and is current in its payment of all federal, state,
county, local, and other taxes, including
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interest, additions to tax and penalties with respect thereto. All such
returns are correct and complete.
2.8 ONTAC Operations. ONTAC has not been involved in any
operations or business other than providing employees to the Eveleth Mines and
ONTAC has no undisclosed liabilities unrelated to the operations and business
of the Eveleth Mines.
2.9 Litigation. Except as disclosed in Schedule 2.9, there are no
claims, actions, suits, proceedings or investigations pending or threatened
against or affecting ONTAC at law or in equity or in admiralty, or before or by
any federal, state, municipal or other governmental or nongovernmental
department, commission, board, bureau, agency or instrumentality, United States
or foreign, nor does Oglebay know of any facts which would provide a basis for
any such claim, action, suit, proceeding or investigation, which would, if
adversely decided, have a material adverse effect on the financial condition,
assets, liabilities, earnings or business of ONTAC.
2.10 Additional Representations and Warranties.
Deferred Compensation Plans.
(a) All Plans and Benefit Arrangements maintained by
ONTAC are set forth on Schedule 2.10(a).
(b) Each Plan and Benefit Arrangement has been maintained
and administered in substantial compliance with ERISA and the Code and all
statutes, regulations, and governmental rules and orders and requirements
issued thereunder by the Department of Treasury (Internal Revenue Service),
Department of Labor, and/or the Pension Benefit Guaranty Corporation.
(c) The Internal Revenue Service has determined that each
Plan and Benefit Arrangement which constitutes an employee pension benefit plan
as defined in Section 3(2) of ERISA qualifies under Section 401(a) of the Code,
and that the trusts related thereto are exempt from tax under the provisions of
Section 501(a) of the Code. Nothing has occurred with respect to any such Plan
or Benefit Arrangement or to the related trusts since the date of the most
recent favorable determination letter issued by the Internal Revenue Service
which has affected or may reasonably be expected to affect adversely such
qualification or exemption.
(d) ONTAC has complied fully with its obligations under
the minimum funding standards of ERISA and the Code with respect to each Plan.
ONTAC has not sought a waiver of the minimum funding standard under Section 412
of the Code in respect of any Plan, nor failed to make any contribution or
payment to any Plan which has resulted or will result in the imposition of a
lien under ERISA or the Code against the property or rights to property of
ONTAC.
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(e) No Termination Event has occurred or is reasonably
anticipated to occur with respect to any Plan which has resulted in or which
will result in the incurrence by ONTAC of any liability to the PBGC under Title
IV of ERISA or the imposition of a lien by the PBGC against the property or
rights to property of ONTAC.
(f) ONTAC is a "party in interest" (as defined in Section
3(14) of ERISA) or a "disqualified person" (as defined in Section 4973 of the
Code) with respect to any "employee benefit plan" (as defined in Section 3(3)
of ERISA), has not engaged in a "prohibited transaction" (as defined in Section
406 of ERISA or Section 4975 of the Code) involving any such employee benefit
plan which would subject ONTAC to a material tax or penalty imposed under
Section 502(i) of ERISA and Section 4974 of the Code.
(g) Except as set forth in Schedule 2.10(g) ONTAC does
not currently contribute to, and is not obligated to contribute, and is not a
member of, any Multiemployer Plan. ONTAC has not incurred and is not expected
to incur, any material Withdrawal Liability to any Multiemployer Plan that has
not been paid in full.
(h) ONTAC has not entered into any transaction described
in Section 4069(a) of ERISA relating to the "Treatment of Transactions to Evade
Liability; Effect of Corporate Reorganization."
(i) All required reports and descriptions of the Plan and
Benefit Arrangements (including IRS Form 5500 Annual Reports, Summary Annual
Reports and Summary Plan Descriptions) have been appropriately filed and
distributed.
(j) All insurance premiums (including premiums to the
PBGC) and contributions due at or prior to the Closing Date have been paid in
full, subject only to normal retrospective adjustments in the ordinary course,
with regard to any Plan or Benefit Arrangement for policy or plan years or
other applicable policy or plan periods ending on or before Closing.
(k) No action, suit, grievance, arbitration or other
manner of litigation, or claim with respect to the assets of any plan, that
could result in a material liability to ONTAC (other than routine claims for
benefits made in the ordinary course of plan administration for which plan
administrative review procedures have not been exhausted) is pending,
threatened, or imminent against or with respect to any Plan (including any
action, suit, grievance, arbitration or other manner of litigation, or claim
regarding conduct which allegedly interferes with the attainment of rights
under such plan).
(l) ONTAC has no liability imposed by statute on entities
that are treated together with ONTAC as a single employer under Section 414 of
the Code or that are treated as
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under common control with ONTAC under Section 4001(b)(1) of ERISA with respect
to any employee benefit plans (within the meaning of Section 3(3) of ERISA) of
any such entities.
2.11 Definitions as they apply to Section 2.10.
(a) Benefit Arrangement: shall mean at any time an
"employee benefit plan," within the meaning of Section 3(3) of ERISA, which is
not a Plan or a Multiemployer Plan and which is maintained or otherwise
contributed to by ONTAC.
(b) Code: shall mean the Internal Revenue Code of 1986,
as the same may from time to time be amended, or any successor statute, and the
rules and regulations promulgated thereunder, as from time to time in effect.
(c) ERISA: shall mean the Employee Retirement Income
Security Act of 1974, as the same may from time to time be amended, or any
successor statute, and the rules and regulations promulgated thereunder by any
governmental agency or authority, as from time to time in effect.
(d) Multiemployer Plan: shall mean a "multiemployer plan"
as defined in Section 4001(a)(3) of ERISA to which ONTAC is making or accruing
an obligation to make contributions or has within any of the preceding five
plan years made or accrued an obligation to make contributions.
(e) PBGC: shall mean the Pension Benefit Guaranty
Corporation established under ERISA.
(f) Plan(s): shall mean at any time an employee pension
benefit plan (other than a Multiemployer Plan) which is covered by Title IV of
ERISA or subject to the minimum funding standards under Section 302 of ERISA
and Section 412 of the Code and either (i) is maintained by ONTAC, or (ii) has
at any time within the preceding five years been maintained by ONTAC.
(g) Prohibited Transaction: shall mean any transaction
described in Section 406 of ERISA which has not been exempted under Section 407
or 408 of ERISA.
(h) Reportable Event: shall mean a "reportable event"
described in Section 4043(b) of ERISA in 29 C.F.R. Part 2615 for which
reporting has not been waived by the PBGC.
(i) Termination Event: shall mean (i) a Reportable Event
with respect to a Plan or an event described in Section 4068(f) of ERISA with
respect to a Plan, or (ii) the withdrawal of ONTAC from a Plan during a plan
year in which ONTAC was a "substantial employer," as such term is defined in
Section 4001(a)(2) of ERISA, or the incurrence of liability by ONTAC under
Section 4064 of ERISA upon the termination of a Plan, or (ii) the distribution
of a notice of intent to terminate a Plan pursuant to Section 4041(a)(2) of
ERISA or the treatment of a
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Plan amendment as a termination under Section 4041 of ERISA, or (iv) the
institution of proceedings to terminate a Plan by the PBGC under Section 4042
of ERISA, or (v) any other event or condition which might reasonably constitute
grounds under Section 4042 of ERISA for the termination of, or the appointment
of a trustee to administer, any Plan.
(j) Withdrawal Liability: shall mean "withdrawal
liability" as defined by the provisions of Part 1 of Subtitle E to Title IV of
ERISA.
ARTICLE 3.
REPRESENTATIONS AND WARRANTIES OF NEWCO,
AK STEEL, ROUGE, ETCO, STELCO, AKS SUB AND STELCO SUB
Each of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub and Newco,
as appropriate, make the following representations and warranties, which shall
be deemed to be in full force and effect at the time of the Closing:
3.1 Organization and Power. Each of Rouge, ETCO, AK Steel,
Stelco, AKS Sub and Stelco Sub are corporations duly organized, validly
existing and in good standing under the laws of their respective states of
organization. Newco is a limited liability company duly organized, validly
existing and in good standing under the laws of the State of Minnesota.
3.2 Authorization and Effect of Agreement. Each of Rouge, ETCO,
AK Steel, Stelco, AKS Sub, Stelco Sub and Newco have all requisite capacity,
power and authority to enter into and to perform their respective obligations
under this Agreement. The execution and delivery of this Agreement and the
consummation of the transactions contemplated hereby have been duly authorized
by all necessary corporate action of each of Rouge, ETCO, AK Steel, Stelco, AKS
Sub, Stelco Sub and Newco, as appropriate, and no other proceeding on the part
of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub and Newco is necessary to
authorize this Agreement and the transactions contemplated hereby. This
Agreement constitutes a valid and binding obligation of each of Rouge, ETCO, AK
Steel, Stelco, AKS Sub, Stelco Sub and Newco enforceable in accordance with its
terms.
3.3 No Conflicts. The execution and delivery of this Agreement
and the performance of the transactions contemplated hereby will not (i)
violate or conflict with any provisions of the Charter, by-laws or other
organic documents of any of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub
or Newco or (ii) violate, conflict with or result in a breach of the terms,
conditions or provisions of, or constitute a default or cause for cancellation
under, any material judgment, order or decree of any court or administrative or
other governmental body, or any material instrument, agreement, lease,
mortgage, trust agreement or other evidence of indebtedness or restriction to
which any of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub or Newco is a
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party or by which any is bound, respectively, or any statute, regulation, rule
or other law applicable to any of Rouge, ETCO, AK Steel, Stelco, AKS Sub,
Stelco Sub or Newco, respectively. No filing with or approval or authorization
of any court or any Governmental Agency or other person is required for Rouge,
ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub and Newco to enter into and to
perform their respective obligations under this Agreement other than those that
have been made or obtained.
3.4 Consents. Except as set forth on Schedule 3.4, no consent,
approval, exemption or authorization is required to be obtained from, no notice
is required to be given to, no action is required to be taken by, and no filing
is required to be made with, any court or any Governmental Agency or any other
person by any of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub, EXCO, ETCO
or Newco in connection with the execution and delivery of this Agreement and
the consummation of the transactions contemplated hereby.
3.5 ETCO Taxes. Rouge has caused ETCO, as a member of Rouge's
consolidated group for tax purposes, to timely file, and remain current on the
payment of all federal taxes, including interest, additions to tax, and
penalties with respect thereto. All such returns are correct and complete.
ARTICLE 4.
CERTAIN COVENANTS OF THE PARTIES
Each of the parties hereto covenant and agree as follows:
4.1 Filings. Each of the parties hereto shall make on a prompt
and timely basis all governmental or regulatory notifications and filings
required to be made by it for the consummation of the transactions contemplated
hereby.
4.2 Cooperation. Each of the parties hereto agree to cooperate
with the other in the preparation and filing of all forms, notifications,
reports and information, if any, required or reasonably deemed advisable
pursuant to any law, ordinance, statute, rule or regulation of any governmental
authority in connection with the transactions contemplated by this Agreement.
4.3 Best Efforts. Subject to the terms and conditions of this
Agreement, each of the parties hereto shall use its best efforts to take or
cause to be taken, all action, and to do, or cause to be done, all things
necessary, proper or advisable under applicable laws and regulations to satisfy
the conditions set forth in this Agreement, to consummate the transactions
contemplated by this Agreement and to cause the Closing to occur at the
earliest practicable date, and not to undertake any course of action
inconsistent with such intended result.
4.4 Notification of Proceedings. Each of the parties hereto shall
give prompt written notice to the other parties upon
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(a) becoming aware of any order or decree or any complaint praying for an order
or decree restraining or enjoining the consummation of this Agreement or the
transactions contemplated hereunder, or (b) receiving any notice from any court
or Governmental Agency of its intention to (i) commence an investigation into,
or commence a suit or proceeding to restrain or enjoin, the consummation of
this Agreement or such transactions, or (ii) nullify or render ineffective this
Agreement or such transactions if consummated.
4.5 Preservation of Accuracy of Representations and Warranties.
No party hereto shall voluntarily take any action which would render inaccurate
any representation or warranty made by it in this Agreement.
4.6 Specific Performance. Each party hereto acknowledges that the
others would be irreparably damaged and would not have an adequate remedy at
law by way of money damages in the event that any of the representations,
warranties or covenants of a party contained herein were not performed in
accordance with its terms or otherwise were materially breached. Each party
hereto therefore agrees that any of the other parties shall be entitled to
injunctive relief to prevent breaches of such representations and warranties
and to specific enforcement of such covenants in addition to any other remedy
to which it may be entitled, at law or in equity.
4.7 Third Party Consents. Newco and its owners will use all
reasonable efforts to obtain all third party consents necessary for
consummation of the Exit Transaction, including but not limited to the Mineral
Leases set forth on Schedule 3.4. Oglebay will reasonably assist in obtaining
these third party consents. In the event that any such third party consent is
not obtained prior to the Closing Date, except a consent to the assignment of
the Mineral Leases set forth on Schedule 3.4, the parties will nevertheless
continue with the completion of the transactions contemplated by this
Agreement, and Oglebay and Newco will cooperate in devising and implementing
any reasonable and lawful method of transferring to Newco the benefits and
burdens of the applicable lease, executory contract, or permit; if necessary to
preserve any such lease, executory contract, or permit, the EXCO Partners will
delay the dissolution of the EXCO Partnership and substitute Newco as a partner
in the EXCO Partnership for ONCO, and the EXCO Partnership will thereby
continue to be a party to the lease, executory contract, or permit until the
requisite consent is obtained.
4.8 Assets to Newco. All of the assets currently owned by EXCO
and ETCO and used in the business and operations of the Eveleth Mines shall be
transferred to Newco, and the Remaining Companies covenant and agree that they
will not for a period of five years from the Closing Date remove such assets
from Newco, except in the ordinary course of business and except to pledge such
assets as collateral in connection with the execution of loans.
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ARTICLE 5.
CLOSING DATE; EFFECTIVE DATE
5.1 Closing Date. The consummation of the transactions referred
to herein (the "Closing") shall take place in Cleveland, Ohio, at such time on
December 13, 1996 or such other date as the parties hereto may agree (the
"Closing Date"); provided, however, that if the Closing Date shall not have
occurred prior to January 1, 1997, this Agreement shall terminate and be of no
further force and effect.
5.2 Suspension and Termination of Mining and Other Agreements.
The parties hereby agree that, effective as of November 30, 1996 (the
"Effective Date") until the earlier of the Closing Date or the termination of
this Agreement, the operation of the Mining Agreements shall be suspended,
except for the obligation to pay Oglebay the management fee and expenses under
the Management Agreement and the Term Management Agreement as set forth in
Section 6.3. The parties hereby agree that, effective as of the Closing Date,
the Mining Agreements shall be terminated, and the parties shall have no
further obligations under such agreements, except for the obligation to pay
Oglebay the management fee and expenses under the Management Agreement and the
Term Management Agreement as set forth in Section 6.3 and except that such
agreements shall be used to allocate and fund any liability for Unassumed
Liabilities under Section 6.5.
5.3 Closing Deliveries.
(a) At the Closing Oglebay and ONCO shall make the
following deliveries:
(i) stock certificates (or stock powers)
properly executed evidencing the transfer of the ONTAC Shares to Newco
and the transfer of the ETCO Shares to Rouge;
(ii) an assignment of the EXCO Interests to
Newco;
(iii) the Preliminary Working Capital Statement
referred to in Section 6.6(a);
(iv) the certificate referred to in Section
8.1(a);
(v) resolutions of their respective Boards of
Directors or committees thereof, as necessary, certified by the
Secretary or Assistant Secretary, authorizing the transactions
contemplated by this Agreement;
(vi) a Bill of Sale with respect to the mining
equipment referred to in Section 6.1;
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(vii) a letter from Wyatt & Co. with regard to
the present value of estimated FAS 106 liabilities and the Unfunded
Benefit Liabilities that exist with respect to any Plan maintained by
ONTAC or any ERISA Affiliate for employees of ONTAC;
(viii) evidence that all consents set forth on
Schedule 2.4 have been obtained.
(ix) a release by Oglebay of its rights to
receive royalties under the Royalty Arrangements defined in Section
6.2;
(x) instrument(s) sufficient to dismiss
pending arbitrations as provided in Section 6.7;
(xi) an opinion of counsel substantially in the
form attached hereto as Exhibit D;
(xii) all of the corporate records of ONTAC in
the possession of Oglebay or ONCO and written resignations of all of
the officers and directors of ONTAC;
(xiii) all of the corporate records of ETCO in
the possession of Oglebay or ONCO;
(xiv) all of the partnership records of EXCO in
the possession of Oglebay or ONCO; and
(xv) a release of Pellet Sales Contracts with
Stelco, AK Steel, or their predecessors in interest.
(b) At the Closing the Remaining Companies and Newco, as
appropriate in accordance with their respective obligations under this
Agreement, shall make the following deliveries:
(i) The Purchase Price (as required pursuant
to Section 1.4) in immediately available United States funds
transferred to Oglebay and ONCO. Such amount may be allocated by each
party to this Agreement as their respective interests may appear;
(ii) evidence of the due incorporation and
authorization of Newco;
(iii) the certificate referred to in Section
8.2(a);
(iv) resolutions of their respective Boards of
Directors or committees thereof, as necessary, certified by the
Secretary or Assistant Secretary, authorizing the transactions
contemplated by this Agreement;
(v) an assumption agreement with respect to
the Assumed Liabilities;
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(vi) a release of Oglebay of its obligations
under the Repurchase Agreement (as hereinafter defined), a release of
Oglebay of its obligations under the Mining Leases set forth on
Schedule 3.4;
(vii) instrument(s) sufficient to dismiss
pending arbitrations as provided in Section 6.7;
(viii) evidence that all consents set forth on
Schedule 3.4 have been obtained; and
(ix) opinions from respective counsel for each
of Rouge, ETCO, AK Steel, Stelco, AKS Sub, Stelco Sub and Newco, in
substantially the form attached hereto as Exhibit E.
5.4 Simultaneous Transactions. All transactions at the Closing
shall be deemed to take place simultaneously and no party shall have any
obligations to deliver any document or take any action contemplated by this
Agreement to be delivered or taken at the Closing unless at the Closing there
occurs simultaneously each and every other transaction contemplated by this
Agreement to occur at the Closing.
ARTICLE 6.
OTHER AGREEMENTS
6.1 Interests in Mining Equipment. As of the Closing Date, (i)
Oglebay shall sell, assign, transfer and convey to Newco all of Oglebay's
right, title and interest in and to the mining equipment more specifically
identified on Schedule 6.1 attached hereto, which is jointly owned by Oglebay
and Rouge, and (ii) Newco shall cause Oglebay to be released from its
obligations under that certain Repurchase Agreement, dated August 12, 1992 by
and between Oglebay and Fleet Credit Corporation (the "Repurchase Agreement");
or alternatively Newco shall assume Oglebay's obligations under the Repurchase
Agreement and such obligations shall be deemed to be Assumed Liabilities
pursuant to Section 1.4 hereof.
6.2 Royalties. The parties hereto hereby agree to terminate as of
the Closing Date Oglebay's right to receive any overriding royalties incurred
subsequent to the Effective Date including, without limitation, pursuant to
those agreements listed on Schedule 6.2 attached hereto (the "Royalty
Arrangements") and to appropriately amend or terminate the Royalty Arrangements
as of the Closing Date.
6.3 Management. Oglebay shall receive, each month through
December 31, 1996, an amount equal to $121,185 in payment of fees under the
Term Management Agreement.
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<PAGE> 21
6.4 Pellet Sales.
(a) 1996 Pellet Commitments. Newco agrees to continue to
supply Oglebay with a sufficient amount of pellets so that Oglebay may fill its
contractual commitments under those pellet sales agreements set forth on
Schedule 6.4(a) attached hereto through December 31, 1996, at a price equal to
the Average Annual Cash Cost as defined in Section 6.4(d). Payment for these
pellets shall be made net ten (10) days of shipment at Average Annual Cash Cost
as defined in paragraph 6.4(d). As soon as possible after December 31, 1996,
adjustments shall be made to such amount to reflect adjusted rail weights.
(b) Production Cost. The parties agree that the cost to
Oglebay and ONCO for pellet production allocated under Section 5 of the Term
S&P Agreement through the Closing Date shall be the Annual Average Cash Cost as
defined in Section 6.4(d).
(c) Termination of Pellet Sales Agreements. The pellet
sales agreements set forth in Schedule 6.4(c) (the "Partners' Pellet
Agreements") shall be terminated as of the Effective Date. Settlement on
partner pellet sales under the Partners' Pellet Agreements through the
Effective Date shall be based on the aggregate of actual charges for each
vessel shipped for the year 1996 through the Effective Date based on actual
vessel weights, or adjusted railroad car weights if shipped from Fairlane, and
the actual price per ton as determined under Article IV of the Partners' Pellet
Agreements less the sum of the prior cash advances received by Oglebay and ONCO
for sales of pellets from January 1, 1996 to the Effective Date pursuant to the
terms set forth in Section 7.1 of the applicable Partner Pellet Agreement.
(d) For purposes of this Section 6.4, Average Annual Cash
Cost shall mean the average annual funded cost of pellets for 1996 f.o.b.
Duluth or adjusted for all rail shipments f.o.b. plant, as required, calculated
as if the Cost Allocation and Cash Funding Procedure under the Term Management
Agreement, the Allocation and Cash Funding Procedures under the Taconite
Company Restated Modified Term Stockholders Agreement and the Restated Modified
Term Partnership Operating Agreement, all dated as of January 1, 1991, (the
"Procedures") were in effect for the entire calendar year 1996, based on
Oglebay's and ONCO's equity tons for 1996 as a percentage of the total pellet
production for 1996. This Average Annual Cost shall be based on actual results
through November 30, 1996 and projected results for December 1996. The
projected average cash cost for Oglebay and ONCO combined for December shall be
$32.13 FOB Duluth with projected tonnage of 71,429 gross tons. This December
cost and tonnage will be averaged with the actual costs and tonnage through
November to arrive at the Annual Average Cost. The cost of pellets determined
under the Procedures shall be adjusted if necessary, to reflect (i) the
deletion of expenses relating to organization and restructuring transactions
relating to Newco, (ii) the impact
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<PAGE> 22
of the Definitive Working Capital Statement settlement and the payment of
Oglebay's and ONCO's production taxes with the intent that no cost would be
paid twice, (iii) the inclusion of the impact of a projected $.50 per hour
labor increase effective August 1, 1996 and (iv) the adjustment of the taconite
tax rate to the statutory taconite production tax rate with respect to the
sales under Section 6.4(a).
6.5 Liability for Unassumed Liabilities. The parties hereto agree
that, notwithstanding the termination or other expiration of the Mining
Agreements, and subject to the next sentence of this Section 6.5, each of
Oglebay and ONCO (18.448%), ETCO (31.76%), AKS Sub (35.105%) and Stelco Sub
(14.731%) shall (in the percentage next appearing beside their names) be liable
for all pre-closing liabilities relating to the ownership and operation of the
Eveleth Mines that were not assumed by Newco pursuant to this Agreement in
accordance with the terms and conditions of the Mining Agreements existing
immediately prior to the Closing Date. Notwithstanding any language in the
Mining Agreements to the contrary, the parties hereto agree that the liability
under this Section 6.5 shall be placed upon the ultimate parent company of each
Partner or Stockholder rather than a subsidiary, direct or indirect, thereof or
any third party to the Mining Agreements.
6.6 Working Capital Settlement.
(a) Preliminary Working Capital Settlement. Prior to the
Closing Date Oglebay will prepare, in accordance with the calculation attached
hereto as Schedule 6.6, preliminary working capital statements of ETCO and EXCO
(by stockholder or partner) as of the Effective Date (the "Preliminary Working
Capital Statement"). On the Closing Date there will be a preliminary
settlement between Oglebay and the stockholders of ETCO and between Oglebay and
the partners of EXCO, prepared in a manner consistent in all respects with the
monthly balance sheets as prepared by the Controller of Eveleth Mines, for
Oglebay's and ONCO's respective interests in the current assets and current
liabilities. At the Closing, based upon the Preliminary Working Capital
Statement, ETCO or EXCO, as the case may be, shall pay to Oglebay an amount
equal to the amount, if any, by which the Preliminary Working Capital Statement
indicates that the current assets exceed current liabilities and Oglebay shall
pay ETCO or EXCO, as the case may be, any amount by which the current
liabilities exceed current assets, which such amounts shall be in addition to
or offset against the $5,000,000 consideration set forth in Section 1.4, as
appropriate, to determine the Purchase Price.
(b) Definitive Working Capital Statement. Each of the
Remaining Companies and Oglebay will have a period of thirty (30) days from the
Closing Date to raise an objection with respect to the Preliminary Working
Capital Statement. Newco agrees to grant access to its books and records and
the books and records of ETCO and EXCO to Oglebay and the Remaining Companies
for purposes of
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<PAGE> 23
verifying the Preliminary Working Capital Statement. If Oglebay or any of the
Remaining Companies disagrees with the Preliminary Working Capital Statement,
they must notify all of the other parties of the dispute within thirty (30)
days after the Closing Date. If the parties are unable to resolve any such
dispute within thirty (30) days after notice is given, any party may submit a
dispute to the Chicago, Illinois office of Arthur Anderson & Co. for
resolution. Any determination by Arthur Anderson & Co. will be conclusive and
binding on the parties. Following final resolution of any disputes with
respect to the Preliminary Working Capital Statement, or if no objections are
raised to the Preliminary Working Capital Statement within thirty (30) days
after the Closing Date, the Preliminary Working Capital Statement, revised to
reflect the resolution of the disputes, if any, shall become the Definitive
Working Capital Statement. Oglebay shall pay to Newco or Newco shall pay to
Oglebay any difference between the settlement based on the Preliminary Working
Capital Statement and the Definitive Working Capital Statement.
(c) Owner Receivables. For purposes of this Section 6.6,
cash and accounts receivable representing sales by (i) EXCO to its partners and
(ii) ETCO to Oglebay and Rouge (the "Owner Receivables") shall not be
considered as current assets for purposes of the Preliminary Working Capital
Statement or Definitive Working Capital Statement. Effective as of the
Closing, ETCO and EXCO shall declare a dividend and make a distribution to
Oglebay or ONCO, as the case may be, of the Owner Receivable attributable to
Oglebay or ONCO, as the case may be.
6.7 Pending Arbitration. The parties hereto agree that as of the
Closing Date, all pending arbitrations between or among the parties hereto,
except for any arbitration proceedings involving the employment discrimination
suit entitled Jensen, et al. v. Eveleth Taconite Company, et al., shall be
dismissed or terminated and the terms and conditions of the transactions
contemplated hereby shall be deemed to resolve all disputes subject to such
pending arbitration.
6.8 Ongoing Assistance. Oglebay hereby agrees, to the extent
practicable, to remain available for a reasonable period following the Closing
Date, at the sole cost and expense of Newco, to assist Newco, on an as-needed
basis in the transition of management responsibilities to a new manager.
6.9 Certain Real Estate Holdings. The parties hereby agree that
as soon as practicable following the Closing Date Oglebay shall, or shall
cooperate with Newco to cause the nominees of ETCO or EXCO to, assign, transfer
and convey to Newco those parcels of real estate more specifically identified
on Schedule 6.9 attached hereto.
6.10 Certain Intellectual Property. The parties hereto agree that,
effective as of the Closing Date, Newco, EXCO, ETCO, ONTAC and the Remaining
Companies shall discontinue using, in
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<PAGE> 24
connection with the operations and business of the Eveleth Mines, the Oglebay
name or logo attached hereto as Schedule 6.10, and the license heretofore
granted to EXCO and ETCO with respect to such name and logo shall be
terminated. Oglebay and ONCO agree that, effective as of the Closing Date,
they shall not use the name "Eveleth Mines LLC" or "EVTAC."
6.11 Taxes. The purchase and sale of Oglebay's right, title and
interest in the ETCO Shares will not require a short period tax return for
1996. Consequently, Oglebay agrees to prepare no later than January 10, 1997,
an income tax provision for the period ending on and through the Closing Date
for purposes of tax sharing obligations pursuant to the Tax Allocation and
Audit Agreement between ETCO, Rouge, and Oglebay. The tax provision will be
prepared as soon as possible after the books are finalized through the Closing
Date utilizing the short period allocation in accordance with applicable
Internal Revenue Service regulations and the provisions of the Tax Allocation
and Audit Agreement, dated as of January 16, 1996, between ETCO, Oglebay and
Rouge and will be considered a final computation of tax liability for the
period ending on and through the Closing Date. No other tax return preparation
for ETCO will be necessary. Oglebay will prepare a tax return for ONTAC for
the period ending on and through the Closing Date, to be included in Oglebay's
consolidated 1996 tax return to be filed on September 15, 1997. The purchase
and sale of ONCO's right, title and interest in the EXCO interests will require
a final tax return to be filed for the period ending on and through the Closing
Date. Oglebay shall prepare for EXCO the final federal and state tax returns
and related supporting workpaper documentation by the normal due date of such
returns, including extensions. Newco and the Remaining Companies agree to
cooperate with Oglebay, and to provide to Oglebay access to the books and
records in the possession of Newco or the Remaining Companies in order to
comply with this Section 6.11. Newco, ETCO, Stelco Sub and AKS Sub agree to
timely pay after Closing but no later than March 1, 1997, all Minnesota
taconite production taxes accrued for the years 1994, 1995 and 1996 that are
legally due in 1997. This is to ensure a valid and timely tax deduction to
Oglebay and ONCO for the payment of their share of these taxes that are legally
due in 1997 to ETCO and EXCO, in connection with the settlement of the
Definitive Working Capital Statement. Newco, ETCO, Stelco Sub and AKS Sub
agree to pay to Oglebay and ONCO their share of any Minnesota taconite tax
refund for production through the Effective Date. Additionally, Newco, ETCO,
Stelco Sub and AKS Sub agree to pay Oglebay and ONCO a transition management
fee in an amount equal to their share of any refund of Minnesota Sales and Use,
including but not limited to, refunds of sales and use tax paid on repair and
replacement capital equipment, currently being challenged at the Minnesota
Department of Revenue Appeals and Legal Services Office, for the taxable
periods on and through the Effective Date, net of Oglebay's and ONCO's share of
expenses relative to the prosecution of any claim for refund.
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<PAGE> 25
ARTICLE 7.
INDEMNIFICATION
7.1 AK Steel and Rouge Indemnity for Assumed Liabilities. Each of
AK Steel and Rouge hereby severally agree, in accordance with their respective
Adjusted Percentage Ownership in Newco as of the Closing Date, that they will
indemnify and hold Oglebay and ONCO and each of Oglebay's and ONCO's
subsidiaries, divisions, affiliates, officers, directors, employees and agents
harmless from and against any loss, cost, deficiency, liability, and damage
including attorneys' fees and expenses incurred or suffered by Oglebay or ONCO
arising out of or resulting from (i) the Assumed Liabilities, (ii) the Employee
Liabilities or (iii) any breach by Newco of its covenants contained in Section
1.6 hereof. AK Steel's and Rouge's Adjusted Percentage Ownerships shall be
twenty-seven percent (27%) and seventy-three percent (73%), respectively. ONCO
and Oglebay each agree to use its best efforts to give prompt written notice to
AK Steel and Rouge of each claim that it believes it has suffered; provided,
however, that no delay in the giving of such notice shall affect the rights of
Oglebay or ONCO to recover indemnifiable damages hereunder. AK Steel's and
Rouge's obligations to indemnify Oglebay and ONCO for the Assumed Liabilities
shall expire on the tenth anniversary of the Closing Date.
7.2 Indemnification by Newco and Remaining Companies. Newco
hereby agrees to indemnify and hold Oglebay and ONCO and each of Oglebay's and
ONCO's subsidiaries, divisions, affiliates, officers, directors, employees and
agents harmless from and against any loss, cost, deficiency, liability, and
damage including attorneys' fees and expenses incurred or suffered by Oglebay
or ONCO arising out of or resulting from the ownership, management and
operations of the Eveleth Mines from and after the Closing Date. Newco and the
Remaining Companies hereby severally agree to indemnify and hold Oglebay and
ONCO and each of Oglebay's and ONCO's subsidiaries, divisions, affiliates,
officers, directors, employees and agents harmless from and against any loss,
cost, deficiency, liability, and damage including attorneys' fees and expenses
incurred or suffered by Oglebay or ONCO arising out of or resulting from any
breach of representation, warranty or covenant or nonfulfillment of any
agreement by any of them, or any of their respective subsidiaries, under this
Agreement; provided that the indemnity of Rouge shall be joint and several with
that of ETCO, the indemnity of Stelco shall be joint and several with that of
Stelco Sub, and the indemnity of AK Steel shall be joint and several with that
of AKS Sub.
7.3 Indemnification by Oglebay and ONCO. Each of Oglebay and ONCO
hereby jointly and severally agree to indemnify and hold Newco and the
Remaining Companies and each of Newco's and the Remaining Companies'
subsidiaries, divisions, affiliates, officers, directors, employees and agents
harmless from and against any loss, cost, deficiency, liability, and damage
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<PAGE> 26
including attorneys' fees and expenses incurred or suffered by the Remaining
Companies ("Damages") arising out of or resulting from any misrepresentation,
breach of representation, warranty or covenant or nonfulfillment of any
agreement by either Oglebay or ONCO under this Agreement; provided, however,
that for purposes of determining the Damages that Oglebay and ONCO would be
liable for as a result of a breach of the representations and warranties
contained in Sections 2.7 through 2.11 of this Agreement, such Damages shall be
limited to the amount of Oglebay's and ONCO's share of such Damages determined
in accordance with Section 6.5 hereof if they relate to the ownership, business
or operations of the Eveleth Mines. If such Damages do not relate to the
ownership, business or operations of the Eveleth Mines, Oglebay and ONCO shall
be liable for all of such Damages.
7.4 Procedures. In the event of a claim by a third party, with
respect to which a party is entitled to indemnification hereunder, such party
("Indemnified Party") shall notify the other party ("Indemnifying Party") in
writing as soon as practicable; provided that a delay in giving such notice
shall not preclude the Indemnified Party from seeking indemnification hereunder
if such delay has not materially prejudiced the Indemnifying Party's ability to
defend such claim. The Indemnifying Party shall promptly defend such claim by
counsel of its own choosing and reasonably satisfactory to the Indemnified
Party and the Indemnified Party shall reasonably cooperate with the
Indemnifying Party in the defense of such claim, including the settlement
(subject to the final sentence of this Section 7.3) of the matter on the basis
stipulated by the Indemnifying Party (with the Indemnifying Party being
responsible for all costs and expenses of such settlement); provided, however,
that if, in the opinion of counsel to the Indemnified Party, a material
conflict of interest exists vis-a-vis the interests of the Indemnifying Party
and the Indemnified Party, or the Indemnifying Party fails to diligently defend
the Indemnified Party, the Indemnified Party shall be entitled to defend the
claim, suit, action or proceeding with counsel of its own choosing at the
expense of, for the account of and at the risk of the Indemnifying Party;
provided, however, that the Indemnified Party shall engage counsel reasonably
acceptable to the Indemnifying Party, take reasonable steps to monitor and
control the fees and costs of counsel so chosen, and keep the Indemnifying
Party reasonably informed of the status of such defense, including, without
limitation, any settlement proposals by the claimant. Upon the assumption by
the Indemnifying Party of the defense of such claim, the Indemnifying Party may
settle or compromise such claim as it sees fit; provided, however, that
anything in this section to the contrary notwithstanding, if the settlement or
compromise of a claim involves other than the payment of money damages, the
Indemnifying Party shall not so settle or compromise such claim without the
consent of the Indemnified Party, which consent shall not be unreasonably
withheld. The Indemnified Party shall not settle or compromise any claim
subject to indemnification hereunder without the
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<PAGE> 27
consent of the Indemnifying Party except as otherwise expressly permitted
herein.
ARTICLE 8.
CONDITIONS TO CLOSING
8.1 Conditions Precedent to the Obligations of the Remaining
Companies and Newco. All obligations of the Remaining Companies and Newco
under this Agreement that are to be discharged at Closing are subject to the
performance, at or prior to the Closing, of all covenants and agreements
contained herein that are to be performed by Oglebay and ONCO at or prior to
the Closing and to the fulfillment at or prior to the Closing of each of the
following conditions (unless expressly waived in writing by the Remaining
Companies and Newco at any time at or prior to the Closing):
(a) Representations and Warranties True. All of the
representations and warranties of Oglebay and ONCO set forth in this Agreement
shall have been true and correct in all material respects at and as of the date
of this Agreement, and shall be true and correct in all material respects at
and as of the Closing Date with the same force and effect as though made at and
as of that time. All of the obligations, covenants and agreements required by
this Agreement to be performed and complied with by Oglebay and ONCO shall have
been performed and complied with. Oglebay and ONCO shall have delivered to the
Remaining Companies and Newco a certificate executed by a corporate officer and
dated as of the Closing Date, certifying that such representations and
warranties are true and correct in all material respects and that such
obligations, covenants and agreements have been performed and complied with.
(b) Authority. All action required to be taken by or on
the part of Oglebay and ONCO to authorize the execution, delivery and
performance of this Agreement by Oglebay and ONCO and the consummation of the
transactions contemplated hereby shall have been duly and validly taken by
Oglebay and ONCO.
(c) No Obstructive Proceeding. No action or proceedings
shall have been instituted against, and no order, decree or judgment of any
court or Governmental Agency shall be pending or threatened against any of the
parties hereto which seeks to, or would render it unlawful as of the Closing to
consummate the transactions contemplated hereby in accordance with the terms
hereof, and no such action shall seek damages in a material amount by reason of
the transactions contemplated herein. Also, no substantive legal objection to
the transactions contemplated by this Agreement shall have been received from
or threatened by any Governmental Agency.
(d) Consents. On or before the Closing Date, Oglebay and
ONCO shall have duly and validly obtained those consents or approvals set forth
on Schedule 2.4, the Remaining Companies
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<PAGE> 28
shall have received consents to the assignments of the Mineral Leases set forth
on Schedule 3.4, and evidence of such consents shall have been delivered to the
Remaining Companies and Newco at or prior to the Closing Date.
(e) Documents and Proceedings. Oglebay and ONCO will
have delivered all documents and certificates necessary to consummate the
transactions contemplated hereby, including, without limitation, stock
certificates and assignments, and all such documents shall be satisfactory in
form and substance to the Remaining Companies and Newco and their counsel
acting reasonably and in good faith.
(f) Closing Deliveries. All deliveries contemplated by
Section 5.3(a) shall have been delivered by Oglebay and ONCO.
8.2 Conditions Precedent to the Obligations of Oglebay and ONCO.
All obligations of Oglebay and ONCO under this Agreement that are to be
discharged at Closing are subject to the performance, at or prior to the
Closing, of all covenants and agreements contained herein that are to be
performed by the Remaining Companies and Newco at or prior to the Closing and
to the fulfillment at or prior to the Closing of each of the following
conditions (unless expressly waived in writing by Oglebay and ONCO at any time
at or prior to the Closing):
(a) Representations and Warranties True. All of the
representations and warranties of the Remaining Companies and Newco set forth
in this Agreement shall have been true and correct in all material respects at
and as of the date of this Agreement, and shall be true and correct in all
material respects at and as of the Closing Date with the same force and effect
as though made at and as of that time. All of the obligations, covenants and
agreements required by this Agreement to be performed and complied with by the
Remaining Companies and Newco shall have been performed and complied with. The
Remaining Companies and Newco shall have delivered to Oglebay and ONCO a
certificate executed by a corporate officer and dated as of the Closing Date,
certifying that such representations and warranties are true and correct in all
material respects and that such obligations, covenants and agreements have been
performed and complied with.
(b) Authority. All action required to be taken by or on
the part of the Remaining Companies and Newco to authorize the execution,
delivery and performance of this Agreement by the Remaining Companies and Newco
and the consummation of the transactions contemplated hereby shall have been
duly and validly taken by the Remaining Companies and Newco.
(c) No Obstructive Proceeding. No action or proceedings
shall have been instituted against, and no order, decree or judgment of any
court of Governmental Agency shall be pending or threatened against any of the
parties hereto which seeks to, or would render it unlawful as of the Closing to
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<PAGE> 29
consummate the transactions contemplated hereby in accordance with the terms
hereof, and no such action shall seek damages in a material amount by reason of
the transactions contemplated herein. Also, no substantive legal objection to
the transactions contemplated by this Agreement shall have been received from
or threatened by any Governmental Agency.
(d) Consents and Leases. On or before the Closing Date,
the Remaining Companies and Newco shall have duly and validly obtained those
consents or approvals set forth on Schedule 3.4 and evidence of such consents
shall have been delivered to Oglebay and ONCO at or prior to the Closing Date;
and Oglebay shall have received evidence that it is released from its
obligations under the Mining Leases set forth on Schedule 3.4.
(e) Documents and Proceedings. The Remaining Companies
shall have delivered all documents and certificates necessary to consummate the
transactions contemplated hereby, including, without limitations, appropriate
assumptions, and all such documents shall be satisfactory in form and substance
to Oglebay and ONCO and their counsel acting reasonably and in good faith.
(f) Closing Deliveries. All deliveries contemplated by
Section 5.3(b) shall have been delivered by the Remaining Companies and Newco.
ARTICLE 9.
MISCELLANEOUS
9.1 Notices. All notices, requests, demands, claims and other
communications required or permitted to be given hereunder to any of the
parties by any other party shall be in writing and shall be delivered or sent
by next day delivery service, personal delivery, registered or certified mail,
postage prepaid, or confirmed facsimile transmission addressed as follows:
<TABLE>
<S> <C> <C>
(a) If to Oglebay: 1100 Superior Avenue
Cleveland, Ohio 44114-2598
Telephone: (216) 861-3300
Telecopy: (216) 861-2399
Attn: Vice President -
Administration and
Legal
(b) If to ONCO: 1100 Superior Avenue
Cleveland, Ohio 44114-2598
Telephone: (216) 861-3300
Telecopy: (216) 861-2399
Attn: Vice President -
Administration and
Legal
</TABLE>
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<PAGE> 30
<TABLE>
<S> <C> <C>
(c) If to Newco: c/o Eveleth Mines
N.W. U.S. Route 53
P.O. Box 180
Eveleth, Minnesota 55734
Telephone: (218) 744-7801
Telecopy: (218) 744-7866
Attn: President
(d) If to Rouge: Rouge Steel Company
3001 Miller Road
P.O. Box 1699
Dearborn, Michigan 48121-1699
Telephone: (313) 323-1540
Telecopy: (313) 845-0199
Attn: Gary P. Latendresse,
Vice President and
Chief Financial Officer
and
Frankovitch & Anetakis
337 Penco Road
Weirton, West Virginia 26062
Telephone: (304) 723-4441
Telecopy: (304) 723-5892
Attn: George J. Anetakis, Esq.
(e) If to Stelco: 100 King Street West
Hamilton, Ontario, Canada
Telephone: (905) 528-2511
Telecopy: (905) 577-4426
Attn: Law Department
(f) If to AK Steel: 703 Curtis Street
Middletown, Ohio 45043-0001
Telephone: (513) 425-2020
Telecopy: (513) 425-5607
Attn: Law Department
(g) If to Stelco Sub: c/o Stelco Inc.
100 King Street West
Hamilton, Ontario, Canada
Telephone: (905) 528-2511
Telecopy: (905) 577-4426
Attn: Law Department
(h) If to AKS Sub: c/o AK Steel Corporation
703 Curtis Street
Middletown, Ohio 45043-0001
Telephone: (513) 425-2020
Telecopy: (513) 425-5607
Attn: Law Department
</TABLE>
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<PAGE> 31
<TABLE>
<S> <C> <C>
(i) If to ETCO: c/o Rouge Steel Company
3001 Miller Road
P.O. Box 1699
Dearborn, Michigan 48121-1699
Telephone: (313) 323-1540
Telecopy: (313) 845-0199
Attn: Gary P. Latendresse,
Vice President and
Chief Financial Officer
and
Frankovitch & Anetakis
337 Penco Road
Weirton, West Virginia 26062
Telephone: (304) 723-4441
Telecopy: (304) 723-5892
Attn: George J. Anetakis, Esq.
(j) If to EXCO: c/o Stelco Inc.
100 King Street West
Hamilton, Ontario, Canada
Telephone: (905) 528-2511
Telecopy: (905) 577-4426
Attn: Law Department
and
c/o AK Steel Corporation
703 Curtis Street
Middletown, Ohio 45043-0001
Telephone: (513) 425-2020
Telecopy: (513) 425-5607
Attn: Law Department
</TABLE>
or, in each case, at such other address or to such other person as may be
specified in writing to the other parties.
9.2 Execution of Further Documents; Cooperation. From and after
the Closing, upon the reasonable request of any of the parties hereto, each of
the other parties hereto shall execute, acknowledge, and deliver all such
further acts, deeds, bills of sale, certificates, assignments, transfers,
conveyances, sales, use or other transfer tax documentation, powers of
attorney, and assurances as may be required to evidence the consummation of the
transactions contemplated hereby and as may be appropriate otherwise to carry
out such transactions. Each of the parties hereto covenants and agrees to
cooperate with and to give reasonable access to the other parties hereto from
and after the Closing Date upon reasonable notice and during normal business
hours, to the books and records, including, without limitation, tax records of
such party as shall be necessary to enable the requesting party to file tax
returns or claims for refund or comply with requests for information by any
governmental agency, or any tax audit or examination or otherwise as necessary
in
27
<PAGE> 32
connection with any dispute or proceeding in which the requesting party is a
party in connection with the activities or operations of, or ownership of the
requesting party of an interest in the Eveleth Mines.
9.3 No Public Announcements. Each party hereto agrees to keep
confidential the terms and conditions of the transactions contemplated hereby
and agrees that it will make no public announcements with respect to such
transactions without the prior approval of the other parties hereto, except as
may be required by law, in which such event the party making the release or
announcement shall provide a copy thereof, in advance to the other parties.
9.4 Expenses. Except as otherwise expressly provided herein, each
party shall pay any fees and expenses incurred by it incident to this Agreement
and in preparing to consummate the transactions contemplated hereby.
9.5 Waiver. No waiver of any right hereunder shall be effective
unless it is in a writing which specifically refers to the provision hereof
under which such right arises, and no such waiver shall operate or be construed
as a waiver of any subsequent breach, whether of a similar or dissimilar
nature.
9.6 Entire Agreement. This Agreement (together with the Exhibits
and Schedules hereto) and the other agreements referred to herein supersede any
other agreements, whether written or oral, that may have been made or entered
into by the parties hereto (or by any representative of such parties) relating
to the matters contemplated hereby. This Agreement (together with the Exhibits
and Schedules hereto) and the agreements referred to herein constitute the
entire agreement by and between the parties with respect to the subject matter
hereof and there are no agreements, commitments, representations, warranties or
covenants as of the date hereof except as expressly set forth herein.
9.7 Amendments, Supplements. This Agreement may be amended or
supplemented at any time by additional written agreements executed by all of
the parties hereto, as may mutually be determined by such parties to be
necessary, desirable or expedient to further the purposes of this Agreement, or
to clarify the intention of the parties hereto.
9.8 Applicable Law. This Agreement and the legal relations among
the parties hereto shall be governed by and construed in accordance with the
substantive laws of the State of Ohio applicable to contracts made and to be
performed therein, without giving effect to the principles of conflict of laws
thereof.
9.9 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same agreement.
28
<PAGE> 33
9.10 Titles and Headings. Titles and descriptive headings to
sections herein are inserted for convenience of reference only, and are not
intended to be a part of or to affect the meaning or interpretation of this
Agreement.
9.11 Binding Effect. This Agreement shall be binding upon and
inure to the benefit of the parties hereto and their respective successors,
assigns, heirs and legal representatives. No party hereto may assign its
rights or delegate its duties hereunder without the prior written consent of
the other parties hereto.
9.12 Validity. If any term, provision, covenant or restriction of
this Agreement is held by a court of competent jurisdiction to be invalid, void
or unenforceable, the parties agree that such term, provision, covenant or
restriction shall be reformed to the extent possible consistent with such
judicial holding to reflect the intent of the parties as stated herein and the
remainder of the terms, provisions, covenants and restrictions of this
Agreement shall remain in full force and effect and shall in no way be
affected, impaired or invalidated. It is hereby stipulated and declared to be
the intention of the parties that they would have executed the remaining terms,
provisions, covenants and restrictions without including any of such which may
be hereafter declared invalid, void or unenforceable.
9.13 Enforcement of Agreement. All disputes arising in connection
with this Agreement or the transactions contemplated hereby shall be decided in
Columbus, Ohio, either in the Franklin County Court of Common Pleas or in the
United States District Court for the Southern District of Ohio, which courts
shall have jurisdiction in any action, suit or proceeding based on or arising
out of this Agreement. The parties to this Agreement hereby (i) expressly
consent to the jurisdiction of such courts, (ii) irrevocably consent to the
service of process in connection therewith by delivery of notice by certified
mail to the addresses set forth in Section 9.1, and (iii) waive any other
requirement (whether imposed by statute or rule of Court) of personal
jurisdiction, venue or service of process.
29
<PAGE> 34
IN WITNESS WHEREOF, the parties hereto have duly executed this
Agreement effective as of the day and year first above written.
OGLEBAY NORTON COMPANY
By:_________________________
Name:_______________________
Title:______________________
ONCO EVELETH COMPANY
By:_________________________
Name:_______________________
Title:______________________
EVELETH TACONITE COMPANY
By:_________________________
Name:_______________________
Title:______________________
EVELETH EXPANSION COMPANY,
by Virginia Horn Taconite Company,
general partner
By:_________________________
Name:_______________________
Title:______________________
AK STEEL CORPORATION
By:_________________________
Name:_______________________
Title:______________________
VIRGINIA HORN TACONITE COMPANY
By:_________________________
Name:_______________________
Title:______________________
30
<PAGE> 35
ROUGE STEEL COMPANY
By:_________________________
Name:_______________________
Title:______________________
STELCO, INC.
By:_________________________
Name:_______________________
Title:______________________
ONTARIO EVELETH COMPANY
By:_________________________
Name:_______________________
Title:______________________
EVELETH MINES, LLC
By:_________________________
Name:_______________________
Title:______________________
31
<PAGE> 1
EXHIBIT 10.20
PELLET SALE AND PURCHASE AGREEMENT
THIS AGREEMENT, entered into, dated and effective as of January
1, 1997 ("Agreement"), by and between Eveleth Mines LLC., a Minnesota limited
Liability Company ("Eveleth"), and Rouge Steel Company, a Delaware corporation
("Rouge").
RECITALS
WHEREAS, Eveleth desires to sell to Rouge and Rouge desires to
purchase from Eveleth certain quantities of standard grades of iron ore acid
pellets, such grades of iron ore pellets being those produced at the Eveleth
Mine ("Eveleth Mine"), located in Eveleth, Minnesota, (all such pellets
collectively being referred to herein as "Eveleth Pellets") on conditions
contained herein.
NOW, THEREFORE, in consideration of the mutual covenants
hereinafter set forth, Eveleth and Rouge agree as follows:
ARTICLE 1 - SALE AND PURCHASE
Eveleth shall sell and by these presents does sell and shall
deliver to Rouge the tonnages of Eveleth Pellets on the terms and conditions
as hereinafter provided. Rouge shall purchase and by these presents does
purchase and shall receive and pay for such tonnages of Eveleth Pellets on the
terms and conditions as hereinafter provided.
ARTICLE 2 - TONNAGE
(a) During the term of years beginning January 1, 1997
through December 31, 2002, Eveleth shall sell and deliver and Rouge shall
purchase and receive from Eveleth 45% of all Eveleth Pellets produced by
Eveleth in each year to a maximum of 2,250,000 tons annually. In the event
that Eveleth produces more than 5,000,000 tons of Eveleth Pellets in any year
of this Agreement, Rouge shall have a right of first refusal to acquire 45% of
the
<PAGE> 2
tons exceeding 5,000,000 at the same price established herein. (The word "ton",
as used herein, shall mean a gross ton of 2,240 pounds avoirdupois natural
weight).
(b) On November 1st of each year Eveleth shall advise Rouge
in writing of the tons of Eveleth Pellets that it expects to produce in the
following year. If production for such calendar year is expected to exceed
5,000,000 tons, Rouge shall advise Eveleth by November 15, whether or not it
will exercise its right of first refusal to acquire 45% of such excess. If
Rouge exercises its right Eveleth agrees to sell and deliver the additional
tonnages to Rouge in accordance with the terms and conditions and purchase
price hereinafter provided, and also agrees to offer any remaining unallocated
production for the applicable calendar year to Rouge before offering such
unallocated production to parties unrelated to Eveleth.
ARTICLE 3 - PRICE AND ADJUSTMENTS
(a) The Purchase Price for the Eveleth Pellets sold and
purchased under Article 2 above shall be based on the World Price, as defined
in Article 3(b) during each applicable year.
(b) World Price: Except as is otherwise provided herein, the
amounts calculated under this Article 3(b) shall be equal to the price
thereof, as hereinafter determined, at the time of shipment delivered f.o.b.
Rouge's vessel at Duluth, Minnesota. If delivery is taken in railroad car
f.o.b. Fairlane, Minnesota, the price will be as calculated per Article 3(b)
then adjusted for the maximum annual rail cost per ton from the mine direct to
vessel in Duluth.
The World Price component shall be determined by calculating an
average, as set out below, of the European Price (in dollars) quoted by
Companhia Vale de Rio Doce
2
<PAGE> 3
("CVRD") for acid (blast furnace) pellets on a per metric ton iron unit basis
f.o.b. vessel in Tubarao, Brazil, the Iron Ore Company of Canada ("IOCC") acid
(blast furnace) pellets, f.o.b. Sept-Lles, and La Compangnie Miniere Quebec
Cartier ("QCM") acid (blast furnace) pellets f.o.b. Port Cartier, each adjusted
to a gross ton natural iron unit basis (e.g. 2,240, pounds/2,204.62 pounds),
as published in IRON AGE or SKILLINGS.
WP = CVRD + IOCC + QCM
----------------------
3
Should one of CVRD, IOCC or QCM discontinue to publish prices as
hereinabove provided, then the World Price component shall be calculated on a
per metric ton iron unit basis (adjusted to a gross ton natural iron unit
basis) as the average of the prices published by the two of CVRD, IOCC or QCM
who shall continue to so publish such prices.
The parties recognize that it is the custom of CVRD, IOCC or QCM
to respectively establish prices effective for all sales of pellets during
that Year, and that such prices are usually established subsequent to the
beginning of the Year for which they are applicable. As such, the amount
calculated pursuant to Article 3(b) shall be subject, from time to time, to
adjustment and readjustment for changes, if any, in the prices established for
the sale of acid (blast furnace) pellets by CVRD, IOCC or QCM which prices are
to apply to all sales during such Year. The amount so adjusted or readjusted
under Article 3(b) shall be applied to all sales of Eveleth Pellets pursuant
to Article 2 made during such Year, as if such amount was the amount
calculated pursuant to Article 3(b) on the dates of shipment of all Tons of
Pellets sold that Year. If the adjusted or readjusted Article 3(b) amount
would have had the effect of causing a different Purchase Price to be
calculated pursuant to Article 3(b) on the date(s) of one or more shipments of
Pellets during such Year, then a corresponding debit or credit shall be issued
on the next invoice.
If all of such publications shall cease publication or cease to
publish such
3
<PAGE> 4
quoted prices for CVRD, IOCC or QCM as herein set forth, and such prices shall
be published by some other publication mutually recognized as generally
accepted in trade as reliable, then quotations of such price as published by
such other publications shall be employed for the purpose of establishing the
World Price.
(d) All tons sold by Eveleth to Rouge, as provided for in
Article 2 above, shall be based on actual natural iron content at time and
location of shipment.
(e) All prices are based on U.S. dollar values.
ARTICLE 4 - PAYMENTS AND ADJUSTMENTS
(a) Eveleth shall send Rouge an invoice for the actual
tonnage of Eveleth Pellets delivered during the previous month. Rouge shall
pay Eveleth all amounts due for the Eveleth Pellets purchased under Article 2
on or about the 15th day of the month following delivery of such Eveleth
Pellets.
(b) In the event Rouge shall fail to make prompt payment,
Eveleth, in addition to all other remedies available to it in law or in
equity, shall have the right, but not the obligation, to withhold further
performance by it under this Agreement until all claims it may have against
Rouge under this Agreement are fully satisfied.
(c) All payments shall be made in U.S. dollars.
ARTICLE 5 - ANALYSES
Deliveries hereunder will be sampled and analyzed at the mine
or port in accordance with the usual and customary practice with respect to
Eveleth Pellets shipped. Analyses and practices will be subject to the mutual
annual review of Eveleth and Rouge.
ARTICLE 6 - DELIVERY
Eveleth shall deliver to Rouge the specified tonnage of Eveleth
Pellets, as provided for in Article 2 above, f.o.b. vessel at the Port of
Duluth, Duluth, Minnesota, or in Rouge's rail car at Fairlane, Minnesota, and
title and all risk of loss, damage or destruction shall pass to Rouge at the
time of discharge of Eveleth Pellets from the loading device at
4
<PAGE> 5
such location.
ARTICLE 7 - SHIPMENTS
Shipments of Eveleth Pellets for sale in the year in which such
Pellets are shipped will be in approximately equal amounts over the nine month
period of April through December each year during the term of this Agreement,
unless otherwise mutually agreed. In the event that deliveries are materially
different from the foregoing schedule through no fault of Eveleth, Eveleth
shall be entitled to invoice Rouge pursuant to Article 4 for undelivered tons
which are available for delivery and which should have been delivered in any
previous month.
ARTICLE 8 - WEIGHTS
Bill of lading weight determined by certified railroad scale
weights shall be accepted by the parties as finally determining the amount of
Eveleth Pellets delivered to Rouge.
ARTICLE 9 - WARRANTIES
There are no warranties, express or implied, which extend beyond
the provisions of this Agreement, including any warranties for merchantability
or fitness for intended purpose. Eveleth and Rouge will meet to review and
determine quality standards on or before January 31, 1997 and each year
thereafter; provided, however that such review shall not relieve Rouge of its
minimum annual purchase obligation as set out in Article 2(a), All claims for
substantial variance in quality of the Eveleth Pellets shall be deemed waived
unless made in writing delivered to Eveleth within thirty (30) calendar days
of delivery to final destination in case of all rail or within thirty (30)
calendar days after completion of discharge at port of discharge. No claim
will be entertained after the Eveleth Pellets have been consumed. Each party
shall afford the other party prompt and reasonable opportunity to inspect the
Eveleth Pellets as to which any claim is made as above stated.
5
<PAGE> 6
ARTICLE 10 - FORCE MAJEURE
(a) No party hereto shall be held liable for damages
resulting from failure to deliver or to accept and pay for all or any of said
Eveleth Pellets, as described herein, if and to the extent that such delivery
or acceptance would be contrary to or would constitute a violation of any
regulation, order, or requirement of a recognized governmental body or
agency, or if such failure is caused by or results directly or indirectly
from acts of God, war, insurrections, interference by foreign powers,
strikes, hindrances, labour disputes, labour shortages, fires, floods,
embargoes, accidents or delays at the mines, on the railroads or docks or in
transit, shortage of transportation facilities, disasters of navigation, or
other causes, similar or dissimilar, if such other causes are beyond the
control of the party charged with a failure to deliver or to accept and pay
for said Pellets. The extent or force majeure is claimed hereunder by a
party hereto, such shall relieve the other party from fulfilling its
corresponding agreement hereunder to the party claiming such force majeure,
but only for the period and to the extent of the claimed force majeure, and
except as provided for in Article 10(b) below.
(b) It is the obligation of Eveleth to sell and Rouge to
purchase, pursuant to Article 2 above, 45% of the Eveleth Pellets produced
in each year of the term of this Agreement to a maximum of 2,250,000 tons
annually. To the extent a force majeure is claimed with respect to such sale
or purchase of Eveleth Pellets, the sale or purchase obligations shall be
suspended only for the period and to the extent of the claimed force majeure
and any such tonnage suspended by reason of the force majeure shall be sold
by Eveleth and purchased by Rouge during the calendar years subsequent to the
year December 31, 2002. The tonnage suspended by reason of force majeure
shall be sold and purchased in accordance with Article 2 above, until the
remaining balance of the tonnage suspended under the force majeure has been
sold and purchased. The price applicable to all pellets delivered after the
force majeure shall be calculated in the same manner as the
6
<PAGE> 7
price would have been determined during the time the pellets would have been
delivered if not for the suspension caused by the force majeure.
ARTICLE 11 - NOTICES
All notices, consents, reports and other documents authorized
and required to be given pursuant to this Agreement shall be given in writing
and either personally served on an officer of the parties hereto to whom it is
given or mailed by registered or certified mail, postage prepaid, or sent by
telex, telegram or facsimile addressed as follows:
If to Eveleth:
Eveleth Mines LLC.
N.W. U.S. Highway 53
P. 0. Box 180
Eveleth, Minnesota, 55734
Attention: President
Fax No. [218] 744-7866
If to Rouge:
Rouge Steel Company
Rouge Office Building
3001 Miller Road
Dearborn, Michigan, U.S.A., 48121
Attention: Chief Financial Officer
Fax: (313) 845-0199
provided, however, that any party may change the address to which notices or
other communications to it shall be sent by giving to the other party written
notice of such change, in which case notices and other communications to the
party giving the notice of the change of address shall not be deemed to have
been sufficiently given or delivered unless addressed to it at the new address
as stated in said notice.
7
<PAGE> 8
ARTICLE 12 - TERM
This Agreement shall commence as of January 1, 1997 and shall
terminate on December 31, 2002, except for the fulfillment of obligations
incurred prior thereto. In the event Rouge has not purchased all tons of
Eveleth Pellets required to be purchased by it pursuant to this Agreement
prior to December 31, 2002, this Agreement shall not be terminated as of
December 31, 2002 and shall continue in force until such time at which Rouge
shall have purchased its required tonnage at which time the Agreement shall
terminate, but payments, adjustments and settlements shall continue thereafter
until all rights and obligations of the parties hereto which existed on such
later date have been satisfied.
ARTICLE 13 - AMENDMENT
This Agreement may not be modified or amended except by an
instrument in writing signed by the parties hereto.
ARTICLE 14 - ASSIGNMENT
No party hereto may assign this Agreement in whole or in part
without the prior written consent of the other party, which said consent shall
not be unreasonably withheld (specifically, consent may be withheld when, in
the reasonable judgment of the non-consenting party, the proposed assignee
does not have the financial net worth and/or the financial ability to meet and
timely discharge all of its obligations hereunder), except as required by law,
governmental or judicial order, or in the case of a corporate reorganization,
consolidation or merger, in which case this Agreement shall be binding on the
parent and/or surviving corporation. All the covenants, stipulations and
agreements herein contained shall inure to the benefit of and bind the parties
hereto and their respective successors and permitted assigns.
8
<PAGE> 9
ARTICLE 15 - WAIVER
No waiver of any of the terms of this Agreement shall be valid
unless in writing. No waiver of any breach of any provision hereof or default
under any provision hereof shall be deemed a waiver of any subsequent breach
of default of any kind whatsoever.
ARTICLE 16 - GOVERNING LAW
This Agreement shall in all respects, including matters of
construction, validity and performance, be governed by and be construed in
accordance with the laws of the State of Minnesota.
ARTICLE 17 - PRIOR AGREEMENTS
This Agreement constitutes the complete agreement between the
parties with respect to the subject matter hereof.
IN WITNESS WHEREOF, the parties have executed this Agreement
this 2nd day of December, 1996.
IN THE PRESENCE OF ROUGE STEEL COMPANY
[ SIG ]
- ------------------------- By: /s/ Gary P. Latendresse
--------------------------
- -------------------------
Attest: [ SIG ]
----------------------
IN THE PRESENCE OF EVELETH MINES LLC.
[ SIG ]
- ------------------------- By: [ SIG ]
--------------------------
Title: President
- ------------------------- Attest: [ SIG ]
-----------------------
9
<PAGE> 1
EXHIBIT 10.21
MEMBER CONTROL AGREEMENT
OF
EVELETH MINES LLC
<PAGE> 2
TABLE OF CONTENTS
Page
<TABLE>
<S> <C>
ARTICLE 1. ORGANIZATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.1 Effective Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 Term . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 Initial Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.4 Principal Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.5 Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.6 Liability of Members . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.7 Representations and Warranties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
1.8 Business Purpose . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
ARTICLE 2. GOVERNANCE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.1 Bylaws . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.2 Management Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.3 Majority in Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.4 Conflicts of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
ARTICLE 3. FISCAL MATTERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.1 Fiscal Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.2 Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.3 Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.4 Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6
3.5 Large Expenditures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
ARTICLE 4. MEMBERSHIP INTERESTS AND THEIR TRANSFER . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.1 Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.2 Statement of Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.3 Transfer of Financial Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
4.4 Transfer of Governance Rights . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
4.5 Shares of Member . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
ARTICLE 5. BOOKS AND RECORDS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.1 Books and Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.2 Right of Inspection . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
5.3 Financial Records . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
ARTICLE 6. BOARD OF GOVERNORS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.1 Management Authority . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
6.2 Qualification and Number of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
</TABLE>
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<PAGE> 3
<TABLE>
<S> <C>
6.3 Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.4 Resignation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.5 Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.6 Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.7 Authority of Board of Governors
to Bind the Company . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
6.8 Actions of the Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.9 Indemnification . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
6.10 Appointment of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
ARTICLE 7. CONTRIBUTIONS AND CAPITAL ACCOUNTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
7.1 Initial Capital Contribution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.2 Maintenance of Capital Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
7.3 Disposition of Membership Interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.4 Distribution of Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
7.5 Compliance with Section 704(b)
of the Code . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
ARTICLE 8. ALLOCATIONS AND DISTRIBUTIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.1 Allocations of Net Profits and
Net Losses from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.2 Special Allocations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.3 Interim Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
8.4 Limitations on Distributions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE 9. TAXES AND ACCOUNTING . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.1 Elections . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.2 Taxes of Taxing Jurisdictions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.3 Tax Matters Partner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
9.4 Tax Year . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
9.5 Method of Accounting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 10. TERMINATION OF INTEREST . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.1 Events of Termination . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.2 Right to Purchase Terminating
Member's Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
ARTICLE 11. ADMISSION OF ADDITIONAL MEMBERS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
ARTICLE 12. DISSOLUTION AND WINDING UP . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.1 Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21
12.2 Effect of Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C>
12.3 Distribution of Assets on Dissolution . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22
12.4 Winding Up . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 13. MERGER AND CONSOLIDATION . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
13.1 Authority to Merge or Consolidate . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23
ARTICLE 14. AMENDMENT . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.1 Amendment by Board of Governors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.2 Other Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24
14.3 Execution of Amendments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
ARTICLE 15. MISCELLANEOUS PROVISIONS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.1 Entire Agreement; Interpretation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25
15.2 No Partnership Intended for
Nontax Purposes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.3 Rights of Creditors and Third
Parties Under the Member Control Agreement . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26
15.4 Arbitration . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.5 Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.6 Governing Law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.7 Successors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27
15.8 Severability . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28
</TABLE>
iii
<PAGE> 5
MEMBER CONTROL AGREEMENT
OF
EVELETH MINES LLC
The undersigned members ("Members"), having filed Articles of
Organization (the "Articles") for EVELETH MINES LLC, a Limited Liability
Company (the "Company") pursuant to Minnesota Statute Chapter 322B, (the "Act")
for the purpose of operating a Taconite mine and pelleting plant, do hereby
adopt this Member Control Agreement.
ARTICLE 1.
ORGANIZATION
1.1 EFFECTIVE DATE. This Member Control Agreement shall become
effective as of the date (the "Effective Date") of the filing and acceptance of
the Articles with the Secretary of State of Minnesota.
1.2 TERM. The Company shall be dissolved and its affairs wound up
in accordance with the Act or this Member Control Agreement after a term of
forty (40) years from the Effective Date, unless the term shall be extended by
amendment to the Articles, or unless the Company shall be sooner dissolved and
its affairs wound up in accordance with the Act or this Member Control
Agreement.
1.3 INITIAL MEMBERS. The names, address, initial capital
contributions and the percentage interest in the Company ("Percentage") number
of each initial Member are reflected on Exhibit A
<PAGE> 6
attached to and made a part of this Member Control Agreement. A Member's
rights in the Company are collectively referred to as a "Membership Interest"
as more fully described in Section 4.1.
1.4 PRINCIPAL OFFICE. The principal office of the Company in the
State of Minnesota shall be located at N.W. U.S. Highway 53, Eveleth, Minnesota
55734. The Company may have such other offices, either within or without the
state of Minnesota as the Members may designate or as the business of the
Company may from time to time require.
1.5 REGISTERED OFFICE. The registered office of the Company,
required by the Act to be maintained in the State of Minnesota need not be
identical with the Principal Office in the State of Minnesota. The address of
the initial registered office of the Company is 1000 First Bank Plaza, 130 West
Superior Street, Duluth, Minnesota 55802-2094, and the initial registered
agent at such address is George J. Anetakis, c/o Hanf, Fride, O'Brien,
Harries, Swelbar & Burns, P.A. The registered office and the registered agent
may be changed from time to time by action of the Members and by filing the
prescribed form with the Secretary of State of Minnesota.
1.6 LIABILITY OF MEMBERS. Except for contributions specifically
required under this Member Control Agreement, the Members (solely in their
capacity as Members) shall have no obligation to contribute to the Company and
no liability for any Company obligations. Any liability to return
distributions from the Company shall be limited to mandatory requirements of
the Act or of any other applicable law.
1.7 REPRESENTATIONS AND WARRANTIES. Each Member, and the
person(s) executing the Member Control Agreement on behalf of such Member,
hereby represents and warrants to the Company and each other Member that (a)
the Member is duly organized, validly existing, and in
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good standing under the laws of its state of organization and that it has full
organizational power to execute and agree to the Member Control Agreement and
to perform its obligations hereunder, (b) the Member is acquiring its
Membership Interest in the Company for the Member's own account as an
investment and without an intent to distribute such Membership Interest, and
(c) the Member acknowledges that the Membership Interests have not been
registered under the Securities Act of 1933 or any state securities laws, and
may not be resold or transferred by the Member without appropriate registration
or the availability of an exemption from such requirements.
1.8 BUSINESS PURPOSE. The Company was formed to acquire all of
the business assets of that certain Taconite mine and pellet plant situated in
Eveleth, Minnesota, and known as Eveleth Mines, and to thereafter operate,
refinance and/or dispose of the same and to undertake any other business
permitted by the Act upon unanimous written consent of the Members. The
business purposes of the Company shall be limited to such purposes and shall
not be changed and the business operations of the Company shall not be
terminated and substantially all of the business assets of the Company shall
not be sold or otherwise disposed of:
(i) within six years after the date hereof without the unanimous
written consent of the Members;
(ii) after the expiration of the period described in (i) and within
ten years after the date hereof without the written consent of
Members holding in the aggregate a Percentage of at least 85%;
and
(iii) more than ten years after the date hereof without the written
consent of Members holding a Majority in Interest.
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<PAGE> 8
ARTICLE 2.
GOVERNANCE
2.1 BYLAWS. Concurrent with the execution of this Member Control
Agreement, the Members are adopting bylaws ("Bylaws") for the regulation of the
Members and the Governors with respect to books and records of account, minutes
of proceedings, meetings, requirements for notices of meetings, computation of
time for notice, method of giving notice, quorum requirements, written action
in lieu of a meeting, waiver of notice, proxies, officers and other similar
matters related to the governance of the Company. The Bylaws may be amended
from time to time by a written instrument upon the affirmative vote or written
consent of all of the Members. The Bylaws shall be deemed to be part of this
Member Control Agreement.
2.2 MANAGEMENT RIGHTS. All Members who have not had a termination
of their continued membership shall be entitled to one vote per each whole
Percentage share of Membership Interest on any matter submitted to a vote or
consent of the Members. Subject to any mandatory requirements of applicable
law, no Member shall have the right to take any part whatsoever in the
management and control of the ordinary business of the Company, sign for or
bind the Company, compel a sale or appraisal of Company assets or sell or
assign all or any part of its Membership Interest in the Company except as
provided in this Member Control Agreement. Except as otherwise provided, all
actions submitted to a vote or consent of the Members shall require the
affirmative vote or written consent of a Majority in Interest of the Members.
The provisions of this Agreement which require Member consent other than by
Majority in Interest are as follows:
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<PAGE> 9
(a) Section 1.8 regarding change of business purpose,
termination of operations or sale of assets requires various levels of
Member approval depending upon timing.
(b) Section 2.1 regarding changes in the Bylaws requires
unanimous Member consent.
(c) Section 2.4(ii) regarding waiver of conflicts of
interest by Members requires a vote of two-thirds of Membership
Interests held by disinterested Members.
(d) Section 3.5 regarding the approval of Large
Expenditures requires unanimous Member consent.
(e) Section 4.4 regarding transfer of governance rights
requires unanimous Member consent.
(f) Section 6.2 regarding change in the provision for
appointing Governors requires unanimous Member consent.
(g) Section 10.1 regarding approval of the termination of
membership requires the same varying levels of Member consent as
provided in Section 1.8.
(h) Article 11 regarding the admission of additional
Members requires unanimous Member consent.
(i) Section 12.1(a) regarding dissolution of the Company
requires the same varying levels of Member consent as provided in
Section 1.8.
(j) Section 12.1(c) regarding consent to continue without
dissolution after a Member termination requires unanimous Member
consent.
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<PAGE> 10
(k) Article 13 regarding mergers or consolidations
requires unanimous Member consent.
(l) Section 14.2(a) regarding amending a provision of
this Member Control Agreement which currently calls for unanimous
Member consent also requires unanimous Member consent.
(m) Section 14.2(b) regarding an amendment to this Member
Control Agreement with a specified impact upon a particular Member
requires at least the passive consent (i.e. not an objection) by such
Member.
2.3 MAJORITY IN INTEREST. Whenever any matter is required or
allowed to be approved by a Majority in Interest of the Members or a Majority
of the remaining Members under the Act or this Member Control Agreement, such
matter shall be considered approved or consented to upon the receipt of the
affirmative approval or consent, either in writing or at a meeting of the
Members, of Members holding governance rights owning a majority of the profit
interests and a majority of the capital interests owned by all Members holding
governance rights.
2.4 CONFLICTS OF INTEREST. No contract, action or transaction
shall be void or voidable solely because it is between or affects the Company
and one or more Members, Governors or officers (each, an "Interested Party" or
collectively, the "Interested Parties"), or because it is between or affects
the Company and any other person or organization in which one or more of the
Interested Parties are directors, officers, members, shareholders or trustees
or have a financial or personal interest, or because one or more Interested
Parties participate in or vote at the meeting at which such contract, action or
transaction is authorized if any of the following applies:
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<PAGE> 11
(i) the contract, action or transaction is fair and reasonable to
the Company as of the time it is authorized or approved by the
Members or Governors; or
(ii) the material facts as to the Interested Parties' relationship
or interest and as to the contract, action or transaction are
disclosed or known to the Members or Governors, and the
Members or Governors authorize the contract, action or
transaction by the affirmative vote of two-thirds of the
voting power of the Membership Interests entitled to vote that
are owned by disinterested Members, even though the
disinterested Members or Governors constitute less than a
quorum;
(iii) the material facts as to the contract or transaction and as to
the Governor's interest are fully disclosed or known to the
Board of Governors or a committee and the Board of Governors
or committee authorizes, ratifies or approves the contract or
transaction by a majority of the Board of Governors or
committee, but the interested Governor is not counted in
determining the presence of a quorum and must not vote; and
(iv) the contract, action or transaction is otherwise authorized
pursuant to the Act.
For purposes of this Section, a Member or Governor is not an
Interested Party solely because the subject of the contract, action or
transaction may involve or affect a change in control of the Company.
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<PAGE> 12
ARTICLE 3.
FISCAL MATTERS
3.1 FISCAL YEAR. The fiscal year of the Company shall begin on
the first day of January and end on the last day of December each year, unless
otherwise determined by resolution of the Members.
3.2 DEPOSITS. All funds of the Company shall be deposited from
time to time to the credit of the Company in such banks, trust companies or
other depositories as the Governors may select.
3.3 LOANS. Subject to Section 3.5, except in the ordinary course
of business no loan shall be contracted on behalf of the Company and no
evidence of indebtedness shall be issued in its name unless authorized by a
resolution of the Members. Such authority may be general or confined to
specific instances.
3.4 CONTRACTS. Subject to Section 3.5, the Members may authorize
any Members or agent of the Company, in addition to the President, to enter
into any contract or execute any instrument in the name of and on behalf of the
Company, and such authority may be general or confined to specific instances.
3.5 LARGE EXPENDITURES. Unanimous approval of the Members shall
be required to: (i) authorize the Company to incur capital expenditures in
excess of $7,000,000 per transaction or project, but not to exceed $10,000,000
in any fiscal year; (ii) borrow money, not exceeding $7,000,000 per transaction
or project, but not to exceed $10,000,000 in any fiscal year; (iii) lease
property valued at more than $7,000,000 per transaction but not to exceed
$10,000,000 in any fiscal year; or (iv) acquire, by lease or purchase or
otherwise, additional iron ore reserves.
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<PAGE> 13
ARTICLE 4.
MEMBERSHIP INTERESTS AND THEIR TRANSFER
4.1 INTERESTS. A Membership Interest means a Member's interest in
the Company consisting of financial rights, as defined by the Act, governance
rights, as defined by the Act, and a Member's right to assign financial rights
and governance rights subject to this Agreement and the Act.
4.2 STATEMENT OF INTEREST. Any Member may request the Company to
provide such Member a written statement describing the Membership Interest
owned by such Member as of the time the Company makes the statement.
4.3 TRANSFER OF FINANCIAL RIGHTS. No Member shall make a transfer
of financial rights during the six year period following the date hereof.
Thereafter, a Member may make a transfer of financial rights only with the
affirmative vote of Members holding a Majority in Interest. If a transfer of
financial rights is authorized pursuant to this Section 4.3 the transferee or
assignee of such transferred rights shall have no right to participate in the
management of the business and affairs of the Company or to become a successor
Member. The transferee or assignee shall only be entitled to receive the share
of the profit and losses and distributions to which the assignor would
otherwise have been entitled.
4.4 TRANSFER OF GOVERNANCE RIGHTS. Governance rights may not be
assigned without the unanimous consent of the other Members.
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<PAGE> 14
ARTICLE 5.
BOOKS AND RECORDS
5.1 BOOKS AND RECORDS. The books and records of the Company shall
be kept at the principal office of the Company or at such other places, within
or without the state of Minnesota, as the Members shall from time to time
determine which books and records shall inter alia reflect the capital
contributions and Membership Interest of each Member.
5.2 RIGHT OF INSPECTION. Any Member of record shall have the
right to examine, at any reasonable time or times for all purposes, the books
and records of account, minutes and records of Members and to make copies
thereof. Such inspection may be made by any agent who may make copies thereof.
Upon the written request of any Member, the Company shall mail to such Member
its most recent financial statements, showing in reasonable detail its assets
and liabilities and the results of its operations.
5.3 FINANCIAL RECORDS. Except as otherwise provided herein,
financial records shall be maintained and reported based on United States
generally acceptable accounting principles. Capital accounts shall be
maintained in accordance with the provisions of Article 7.
ARTICLE 6.
BOARD OF GOVERNORS
6.1 MANAGEMENT AUTHORITY. Except as reserved for the Members in
this Member Control Agreement, the Board of Governors of the Company shall be
vested with the full and exclusive authority to exercise, conduct, and control
the affairs of the Company. By execution of
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<PAGE> 15
this Member Control Agreement, each Member consents to and acknowledges the
delegation of authority to the Board of Governors and to their actions and
decisions within the scope of their authority. The Board of Governors shall be
permitted to delegate specified authority to officers, agents or committees
(the members of which need not be officers or Governors) from time to time as
the Board of Governors may deem appropriate. The Board of Governors shall
appoint an Executive Committee from its members which shall act as authorized
by the Board.
6.2 QUALIFICATION AND NUMBER OF GOVERNORS. The Board of Governors
shall consist of five (5) Governors each of whom shall be a natural person.
Virginia Horn Taconite Company and Eveleth Taconite Company shall each appoint
two Governors and Ontario Eveleth Company shall appoint one Governor. In the
event any Member's Membership Interest is transferred in whole to a third party
which party becomes a successor Member by the unanimous consent of the
remaining Members pursuant to Section 4.4, such successor Member shall have the
same rights to appoint Governors as its transferor Member. In the event a
Member's shares of Membership Interest are transferred in part or are
transferred to two or more transferees or in the event a Member's transferee is
not approved as a successor Member, the remaining Members shall determine
unanimously how future Governors are to be appointed. Cumulative voting shall
not be allowed.
6.3 ELECTION AND TERM OF OFFICE. No Governor shall have any
contractual right to such position. Each Governor shall serve until the
Governor's successor is elected or the earlier of (a) the Resignation of such
Governor pursuant to Section 6.4 or (b) the Removal of such Governor pursuant
to Section 6.5.
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<PAGE> 16
6.4 RESIGNATION. Any Governor may resign by giving at least
thirty (30) days written notice to the Board of Governors by mailing or
delivering such notice of Resignation to the Principal Office of the Company.
At the expiration of said period, such resignation shall be effective without
need of acceptance by the Board of Governors.
6.5 REMOVAL. Any Governor may be removed, with or without cause,
by the action of the Member appointing such Governor.
6.6 VACANCIES. Any vacancy on the Board of Governors shall be
filled by the Member who appointed the Governor whose position is vacant.
6.7 AUTHORITY OF BOARD OF GOVERNORS TO BIND THE COMPANY. Only the
Board of Governors and authorized officers, agents or committees of the
Company, and not individual Governors or Members as such, shall have the
authority to bind the Company. No Member shall take any action to bind the
Company, and each Member shall indemnify the Company for any costs or damages
incurred by the Company as a result of the unauthorized action of such Member.
Subject to the powers specifically reserved to the Members herein, the Board of
Governors has the power, on behalf of the Company, to do all things necessary
or convenient to carry out the business and affairs of the Company, including,
without limitation:
(a) subject to Section 3.5, approve the annual operating
and capital budgets, the mining plan and strategic plans of the
Company;
(b) appoint or remove any officer of the Company,
establish compensation for each officer of the Company, and, subject
to the Bylaws, establish, alter, or amend the power and authority of
any officer of the Company;
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<PAGE> 17
(c) subject to Section 3.5, authorize any commitment for
a capital expenditure;
(d) subject to Section 3.5, approve any obligation of the
Company for borrowed money and make, issue, accept, endorse, and
execute promissory notes, drafts, bills of exchange, letters of
credit, guarantees and other instruments and evidences of indebtedness
or of contingent liability and approve the granting of any security
therefor, including, but not limited to mortgages of real property;
(e) authorize any commitment relating to a loan by the
Company to any person or a guarantee by the Company of any obligation
of any person;
(f) subject to Section 1.8, authorize any sale, lease,
transfer or other disposition of any asset of the Company or any group
of assets including the disposition of substantially all of the assets
of the Company;
(g) subject to Section 3.5, approve the acquisition of
any business or a business division from any person whether by asset
purchase, stock purchase, merger or other business combination
including the creation and issuance of additional shares of any class
of Membership Interests in connection therewith;
(h) subject to Section 3.5, approve any purchase or lease
of real property;
(i) adopt, approve or terminate any individual or group
employee retirement plan or any other welfare benefit plan or policy
or any modifications thereto;
(j) authorize the making, modification, amendment, or
termination of any agreement with any Member or an affiliate of a
Member;
(k) authorize any distribution to Members;
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<PAGE> 18
(l) change the fiscal year of the Company or make or
modify any tax elections, accounting policy elections, as the Board of
Governors believes to be in the best interests of the Company and the
Members;
(m) make any determination to indemnify any person as
contemplated by the ByLaws;
(n) subject to the Bylaws, establish, amend or modify
rules for the operation of the Board of Governors;
(o) subject to Section 3.5, authorize the creation of any
subsidiaries or any other investment in, or the acquisition of stocks
or bonds of, other persons or any equity interest in any other Person;
(p) approve any change of the location of the
headquarters of the Company;
(q) approve any license or other grant of rights to or
from the Company with respect to any patents, trademarks, trade names,
service marks, know-how, trade secrets or other proprietary
information;
(r) open, conduct and close checking, savings, custodial
and other accounts on behalf of the Company in such banks or other
financial institutions as the Board of Governors may select from time
to time;
(s) negotiate, enter into, execute and exercise the
Company's rights under any and all contracts necessary, desirable or
convenient with respect to its business and affairs;
(t) execute any notifications, statements, reports,
returns, registrations or other filings that are necessary or
desirable to be filed with any state or federal agency,
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<PAGE> 19
commission, or authority, including, without limitation, any
registration of securities with any state or federal securities
commission, and appear before such agency, commission or authority on
behalf of the Company;
(u) purchase or bear the cost of any insurance covering
the potential liabilities of the Company, Members, Governors, any
officer or employee of the Company and any other person acting on
behalf of the Company;
(v) commence, defend or settle litigation pertaining to
the Company, its business or assets, provided that the Company shall
not bear the expenses of any litigation brought against any Member or
Governor acting in that capacity, any officer or employee of the
Company or any other person acting on behalf of the Company except as
contemplated by this Member Control Agreement or the ByLaws;
(w) employ accountants, attorneys, contractors, brokers,
investment managers, engineers, consultants or other persons, firms,
corporations or entities on such terms and for such compensation as it
shall determine is proper, including, without limitation, persons and
entities who may be Members or affiliates, or who perform services
for, or have business, financial, family or other relationships with
any Member, Governor, officer or employee;
(x) make any donation to the public welfare or for
religious, charitable, scientific, literary, or educational purposes;
(y) enter into, make and perform such contracts,
agreements and other undertakings, to execute, acknowledge and deliver
such instruments, and to do such other acts, as it may deem necessary
or advisable for, or as may be incidental to, the conduct of the
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<PAGE> 20
business contemplated by this Section 6.7, including, without
limitation, contracts, agreements, undertakings and transactions with
any Member or Governor or with any other person, firm, or corporation
which is an affiliate or which performs services for or has any
business, financial, family, or other relationship with any Member or
Governor.
6.8 ACTIONS OF THE BOARD OF GOVERNORS. The affirmative vote of
Governors appointed by Members holding a Majority in Interest present at any
regular or special meeting or the written consent executed by such Governors
representing a Majority in Interest of the Members, provided that such written
action is recorded in the minutes of the Board of Governors and a copy is
mailed to all other Governors who did not execute such action, shall constitute
the act or action of the Board of Governors. The number of Governors appointed
by Members holding a Majority in Interest shall constitute a quorum. No act of
a Member, Governor, officer or agent of the Company in contravention of a
decision or action of the Board of Governors shall bind the Company to persons
having knowledge of such Board's decision or action. Notwithstanding such
Board decision, the act of a Governor for the purpose of apparently carrying on
in the usual way the business or affairs of the Company shall bind the Company
to persons without actual knowledge that such act is beyond the authority of
the Governor.
6.9 INDEMNIFICATION. The Company shall indemnify to the fullest
extent provided or allowed by the Act, as in effect on the date hereof, any
Governor, officer, employee or agent of the Company for all costs, losses,
liabilities, damages, fines and expenses (including attorneys' fees) suffered
or incurred by any such person solely because he or she is or was a Governor,
officer, employee or agent of the Company or is or was serving at the request
of the Company as a Member,
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<PAGE> 21
Governor, officer, director, trustee, partner, employee or agent of any other
organization, if such person acted in good faith and in a manner he or she
reasonably believed to be in or not opposed to the best interests of the
Company with the care an ordinarily prudent person in a like position would
exercise under similar circumstances, and, in connection with any criminal
action or proceeding, had no reasonable cause to believe his or her conduct was
unlawful. The Company shall acquire and maintain such liability insurance
coverage with respect to this obligation as directed by the Board.
6.10 APPOINTMENT OF OFFICERS. The Board of Governors shall appoint
one or more natural persons to exercise the functions of the offices of chief
manager and treasurer. The Board of Governors may, but shall not be required
to, appoint one or more individuals to serve in the following capacities as
officers of the Company: one or more vice presidents and secretary. The Board
of Governors may from time to time create such offices and appoint such other
officers, subordinate officers and assistant officers and assign powers and
duties to such officers as it may determine. An officer need not be a Governor
of the Company. The Board of Governors shall have the right to set the
compensation of officers and remove and replace an officer then serving with or
without cause. The Board of Governors may designate the person serving as chief
manager as president of the Company.
ARTICLE 7.
CONTRIBUTIONS AND CAPITAL ACCOUNTS
7.1 INITIAL CAPITAL CONTRIBUTION. Each initial Member shall make
the initial capital contribution described for that Member on Exhibit A at the
time and on such terms as may be
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<PAGE> 22
specified on Exhibit A or otherwise agreed to among such Members. The value of
the capital contribution and the Percentage of each Member shall be as set
forth on Exhibit A. No interest shall accrue on any capital contribution and
no Member shall have the right to withdraw or be repaid any capital
contribution except as provided in this Member Control Agreement. Except as
expressly provided in this Member Control Agreement, no Member shall have any
obligations to make any additional capital contributions or advance any funds
as a loan to the Company or to incur any liability or obligations of the
Company.
7.2 MAINTENANCE OF CAPITAL ACCOUNTS. The Company shall establish
and maintain capital accounts for each Member. Each Member's capital account
shall be increased by (i) the amount of any money actually contributed by the
Member to the capital of the Company, (ii) the fair market value of any other
property contributed, as determined at the time of contribution (net of
liabilities assumed by the Company or subject to which the Company takes such
property, within the meaning of section 752 of the Internal Revenue Code (the
"Code")), and (iii) the Member's share of net profits and of any separately
allocated items of income or gain. Each Member's capital account shall be
decreased by (iv) the amount of any money actually distributed by the Company,
(v) the fair market value of any other property distributed to the Member, as
determined at the time of distribution (net of liabilities of the Company
assumed by the Member or subject to which the Member takes such other property
within the meaning of section 752 of the Code), and (vi) the Member's share of
net losses and of any separately allocated items of deduction or loss
(including any loss or deduction allocated to the Member to reflect the
difference between the book value and tax basis of assets contributed by the
Member).
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<PAGE> 23
7.3 DISPOSITION OF FINANCIAL RIGHTS. In the event of a
disposition of some or all of a Member's financial rights, the capital account
of the such Member shall become the capital account of the assignee, to the
extent it relates to the financial rights transferred.
7.4 DISTRIBUTION OF ASSETS. If the Company at any time
distributes any of its assets in-kind to any Members, the capital account of
such Members shall be adjusted to reflect the unrealized gain, loss, and
deduction in such property as would be allocated among the Members if there had
been a taxable disposition of such property for fair market value as of the
date the distribution is made.
7.5 COMPLIANCE WITH SECTION 704(b) OF THE CODE. The provisions of
this Section 7 as they relate to the maintenance of the capital accounts are
intended, and shall be construed, and, if necessary, modified to cause the
allocations of profits, losses, income, gain, and credit pursuant to Section 8
to have substantial economic effect under the regulations promulgated under
section 704(b) of the Code, in light of the distributions made pursuant to
Sections 8 and 12.3 and the capital contributions made pursuant to Section 7.1.
Notwithstanding anything herein to the contrary, this Member Control Agreement
shall not be construed as creating a deficit restoration obligation or
otherwise personally obligating any Member to make a capital contribution in
excess of the initial capital contribution as provided for expressly in Section
7.1 of this Member Control Agreement.
ARTICLE 8.
ALLOCATIONS AND DISTRIBUTIONS
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<PAGE> 24
8.1 ALLOCATIONS OF NET PROFITS AND NET LOSSES FROM OPERATIONS.
Except as may be required by section 704(c) of the Code, and this Article 8,
net profits, net losses, and other items of income, gain, loss, deduction, and
credit shall be apportioned among the Members in proportion to their respective
Percentages.
8.2 SPECIAL ALLOCATIONS. The foregoing provisions of this Article
8 notwithstanding, to the extent necessary to validate the allocation of tax
items for federal income tax purposes, the Company shall comply with (i) the
allocations required by the "qualified income offset" provisions of Regulation
Section 1.704-1(b)(2)(ii)(d) (including the capital account adjustments set
forth therein); (ii) the allocations required by Regulation Section 1.704-2,
regarding allocations attributable to nonrecourse financing; (iii) the
allocations required by Regulation Section 1.704-3 regarding special allocation
of gain, loss and depreciation with respect to the contribution of appreciated
or depreciated property to the Company; and (iv) the allocations required by
Regulations as the result of any election to adjust the basis of Company assets
pursuant to Code section 754.
8.3 INTERIM DISTRIBUTIONS. From time to time, the Board of
Governors shall determine to what extent, if any, the Company's cash on hand
exceeds the current and anticipated needs, including, without limitation, needs
for operating expenses, debt service, acquisitions and reserves. To the extent
such excess exists, the Board of Governors may make distributions to the
Members in accordance with their respective Percentages.
8.4 LIMITATIONS ON DISTRIBUTIONS. Notwithstanding the foregoing
provisions, no distribution shall be declared and paid unless, after the
distribution is made, the assets of the
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<PAGE> 25
Company are in excess of all liabilities of the Company, except liabilities to
Members on account of their capital accounts.
ARTICLE 9.
TAXES AND ACCOUNTING
9.1 ELECTIONS. The Board of Governors may make any tax elections
for the Company allowed under the Code or the tax laws of the State of
Minnesota or any other taxing jurisdiction.
9.2 TAXES OF TAXING JURISDICTIONS. To the extent that the laws of
any taxing jurisdiction require, each Member requested to do so by the Board of
Governors shall submit an agreement indicating that the Member will make timely
income tax payments to the taxing jurisdiction and that the Member accepts
personal jurisdiction of the taxing jurisdiction with regard to the collection
of income taxes attributable to the Member's income and interest and penalties
assessed on such income. If the Member fails to provide such agreement, the
Company may withhold and pay over to such taxing jurisdiction the amount of
tax, penalty, and interest determined under the laws of the taxing jurisdiction
with respect to such Member's income. Any such payments with respect to the
income of a Member shall be treated as a distribution for purposes of this
Member Control Agreement. The Board of Governors may, where permitted by the
rules of any taxing jurisdiction, file a composite, combined, or aggregate tax
return reflecting the income of the Company and pay the tax, interest, and
penalties of some or all of the Members on such income to the taxing
jurisdiction, in which case the Company shall inform the Members of the amount
of such tax, interest, and penalties so paid.
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<PAGE> 26
9.3 TAX MATTERS PARTNER. The Board of Governors shall designate
one of the Governors or, if there are no Governors eligible to act as tax
matters partner, any Member as the tax matters partner of the Company pursuant
to Section 6231(a)(7) of the Code. Any Governor or Member designated as tax
matters partner shall take such action as may be necessary to cause each Member
to become a "notice partner" within the meaning of Section 6223 of the Code.
Any Member who is designated tax matters partner may not take any action
contemplated by Sections 6222 through 6232 of the Code without the consent of
the Board of Governors.
9.4 TAX YEAR. The records of the Company shall be maintained on a
calendar year basis.
9.5 METHOD OF ACCOUNTING. The records of the Company shall be
maintained on an accrual method of accounting.
ARTICLE 10.
TERMINATION OF INTEREST
10.1 EVENTS OF TERMINATION. A Member shall cease to be Member upon
the occurrence of any event described in the Act as an event that terminates
the continued membership of a member in the Company but no Member shall have
the right to undertake any action which would terminate the continuation of
membership without the same level of Member approval required for termination
of Company business operations at such time pursuant to Section 1.8. A Member
which exercises the power to terminate the continuation of its membership at a
time when it does not have the right to do so shall be liable to the Company
and the other Members for any damages caused by such wrongful termination.
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<PAGE> 27
10.2 RIGHT TO PURCHASE TERMINATING MEMBER'S INTEREST. If any
Member shall terminate its membership, the remaining Members shall have the
right, but not the obligation, to purchase and acquire a proportionate share
(or such other share as such remaining Members shall determine) of Membership
Interest of such terminating Member for the fair market value of such
Membership Interest as determined at the time of termination. The purchase
price shall be payable in a reasonable time not to exceed six (6) months. Any
dispute among the Members concerning the fair value of such withdrawing
Member's Shares shall be resolved by arbitration pursuant to Section 15.4.
ARTICLE 11.
ADMISSION OF ADDITIONAL MEMBERS
The admission of additional Members shall be made by the affirmative
vote or written consent of all current Members. Each Member may grant or
withhold the approval of such admission in its sole and absolute discretion.
The additional Members shall execute an Admission Agreement negotiated by the
Board of Governors, which shall set forth the name and address of, and the
number of Shares owned by, such additional Member and the capital contribution
to be made by such additional Member for the acquisition of shares of
Membership Interest. Upon approval of such admission by the Board of
Governors, the Admission Agreement shall be attached hereto and made a part of
this Member Control Agreement.
ARTICLE 12.
DISSOLUTION AND WINDING UP
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<PAGE> 28
12.1 DISSOLUTION. The Company shall be dissolved and its affairs
wound up upon the first to occur of the following events (which, unless the
Members agree to continue the business as provided in paragraph (c) below,
shall constitute dissolution events):
(a) The affirmative written consent to dissolve the
Company or to discontinue its business operations by the requisite
number of Members (depending upon the timing of such consent) as
specified in Section 1.8.
(b) Whenever there are fewer than two (2) Members.
(c) The occurrence of an event that terminates the
continued membership of a Member in the Company, unless the business
of the Company is continued with the affirmative vote or written
consent of all remaining Members within ninety (90) days after such
event.
(d) The expiration of the term described in Section 1.2.
(e) The entry of a decree of judicial dissolution.
Except as specifically stated in this Section 12.1, no event that
would cause a dissolution under the Act shall cause a dissolution of the
Company.
12.2 EFFECT OF DISSOLUTION. Upon dissolution, the Company shall
cease carrying on (as distinguished from the winding up and liquidation of) the
Company business. The Company is not terminated upon dissolution, but
continues its existence until the winding up of the affairs of the Company is
completed and the business of the Company may be continued in order to maximize
its value as a going concern for eventual sale.
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<PAGE> 29
12.3 DISTRIBUTION OF ASSETS ON DISSOLUTION. Upon the winding up of
the Company and liquidation of its assets (to the extent determined by the
Board of Governors or liquidating trustee as applicable), the Company property
shall be distributed as set forth in the Articles:
(a) To creditors, including Members who are creditors, to
the extent permitted by law, in satisfaction of Company liabilities;
(b) To establish any reserves deemed necessary by the
Board of Governors; and
(c) To Members in accordance with positive capital
account balances taking into account all capital account adjustments
for the Company's taxable year in which the liquidation occurs
(including adjustments pursuant to Section 7.5. Liquidation proceeds
shall be paid within sixty (60) days after the end of the Company's
taxable year or, if later, within ninety (90) days after the date of
liquidation. Such distributions shall be in money or other property
(which need not be distributed proportionately) or partly in both, as
determined by the Board of Governors.
If any reserves are established in connection with the foregoing, the
Board of Governors may pay over the amounts reserved to an escrow agent to be
held by it for the purposes of disbursing the reserves in payment of any
contingencies which may arise and, at the expiration of any period as the Board
of Governors considers advisable, for distribution of the balance of the funds
in the same manner and with the same priorities as are provided in this Section
12.3. The Members shall look solely to the assets of the Company for the
return of their capital contributions.
12.4 WINDING UP. The winding up of the Company shall be completed
when all debts, liabilities, and obligations of the Company have been paid and
discharged or reasonably adequate
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<PAGE> 30
provision therefor has been made, and all of the remaining property and assets
of the Company have been distributed to the Members. If necessary or
appropriate to maximize the proceeds of liquidation of the Company, the Board
of Governors may transfer the assets of the Company to a liquidating trustee or
liquidating trustees selected by the Board or Governors.
ARTICLE 13.
MERGER AND CONSOLIDATION
13.1 AUTHORITY TO MERGE OR CONSOLIDATE. The Company shall have the
authority to merge or consolidate with or into another limited liability
company, a limited partnership, a corporation or other entity domestic or
foreign, as permitted by the Act provided that the agreement of merger or
consolidation is approved by all of the Members.
ARTICLE 14.
AMENDMENT
14.1 AMENDMENT BY BOARD OF GOVERNORS. Except as otherwise
specifically provided in this Member Control Agreement, the Board of Governors
may adopt an amendment to this Member Control Agreement to do any one or more
of the following:
(a) to implement or effectuate the provisions of any part
of this Member Control Agreement or to continue the Company for the
term provided herein under the laws of the State of Minnesota and of
any state or jurisdiction in which it shall do business;
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<PAGE> 31
(b) to take any action, on the advice of counsel to the
Company, as may be necessary or appropriate to satisfy then current
requirements of the Code with respect to partnerships or limited
liability companies that have been structured to be classified as
partnerships under the Code or any applicable laws or regulations; or
(c) to cure any ambiguity, defect or inconsistency.
All Members shall be furnished with a copy of such amendment prior to its
adoption. No amendment that is proposed to become effective under this Section
14.1 shall become effective without approval under Section 14.2 if Members with
governance rights holding Percentage aggregating 15% or more deliver to the
Company within 30 calendar days following delivery of the amendment to the
Members their written objection to the amendment.
14.2 OTHER AMENDMENTS. Except as specifically provided in Section
14.1 or otherwise in this Member Control Agreement:
(a) An amendment to (i) a section of this Member Control
Agreement that specifies that action under that section may only be
taken upon the unanimous affirmative approval of Members (ii) Section
8.1 or (iii) this Section 14.2(a) shall require the unanimous approval
of the Members.
(b) Any amendment that would increase a Member's
obligation to make contributions to the capital of the Company or
further limit a Member's ability to hold or make a transfer of its
Membership Interest, shall be effective with respect to a Member only
if the Member does not act to disapprove the amendment by returning to
the Company,
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<PAGE> 32
within 30 days after the request is made for adoption of the
amendment, a notice indicating its disapproval of such amendment;
(c) Any other amendment shall be effective if approved by
Members with a Majority in Interest.
14.3 EXECUTION OF AMENDMENTS. Each Member shall execute all
documents and instruments necessary to evidence its approval of all actions,
including, without limitation, amendments to this Member Control Agreement,
taken or authorized by the Members with a Majority in Interest or otherwise as
provided in this Member Control Agreement.
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<PAGE> 33
ARTICLE 15.
MISCELLANEOUS PROVISIONS
15.1 ENTIRE AGREEMENT; INTERPRETATION. This Member Control
Agreement represents the entire agreement among all the Members and between the
Members and the Company. It is the express intention of the Members that this
Member Control Agreement, the Bylaws and any agreements expressly provided for
in this Member Control Agreement, shall be the sole source of agreement of the
parties with respect to the subject matter hereof, and, except to the extent
provisions of this Member Control Agreement expressly incorporate federal
income tax rules by reference to sections of the Code or Regulations or to the
extent any provision is expressly prohibited or ineffective under the Act, this
Member Control Agreement shall govern, even when inconsistent with, or
different from, the provisions of the Act or any other law or rule. To the
extent any provision of this Member Control Agreement is prohibited or
ineffective under the Act, this Member Control Agreement shall be considered
amended to the smallest degree possible in order to make the Member Control
Agreement effective under the Act. In the event the Act is subsequently
amended or interpreted in such way to make any provision of this Member Control
Agreement that was formerly invalid valid, such provision shall be considered
to be valid from the effective date of such interpretation or amendment.
15.2 NO PARTNERSHIP INTENDED FOR NONTAX PURPOSES. The Members have
formed the Company under the Act, and expressly do not intend hereby to form a
partnership under either the Minnesota Uniform Partnership Act or the Minnesota
Uniform Limited Partnership Act. The Members do not intend to be partners one
to another, or partners as to any third party. To the extent
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<PAGE> 34
any Member, by word or action, represents to another person that any other
Member is a partner or that the Company is a partnership, the Member making
such wrongful representation shall be liable to any other Member who incurs
personal liability by reason of such wrongful representation.
15.3 RIGHTS OF CREDITORS AND THIRD PARTIES UNDER THE MEMBER CONTROL
AGREEMENT. This Member Control Agreement is entered into among the Company and
the Members for the exclusive benefit of the Company, its Members, and their
successors and assignees. This Member Control Agreement is expressly intended
not to benefit any creditor of the Company or any other person. Except and
only to the extent provided by applicable statute, no such creditor or third
party shall have any rights under this Member Control Agreement or any
agreement between the Company and any Member with respect to any capital
contribution, loan or otherwise.
15.4 ARBITRATION. If any controversy or claim arising out of this
Member Control Agreement, the Articles or the Bylaws between the Members and/or
Governors (the "Parties") cannot be settled by the Parties, the controversy or
claim shall be settled by arbitration in the appropriate jurisdiction of the
Principal Office in accordance with the rules of the American Arbitration
Association then in effect, and judgment on any award of the arbitrator,
including attorneys fees, shall be allocated between the Parties as determined
by the arbitrator.
15.5 NOTICE. Service of all notices under this Member Control
Agreement shall be sufficient if given in writing, whether by mail, telefax
(with confirmation), electronic mail (with confirmation), or similar
communications equipment, to each member of the Board of Governors individually
or to Members at the addresses as indicated in the records of the Company, or
to the Members or Governors at such other addresses as any Member or Governor
may from time to time designate in writing to the Company. Any notice if sent
by mail shall be deemed to be given as of
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<PAGE> 35
5:00 p.m. Eastern Standard Time on the second Business Day following the
posting of such notice, and if sent by telefax, electronic mail or similar
communications equipment shall be deemed given when such notice is sent.
15.6 GOVERNING LAW. This Member Control Agreement and any
amendments hereto shall be governed, interpreted and construed in accordance
with the laws of Minnesota, without regard to Minnesota choice of law
provisions.
15.7 SUCCESSORS. This Member Control Agreement and all terms and
provisions hereof and amendments hereto shall inure to the benefit of and be
binding on the successors and assigns of the Members.
15.8 SEVERABILITY. Each provision of this Member Control Agreement
shall be severable if unenforceable and the remainder of the Member Control
Agreement shall not be void for the unenforceability of any such provision(s).
IN WITNESS WHEREOF, the Members, through their duly authorized
officers, have executed this Member Control Agreement on the date set forth
below their names.
VIRGINIA HORN TACONITE COMPANY
by ________________________________
its ________________________________
________________________________
(date)
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<PAGE> 36
EVELETH TACONITE COMPANY
by ________________________________
its ________________________________
________________________________
(date)
ONTARIO EVELETH COMPANY
by _______________________________
its _______________________________
_______________________________
(date)
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<PAGE> 37
EXHIBIT A
INITIAL MEMBERS:
<TABLE>
<CAPTION>
INITIAL CAPITAL
MEMBER NAME AND ADDRESS CONTRIBUTION PERCENTAGE
- ----------------------- --------------- ----------
<S> <C> <C>
Eveleth Taconite Company $1,800,000(1) 45%
Virginia Horn Taconite Company $1,600,000(2) 40%
Ontario Eveleth Company $ 600,000(3) 15%
</TABLE>
- ---------------
(1) Eveleth Taconite Company, in exchange for its 45% membership interest, has
agreed to contribute, in addition to the initial cash contribution listed on
this Exhibit A, (i) certain of its assets used in the operation of Eveleth Mines
and (ii) its pro rata share of the cash necessary for the initial operating
expenses of the Company, all as provided in the Assignment, Contribution and
Assumption Agreement between ETCO and the Company effective as of December 1,
1996.
(2) Virginia Horn Taconite Company, in exchange for its 40% membership
interest, has agreed to contribute, in addition to the initial cash contribution
listed on this Exhibit A, (i) its general partnership interest in Eveleth
Expansion Company ("EXCO") and (ii) its pro rata share of the cash necessary for
the initial operating expenses of the Company, all as provided in the
Assignment, Contribution and Assumption agreement by and among Virginia Horn
Taconite Company, Ontario Eveleth Company and the Company effective as of
December 1, 1996.
(3) Ontario Eveleth Company, in exchange for its 15% membership interest, has
agreed to contribute, in addition to the initial cash contribution listed on
this Exhibit A, (i) its general partnership interest in Eveleth Expansion
Company ("EXCO") and (ii) its pro rata share of the cash necessary for the
initial operating expenses of the Company, all as provided in the Assignment,
Contribution and Assumption agreement by and among Virginia Horn Taconite
Company, Ontario Eveleth Company and the Company effective as of December 1,
1996.
<PAGE> 1
October 25, 1996 EXHIBIT 10.22
Mr. Ronald J. Nock
Rouge Steel Company
P.O. Box 1699
3001 Miller Road
Dearborn, MI 48121-1699
Re: Delta Galvanizing
Dear Ron:
This will confirm the conversations we have had concerning Delta galvanizing.
As we discussed, the parties will not do a joint venture for the Delta
galvanizing line. Instead, Worthington and Rouge will enter into (i) a Supply
Agreement with respect to a percentage of steel to be purchased by Worthington
for the line and (2) a Toll Coating Agreement whereby Worthington will toll
coat for Rouge on the line. Terms of these agreements will be as follows:
SUPPLY AGREEMENT.
1. Term. Seven years and yearly evergreen thereafter, subject to two year
cancellation notification by either party;
2. Volume. Rouge will supply 37.5% of Worthington's purchases to be run
through the Delta galvanized line. Volume will be forecasted, discussed and
agreed quarterly.
3. Pricing.
(a) HR. Rouge price will be competitive with USS, LTV, Bethlehem and
AK on HR band prices, less Worthington's normal 2% discount. Rouge will absorb
freight to Delta.
(b) Full hard CR. Full hard CR band prices to be equal to
competitive prices which Rouge is quoting other galvanizers, less Worthington's
normal 2% discount, plus freight to Delta.
4. Annealed CR. Annealed CR band prices will be competitive with USS, LTV
and Bethlehem annealed CR band prices, less Worthington's normal 2% discount,
plus freight to Delta.
<PAGE> 2
Mr. Ronald J. Nock
Rouge Steel Company
October 25, 1996
Page Two
Except as set forth above, terms and conditions for individual orders will be
those which apply to individual purchases under Worthington's master Steel
Purchase Agreement with Rouge.
The tonnage commitment set forth above and Worthington's steel purchases for
the Delta galvanizing line will be excluded from tonnage commitments under the
master Steel Purchase Agreement between Worthington and Rouge.
TOLL COATING AGREEMENT.
1. Term. Seven years and yearly evergreen thereafter, subject to two year
cancellation notification (same as with supply agreement). Should Worthington
sell the line, Rouge will be given two year cancellation notification should
Buyer not want to toll for Rouge.
2. Volume. Delta galvanizing will toll coat 7,000 tons per month for Rouge
with a start-up phase in.
3. Toll Coating Fee. Toll coating fee shall be per the attachment.
Pricing will be reviewed annually.
4. Scrap Credit. Scrap credit will not be given on any galvanized items
unless exit weight of the galvanized coil is less than weight of the coil
entering the line.
5. Terms and Conditions. General terms and conditions applicable to
Worthington processing will apply.
This letter is designed as a letter of intent, to set forth the agreement in
principle reached between the parties. However, it is not legally binding and
neither party shall be bound unless and until definitive agreements have been
prepared and executed.
Please sign in the space provided below to confirm our understanding as set
forth above, and return a signed copy to us. We will then begin preparation of
the definitive agreements.
Very truly yours, Accepted and Agreed:
WORTHINGTON INDUSTRIES ROUGE STEEL COMPANY
By: /s/ Edward A. Ferkany By: /s/ Ronald J. Nock
------------------------- ------------------------
Edward A. Ferkany Ronald J. Nock
<PAGE> 1
EXHIBIT 10.23
FURNACE COKE SUPPLY AGREEMENT
BETWEEN
ROUGE STEEL COMPANY
AND
BETHLEHEM STEEL CORPORATION
DATED: OCTOBER 31, 1996
<PAGE> 2
SECTION 1. TERM OF THE SUPPLY AGREEMENT.
1.1 TERM. The initial term of this Agreement shall commence on January 1,
1997 and, subject to earlier termination in accordance with the terms
hereof, shall terminate on December 31, 2001. This Agreement shall
continue on a year-to-year basis after the initial term unless terminated
at the end of the initial term (or earlier, as provided herein) or, unless
terminated at the end of the initial term and any such subsequent annual
term upon written notification by either party to the other no later than
the prior December 31.
SECTION 2. QUANTITY.
2.1 The quantity of Coke sold and purchased under this Agreement shall be
approximately 650,000 natural net tons in each calendar year.
2.2 Buyer may declare its intent to increase or reduce purchase tonnage by
as much as 60,000 tons in any calender year for 1997 forward with
notification to Seller of its intention on or before October 1st of each
immediately preceding year and, in the case of a decreased tonnage
declaration, the purchase quantity shall be so adjusted.
In the case of an increased tonnage declaration, the purchase quantity
shall be so adjusted, pending availability and agreement by Seller to
increase shipments.
2.3 Deliveries shall be made throughout each year in installments at as
uniform a rate as practicable in accordance with a written monthly delivery
schedule specifying shipping dates and quantities.
SECTION 3. PRICE OF COKE.
3.1 BASE PRICE. The price to be paid by Buyer to Seller per natural
net ton (natural ton includes moisture), F.O.B. loaded rail cars at
Seller's Bethlehem Coke Plan shall be $106.00 for the years 1997 and 1998,
and $108.00 effective January 1, 1999, subject to price adjustments to be
defined by Item 7.1 as described in Exhibit "B".
3.1.A. BASE PRICE. In the event Seller should offer to make shipments
to Buyer from Seller's Lackawanna Coke Plant in place of or to
supplement shipments from Seller's Bethlehem Coke Plant, and Buyer
agrees to accept such shipments, the price for Coke from the
Lackawanna Coke Plant will be established
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<PAGE> 3
by the parties and shall take into consideration differentials in
applicable freight costs and differentials in quality.
3.2 PRICE ADJUSTMENTS. On or before April 15, 1999, Seller shall propose to
Buyer a revised selling price to be effective on January 1, 2000. The price so
proposed will be determined from any combination of cost and market factors
including, but not limited to, changes in relative cost of coal delivered to
the Seller's Coke Plant, changes in cost of labor, changes in hot roll sheet
producer price index and relative value of other commercial Coke of comparable
quality available in the marketplace.
3.2.A. Should the parties fail to agree on Seller's proposed price, or
other alternate price before July 1, 1999, then the price currently in
effect will apply for shipments which will continue at one-half of the
contract rate from January 1 through December 31 of the year for which
agreement was not made, after which time this Agreement shall terminate.
3.2.B. Price nomination by Seller for 2001 and subsequent years shall be
made on or before August 1 of each preceding year. Should the parties fail
to agree on such price or alternate price before October 1, then the
termination provisions of Section 3.2.A shall apply.
3.3 GOVERNMENT LEGISLATION. If, during the term of the Agreement, federal,
state or local laws or regulations, including but not limited to such laws or
regulations which affect business or sales taxes, or other costs are imposed
which directly increases the cost of producing or processing Coke by Seller for
Buyer hereunder, Buyer and Seller shall, through good faith negotiations,
jointly determine the effect of such legislation on Seller's aforesaid cost of
producing or processing Coke for Buyer, and Buyer and Seller shall jointly agree
to an applicable cost per ton to be added to the existing price at the time such
increase in the cost is realized.
Should the parties be unable to agree on Seller's proposed price,
reflecting such costs, or other alternate price, then the price currently in
effect will apply for shipments which will continue at the existing contract
rate for the next immediate six (6) months, or to the date such costs were to
take effect, whichever first occurs, at which time this Agreement will
terminate.
If any price adjustment is in process, invoicing shall be on the basis of
base price then in effect, and the appropriate adjustment shall be made
retroactively to the effective date as soon as the pending price adjustment has
been determined.
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<PAGE> 4
SECTION 4. DELIVERY AND TITLE.
4.1 The Coke sold and purchased hereunder shall be delivered to Buyer in
rail cars at Seller's Coke Plant.
4.2 The title to and risk of loss of Coke sold and purchased hereunder
shall pass to Buyer upon loading into cars at Seller's Coke Plant.
4.3 Seller shall make good faith effort to ensure rail car integrity in
order to avoid in-transit coke loss. Buyer shall make good faith effort to
return rail cars unloaded and with hopper doors sealed in suitable condition
for reloading.
4.4 Buyer shall make all necessary arrangements for transportation. Seller
shall cooperate with and provide assistance to Buyer where necessary and
appropriate, and the parties shall communicate with each other regularly to
schedule and expedite shipments.
SECTION 5. WEIGHTS. Weights to be applied for billing purposes will be
those weights as determined by scales at origin or in transit, which scales
shall be periodically calibrated and certified in accordance with existing
railroad industry standards. Initially, rail car stenciled tare weights will
be used, with either Buyer or Seller reserving the right to have cars
light-weighed from time to time, in which case the actual difference between
loaded and light weights will apply for billing purposes.
SECTION 6. BILLING AND PAYMENT. Seller shall invoice Buyer for shipments
occurring from the 1st to the 15th of each month upon receipt of weight
certificates, with payment to be made by Buyer on or before the 10th of the
following month. Seller shall invoice Buyer for shipments occurring from the
16th to the 31st of each month upon receipt of weight certificates, with
payment to be made by Buyer on or before the 25th of the following month.
Send payment to: BETHLEHEM STEEL CORPORATION
P O BOX 13700-1024
PHILADELPHIA, PA 19191-1024
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<PAGE> 5
6.1 If any price adjustment is in process, invoicing shall be on the basis of
base price then in effect, and the appropriate adjustment shall be made
retroactively as soon as the pending price has been determined.
6.2 Invoices for each shipment will be corrected, if applicable, to reflect any
weight adjustment for moisture in excess of specification limit, as set out in
Exhibit "B" hereof.
6.3 Cost of freezeproofing agents, as and if requested by Buyer, and as agreed
by the parties shall be shown as a separate item on invoices of each shipment so
treated.
SECTION 7. COKE QUALITY.
7.1 The quality of the Coke to be purchased and sold hereunder shall conform
as closely as practicable to the specifications set forth in Exhibit "A",
attached hereto and included herein by reference, with price adjustments to be
implemented as specified in Exhibit "B" for deliveries that deviate beyond the
stated specification limits.
7.2 Initial specifications stated in Exhibit "A" are representative of the
six-month period prior to the effective date of the Agreement. The parties will
review performance after the first six months under the Agreement, at which time
specification limits will be revised as necessary by mutual agreement to reflect
actual performance. Any further changes in the specifications stated in Exhibit
"A", as a result of changes in coals or operating practices from time to time
during the term of the Agreement, will be mutually agreed to by Buyer and
Seller.
7.3 Seller will achieve ISO 9002 certification by December 1998, or
subsequently provide Buyer an acceptable timeline to achieve such certification.
Once that certification is achieved, Seller will put forth good effort in a
continuing program to obtain QS 9000 certification.
SECTION 8. SAMPLING AND ANALYSIS.
8.1 Seller shall sample and analyze the Coke sold and purchased hereunder at
Seller's Coke Plants in accordance with its then current practice unless
otherwise agreed upon by the parties in accordance with Item
8.2. Seller shall sample and analyze each sample daily for each of the
chemical and physical specifications, as set for the Exhibit A (with the
exception of ultimate and
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<PAGE> 6
ash component analyses, and reactivity tests (CSR, CRI and Bethlehem
reactivity), which will be performed periodically as agreed with results sent
to Buyer).
Seller shall sample the Coke produced by each production turn in
accordance with its then current practice, and submit such samples to UEC Coal
& Coke Lab in Pittsburgh, PA, and Commercial Testing and Engineering Company's
lab in Nesquehoning, PA, for chemical and physical analysis in accordance with
their respective then current practices, or as otherwise agreed by the parties,
to determine the average analysis of Coke loaded for Buyer on each day.
The average daily analysis for each shipment shall be transmitted by
fax or electronically to such persons or places as indicated on Exhibit "C"
attached hereto, as soon as available (usually 24 hours following loading).
Such daily average analysis shall be determinative of product value for
purposes of billing and payment of the purchase price.
8.2 In its efforts toward continuous improvement, Seller agrees to further
review its sampling and analysis techniques and systems to determine and
implement any improvements to provide the most representative data on its coke
properties, giving consideration of the practical limitations of facilities,
manpower and costs required both at the sampling facility and participating
laboratories. Any changes proposed or required will be reviewed and mutually
agreed to by the parties.
SECTION 9. QUALITY ADJUSTMENTS AND REMEDIES.
9.1 In the event Coke sold and purchased hereunder fails to conform to the
quality parameters set forth in Exhibit A, Buyer shall be entitled to the
following remedies as applicable:
a) In the event any individual shipment of Coke, sampled and analyzed in
accordance with Section 8, fails to conform to the applicable minimum or
maximum specifications with respect to ash, sulfur, volatile matter,
stability, moisture or size, but does not exceed applicable rejection
criteria with respect to any specification, the price adjustment set for
the Exhibit A with respect to such specification shall apply and shall
constitute Buyer's sole and exclusive remedy.
b) In the event any individual shipment of Coke, sampled and analyzed in
accordance with Section 8, exceeds the applicable rejection criteria
with respect to any specification, Buyer may, at its sole option, and as
its sole and exclusive remedies, reject such shipment and reconsign it
to Seller at Seller's expense or accept such shipment with the
applicable price adjustment as set forth in Exhibit B. In the event of
any such rejection, Buyer may, at its
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<PAGE> 7
sole option, elect for Seller to replace such Coke in kind or refund
the price (if already paid).
Such rejected shipments shall be excluded from quantity
provisions as set forth in Item 2.1.
c) In the event the average analysis of any of the critical elements
identified in Exhibit "A" over two (2) consecutive months of shipments
of Coke hereunder fail to conform to any applicable minimum or maximum
specification as to which price adjustments would apply, as sampled and
analyzed in accordance with Section 8, Buyer may, at its sole and
exclusive remedy and upon thirty (30) days prior written notice to
Seller, elect to suspend further purchases until such time as Seller
has provided assurance satisfactory to Buyer that conforming Coke will
be supplied or cancel this Agreement.
9.2 Any applicable price adjustments shall be made through monthly
reconciliation statements noting any specification deviations and the resultant
adjustments. Such statements shall be furnished by Seller to Buyer on or
before the tenth (10th) of each month for shipments occurring during the
preceding month. Seller shall issue a monthly credit memorandum, with attached
copy of the monthly reconciliation statement, which shall be calculated by
application of the adjustment formulae contained in Exhibit B hereof.
SECTION 10. DISCLAIMER OF IMPLIED WARRANTIES. THERE ARE NO WARRANTIES,
EXPRESSED OR IMPLIED, IN FACT OR IN LAW, INCLUDING, WITHOUT LIMITING THE
GENERALITY OF THE FOREGOING, ANY WARRANTY OF MERCHANTABILITY OR FITNESS FOR A
PARTICULAR PURPOSE, WHICH EXTEND BEYOND THE EXPRESS WARRANTIES CONTAINED
HEREIN. SELLER SHALL NOT BE LIABLE IN CONTRACT OR TORT FOR ANY DIRECT,
INDIRECT, SPECIAL, INCIDENTAL OR CONSEQUENTIAL DAMAGES, INCLUDING BY WAY OF
ILLUSTRATION AND NOT OF LIMITATION, LOSS OF USE, LOSS OF WORK IN PROCESS,
DOWNTIME OR LOSS OF PROFITS.
SECTION 11. MATERIAL BREACH OR DEFAULT.
11.1 Except as otherwise provided below, in the event of any material breach
or default of this Agreement by either party, the non-defaulting party may,
upon thirty (30) days written notice to
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<PAGE> 8
the other party and such party's failure to cure such material breach or
default within such period, terminate this Agreement without prejudice to any
other rights or remedies the non-defaulting party may have hereunder or at law.
In the event of default by Buyer by failure to make payments due, Seller may
suspend further deliveries hereunder until such default shall have been
corrected. If such default is not corrected within fifteen (15) days of Seller
having given written notice of such default, Seller may terminate this
Agreement without prejudice to any other rights or remedies Seller may have
hereunder or at law.
SECTION 12. FORCE MAJEURE. The term "Force Majeure" as used herein shall mean
any and all unforeseeable causes beyond the control and without the fault or
negligence of the party failing to perform including but not limited to Acts of
God, acts of the public enemy, insurrection, riots, labor disputes, boycotts,
labor and material shortages, fires, explosions, floods, breakdowns of or
damage to plants, equipment or facilities, interruptions to transportation,
embargoes, acts of civil, judicial or military authorities, acts of
governmental authorities or other causes of a similar nature which wholly or
partly prevent the production, delivering or loading of Coke by Seller, or the
receiving, transporting, accepting or utilizing of the Coke by Buyer. It is
understood and agreed that the settlement of strikes or lockouts shall be
entirely within the discretion of the party affected.
EFFECT HEREUNDER. If, because of any Force Majeure, either party
hereto is unable to carry out any of its obligations under this agreement and,
if such party shall promptly give to the other concerned party written notice
of such Force Majeure, then the obligations of the party receiving the notice
shall be equally suspended; provided, however, that the party giving such
notice shall use its best efforts to eliminate such Force Majeure insofar as is
reasonable with a minimum of delay. Any deficiencies or acceptance of the Coke
hereunder caused by Force Majeure shall not be made up except by mutual
consent.
SECTION 13. FACILITIES SHUTDOWN. If during the term of this Agreement,
i) Any of Buyer's blast furnaces and facilities are shut down (or their
operation substantially curtailed) by Buyer, in its sole judgment, in
response to or anticipation of (A) the impact of compliance with any laws,
rules or regulations, (B) economic hardship or (C) unexpected significant
operational change which in turn reduces Coke requirements; or
ii) Any of Seller's Coke Plants and facilities are shut down (or their
operation substantially curtailed) by Seller, in its sole judgment, in
response to or anticipation of (A) the impact of
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<PAGE> 9
without the prior written consent of the non-assigning party, which consent
shall not be unreasonably withheld.
SECTION 17. ARBITRATION. Any controversy or claim arising out of or
relating to this Agreement, or the breach thereof, shall be settled by
arbitration in the City of Cleveland, State of Ohio, by a panel of three (3)
arbitrators, in accordance with the commercial arbitration rules of the
American Arbitration Association. The arbitration shall be governed by the
United States Arbitration Act, 9 U.S.C. paragraphs 1-16, and judgment upon the
award rendered by the arbitrators may be entered by any court having
jurisdiction thereof. The arbitrators shall not be empowered to award damages
in excess of compensatory damages.
SECTION 18. HEADINGS NOT TO AFFECT CONSTRUCTION. The headings to the respective
sections and paragraphs of this Agreement are inserted for convenience of
reference, and are neither to be taken to be any part of the provisions hereof,
nor to control or affect the meaning, construction or effect of the same.
SECTION 19. WRITTEN INSTRUMENT CONTAINS ENTIRE AGREEMENT. This written
instrument contains the entire agreement between the parties hereto with
respect to the subject matter, and there are no other understandings or
agreements between said parties or either of them with respect thereto. Any
and all amendments, supplements, and modifications to this Agreement shall be
in writing, and signed by an officer of each party hereto.
SECTION 20. SEVERABILITY. If any provision of this Agreement shall be
declared invalid and unenforceable, such invalidity or unenforceability shall
attach only to such provision, and this Agreement shall be carried out as if
each invalid or unenforceable section were not contained herein.
-10-
<PAGE> 10
INTENDING TO BE LEGALLY BOUND HEREBY, THE PARTIES HERETO HAVE EXECUTED
THIS AGREEMENT IN THEIR RESPECTIVE CORPORATE NAMES, AS OF THE DATE FIRST ABOVE
WRITTEN.
ROUGE STEEL COMPANY
WITNESS: BY DANIEL A MORRIS
---------------------------
[SIG]
TITLE V. P. Purch & Trans
----------------------------
BETHLEHEM STEEL CORPORATION
WITNESS: BY [SIG]
--------------------------
[SIG]
TITLE Manager, Raw Material Team
--------------------------
-11-
<PAGE> 1
EXHIBIT 21
ROUGE STEEL COMPANY
LIST OF SUBSIDIARIES
State of Incorporation
Subsidiary or Organization
---------- ----------------------
Eveleth Taconite Company Minnesota
Rouge Steel Holding Company Delaware
QS Steel Inc. Michigan
Double Eagle Steel Coating Company Michigan
<PAGE> 1
EXHIBIT 23
CONSENT OF INDEPENDENT ACCOUNTANTS
We hereby consent to the incorporation by reference in the Registration
Statements on Form S-8 (No. 33-88518 and 33-88520) of Rouge Steel Company of our
report dated January 29, 1997 appearing on page 31 of the Annual Report on Form
10-K for the year ended December 31, 1996. We also consent to the application
of such report to the Financial Statement Schedules for the three years ended
December 31, 1996 listed under Item 14(a) of Rouge Steel Company's Annual Report
on Form 10-K for the year ended December 31, 1996 when such schedules are read
in conjunction with the financial statements referred to in our report. The
audits referred to in such report also included these schedules.
PRICE WATERHOUSE LLP
Detroit, Michigan
February 10, 1997
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<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-START> JAN-01-1996
<PERIOD-END> DEC-31-1996
<CASH> 24,914
<SECURITIES> 2,039
<RECEIVABLES> 119,882
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