<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[ X ] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the Quarterly Period Ended March 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from _______________ to ______________
Commission File Number 1-12852
ROUGE INDUSTRIES, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 38-3340770
(State of Incorporation) (I.R.S. Employer Identification No.)
3001 MILLER ROAD, P. O. BOX 1699, DEARBORN, MI 48121-1699
(Address of principal executive offices)
(313) 317-8900
(Registrant's telephone number, including area code)
================================================================================
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No
-- ---
The number of shares of common stock issued and outstanding as of April 22, 1998
was 22,000,535 which includes 14,438,135 shares of Class A Common Stock and
7,562,400 shares of Class B Common Stock.
<PAGE> 2
ROUGE INDUSTRIES, INC.
QUARTERLY REPORT ON FORM 10-Q
QUARTER ENDED MARCH 31, 1998
INDEX
<TABLE>
<CAPTION>
PAGE
<S> <C> <C>
PART I - FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
Report of Independent Accountants..................................................................3
Consolidated Balance Sheets........................................................................4
Consolidated Statements of Operations..............................................................6
Consolidated Statement of Changes in Stockholders' Equity..........................................7
Consolidated Statements of Cash Flows..............................................................8
Notes to Consolidated Financial Statements.........................................................9
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations.........................................................................11
PART II - OTHER INFORMATION
Item 1. Legal Proceedings.................................................................................14
Item 5. Other Events......................................................................................14
Item 6. Exhibits and Reports on Form 8-K..................................................................14
</TABLE>
- 2 -
<PAGE> 3
[PRICE WATERHOUSE LLP LETTERHEAD]
REPORT OF INDEPENDENT ACCOUNTANTS
April 20, 1998
To the Board of Directors and
Stockholders of Rouge Industries, Inc.
We have reviewed the accompanying consolidated financial information of Rouge
Industries, Inc. and consolidated subsidiaries appearing on pages 4 through 10
of this report on Form 10-Q as of March 31, 1998, and for the three-month
periods ended March 31, 1998 and 1997. This financial information is the
responsibility of the Company's management.
We conducted our review in accordance with standards established by the American
Institute of Certified Public Accountants. A review of interim financial
information consists principally of applying analytical procedures to financial
data and making inquiries of persons responsible for financial and accounting
matters. It is substantially less in scope than an audit conducted in accordance
with generally accepted auditing standards, the objective of which is the
expression of an opinion regarding the financial statements taken as a whole.
Accordingly, we do not express such an opinion.
Based on our review, we are not aware of any material modifications that should
be made to the accompanying financial information as of March 31, 1998, and for
the three-month periods ended March 31, 1998 and 1997, for it to be in
conformity with generally accepted accounting principles.
We previously audited in accordance with generally accepted auditing standards,
the consolidated balance sheet as of December 31, 1997, and the related
consolidated statements of operations, of changes in stockholders' equity, and
of cash flows for the year then ended (not presented herein), and in our report
dated January 28, 1998 we expressed an unqualified opinion on those consolidated
financial statements. In our opinion, the information set forth in the
accompanying consolidated balance sheet information as of December 31, 1997, is
fairly stated in all material respects in relation to the consolidated balance
sheet from which it has been derived.
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
- 3 -
<PAGE> 4
PART I. FINANCIAL INFORMATION
Item 1. Consolidated Financial Statements
ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands)
<TABLE>
<CAPTION>
Assets
March 31 December 31
1998 1997
---- ----
Unaudited
<S> <C> <C>
Current Assets
Cash and Cash Equivalents $ 9,565 $ 12,570
Accounts Receivable
Trade and Other (Net of Allowances
of $9,176 and $6,333) 124,731 101,590
Affiliates 7,678 9,876
Inventories 190,966 248,317
Other Current Assets 5,493 8,562
--------- ---------
Total Current Assets 338,433 380,915
--------- ---------
Property, Plant, and Equipment
Land 366 --
Buildings and Improvements 24,948 24,718
Machinery and Equipment 281,723 275,489
Construction in Progress 11,443 10,517
--------- ---------
Subtotal 318,480 310,724
Less: Accumulated Depreciation (47,537) (42,162)
--------- ---------
Net Property, Plant, and Equipment 270,943 268,562
--------- ---------
Investment in Unconsolidated Subsidiaries 57,077 50,936
--------- ---------
Deferred Charges and Other 27,869 28,096
--------- ---------
Total Assets $ 694,322 $ 728,509
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 4 -
<PAGE> 5
ROUGE INDUSTRIES, INC.
CONSOLIDATED BALANCE SHEETS
(amounts in thousands except share amounts)
<TABLE>
<CAPTION>
Liabilities and Stockholders' Equity
March 31 December 31
1998 1997
---- ----
Unaudited
<S> <C> <C>
Current Liabilities
Accounts Payable
Trade $ 144,823 $ 152,917
Affiliates 1,244 13,924
Accrued Vacation Pay 12,094 11,007
Taxes Other than Income 2,011 4,312
Other Accrued Liabilities 22,603 21,579
--------- ---------
Total Current Liabilities 182,775 203,739
--------- ---------
Long-Term Debt -- 17,900
--------- ---------
Other Liabilities 59,548 56,969
--------- ---------
Excess of Net Assets Acquired Over Cost 9,831 11,280
--------- ---------
Commitments and Contingencies (Note 5)
Stockholders' Equity
Common Stock
Class A, 80,000,000 shares authorized with 14,438,135
and 14,428,219 issued and outstanding as of
March 31, 1998 and December 31, 1997, respectively 144 144
Class B, 7,562,400 shares authorized, issued and
outstanding 76 76
Capital in Excess of Par Value 128,653 128,517
Retained Earnings 315,541 312,130
Additional Minimum Pension Liability (2,246) (2,246)
--------- ---------
Total Stockholders' Equity 442,168 438,621
--------- ---------
Total Liabilities and Stockholders' Equity $ 694,322 $ 728,509
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 5 -
<PAGE> 6
ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(amounts in thousands except share and per share amounts)
Unaudited
<TABLE>
<CAPTION>
For the Quarter Ended March 31
1998 1997
---- ----
<S> <C> <C>
Sales
Unaffiliated Customers $ 281,872 $ 291,463
Affiliates 37,080 42,709
------------ ------------
Total Sales 318,952 334,172
------------ ------------
Costs and Expenses
Costs of Goods Sold 301,239 313,603
Depreciation and Amortization 5,130 3,547
Selling and Administrative Expenses 5,925 5,585
Amortization of Excess of Net Assets Acquired Over Cost (1,449) (1,449)
------------ ------------
Total Costs and Expenses 310,845 321,286
------------ ------------
Operating Income 8,107 12,886
Interest Income 51 370
Interest Expense (425) (79)
Other - Net (386) 370
------------ ------------
Income Before Income Taxes and Equity
in Loss of Unconsolidated Subsidiaries 7,347 13,547
Income Tax Provision (2,212) (4,080)
------------ ------------
Income Before Equity in Loss of
Unconsolidated Subsidiaries 5,135 9,467
Equity in Loss of Unconsolidated Subsidiaries (1,064) (183)
------------ ------------
Net Income $ 4,071 $ 9,284
============ ============
Per Share Amounts
Net Income - Basic and Diluted $ 0.19 $ 0.42
============ ============
Cash Dividends Declared $ 0.03 $ 0.03
============ ============
Weighted Average Shares Outstanding 21,998,285 21,914,086
============ ============
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 6 -
<PAGE> 7
ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(amounts in thousands)
Unaudited
<TABLE>
<CAPTION>
For the Quarter Ended
March 31,1998
-------------
<S> <C>
Common Stock
Beginning Balance $ 220
Common Stock Issued for Employee Benefit Plans --
---------
Ending Balance 220
Capital in Excess of Par Value
Beginning Balance 128,517
Common Stock Issued for Employee Benefit Plans 136
---------
Ending Balance 128,653
---------
Retained Earnings
Beginning Balance 312,130
Net Income and Comprehensive Income 4,071
Cash Dividends Declared (660)
---------
Ending Balance 315,541
---------
Additional Minimum Pension Liability
Beginning Balance (2,246)
---------
Required Minimum Liability Adjustment --
Ending Balance (2,246)
---------
Total Stockholders' Equity $ 442,168
=========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 7 -
<PAGE> 8
ROUGE INDUSTRIES, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(amounts in thousands)
Unaudited
<TABLE>
<CAPTION>
For the Quarter Ended
March 31
---------------------
1998 1997
---- ----
<S> <C> <C>
Cash Flows From Operating Activities
Net Income $ 4,071 $ 9,284
Adjustments to Reconcile Net Income to Net Cash
Provided by Operating Activities
Deferred Taxes (54) 2,529
Depreciation and Amortization 5,130 3,547
Amortization of Capitalized Debt Costs -- 9
Equity in Loss of Unconsolidated Subsidiaries 1,064 183
Amortization of Excess of Net Assets Acquired Over Cost (1,449) (1,449)
Common Stock Issued for Benefit Plans 136 284
Changes in Assets and Liabilities
Accounts Receivable (20,943) (23,679)
Inventories 57,501 22,379
Prepaid Expenses 2,848 3,131
Accounts Payable and Accrued Liabilities (15,725) 18,748
Other - Net (2) --
--------- ---------
Net Cash Provided by Operating Activities 32,577 34,966
--------- ---------
Cash Flows from Investing Activities
Capital Expenditures (9,627) (11,944)
Purchase of Marketable Securities -- (511)
Sale of Marketable Securities -- 1,507
Investment in Unconsolidated Subsidiaries (7,642) (4,950)
Other - Net 247 (145)
--------- ---------
Net Cash Used for Investing Activities (17,022) (16,043)
--------- ---------
Cash Flows From Financing Activities
Drawdowns on Revolving Line 104,000 --
Principal Payments on Revolving Line (121,900) --
Cash Dividend Payments (660) (657)
--------- ---------
Net Cash Used for Financing Activities (18,560) (657)
--------- ---------
Net Increase (Decrease) in Cash and Cash Equivalents (3,005) 18,266
Cash and Cash Equivalents - Beginning of Period 12,570 24,914
--------- ---------
Cash and Cash Equivalents - End of Period $ 9,565 $ 43,180
========= =========
</TABLE>
The accompanying notes are an integral part of the consolidated financial
statements.
- 8 -
<PAGE> 9
ROUGE INDUSTRIES, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1 - BASIS OF PRESENTATION
The interim consolidated financial statements are unaudited. However, in the
opinion of the Company, the statements include all normal recurring adjustments
necessary for a fair statement of the results for the interim period. The
foregoing interim results are not necessarily indicative of the results of
operations expected for the full fiscal year ending December 31, 1998.
Effective January 1, 1998, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 130, "Reporting Comprehensive Income." SFAS No. 130
requires disclosure of comprehensive income in interim periods and additional
disclosures of the components of comprehensive income on an annual basis.
Comprehensive income includes all changes in equity during a period except those
resulting from investments by and distributions to the Company's stockholders.
The Company's comprehensive income is comprised of net income and minimum
pension liability adjustments. For the three-month periods ended March 31, 1998
and 1997, there were no adjustments to the minimum pension liability.
These consolidated financial statements should be read together with the
Company's audited financial statements presented in the Company's Annual Report
on Form 10-K for the year ended December 31, 1997, filed with the Securities and
Exchange Commission on March 6, 1998. For the purpose of these Notes to
Consolidated Financial Statements, "Rouge Industries" or the "Company" refers to
Rouge Industries, Inc. and its subsidiaries, unless the context requires
otherwise.
NOTE 2 - BING BLANKING, L.L.C.
On March 31, 1998, Bing Blanking, L.L.C. ("Bing Blanking"), a joint venture
between the Company and Bing Management II, L.L.C., acquired the machinery and
equipment of Freedland Industries Corp., an automotive blanking and rollforming
supplier, for $4,026,000. The acquisition was financed by a promissory note to
the Company, which is expected to be repaid with the proceeds of a loan which
Bing Blanking is currently negotiating. The Company acquired the land and
building associated with this transaction for $2,212,000 and will lease them to
Bing Blanking.
NOTE 3 - INTERNAL USE SOFTWARE COSTS
Effective January 1, 1998, the Company adopted AICPA Statement of Position
("SoP") No. 98-1, "Accounting for the Costs of Computer Software Developed or
Obtained for Internal Use." SoP No. 98-1 requires, in certain cases,
capitalization of software costs that previously would have been expensed as
incurred. Software costs capitalized in the first quarter of 1998 approximated
$1,719,000 and will be depreciated over five years.
NOTE 4 - INVENTORIES
The major classes of inventories are as follows (dollars in thousands):
<TABLE>
<CAPTION>
March 31 December 31
1998 1997
---- ----
Unaudited
<S> <C> <C>
Production
Raw Materials $ 44,946 $ 84,169
Semifinished and Finished Steel Products 142,737 160,017
--------- ---------
Total Production at FIFO 187,683 244,186
LIFO Reserve (18,144) (17,285)
--------- ---------
Total Production at LIFO 169,539 226,901
Nonproduction and Sundry 21,427 21,416
--------- ---------
Total Inventories $190,966
</TABLE>
- 9 -
<PAGE> 10
NOTE 5 - COMMITMENTS AND CONTINGENCIES
Spartan Steel Commitment. The Company has entered a joint venture with
Worthington Industries, Inc. to construct and operate Spartan Steel Coating,
L.L.C. ("Spartan Steel"), a cold rolled hot dipped galvanizing line near Monroe,
Michigan. The project is expected to cost approximately $106,400,000. Rouge
Industries will be responsible for 48 percent of the total, or approximately
$51,100,000. Through March 31, 1998, the Company had invested $37,704,000 in
Spartan Steel. The facility is expected to be placed into service in May, 1998.
Shiloh of Michigan, L.L.C. Loan Guaranty. The Company has agreed to guarantee a
loan for Shiloh of Michigan, L.L.C. ("Shiloh of Michigan), its engineered steel
blanking joint venture with Shiloh Industries, Inc. Rouge Industries guarantees
20 percent of the $30,000,000 line of credit. As of March 31, 1998, Shiloh of
Michigan had borrowings of $28,000,000 outstanding under its line of credit.
Bing Blanking, L.L.C. Loan Guaranty. The Company intends to guarantee a loan for
approximately $8,000,000 to Bing Blanking. It is expected that Bing Blanking
will have negotiated such a loan, and the corresponding guarantee, by the end of
the second quarter. At that time, Bing Blanking is expected to repay its loan to
the Company executed in connection with the acquisition discussed in Note 2.
Other than the matters discussed above, there have been no significant changes
to the prior year-end consolidated financial statements.
NOTE 6 - EARNINGS PER SHARE
There was no difference between basic and diluted earnings per share in the
first quarter of 1998 or in the first quarter of 1997. The table below presents
dilutive securities, which represent stock options granted to members of
management or the board of directors with exercise prices lower than the average
market price of the Company's Class A Common Stock, and anti-dilutive
securities, which are stock options granted to members of management or the
board of directors with exercise prices higher than the average market price of
the Company's Class A Common Stock. All of these stock options will expire
between 2004 and 2008.
<TABLE>
<CAPTION>
For the Quarter Ended For the Quarter Ended
March 31, 1998 March 31, 1997
----------------------------- --------------------------------
(Unaudited) (Unaudited)
Range of Range of
Exercise Exercise
Securities Prices Securities Prices
<S> <C> <C> <C> <C>
Dilutive Securities 18,586 $12.13 -
Anti-dilutive Securities 297,250 $15.13 - $28.88 305,350 $21.00 - $28.88
</TABLE>
- 10 -
<PAGE> 11
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
RESULTS OF OPERATIONS
COMPARISON OF THE THREE-MONTH PERIODS ENDED MARCH 31, 1998 AND 1997
Total Sales. Total sales for Rouge Industries, Inc. ("Rouge Industries" or
the "Company") decreased 4.6% in the first quarter of 1998 to $319.0 million
from $334.2 million in the first quarter of 1997, a decrease of $15.2 million.
The decrease in total sales resulted principally from lower steel product
selling prices and shipments. Shipments decreased 2.2% in the first quarter of
1998 to 728,000 tons from 744,000 tons in the first quarter of 1997, a decrease
of 16,000 tons.
Costs and Expenses. Total costs and expenses decreased 3.2% in the first
quarter of 1998 to $310.8 million from $321.3 million in the first quarter of
1997, a decrease of $10.5 million. Costs of goods sold decreased 3.9% in the
first quarter of 1998 to $301.2 million from $313.6 million in the first quarter
of 1997, a decrease of $12.4 million. The decrease in costs of goods sold was
primarily due to the lower shipments discussed above. Costs of goods sold in the
first quarter of 1998 were 94.4% of total sales, up from 93.8% of total sales in
the first quarter of 1997. Depreciation and amortization increased 44.6% in the
first quarter of 1998 to $5.1 million from $3.5 million in the first quarter of
1997, an increase of $1.6 million. The increase in depreciation and amortization
reflects the completion of major capital projects, primarily the automated raw
material handling system and the reline of "B" blast furnace. Selling and
administrative expenses increased 6.1% in the first quarter of 1998 to $5.9
million from $5.6 million in the first quarter of 1997, an increase of $300,000.
Operating Income. Operating income decreased 37.1% in the first quarter of
1998 to $8.1 million from $12.9 million in the first quarter of 1997, a decrease
of $4.8 million. The decrease in operating income was primarily due to lower
steel product selling prices and shipments. Operating income represented 2.5% of
total sales in the first quarter of 1998 compared to 3.9% of total sales in the
first quarter of 1997.
Interest Income. Interest income decreased in the first quarter of 1998 to
$51,000 from $370,000 in the first quarter of 1997, a decrease of $319,000.
Rouge Industries had an average daily cash and investment balance of $5.4
million in the first quarter of 1998 compared to $27.9 million in the first
quarter of 1997.
- 11 -
<PAGE> 12
Interest Expense. Interest expense increased in the first quarter of 1998
to $425,000 from $79,000 in the first quarter of 1997, an increase of $346,000.
Rouge Industries had an average level of outstanding debt of $23.3 million in
the first quarter of 1998 and no outstanding indebtedness in the first quarter
of 1997.
Income Tax Provision. The income tax provision decreased 45.8% in the
first quarter of 1998 to $2.2 million from $4.1 million in the first quarter of
1997, a decrease of $1.9 million. The lower income tax provision in the first
quarter of 1998 was a function of lower taxable income.
Net Income. Net income decreased 56.2% in the first quarter of 1998 to
$4.1 million from $9.3 million in the first quarter of 1997, a decrease of $5.2
million. The decrease in net income was primarily due to lower steel product
selling prices and shipments.
LIQUIDITY AND CAPITAL RESOURCES
Cash and cash equivalents on March 31, 1998 totaled $9.6 million compared
to $12.6 million on December 31, 1997, a decrease of $3.0 million.
Cash Flows from Operating Activities. Net cash provided by operating
activities decreased 6.8% in the first quarter of 1998 to $32.6 million from
$35.0 million in the first quarter of 1997, a decrease of $2.4 million. Net cash
provided by operating activities was primarily attributable to cash used for
accounts receivable and accounts payable offset by cash provided by lower
inventories. Inventories were lower on March 31, 1998 than on December 31, 1997
primarily because of pellet consumption. During the first quarter of each year,
the Great Lakes shipping channels are closed and pellets cannot be shipped to
Rouge Steel.
Capital Expenditures. Cash used for capital expenditures, including
investments in unconsolidated subsidiaries, increased 2.2% in the first quarter
of 1998 to $17.3 million from $16.9 million in the first quarter of 1997, an
increase of $400,000. The first quarter 1998 capital expenditures were primarily
made to upgrade computer systems and invest in Spartan Steel Coating, L.L.C.
("Spartan Steel"), the Company's joint venture hot dipped galvanizing line with
Worthington Steel of Michigan. During the rest of 1998, it is anticipated that
an additional $30 million will be paid or accrued for capital projects and
investment in unconsolidated subsidiaries. The largest projects during the
remainder of 1998 include an improved shipping facility, the continued upgrade
of computer systems and additional investments in Spartan Steel. The
remaining capital
- 12 -
<PAGE> 13
expenditures will be generally directed at improving and maintaining the
Company's fixed assets and plant efficiency to enhance the Company's competitive
position in the marketplace.
Credit Facility. Rouge Steel has a five-year, $100 million, unsecured
revolving loan commitment under a credit agreement (the "Credit Agreement")
which expires on December 16, 2002. The Company had no borrowings under the
facility on March 31, 1998. The Company believes that net income and funds
available under the Credit Agreement will be adequate for its working capital
and capital expenditure requirements.
RECENT DEVELOPMENTS
On March 31, 1998, Bing Blanking, L.L.C. ("Bing Blanking"), a joint
venture between Rouge Industries and Bing Management II, L.L.C., acquired the
machinery and equipment of Freedland Industries Corp. in Dearborn, Michigan.
Rouge Industries acquired the land and building associated with this transaction
and will lease them to Bing Blanking for its blanking and rollforming
operations.
YEAR 2000 COMPLIANCE
The widespread use of computer programs that rely on two-digit date
programs to perform computations and decision-making functions may cause
computer systems and operating equipment to malfunction in the year 2000 which
could lead to business and manufacturing disruptions. Rouge Industries is in the
process of assessing the extent of the year 2000 issue; however, management has
determined that it will be required to modify or replace significant portions of
the Company's software and hardware so that its systems will properly function
beyond December 31, 1999. The Company has begun replacing its computer software
and hardware to address this issue and estimates that capital expenditures
between $7 million and $9 million will be made. Additionally, Rouge Industries
estimates that between $7 million and $10 million of expense will be incurred to
remediate existing computer systems and equipment that are not year-2000
compliant.
"SAFE HARBOR" STATEMENT UNDER THE PRIVATE SECURITIES LITIGATION
REFORM ACT OF 1995
The matters discussed in this Quarterly Report on Form 10-Q include
certain forward-looking statements that involve risks and uncertainties. These
forward-looking statements may include, among others, statements concerning
projected levels of production, sales, shipments and income, pricing trends,
cost-reduction strategies, product mix, anticipated capital expenditures and
other future plans and strategies.
- 13 -
<PAGE> 14
As permitted by the "safe harbor" provisions of the Private Securities
Litigation Reform Act of 1995, Rouge Industries is identifying in this Quarterly
Report on Form 10-Q a number of factors which could cause the Company's actual
results to differ materially from those anticipated. These factors include, but
are not necessarily limited to, (i) changes in the general economic climate,
(ii) the supply of and demand for steel products in the Company's markets, (iii)
pricing of steel products in the Company's markets, (iv) potential environmental
liabilities, (v) the availability and prices of raw materials, supplies,
utilities and other services and items required by the Company's operations, and
(vi) higher than expected operating costs.
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, Rouge Industries and its consolidated subsidiaries are
defendants in routine lawsuits 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.
Item 5. Other Events
On March 5, 1998, Rouge Industries' board of directors declared a $0.03
per share dividend on the Company's common stock. The dividend will be payable
on April 24, 1998 to stockholders of record on April 10, 1998. The total amount
of dividends to be paid is $660,000.
Item 6. Exhibits and Reports on Form 8-K
(a) The following exhibits are included in this report.
Exhibit Number Description of Exhibit
10.1 First Amended and Restated Operating Agreement for
Bing Blanking, L.L.C.
15 Price Waterhouse LLP Awareness Letter
- 14 -
<PAGE> 15
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Date: April 23, 1998 ROUGE INDUSTRIES, INC.
By: /s/ Carl L. Valdiserri
------------------------
Name: Carl L. Valdiserri
Title: Chairman of the Board and
Chief Executive Officer
Date: April 23, 1998 By: /s/ Gary P. Latendresse
-----------------------
Name: Gary P. Latendresse
Title: Executive Vice President and
Chief Financial Officer
- 15 -
<PAGE> 16
EXHIBIT INDEX
Exhibit Number Description of Exhibit
10.1 First Amended and Restated Operating Agreement for Bing
Blanking, L.L.C.
15 Price Waterhouse LLP Awareness Letter
27 Financial Data Schedule
<PAGE> 1
EXHIBIT 10.1
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
FOR
BING BLANKING, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY
<PAGE> 2
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE #
------
<S> <C> <C>
ARTICLE I - ORGANIZATION 1
1.1 Formation....................................................................1
1.2 Name.........................................................................1
1.3 Purposes.....................................................................2
1.4 Duration.....................................................................2
1.5 Registered Office and Resident Agent.........................................2
1.6 Intention for Company........................................................2
1.7 Minority Business Enterprise Status..........................................3
1.8 Competition..................................................................3
1.9 Joint Developments...........................................................4
ARTICLE II - DEFINITIONS......................................................................6
ARTICLE III - BOOKS, RECORDS AND ACCOUNTING...................................................6
3.1 Books and Records............................................................6
3.2 Fiscal Year: Accounting......................................................6
3.3 Reports......................................................................7
3.4 Member's Accounts............................................................7
</TABLE>
i
<PAGE> 3
<TABLE>
<S> <C> <C>
ARTICLE IV - CAPITAL CONTRIBUTIONS............................................................8
4.1 Initial Commitments and Contributions........................................8
4.2 Additional Contributions.....................................................8
4.3 Loans........................................................................8
4.4 Return of Contributions......................................................9
ARTICLE V - ALLOCATIONS AND DISTRIBUTIONS....................................................10
5.1 Allocations.................................................................10
5.2 Distributions...............................................................10
5.3 Distributions to Pay Taxes..................................................11
ARTICLE VI - MEETINGS OF MEMBERS.............................................................11
6.1 Voting......................................................................11
6.2 Required Vote...............................................................12
6.3 Meetings....................................................................12
6.4 Action by Written Consent or Telephone Conference...........................13
6.5 Quorum......................................................................13
6.6 Record Date.................................................................13
</TABLE>
ii
<PAGE> 4
<TABLE>
<S> <C> <C>
ARTICLE VII - MANAGEMENT......................................................................14
7.1 Management by Managers......................................................14
7.2 Number of Managers; Establishment of Management Committee...................19
7.3 Management Committee........................................................20
7.4 Functions Reserved to the Management Committee............................. 24
7.5 Officers....................................................................24
7.6 Duties of Officers..........................................................26
7.7 Rights to Obtain Information................................................27
7.8 Compensation of Members.....................................................28
7.9 Employees...................................................................29
ARTICLE VIII - EXCULPATION OF LIABILITY......................................................29
8.1 Exculpation of Liability....................................................29
8.2 Indemnification.............................................................30
ARTICLE IX - DISPOSITION OF MEMBERSHIP INTERESTS.............................................32
9.1 General.....................................................................32
9.2 Withdrawal..................................................................33
9.3 Admission of Substitute Members.............................................33
9.4 Repurchase of QS' Membership Interest.......................................35
9.5 Requirements for Effectiveness of Transfer..................................41
9.6 Prohibited Dispositions.....................................................42
</TABLE>
iii
<PAGE> 5
<TABLE>
<S> <C> <C>
9.7 Absolute Restriction........................................................42
ARTICLE X - DISSOLUTION AND WINDING UP.......................................................43
10.1 Dissolution.................................................................43
10.2 No Voluntary Termination....................................................43
10.3 Methods of Winding Up of Company............................................44
10.4 Rights of Members...........................................................47
10.5 Deemed Distribution and Recontribution......................................47
10.6 Alternative Distribution Methods............................................48
10.7 Reimbursement of Expenses...................................................49
ARTICLE XI - TAXES............................................................................49
11.1 Method of Accounting For Tax Purposes...................................... 49
11.2 Tax Matters Member..........................................................49
11.3 Tax Allocations.............................................................50
ARTICLE XII - MISCELLANEOUS PROVISIONS.......................................................50
12.1 Terms.......................................................................50
12.2 Headings....................................................................50
12.3 Counterparts................................................................50
12.4 Entire Agreement............................................................51
12.5 Severability................................................................51
</TABLE>
iv
<PAGE> 6
<TABLE>
<S> <C> <C>
12.6 Amendment...................................................................51
12.7 Notices.....................................................................51
12.8 Binding Effect..............................................................53
12.9 Governing Law...............................................................53
12.10 Rights of Creditors and Third Parties Under This Agreement..................53
12.11 Non-Waiver..................................................................54
12.12 Antitrust Policy Statement. ................................................54
12.13 Settlement of Disputes......................................................54
APPENDIX & TAX ALLOCATIONS...................................................................57
EXHIBIT A....................................................................................76
EXHIBIT C....................................................................................78
EXHIBIT D....................................................................................81
EXHIBIT E....................................................................................85
</TABLE>
v
<PAGE> 7
FIRST AMENDED AND RESTATED
OPERATING AGREEMENT
FOR
BING BLANKING, L.L.C.
A MICHIGAN LIMITED LIABILITY COMPANY
THIS FIRST AMENDED AND RESTATED OPERATING AGREEMENT (the
"Agreement") is made and entered into effective as of the 31st day of March,
1998 by and among Bing Blanking, L.L.C., a Michigan limited liability company
(the "Company"), QS STEEL INC., a Michigan corporation, ("QS") and BING
MANAGEMENT II, L.L.C., a Michigan limited liability company ("Bing") (QS, and
Bing individually a "Member," and collectively, "Members"), who agree
(acknowledging that the membership interest of Shiloh Corporation having been
previously acquired by the Company of even date herewith) that the Operating
Agreement dated November 26, 1997 between the parties hereto is amended and
restated in its entirety as follows:
ARTICLE I
ORGANIZATION
1.1 Formation. The Company has been organized as a Michigan limited
liability company under and pursuant to the Michigan Limited Liability Company
Act, being Act No. 23, Public Acts of 1993 (the "Act"), by the filing of
Articles of Organization
<PAGE> 8
("Articles") with the Department of Commerce of the State of Michigan as
required by the Act.
1.2 Name. The name of the Company shall be Bing Blanking, L.L.C. The
Company may also conduct its business under one or more assumed names.
1.3 Purposes. The purposes of the Company are to engage in any
activity for which limited liability companies may be formed under the Act. The
Company shall have all the powers necessary or convenient to effect any purpose
for which it is formed, including all powers granted by the Act.
1.4 Duration. The Company's existence shall be perpetual or until
the earlier dissolution of the Company in accordance with the Act or this
Agreement.
1.5 Registered Office and Resident Agent. The Registered Office and
Resident Agent of the Company shall be as designated in the initial Articles or
any amendment thereof. The Registered Office and/or Resident Agent may be
changed from time to time. Any such change shall be made in accordance with the
Act. If the Resident Agent shall ever resign, the Company shall promptly appoint
a successor.
2
<PAGE> 9
1.6 Intention for Company. The Members have formed the Company as a
limited liability company under and pursuant to the Act. The Members
specifically intend and agree that the Company not be a partnership (including a
limited partnership) or any other venture but a limited liability company under
and pursuant to the Act. No Member shall be construed to be a Partner in the
Company or a partner of any other Member or person and the Articles, this
Agreement and the relationships created thereby and arising therefrom shall not
be construed to suggest otherwise.
1.7 Minority Business Enterprise Status. The Members have formed the
Company with the specific intention of having the Company certified as a
bonafide Minority Business Enterprise ("MBE") by the Michigan Minority Business
Development Council ("MMBDC") of the National Minority Supplier Development
Council ("NMSDC"). As soon as reasonably practical after formation of the
Company, a MBE certification application will be completed and submitted to the
MMBDC for approval. All Members agree to take all actions reasonably necessary
to accomplish the certification of the Company as an MBE. Upon approval of the
Company as a MBE by the MMBDC no Member will take any actions which would
jeopardize the Company's status as a certified MBE, except as otherwise
specifically permitted in this Agreement.
1.8 Competition. Each Member will have access to the blanking and/or
tolling operations of the Company as a benefit of its ownership in the Company.
Although no specific allocations of capacity shall be made to any Member, in
determining to accept an
3
<PAGE> 10
order generated by the efforts of an individual Member, the Company may consider
factors such as longevity and volume, in addition to the Company's operating
margin, on a particular order. A Member shall be entitled to enter into
transactions that are competitive with the business of the Company. Neither the
Company nor any Member shall have any right by virtue of this Agreement to share
or participate in such other transactions. If the Company generates orders to
sell blanks, independent of the efforts of an individual Member and said order
does not specify the steel supplier or the tooling and fixture supplier, the
Company will offer QS or one of its direct or indirect subsidiaries or
affiliates a right of first refusal to supply the steel to the Company, pursuant
to a certain Supply Agreement referred to in Section 7.8 hereof. Any Member may
engage in the business of selling steel blanks or carrying on tolling operations
in competition with the Company or any other Member, in any territory, at any
time during the term of this Agreement, whether directly or indirectly through
another venture or entity, and no Member shall be deemed to be in violation of a
fiduciary duty to the Company on account of the production and sale of steel
blanks, tolling operations or related activities. Each Member will conduct
business with the Company on an arms length basis and no Member under any
circumstances will interfere with or restrict the operations or management of
the Company unless otherwise specifically permitted in this Agreement.
1.9 Joint Developments. Any and all developments, inventions,
patents, copyrights, or other confidential or proprietary information relating
to any of the foregoing, which is produced, generated or developed by the
Company or any of its
4
<PAGE> 11
employees or agents while working for the Company (each a "Joint Development")
shall be the property of, and belong to, the Company. If either QS or Bing
desires to use a Joint Development in its own business or operations, or in the
business or operations of any of their subsidiaries and/or affiliates (including
without limitation any subsidiary or affiliate of any one or more of QS, or Bing
or any of their subsidiaries and/or affiliates, direct or indirect)
(collectively referred to herein as "Related Entities"), they may do so without
restraint by the Company; provided, however, neither QS nor Bing may allow third
parties, other than Related Entities, to use a Joint Development unless QS and
Bing shall agree to allow the Company to enter into a license agreement with the
third party which provides for a nonexclusive license to use the Joint
Development for a period of years, not to exceed the period of existence of the
Company, at a fair commercial rate. The agreement of QS and Bing to such request
shall not be unreasonably withheld.
Any and all developments, inventions, patents, copyrights, or other
confidential or proprietary information of any Member which is disclosed to the
Company in confidence, shall at all times remain the property of such disclosing
Member and shall be for the sole use of the Company, the Members and the Related
Entities only, and, following the purchase of the Membership Interest of the
disclosing Member pursuant to Article IX hereof, the Company's successors and
assigns.
5
<PAGE> 12
ARTICLE II
DEFINITIONS
For purposes of this Agreement, unless the context clearly indicates
otherwise, (i) all of the capitalized words in this Agreement shall have the
meanings set forth in the text or Appendix and (ii) all non-capitalized words
defined in the Act shall have the meanings set forth therein.
ARTICLE III
BOOKS, RECORDS AND ACCOUNTING
3.1 Books and Records. The Company shall maintain complete and
accurate books and records of the Company's business and affairs as required by
the Act and such books and records shall be kept at the Company's Registered
Office.
3.2 Fiscal Year: Accounting. The Company's fiscal year shall begin
the first day of January and shall end on December 31 ("Fiscal Year"). Subject
to the terms of this Agreement, the particular accounting methods and
principles to be followed by the Company shall be selected by the Management
Committee. The Company's method of accounting for depreciation, capital
purchases, expenses and amortization shall be consistent with the procedures
and methodology utilized under GAAP.
6
<PAGE> 13
3.3 Reports. The Management Committee shall prepare reports
concerning the financial condition and results of operation of the Company and
the Capital Accounts of the Members in the time, manner and form as the
Management Committee determines. Such reports shall be provided at least
quarterly as soon as practicable after the end of each fiscal quarter and shall
include a statement of each Member's share of Profits and other items of
income, gain, loss, deduction and credit. Any Member may reasonably request
additional substantiating financial information for clarification of such
quarterly reports which will be prepared by the Management Committee.
The books and records of the Company shall be examined as of the close
of each Fiscal Year by Plante and Moran, P.C. or other independent certified
public accountant selected by the Management Committee, who shall make an annual
certified audit thereon within one hundred and twenty (120) days following the
end of each Fiscal Year, unless waived unanimously by all of the Managers on the
Management Committee.
3.4 Member's Accounts. Separate Capital Accounts for each Member
shall be maintained by the Company. Each Member's Capital Account shall reflect
the Member's Capital Contributions and increases for the Member's share of any
net Profits, income or gain of the Company. Each Member's Capital Account shall
also reflect decreases for distributions made to the Member and the Member's
share of any Losses and deductions of the Company.
7
<PAGE> 14
ARTICLE IV
CAPITAL CONTRIBUTIONS
4.1 Initial Commitments and Contributions. By the execution of this
Agreement, the Members hereby agree to make the capital contributions set forth
in the attached Exhibit A, no later than sixty (60) days from the date of this
Agreement (each an "Initial Capital Contribution"). The Sharing Ratios and Units
of the Members are set forth in Exhibit A. Any additional Member (other than an
assignee of a Membership Interest (as hereinafter defined) who has been admitted
as a Member) shall make the Capital Contribution set forth in an Admission
Agreement. No interest shall accrue on any Capital Contribution and no Member
shall have any right to withdraw or to be repaid any Capital Contribution except
as provided in this Agreement.
4.2 Additional Contributions. No Member shall be required to
contribute additional capital to the Company in excess of its Initial Capital
Contribution except in accordance with Section 7.1(b).
4.3 Loans. The Members recognize that on a lease basis, the project
costs, including reasonably necessary equipment, would be approximately
$7,500,000.00 and that the necessary initial working capital needs of the
Company will be approximately $1,500,000.00 and that contributions to be made
by the Members as set forth in Section 4.1 hereof will not be sufficient to
fund such initial project costs and working capital needs.
8
<PAGE> 15
The Company is hereby authorized to borrow the funds required in excess of the
initial capital contributions to be made by the Members to finance such initial
project costs and working capital needs as set forth herein.
4.4 Return of Contributions. A Member is not entitled to demand the
return of any part of its Capital Contributions or to interest in respect of
either its Capital Account or its Capital Contributions. Neither the Company nor
any Member has any obligation to return the Capital Contributions of any Member,
except as otherwise provided under this Agreement.
ARTICLE V
ALLOCATIONS AND DISTRIBUTIONS
5.1 Allocations. Except as may be required by the By-Laws, Code or
this Agreement, net Profits, net Losses, and other items of income, gain, Loss,
deduction and credit of the Company shall be allocated among the Members in
accordance with their Sharing Ratios.
5.2 Distributions. The Company may make distributions to the Members
from time to time. Distributions may be made only after the Management Committee
determines that the Company has sufficient cash on hand which exceeds the
current and the anticipated needs of the Company to fulfill its business
purposes (including needs for
9
<PAGE> 16
operating expenses, technical service expenses, debt service, acquisitions,
reserves and mandatory distributions, if any). All distributions shall be made
to the Members in accordance with their Sharing Ratios. Distributions shall be
in cash, as determined by the Management Committee. No distribution shall be
declared or made if, after giving it effect, the Company would not be able to
pay its debts as they become due in the usual course of business or the
Company's total assets would be less than the sum of its total liabilities plus
the amount that would be needed if the Company were to be dissolved at the time
of the distribution to satisfy the preferential rights, if any, of other Members
upon dissolution that are superior to the rights of the Members receiving the
distribution.
5.3 DISTRIBUTIONS TO PAY TAXES. Notwithstanding Section 5.2 above,
the Company shall, to the extent allowed by the Act, make annual proportional
cash distributions to each Member within ninety (90) days following the
conclusion of each Fiscal Year of the Company equal to forty-four percent (44%)
of each Member's share of the taxable income of the Company. To the maximum
extent possible, periodic distributions shall be made so as to provide each
Member with an amount equal to its estimated tax payment obligations and such
periodic distributions will be reconciled as of the end of the Fiscal Year.
Such distributions are intended to be sufficient for purposes of paying any and
all types of federal, state and local income tax incurred by the Members of
their affiliates with respect to taxable income of the Company.
10
<PAGE> 17
ARTICLE VI
MEETINGS OF MEMBERS
6.1 Voting. All Members shall be entitled to vote on any matter
submitted to a vote of the Members. Each Member shall be entitled to a vote
weighted to reflect the proportion of the Member's Sharing Ratio to the total
Sharing Ratios of all Members.
Any vote or action by any Member of the Company will be by such
Member's Board of Directors (or Managers, in the case of Bing) or its Executive
Committee acting on behalf of the Board of Directors; provided, however, that
the Board of Directors (or Managers, in the case of Bing) or the Executive
Committee of any Member may by resolution appoint an officer, director,
employee, consultant or agent to act as its proxy to vote or take action on
behalf of that Member. Assignees of a Member are entitled to receive the
Member/Assignor's economic interest only and are not automatically Members and
do not have a right to vote unless admitted as a Member.
6.2 Required Vote. Unless a greater vote is required by the Act or
the Articles, the affirmative vote or consent of a majority of the Sharing
Ratios of all the Members entitled to vote or consent shall be required on any
matter submitted to a vote of the Members.
11
<PAGE> 18
6.3 Meetings. An annual meeting of Members for the transaction of
such business as may properly come before the meeting shall be held on the 15th
day of March each year (or if that day is a legal holiday, then on the next
succeeding day not a holiday) at 10:00 a.m., at the Company's principal place
of business or at such other time or place as from time to time may be
determined by the Members, provided, however, that the failure to hold an
annual meeting shall not be grounds for dissolution of the Company. Special
meetings of Members for any proper purpose or purposes may be called at any
time by the holders of greater than ten percent (10%) of the Sharing Ratios of
all Members. The Company shall give notice stating the date, time, place and
purposes of any meeting to each Member entitled to vote at the meeting. The
notice shall be given not less than ten (10) nor more than sixty (60) days
before the date of the meeting. All meetings of Members shall be presided over
by the Chairman of the Management Committee. Meetings may be held pursuant to
teleconference or conference telephone call.
6.4 Action by Written Consent or Telephone Conference. Any action
permitted or required to be taken at a meeting of the Members may be taken
without a meeting if a consent in writing, setting forth the action to be taken,
is signed by all the Members. Such consent shall have the same force and effect
as a unanimous vote at a meeting. Members may participate in and hold a meeting
of the Members by means of a conference telephone or similar communications
equipment by means of which all persons participating in the meeting can hear
each other, and participation in such meeting shall constitute attendance and
presence in person at such meeting, except when a person participates in the
meeting
12
<PAGE> 19
for the express purpose of objecting to the transaction of any business on the
ground that the meeting is not lawfully called or convened.
6.5 Quorum. The presence in person or by proxy of the Members
representing fifty-one percent (51%) of the Sharing Ratios of the Company, shall
constitute a quorum at any meeting of Members.
6.6 Record Date. The officers of the Company may fix a record date
for any lawful purpose, including without limiting the generality of the
foregoing, the determination of Members entitled to (i) receive notice of or to
vote at any meeting, (ii) receive payment of any distribution (subject to any
applicable requirements of the Internal Revenue Code of 1986, as amended),
(iii) receive or exercise rights of purchase of or subscription for, or
exchange or conversion of, interests, certificates or other securities, subject
to any contract right with respect thereto, or (iv) participate in the
execution of written consents, waivers or releases. Said record date shall not
be more than sixty (60) days preceding the date of such meeting, the date fixed
for the payment of any distribution or the date fixed for the receipt or the
exercise of rights, as the case may be. If a record date is not fixed, the
record date for the determination of Members who are entitled to notice of, or
who are entitled to vote at, a meeting of Members, shall be the close of
business on the date next preceding the day on which notice is given, or the
close of business on the date next preceding the day on which the meeting is
held, as the case may be.
13
<PAGE> 20
ARTICLE VII
MANAGEMENT
7.1 Management by Managers.
(a) Except for situations in which the approval of the
Members is required by this Agreement or by nonwaivable provisions of
the Act, and subject to the provisions of subsection (b) below, the
powers of the Company shall be exercised by or under the authority of,
and the business and affairs of the Company shall be managed under the
direction of, Managers acting by and through a Management Committee
(as defined below). The Management Committee shall manage, control,
administer and operate, and make all decisions relating to, the
business and affairs of the Company and exercise all power conferred
upon the Company in the Act, except such as are by law, by the
Articles or by this Agreement conferred upon or reserved to the
Members. The Management Committee shall have the right to delegate to
the officers of the Company authority to exercise any power, duty or
responsibility of the Management Committee not specifically reserved
to the Management Committee or the Members under this Agreement.
14
<PAGE> 21
(b) Notwithstanding any other provision of this
Agreement to the contrary, the following actions may be
undertaken only upon the affirmative vote of all the Managers:
(i) Admit a new or substitute Member;
(ii) Establish an annual capital budget for the
Company in excess of One Hundred Fifty Thousand ($150,000.00)
Dollars per year; provided, however, that an initial capital
budget of $7,500,000 is hereby approved;
(iii) Amend or restate the Articles of Organization,
the By-Laws of the Company or this Agreement;
(iv) Enter into, amend or terminate, other than in
accordance with the terms of such agreement, any agreement
between the Company and any Member of the Company, other than
on terms of an Arm's Length Transaction;
(v) Guarantee any loans to a third party;
(vi) Sell, lease, exchange or otherwise dispose of
substantially all of the property and assets, with or without
the goodwill, of the Company;
15
<PAGE> 22
(vii) Invest in, acquire, merge with or form a
legally binding affiliation or association with another
entity;
(viii) Change the nature of the Company's business or
the purpose for which the Company was formed from other than
that of manufacturing, buying, selling and processing steel
and steel related products;
(ix) Make any request for or accept additional
Contributions of capital from a Member or offer an equity
interest in the Company to any third-party;
(x) Except as otherwise permitted in Section 4.3
hereof, borrow money or otherwise commit the credit of the
Company for Company activities if such borrowing or commitment
of credit requires an additional guarantee from any Member;
provided, however, notwithstanding anything to the contrary
contained in this subparagraph 7.1(b), only the consent of the
Manager(s) of the Member(s) providing such guarantee shall be
required for purposes of this subparagraph;
(xi) Change the status or certification of the
Company as a Minority Business Enterprise;
16
<PAGE> 23
(xii) Amend, modify or terminate the QS Supply
Agreement other than in accordance with the terms thereof.
In the event that any such action is consummated without the consent of
all Managers, such act shall be null and void and of no legal force or effect
and shall be terminated.
(c) (i) Prior to filing a bankruptcy petition on behalf of
the Company or making any assignment for the benefit of
creditors of the Company or compromising any material sums
due the Company, the Management Committee in a meeting at
which a quorum of Managers are present shall discuss said
bankruptcy petition, assignment or compromise.
(ii) Prior to initiating or settling any litigation
for an amount in excess of One Hundred Thousand Dollars
($100,000.00) and/or which is likely to affect a significant
customer relationship, except for litigation involving routine
employment matters, the Management Committee in a meeting at
which a quorum of Mangers are present shall discuss the
proposed litigation.
17
<PAGE> 24
(iii) Prior to hiring the plant manager, the
Management Committee in a meeting at which a quorum of
Managers are present shall discuss the proposed hire.
7.2 Number of Managers; Establishment of Management Committee. There
shall be three Managers of the Company. Unless and until this Agreement is
amended by the Members in accordance with Article XII of this Agreement, QS
shall have the right to appoint one of the three Managers and Bing shall have
the right to appoint two of the three Managers. The following individuals are
hereby appointed as initial Managers of the Company to serve until their
respective successors are duly elected and qualify:
QS Appointee Bing Appointees
------------ ---------------
Gary P. Latendresse Dave Bing
David J. Olson
The Managers each shall be either an officer, director or employee of
the Member that appointed such Manager and each shall serve at the pleasure and
on behalf of the Member that appointed such Manager. Any Manager may be removed,
with or without cause, only by the Member that appointed such Manager. Any
vacancy shall be filled by the Member that appointed the Manager whose seat is
then vacant. Each Manager shall serve in such capacity until removed by the
Member that appointed such Manager or until
18
<PAGE> 25
such seat otherwise becomes vacant. The Managers shall act by and through a
management committee (the "Management Committee") consisting of all three
Managers, and no individual Manager shall have authority to act individually on
behalf of the Company or to bind the Company absent a specific grant of
authority from the Management Committee. Bing shall designate from among the
members of the Management Committee one designee to act as Chairman (the
"Chairman") of the Management Committee.
7.3 Management Committee.
(a) Quorum. A majority of the members of the Management
Committee shall constitute a quorum. No action shall be taken at any
meeting of the Management Committee unless a quorum of the Members of
the Management Committee are present in person at such meeting.
Notwithstanding that a quorum consisting of less than all of the
members of the Management Committee may be present at any meeting of
the Management Committee, all actions of the Management Committee shall
require the consent of a majority of the whole authorized number of
members of the Management Committee (unless a greater number is
required under the provisions of the Operating Agreement of the
Company).
19
<PAGE> 26
(b) Annual Meeting. An annual meeting of the members of the
Management Committee shall be held immediately following the annual
meeting of the Members, or as soon thereafter as is practicable. Such
annual meeting shall be held at the same place at which such Members'
meeting was held.
(c) Regular Meetings. Except as the Management Committee
may, by resolution or by-law, from time-to-time otherwise determine,
regular meetings of the members of the Management Committee shall be
held on a quarterly basis on the 15th day of each March, June, August
and November during the term hereof at the principal offices of the
Company. The Secretary shall give notice of each such resolution or
by-law to any member of the Management Committee who was not present
at the time the same was adopted, but no further notice of such
regular meeting need be given.
(d) Special Meetings. Special meetings of the members of the
Management Committee may be called by the Chairman, the President, any
Vice President, or any two members of the Management Committee that
have not been appointed to the Management Committee by the same Member,
and shall be held at such times and places, within or without the State
of Michigan, as may be specified in such call.
20
<PAGE> 27
(e) Notice of Annual or Special Meetings. Notice of the time
and place of each annual or special meeting shall be given to each
member of the Management Committee by the secretary or by the person or
persons calling such meeting. Such notice need not specify the purpose
or purposes of the meeting and may be given in any manner or method and
at such time so that the member of the Management Committee receiving
it may have reasonable opportunity to participate in the meeting. Such
notice shall, in all events, be deemed to have been properly and duly
given if mailed at least forty-eight (48) hours prior to the meeting
and directed to the business address of each member of the Management
Committee as shown upon the secretary's records and, in the event of a
meeting to be held through the use of communications equipment, if the
notice sets forth the telephone number at which each member of the
Management Committee may be reached for purposes of participation in
the meeting as shown upon the secretary's records and states that the
secretary must be notified if a member of the Management Committee
desires to be reached at a different telephone number. The giving of
notice shall be deemed to have been waived by any member of the
Management Committee who shall participate in such meeting and may be
waived, in a writing, by any member of the Management Committee either
before or after such meeting.
(f) Compensation. Unless the members of the Management
Committee unanimously otherwise agree, the members of the Management
Committee shall not be entitled to receive from the Company any
compensation for their services but
21
<PAGE> 28
shall be entitled to reimbursement of any expenses of attendance at any
meeting of the Management Committee.
(g) Action by Written Consent or Telephone Conference. Any
action permitted or required to be taken at a meeting of the Management
Committee or any committee designated by the Management Committee may
be taken without a meeting if a consent in writing, setting forth the
action to be taken, is signed by all of the members of the Management
Committee or members of such committee, as the case may be. Such
consent shall have the same force and effect as a unanimous vote at a
meeting. Members of the Management Committee, or members of any
committee designated by the Management Committee, may participate in
and hold a meeting of the Management Committee or any committee of
Management Committee, as the case may be, by means of a conference
telephone or similar communications equipment by means of which all
persons participating in the meeting can hear each other, and
participation in such meeting shall constitute attendance and presence
in person at such meeting, except where a person participates in the
meeting for the express purpose of objecting to the transaction of any
business on the ground that the meeting is not lawfully called or
convened.
(h) Proxies. A person who is entitled to attend a meeting of
the Management Committee, to vote thereat or to execute consents,
waivers or releases
22
<PAGE> 29
may be represented at such meeting or vote thereat, and execute
consents, waivers and releases, and exercise any of his other rights,
by proxy or proxies appointed by a writing signed by such person.
(i) Chairman to Preside. The Chairman of the Management
Committee shall preside at all meetings of Members and at all meetings
of the Management Committee.
7.4 Functions Reserved to the Management Committee
The following actions shall not be taken by any officer of the Company
without the specific authorization of the Management Committee:
(a) Engagement of termination of officers of the Company and
designation of compensation for such officers.
(b) Establishment or termination of all banking
relationships.
(c) Any other action set forth in this Agreement which
requires the approval of the Management Committee, including all
actions specified in Section 7.1(b) of this Agreement.
23
<PAGE> 30
7.5 Officers.
(a) The day-to-day operations and management of the Company
shall be exercised by such officers as may annually be appointed from
time to time in accordance with this Section 7.5. The Management
Committee shall appoint, by majority vote of the members of the
Management Committee, such officers as it may determine from time to
time, which may include a President, such number of Vice Presidents as
it may from time to time determine, a Secretary, an Assistant
Secretary, and a Treasurer. Any two of such offices, other than
President and Vice President, and Secretary and Assistant Secretary,
may be held by the same person, but no officer shall execute,
acknowledge or verify any instrument in more than one capacity. Each
officer of the Company shall hold office at the pleasure of the
Management Committee and no officer may hold office for more than
twelve (12) months following his appointment to office unless he is
reappointed to office by the Management Committee at the end of the
twelve (12) month period following that appointment. The officers,
subject to the direction and control of the Management Committee shall
do all things and take all actions necessary to run the business of the
Company. Each officer shall have the duties assigned to him by this
Agreement or by the Management Committee. In addition to any duties
assigned by this Agreement, the President of the Company shall be
responsible for preparing an annual budget including a detailed salary
plan for all officers and associates of the Company for approval by the
Management Committee (the "Annual Budget"). The
24
<PAGE> 31
officers shall be entitled to such compensation, if any, as may be
approved from time to time by the unanimous determination of the
Management Committee. Any officer may be removed at any time, with or
without cause, by majority vote of the members of the Management
Committee. Any vacancy in any office may be filled by majority vote of
the whole authorized number of members of the Management Committee.
7.6 Duties of Officers.
(a) President. The President shall be the chief executive
officer of the Company and shall exercise supervision over the business
of the Company and over its several officers, subject, however, to the
control of the Management Committee. In the absence of the Chairman,
the President shall preside at meetings of Members and at meetings of
the Management Committee. He shall have authority to sign all
certificates for interests and all deeds, mortgages, bonds, agreements,
notes, and other instruments requiring his signature; and shall have
all the powers and duties as may from time to time be assigned to him
by the Management Committee. The initial President of the Company shall
be David J. Olson.
(b) Plant Manager. The Plant Manager shall have general
supervision of the day-to-day operations of the plant, including the
authority to hire and terminate production personnel, and shall be
responsible for the productivity of the
25
<PAGE> 32
plant and the quality of the products produced therefrom, subject,
however, to the control of the President. The duties of the Plant
Manager may be expanded by the President in his sole discretion,
subject to the control of the President.
7.7 Rights to Obtain Information. Each Member shall have the right
to obtain, at such Member's sole cost and expense, during business hours and
upon at least twenty-four hours' notice to the Company, all of the following:
(a) True and full information regarding the status of the
business and the financial condition of the Company, including access
to the Company's books and records by a representative of the Member;
(b) Promptly after becoming available, a copy of the
federal, state and local income tax returns of the Company for each
year;
(c) A current list of the name and last known business,
residence or mailing address of each Member and of each Manager;
(d) A copy of the Articles and all amendments to the
Articles;
(e) A copy of this Agreement (including the Bylaws) and all
amendments hereto; and
26
<PAGE> 33
(f) True and full information regarding the date on which
each Member became a Member and the amount of cash, and a description
and statement of the agreed value of any contributed property, if any,
that has been contributed by each Member and that each Member has
agreed to contribute in the future.
In making the foregoing information available to Members, the Company
may either provide the Member requesting such information the right to
examine documents in person at the principal office of the Company and
to make copies or extracts of the documents, or provide to such Member
true and accurate copies of documents responsive to such Member's
request.
7.8 Compensation of Members. Except as hereinafter provided, no
Member shall receive monetary or any other form of compensation for routine
services rendered to the Company. Provided, however, QS or one of its direct or
indirect subsidiaries or affiliates will have a right to first refusal to
supply steel to the Company pursuant to the terms and conditions of a certain
Supply Agreement, a copy of which is attached hereto as Exhibit "B." In
addition, Bing or one of its direct or indirect subsidiaries or affiliates may,
in addition to the officers of the Company set forth in Sections 7.5 and 7.6
hereof, provide management and related services to the Company on an arms
length basis upon the approval of the Management Committee.
27
<PAGE> 34
7.9 Employees. In addition to the terms and conditions of the
Technical Services Agreement, it is envisioned that the Company may utilize the
services of additional employees of the Members from time to time. In such
cases, the Company shall reimburse the Member for the cost of salary, payroll
taxes and benefits of such loaned or "seconded" employees, without any markup
for overhead. The Company shall not hire or appoint any outside, independent,
management. The Company shall not hire any manager or otherwise appoint any
officer or employee if such conduct would jeopardize the Company's status as: a
limited liability company analogous to a partnership for taxation and control
purposes; or as a bonafide MBE.
ARTICLE VIII
EXCULPATION OF LIABILITY
8.1 Exculpation of Liability. Anything herein to the contrary
notwithstanding, except as otherwise expressly agreed in writing, a Member shall
not be liable for any debts, liabilities, or obligations of the Company, whether
to the Company, to any of the other Members, or to creditors of the Company,
beyond the Capital Contribution of the Member, together with the Member's share
of the assets and undistributed profits of the Company. In the event any Member
has incurred any debt, liability or obligation prior to the organization of the
Company that relates to or otherwise affects the Company, neither the Company
nor any other Member shall have any liability or responsibility for or with
respect thereto unless the Company assumes such debt, liability or obligation
pursuant to
28
<PAGE> 35
a written instrument approved by the Management Committee. No Member shall be
obligated to restore a deficit balance in its Capital Account except as required
by law or under this Agreement.
8.2 Indemnification.
(a) To the maximum extent permitted by law, the Company
shall indemnify and hold harmless all Members, all members of the
Management Committee, the officers, employees and agents of the
Company, and the Tax Matters Partner (each, an "Indemnitee") from and
against any and all losses, liabilities, judgments, fines,
settlements, penalties and expenses, including attorneys' fees,
actually and reasonably incurred by the Indemnitee in connection with
any and all claims, demands, actions, suits, or proceedings, civil,
criminal, administrative or investigative, arising out of or
incidental to the business of the Company and in which the Indemnitee
may be involved, as a party or otherwise, by reason of the fact that
the Indemnitee is or was a Member, a member of the Management
Committee, or is or was an officer, employee or agent of the Company.
Such indemnification shall not be provided if the Indemnitee's conduct
constitutes (i) fraud, breach of fiduciary duty or willful misconduct;
or (ii) a breach of this Agreement. The termination of any action,
suit, or proceeding by judgment, order, settlement, conviction, or
upon a plea of no contest, or its
29
<PAGE> 36
equivalent, shall not, in and of itself, create a presumption or
otherwise constitute evidence that the Indemnitee acted in a manner
contrary to that specified above.
(b) Expenses incurred by an Indemnitee in defending any
claim, demand, action, suit or proceeding subject to this Section 8.2
may, from time to time, be advanced by the Company prior to the final
disposition of such claim, demand, action, suit or proceeding upon
receipt by the Company of an undertaking by or on behalf of the
Indemnitee to repay such amount if it shall ultimately be determined
that the Indemnitee is not entitled to be indemnified as authorized in
this Section 8.2.
(c) The indemnification provided by this Section 8.2 shall
be in addition to any other rights to which the Indemnitee may be
entitled under any agreement, by action of the Management Committee,
as a matter of law or equity, or otherwise, and shall inure to the
benefit of the successors, assignees, heirs, personal representatives
and administrators of the Indemnitee.
(d) The Company shall purchase and maintain insurance, at
the Company's expense, on behalf of any Indemnitees against any
liability that may be asserted against or expense that may be incurred
by an Indemnitee in connection with the activities of the Company
regardless of whether the Company would have
30
<PAGE> 37
the power to indemnify such Indemnitee against such liability under the
provisions of this Agreement.
ARTICLE IX
DISPOSITION OF MEMBERSHIP INTERESTS
9.1 General.
(a) No Member shall, without the prior written consent of
the other Members, sell, assign, transfer, exchange, mortgage, pledge,
grant or dispose of (herein a "Transfer" or any root derivative
thereof) (voluntarily, involuntarily, by operation of law, or
otherwise) all or any part of its Membership Interest in the Company or
this Agreement. Any Transfer or purported Transfer of any Units not
made in accordance with this Article IX shall be null and void.
(b) Notwithstanding the foregoing, in the event of the
liquidation of Bing, Bing may Transfer its Units to the members of
Bing, pro rata, in accordance with the unit ownership of such members;
provided, however, that such members shall acknowledge the obligations
under this Agreement, and such transfers shall not disqualify the
Company's status as an MBE.
31
<PAGE> 38
(c) Notwithstanding the foregoing, if the Company is
required by law or otherwise unanimously elects through the Management
Committee, to recognize a Transfer that is not authorized by this
Agreement, such Transfer shall not entitle the Assignee to participate
in the management and affairs of the Company or to exercise any rights
of a Member. A Transfer entitles the Assignee to receive, to the extent
assigned, only the distributions to which the assignor would be
entitled.
9.2 Withdrawal. Except as set forth in this Agreement or otherwise
agreed in a writing executed by the Members, a Member does not have the right or
power to withdraw from the Company as a Member.
9.3 Admission of Substitute Members.
(a) Upon a Transfer of a Unit by a Member in accordance with
Section 9.1 (but not otherwise), the assignor shall have the power to
give, and by transfer of any certificate issued shall be deemed to have
given, the Assignee the right to apply to become a Substitute Member
with respect to the Units acquired, subject to the conditions of and in
the manner permitted under this Agreement. An Assignee of a certificate
representing a Unit shall not be a Substitute Member with respect to
the transferred Units unless and until (i) the instrument of assignment
sets forth the intentions of the assignor that the Assignee succeed to
the assignor's interest as a Substitute Member in his place, (ii) the
assignor and Assignee shall
32
<PAGE> 39
have fulfilled all other requirements of this Agreement, (iii) the
Assignee shall have paid all reasonable legal fees and filing costs
incurred by the Company in connection with the Assignee's substitution
as a Member, and (iv) the Members by unanimous vote of the Units held
by the Members other than the transferring Member, shall have approved
such substitution in writing, which approval may be granted or withheld
in each such Member's sole discretion; whereupon the books and records
of the Company shall be modified to reflect the substitution of the
Substitute Member for the transferring Member.
(b) The admission of an Assignee as a Substitute Member with
respect to a transferred Unit shall become effective on the date the
Members other than the transferring Member give their written approval
to the admission and the books and records of the Company have been
modified to reflect such substitution. With respect to any transfer
under Section 9.1(b), such approval shall not be unreasonably withheld.
Any Member who Transfers all of the Member's Units with respect to
which it had been admitted as a Member shall cease to be a Member of
the Company upon a Transfer of such Units in accordance with Article IX
and the execution of a counterpart of this Agreement by the transferee
(which execution the transferring Member shall obtain prior to such
Transfer) and shall have no further rights as a Member in or with
respect to the Company.
33
<PAGE> 40
9.4 Repurchase of QS' Membership Interest.
(a) Notwithstanding any other provision of this Agreement to
the contrary, upon the occurrence of the fifth (5th) anniversary of the
effective date of this Agreement and at the end of every two (2) years
thereafter (each such date being referred to herein as an "Option
Date"), QS shall have the right to require the Company to repurchase
its Membership Interest, upon sixty (60) days advance notice in writing
by QS to the Company. Notwithstanding anything to the contrary set
forth in this Section 9.4(a), in the event that QS exercises its option
as set forth in Section 9.4(a), Bing (or an affiliate of Bing which
shall be referred to as "Bing" for purposes of this Section 9.4) shall
have the option, given by written notice to the Company and to QS
before the closing of the purchase and sale of such Membership Interest
to purchase all or any part of the Membership Interest of QS in lieu of
the Company at the same price and the same terms and conditions as
would apply to such purchase by the Company.
(b) Notwithstanding any other provision of this Agreement to
the contrary, upon the occurrence of the tenth (10th) anniversary of
the effective date of this Agreement and at the end of every two (2)
years thereafter (each such date being referred to herein as an "Option
Date"), the Company shall have the right to repurchase all but not less
than all of the Membership Interest of QS, upon sixty (60) days advance
notice in writing by the Company to QS. Notwithstanding
34
<PAGE> 41
anything to the contrary set forth in this Section 9.4(b), in the event
the Company shall exercise said option pursuant to this Section 9.4(b),
Bing shall have the option, by written notice to the Company and QS
given before the closing of the purchase and sale of the Shares, to
purchase all or any part of the Shares of subject to such option in
lieu of the Company at the same price and upon the same terms and
conditions as would apply to such purchase by the Company.
(c) The purchase price of QS's Membership Interest under
Section 9.4(a) above, shall equal the Fair Market Value (as defined
below) of the Company, determined as of the Valuation Date, multiplied
by QS's Membership Interest (the "Put Purchase Price"). The purchase
price of QS's Membership Interest under Section 9.4(b) above, shall
equal one hundred fifteen percent (115%) of the Put Purchase Price (the
"Call Purchase Price"). The Put Purchase Price and the Call Purchase
Price may each be referred to in this Agreement as the "Purchase
Price." The "Fair Market Value" of the Company shall mean the
enterprise value of the Company as a going concern, taking into
consideration those characteristics of the Company which an outside
investor would evaluate when contemplating an investment in the
Company, including but not limited to the income and cash generating
capabilities of the Company and its assets and the risks associated
with investing in the Company, less any discounts for lack of
marketability, if appropriate because the Company is not publicly
traded. The
35
<PAGE> 42
Fair Market Value of the Company shall be determined in accordance with
the following:
(i) The Fair Market Value of the Company may be
determined by the unanimous consent of the Members in writing.
The parties may enter such value when and as often as so
agreed upon. If the date of the last determination of value is
more than fifteen (15) months prior to the Valuation Date, or
if no determination has been made, then the Fair Market Value
of the Company shall be determined by an appraisal conducted
by the valuation firm of Houlihan, Lokey, Howard and Zukin,
Inc., of Los Angeles, California, whose fees shall be borne by
the Company. If Houlihan, Lokey, Howard and Zukin, Inc. is not
then available, the Fair Market Value of the Company shall be
determined by a valuation firm of comparable expertise,
ability, and qualifications, selected by mutual and unanimous
agreement of the Members, whose fees shall be borne by the
Company. If the Members involved are unable to agree upon the
valuation firm to be appointed within the fifteen (15) day
period after the applicable Option Date, each such Member
shall have the opportunity to appoint, at its own cost, a
qualified valuation firm within five (5) days after the
expiration of the fifteen (15) day period. If either Member
fails to appoint a valuation firm within this five (5) day
period, the other valuation firm shall unilaterally establish
the Fair Market Value of the Company. If two
36
<PAGE> 43
valuation firms are appointed, they shall establish the Fair
Market Value of the Company in a single written opinion agreed
to by both of them. If the valuation firms so appointed cannot
agree on the Fair Market Value of the Company, they shall
appoint a third valuation firm who shall establish such value
in its sole but reasonable opinion.
(ii) If, between the applicable Valuation Date
and the consummation of the sale, (A) the Company has made a
distribution to the Members other than distributions made with
respect to income taxes, or (B) the Company has declared any
distributions to be paid to the Members, other than
distributions made with respect to income taxes as of a date
within such period but which are not in fact paid during such
period, then the aggregate of (A) and (B) shall be deducted
from the Fair Market Value of the Company.
(d) Upon an election by QS to sell its Membership
Interest under Section 9.4(a), the Purchase Price shall be paid in the
following manner: At the closing, the Company or Bing, as the case may
be, shall pay to QS a down payment equal to ten percent ( 10%) of the
Purchase Price in cash or by certified or bank cashier's check,
delivery of a promissory note substantially in the form of Exhibit C
attached hereto, which note shall require monthly payments of
principal and interest over a period of sixty (60) months and shall
bear interest on the unpaid
37
<PAGE> 44
principal thereof at a floating rate, adjusted on a monthly basis,
which shall be equal to the prime rate of interest charged by Michigan
National Bank and published as its prime rate from time to time;
provided, however, that such rate shall not be less than six percent
(6%) per annum or greater than fifteen percent (15%) per annum.
The Company or Bing, as the case may be, shall grant a
security interest to QS in the Membership Interest so acquired and
shall place a certificate representing such Membership Interest in
escrow and the Company or Bing, as the case may be, and QS shall
execute a Collateral Pledge and Escrow Agreement substantially in the
form of Exhibit D attached hereto.
(e) Upon the election of the Company or Bing, as the case
may be, to purchase QS's Membership Interest under Section 9.4(b), the
Purchase Price shall be paid in cash by certified check or cashier's
check.
(f) The following terms and conditions shall also apply:
(i) The closing of any purchase or sale pursuant to
this Section 9.4 shall occur within ninety (90) days after the
applicable Option Date; provided however, if because of the
time required to determine the Purchase Price of the
Membership Interest being purchased such closing
38
<PAGE> 45
cannot take place within such ninety (90) day period, the
closing shall take place within ten (10) days after the
determination of such Purchase Price at the time, date and
place designated by the Company or Bing, as the case may be.
(ii) If the seller does not deliver any
certificate evidencing its Membership Interest or does not
execute any document required to transfer its Membership
Interest as required under this Section 9.4, at the closing,
then: (A) The purchaser of such Membership Interest shall
deposit the purchase price by check with the Company's
accountant or attorney as escrow agent, and (B) the Company
will adjust its transfer books to reflect that the Membership
Interest of the Member selling its Membership Interest has
been transferred as of the date of closing.
(iii) Each Member appoints the Company, through its
Secretary or such other officer as the Management Committee
may designate, as its attorney-in-fact to execute and deliver
all documents needed to convey a Membership Interest under
this Section 9.4. This power of attorney is coupled with an
interest and continues for as long as this Agreement is in
effect.
9.5 Requirements for Effectiveness of Transfer. As a condition to
recognizing the effectiveness of any proposed transfer of Membership Interest,
the remaining Members
39
<PAGE> 46
may require the transferor and/or the proposed transferee to perform all other
acts which the remaining Member may deem necessary or desirable to:
(a) Constitute such Transferee, as an Assignee or a
Substitute Member;
(b) Confirm that the Person acquiring a Membership Interest,
or being admitted as a Member, has agreed to be subject to and bound by
this Agreement, as it may be further amended, regardless of whether the
Person is to be admitted as a Substitute Member or will merely be an
Assignee;
(c) Preserve the Company' s status under the laws of each
jurisdiction in which the Company is qualified, organized or does
business after the Transfer;
(d) Maintain the Company's classification as a partnership
for federal income tax purposes; and
(e) Assure compliance with any applicable state and federal
laws including securities laws and regulations; and
(f) Confirm or preserve the Company's status as a certified
MBE.
40
<PAGE> 47
9.6 Prohibited Dispositions. Except insofar as may otherwise be
required by law, or permitted by Article IX hereof, no Member's Membership
Interest in the Company, in whole or in part, shall be subject in any manner to
alienation by anticipation, sale, transfer, assignment, bankruptcy, pledge,
attachment, charge, or encumbrance of any kind, nor in any manner be subject to
the debts or liabilities of any Member, and any attempt to so alienate or
subject any such Membership Interest shall be null and void.
9.7 Absolute Restriction. Notwithstanding any provision of this
Agreement to the contrary, the disposition of a Membership Interest, (including
any assignment under this Article IX) or any right, title or interest therein or
thereto will not be permitted if the interest sought to be disposed of added to
the total of all other Membership Interest disposed of within the period of
twelve (12) consecutive months ending with the proposed date of the disposition
results in a termination of the Company under Section 708 of the Internal
Revenue Code or if the Membership Interest sought to be disposed of would
jeopardize in the reasonable opinion of the remaining Members the status of the
Company as a certified MBE.
41
<PAGE> 48
ARTICLE X
DISSOLUTION AND WINDING UP
10.1 Dissolution. Subject to the provisions herein, the Company shall
be dissolved and its affairs shall be wound up upon the occurrence of any of the
following: (i) the Members unanimously consent in writing to dissolve the
Company; or (ii) any other event causing dissolution of the Company under the
Act. At the election of QS, the Company shall be dissolved and its affairs wound
up if the Company is not certified as a Minority Business Enterprise ("MBE") by
the Michigan Minority Business Development Council ("MMBDC") within 120 days of
the date hereof or if the Company ceases to be certified as an MBE by the MMBDC
at any time. Notwithstanding the occurrence of an event causing the dissolution
of the Company under the Act, the Member not causing the dissolution may, within
ninety (90) days after the occurrence of such event, elect to continue the
business of the Company and to the admission of additional members, as
necessary. If the Company is continued as provided herein upon the death,
withdrawal, bankruptcy, legal incapacity, expulsion, or dissolution of a Member,
the Membership Interest of such member (the "Terminated Member") or the assignee
or personal representative or estate of the Terminated member (subject to
Section 9.3) shall only be an Assignee and shall have no other rights as a
Member of the Company.
10.2 No Voluntary Termination. Except as provided herein, no Member
shall have the right voluntarily to dissolve or terminate the Company at any
time.
42
<PAGE> 49
10.3 Method of Winding Up of Company. Upon the occurrence of any
event under Section 10.1 requiring the dissolution of the Company, the
Company shall continue solely for the purposes of winding up its affairs in
an orderly manner, liquidating its assets, and satisfying the claims of its
creditors and Members. No Member shall take any action that is inconsistent
with, or not necessary or appropriate for, the winding up of the Company's
business and affairs. To the extent not inconsistent with the foregoing,
all covenants and obligations in this Agreement shall continue in full
force and effect until such time as the assets of the Company have been
distributed pursuant thereto and the Articles of Organization have been
canceled in accordance with the Act.
(a) The Management Committee shall be responsible for
overseeing the winding up and dissolution of the Company, shall take
full account of the Company's liabilities and assets, and shall cause
the Company's assets to be liquidated as promptly as is consistent with
obtaining the fair market value thereof unless the Members unanimously
consent to distributions of all or any part of the assets in kind.
(b) In the event of the sale of any assets used in the
operation of the Company's business, the Members shall have the right
to meet any such proposed sale price for any asset for a period of not
more than 10 days from the receipt of a third party offer to purchase,
and to purchase such assets at the same price and on the same terms and
conditions as such third party offer. If more than one
43
<PAGE> 50
Member desires to meet such price, a controlled auction shall be held
by the Company. Such controlled auction shall be conducted by an
investment banker or firm of attorneys familiar with steel matters
selected by the Management Committee. A reasonable period of time and
reasonable access shall be provided to all Members to permit each
member desiring to do so to prepare and submit a bid upon the terms
specified by such auctioneer. All bids shall be submitted in accordance
with the procedures established by the auctioneer who shall be charged
with the responsibility for an expeditious procedure producing the best
possible price. All expenses of the auction shall be paid out of the
auction proceeds.
(c) Upon the sale or liquidation of the assets of the Company
and the determination of the fair market value of the assets to be
distributed, the Management Committee shall obtain the following: (i) a
final examination, under United States generally accepted auditing
standards, of the Company's financial statements prepared in accordance
with the Untied States generally accepted accounting principles shall
be made by the Company's independent public accountants, (ii)
statements setting forth the Members' Capital Accounts as maintained
for financial reporting purposes under Section 3.4. The Capital
Accounts subsequent to these adjustments shall be termed the "Final
Capital Accounts."
44
<PAGE> 51
(d) Thereafter, the Management Committee shall cause the
assets or the proceeds therefrom, to the extent sufficient therefore,
to be applied and distributed in the following order:
(1) To the payment of debts and liabilities of the
Company, including the payment of the expenses of liquidation.
(2) To the establishment of any reserves which the
Management Committee, in its reasonable discretion, may deem
reasonably necessary for any contingent or unforeseen
liabilities or obligations of the Company. Such reserves may,
but shall not be required to, be paid over by the Management
Committee to any banking institution or title company in the
States, as escrowee, to be held by it in an interest bearing
account for the purpose of disbursing such reserves in payment
of any of the aforesaid contingencies. At the expiration of
such period as the Membership Committee shall deem advisable,
the escrowee, if any, shall distribute the balance thereafter
remaining in the manner hereinafter provided.
(3) To each Member, an amount equal to its Final
Capital Account; provided that in the event there are
insufficient funds to return to each Member the full amount of
its Final Capital Account, available funds shall be allocated
pro rata among all Members in the same proportion that
45
<PAGE> 52
each Member's Final Capital Account bears to the Final Capital
Accounts of all Members. No Member who has a negative Final
Capital Account shall have any obligation to the Company or
the other Members for such Member's negative balance.
(4) To the Members in the same proportion that the
number of Units owned by each Member bears to the number of
Units owned by all Members.
(e) The Company shall be dissolved when all property owned by
the Company shall have been disposed of and the net proceeds, after
payment or satisfaction of liabilities to Company creditors, shall have
been distributed to the Members.
10.4 Rights of Members. Except as otherwise provided by this
Agreement, (a) each Member shall look solely to the assets of the Company for
the return of its Capital Contribution and shall have no right or power to
demand or receive property other than cash from the Company, and (b) no Member
shall have priority over any other Member as to the return of its Capital
Contributions, distributions or allocations.
10.5 Deemed Distribution and Recontribution. Notwithstanding any
other provisions of Article X of this Agreement, in the event the Company is
"liquidated" within
46
<PAGE> 53
the meaning of Regulations Section 1.704-l(b)(2)(ii)(g) but no event described
in Section 10.1 has occurred, the Company shall not be liquidated, the Company's
liabilities shall not be paid or discharged, and the Company's affairs shall not
be wound up. Instead, the Company shall be deemed to have distributed its assets
in kind to the Members, who shall be deemed to have assumed and taken such
assets subject to all Company liabilities, all in accordance with their
respective Capital Accounts. Immediately thereafter, the Members shall be deemed
to have recontributed the assets in kind to the Company, which shall be deemed
to have assumed and taken such assets subject to all such liabilities.
10.6 Alternative Distribution Methods. In the discretion of the
Management Committee, a pro rata portion of the distributions that would
otherwise be made to the Members pursuant to Article X of this Agreement may be:
(a) Distributed to a trust established for the benefit of the
Members for the purposes of liquidating Company assets, collecting
amounts owed to the Company, and paying any contingent or unforeseen
liabilities or obligations of the Company or the Members arising out of
or in connection with the Company. The assets of any such trust shall
be distributed to the Members from time to time, in the reasonable
discretion of the Management Committee, in the same proportions as the
amount distributed to such trust by the Company would otherwise have
been distributed to the Members pursuant to this Agreement; or
47
<PAGE> 54
(b) Withheld to provide a reasonable reserve for Company
liabilities (contingent or otherwise) and to reflect the unrealized
portion of any installment obligations owed to the Company, provided
that such withheld amounts shall be distributed to the Members as soon
as practicable.
10.7 Reimbursement of Expenses. Subject to the limitations contained
herein including those set forth in Section 7.3, the Members shall be entitled
to reimbursement for out-of-pocket expenses incurred in connection with the
winding up and liquidation of the business carried on by the Company. Such
reimbursement shall be paid as an expense of the business carried on by the
Company after all liabilities to creditors of the Company (other than any of the
Members) have been repaid but prior to any repayments of or distributions to any
of the Members.
ARTICLE XI
TAXES
11.1 Method of Accounting For Tax Purposes. The records of the Company
shall be maintained on the accrual method of accounting for federal income tax
purposes.
11.2 Tax Matters Member. Bing shall be designated as the "tax matters
partner" of the Company pursuant to Section 6231(a)(7) of the Code. Bing shall
take such actions as are necessary to cause each other Member and Assignee to
become a "notice partner"
48
<PAGE> 55
within the meaning of Section 6223 of the Code. Bing shall not take any action
contemplated by Sections 6223 through 6229 of the Code without the approval by a
unanimous vote of the Members.
11.3 Tax Allocations. All tax allocations shall be made in accordance
with the provisions set forth in Article V and the Appendix.
ARTICLE XII
MISCELLANEOUS PROVISIONS
12.1 Terms. Nouns and pronouns will be deemed to refer to the
masculine, feminine, neuter, singular and plural, as the identity of the person
or persons, firm or corporation may in the context require.
12.2 Headings. The headings contained in this Agreement have been
inserted only as a matter of convenience and for reference, and in no way shall
be construed to define, limit or describe the scope or intent of any provision
of this Agreement.
12.3 Counterparts. This Agreement may be executed in several
counterparts, each of which will be deemed an original but all of which will
constitute one and the same instrument.
49
<PAGE> 56
12.4 Entire Agreement. This Agreement constitutes the entire agreement
among the parties hereto and contains all of the agreements among said parties
with respect to the subject matter hereof. This Agreement supersedes any and all
other agreements, either oral or written, between said parties with respect to
the subject matter hereof.
12.5 Severability. The invalidity or unenforceability of any particular
provision of this Agreement shall not affect the other provisions hereof, and
this Agreement shall be construed in all respects as if such invalid or
unenforceable provision were omitted.
12.6 Amendment. This Agreement may be amended or revoked at any time by
a written agreement executed by all of the parties to this Agreement. No change
or modification to this Agreement shall be valid unless in writing and signed by
all of the parties to this Agreement.
12.7 Notices. Unless a party provides written notice of a new address,
any notice, demand, or any written instrument required or permitted to be given
hereunder, shall be in writing, signed by the party giving or making the same,
and shall be delivered by certified mail, return receipt requested, by personal
hand delivery, or by facsimile with copy by regular U.S. mail to all parties
hereto at their respective addresses hereinafter set forth.
50
<PAGE> 57
To: Company or Bing:
6349 Strong Street
Detroit, MI 48211
ATTN: David Olson
Telephone: (313) 922-1390
Fax: (313) 922-8649
Copy to:
W. Patrick Dreisig, Esq.
Raymond & Prokop, P.C.
2000 Town Center, Ste. 2400
Southfield, MI 48075
Telephone: (248) 357-3010
Fax: (248) 357-2720
To: QS Steel Inc.
P.O. Box 1699
3001 Miller Road
Dearborn, MI 48121-1699
ATTN: President
Telephone: (313) 323-1540
Fax: (313) 845-0199
Copy to:
Martin Szymanski
Associate General Counsel
Rouge Steel Company
3001 Miller Road
Dearborn, MI 48121-1699
Telephone: (313) 317-6788
Fax: (313) 317-6796
12.8 Binding Effect. Subject to the provisions of this Agreement
relating to transferability, this Agreement will be binding upon and shall inure
to the benefit of the parties, and their respective distributees, heirs,
successors and permitted assigns.
51
<PAGE> 58
12.9 Governing Law. This Agreement is made under, and shall be governed
by and construed in accordance with, the laws of the State of Michigan
applicable to contracts made and to be performed entirely within such State and
without giving effect to choice of law principles of such State.
12.10 Rights of Creditors and Third Parties Under This Agreement. This
Agreement is entered into among the Members for the exclusive benefit of the
Company, its Members, and their successors and permitted assignees. This
Agreement is expressly not intended for the benefit of any creditor of the
Company or any other person. Except and only to the extent provided by
applicable statute, no creditor or third party shall have any rights under this
Agreement or any agreement between the Company and any Member with respect to
any Capital Contribution or otherwise.
12.11 Non-Waiver. No delay or failure by a party to exercise any right
under this Agreement, and no partial or single exercise of that right, shall
constitute a waiver of that or any other right, unless otherwise expressly
provided herein.
12.12 Antitrust Policy Statement. The Company shall abide by the terms,
conditions and declarations in the Company's Antitrust Policy Statement,
executed by the appropriate representatives of the Members, attached hereto and
incorporated herein as Exhibit E.
52
<PAGE> 59
12.13 Settlement of Disputes. Notwithstanding any other provision of
this Agreement, any dispute which may arise relating to this Agreement shall be
submitted to binding arbitration by the American Arbitration Association. The
arbitration is to be conducted before a panel of three (3) arbitrators, all of
which have extensive experience in the steel industry, in Southfield, Michigan
in accordance with the commercial arbitration rules, as existing as of the time
the arbitration is commenced, of the American Arbitration Association. Judgment
upon the arbitration award may be entered by any court of competent
jurisdiction. The arbitrators will be entitled to apportion the costs of the
arbitration proceedings and to award any party its attorney fees on such grounds
as they deem just. The arbitrators will have the authority to award injunctive
relief and specific performance of the respective obligations of the parties
under this Agreement. The arbitrators will not have authority, under any
circumstances, to award punitive or exemplary damages. The arbitration and any
judicial proceedings relating thereto shall be subject to the Federal
Arbitration Act.
53
<PAGE> 60
IN WITNESS WHEREOF, the parties hereto make and execute this Agreement
on the dates set below their names to be effective on the date first above
written.
BING BLANKING, L.L.C. Members:
QS STEEL INC.
/s/ David J. Olson /s/ Gary P. Latendresse
- ------------------------------- -----------------------------
By: David J. Olson By: Gary P. Latendresse
Its: President Its: President
BING MANAGEMENT II L.L.C.
/s/ David J. Olson
-----------------------------
By: David J. Olson
Its: President
54
<PAGE> 1
EXHIBIT 15
[PRICE WATERHOUSE LLP LETTERHEAD]
April 23, 1998
Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549
Ladies and Gentlemen:
We are aware that Rouge Industries, Inc. has incorporated by reference our
report dated April 20, 1998 (issued pursuant to the provisions of Statements on
Auditing Standards No. 71 and No. 42) in the Prospectus constituting part of
its Registration Statement on Form S-3 (Registration No. 333-16183) amended as
of February 11, 1997 and in its Registration Statements on Form S-8 (No.
33-88518 and No. 33-88520). We are also aware of our responsibilities under
the Securities Act of 1933.
Yours very truly,
/s/ Price Waterhouse LLP
PRICE WATERHOUSE LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED BALANCE SHEET AS OF MARCH 31, 1998 AND THE RELATED CONSOLIDATED
STATEMENT OF OPERATIONS FOR THE THREE MONTHS ENDED MARCH 31, 1997 AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> MAR-31-1998
<CASH> 9,565
<SECURITIES> 0
<RECEIVABLES> 141,585
<ALLOWANCES> 9,176
<INVENTORY> 190,966
<CURRENT-ASSETS> 338,433
<PP&E> 318,480
<DEPRECIATION> 47,537
<TOTAL-ASSETS> 694,322
<CURRENT-LIABILITIES> 182,775
<BONDS> 0
0
0
<COMMON> 220
<OTHER-SE> 441,948
<TOTAL-LIABILITY-AND-EQUITY> 694,322
<SALES> 318,952
<TOTAL-REVENUES> 318,952
<CGS> 301,239
<TOTAL-COSTS> 306,369
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 300
<INTEREST-EXPENSE> 425
<INCOME-PRETAX> 7,347
<INCOME-TAX> 2,212
<INCOME-CONTINUING> 4,071
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 4,071
<EPS-PRIMARY> .19
<EPS-DILUTED> .19
</TABLE>
