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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
X Annual report pursuant to Section 13 or 15 (d) of the Securities Exchange
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Act of 1934 for the Fiscal Year ended October 31, 1997.
OR
Transition report pursuant to Section 13 or 15 (d) of the Securities
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Exchange Act of 1934 for the transition period from __________________ to
___________________
Commission file Number 33-92496
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GULF STATES STEEL, INC. OF ALABAMA
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(Exact name of registrant as specified in its charter)
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Alabama 63-114 1013
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(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification No.)
174 South 26th Street
Gadsden, Alabama 35904-1935
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(Address of principal executive offices) (Zip Code)
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(205) 543-6100
(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
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Indicate by check mark if disclosure of delinquent files pursuant to Item 405 of
regulation S-K is not contained herein, and will not be contained, to the best
or registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ]
At the date of this filing, there were 3,610,000 shares of $.01 par value common
stock outstanding, all of which was owned by GSS Holding Corp. No voting stock
is held by nonaffiliates nor traded on an established public trading market.
Documents incorporated by reference:
1) Schedule 14A - Proxy Statement dated January 23, 1998, incorporates by
reference information required by Part III.
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GULF STATES STEEL, INC. OF ALABAMA
FORM 10-K
TABLE OF CONTENTS
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Item Page
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Part I
1. Business ................................................................................... 1
2. Properties.................................................................................. 9
3. Legal Proceedings...........................................................................10
4. Submission of Matters to a Vote of Security Holders.........................................10
Part II
5. Market for the Registrant's Common Equity and Related Stockholder Matters...................10
6. Selected Financial Data.....................................................................11
7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................................................12
8. Financial Statements and Supplementary Data.................................................19
9. Changes In and Disagreements with Accountants on
Accounting and Financial Disclosure.......................................................44
Part III
10. Directors and Executive Officers of the Registrant..........................................44
11. Executive Compensation......................................................................44
12. Security Ownership of Certain Beneficial Owners and Management..............................44
13. Certain Relationships and Related Transactions..............................................44
Part IV
14. Exhibits, Financial Statement Schedules, and Reports on Form 8-K............................45
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Forward - Looking Statements
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This Annual Report on Form 10-K may contain forward-looking statements as
that term is defined in the Private Securities Litigation Reform Act of 1995.
Such statements are based on management's current expectations and are subject
to a number of factors and uncertainties which could cause results to differ
materially from those described in the forward-looking statements. There can be
no assurance that actual results or business conditions will not differ
materially from those anticipated or suggested in such forward-looking
statements as a result of various factors, including, but not limited to, the
following: the size and timing of significant orders, as well as deferral of
orders, over which the Company has little control; the variation in the
Company's sales cycles from customer to customer; increased competition posed by
other steel producers, both domestic and foreign; changes in pricing policies by
the Company and its competitors; the need to secure or build manufacturing
capacity in order to meet demand for the Company's products; the Company's
success in expanding its sales programs and its ability to gain increased market
acceptance for its existing product lines; the ability to complete its capital
investment program and successfully produce its products; the potential for
significant quarterly variations in the mix of sales among the Company's
products; the gain or loss of significant customers; shortages in the
availability of raw materials from the Company's suppliers; fluctuations in
price and availability of energy; the costs of environmental compliance and the
impact of government regulations; the Company's relationship with its work
force; the restrictive covenants and tests contained in the Company's debt
instruments, which could limit the Company's operating and financial
flexibility; and general economic conditions.
PART I
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ITEM 1. BUSINESS
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Gulf States Steel, Inc. of Alabama (the "Company") owns and operates a
fully integrated steel mill in Gadsden, Alabama, which has been a leading
producer of steel products in the Southern United States since its inception in
1904. The Company manufactures a wide range of hot-rolled, cold-rolled and
galvanized steel sheet and plate products and has an annual finished steel
production capacity of approximately 1.0 million tons. For the fiscal year ended
October 31, 1997, the Company shipped approximately 331,000 tons of hot-rolled
sheet, 157,000 tons of cold-rolled sheet, 148,000 tons of galvanized sheet, and
378,000 tons of plate products, resulting in sales of approximately $436.5
million, and operating profit per ton shipped of approximately $10.
During its over 90 years of service to the Southern market (consisting of
the states of Alabama, Arkansas, Florida, Georgia, Louisiana, Mississippi, North
Carolina, South Carolina, Tennessee and Texas), the Company has developed a
number of long-standing customer relationships by providing quality products and
excellent customer service. The Company's relationships with many of its
approximately 300 customers, the largest of which accounted for less than 10% of
sales in fiscal 1997, span more than 25 years. Unlike large steel companies
which often sell up to 20% of their output to a single national automotive or
appliance customer, the Company sells its products to a much more diversified
customer base. Representative end users of the Company's sheet products include
manufacturers of commercial and residential building products, water heaters,
lawn and garden equipment, liquid propane tanks, recreational equipment,
furniture and culvert pipe. End users of the
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Company's plate products include manufacturers of storage tanks, ships, railway
cars, highway and railroad bridges and other types of industrial and
construction equipment.
Pursuant to an asset purchase agreement dated January 13, 1995, the Company
is the successor to the steelmaking business previously conducted by the
following entities: Gulf States Steel, Inc. of Alabama, Alabama Structural
Beams, Inc., DSC Equipment Associates, LTD, Will's Creek Associates and Villa II
Associates, (collectively the "Predecessor" company). On April 21, 1995, the
Company completed the acquisition of substantially all of the assets and certain
liabilities of the Predecessor company (the "Acquisition").
The Company's principal executive offices are located at 174 South 26th
Street in Gadsden, Alabama and its telephone number is (205) 543-6100.
Manufacturing Process
The Gadsden mill is a fully-integrated steel mill, i.e., the steel-making
process begins with iron ore and ends with a finished or semi-finished steel
product. To begin the process, the Company purchases iron ore pellets, limestone
and coal. The coal is subsequently processed into metallurgical coke in the
Company's multi-oven, oxygen-free coke batteries. Then, iron ore pellets and
limestone are added to the coke and are smelted together in the Company's blast
furnace resulting in the manufacture of molten iron. The molten iron is placed
into one of the Company's basic oxygen furnace ("BOF") vessels, together with
steel scrap, where it is refined with oxygen to produce molten steel to the
chemical specifications of a particular customer. In the ladle metallurgy
facility ("LMF"), certain metallic alloys, which impart their own particular
metallurgical qualities, are added to the molten steel. The molten steel is then
poured into the continuous caster for casting into steel slabs. These slabs are
later reheated and hot-rolled into coiled sheet products in the hot strip mill,
or into flat plates in the plate mill. Coiled hot-rolled sheets may be further
processed by a variety of finishing steps, which include cold rolling,
annealing, temper rolling and galvanizing. Substantially all of the cold rolled
and galvanized products are processed through the annealing and cold temper
rolling finishing steps.
Customers and Markets
The Company produces quality products in smaller volumes, narrower widths,
and lighter gauges than its larger competitors. The Company believes that it is
the largest supplier of steel plate and a major supplier of steel sheet products
to steel service centers and original equipment manufacturers in the Southern
market. The Company has developed a base of approximately 300 customers, the
largest of which accounted for less than 10% of total shipments in fiscal 1997.
The Company's relationships with many of its customers span more than 25 years.
Although competitive pricing is a key factor in all customers' purchasing
decisions, the Company believes that many customers regard the Company as their
preferred supplier due to the levels of service and quality the Company
provides. Lower freight costs, short lead times, timely deliveries, close
proximity to certain key markets and an understanding of local markets
contribute to the Company's competitive strength and its reputation for service.
As one of only five steel sheet producers and two steel plate producers in the
Southern market, the Company believes that it enjoys a significant competitive
advantage compared to its more distant competitors which typically must absorb
between $15 and $25 per ton of extra freight costs in order to compete in the
Southern market.
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The Company believes that the Southern market offers substantial long-term
prospects for steel manufacturers due to its favorable growth characteristics.
The populations of seven of the ten states in the Southern market are projected
by the U.S. Bureau of the Census to grow by more than 10% for the decade ending
in the year 1999, which would place each of them above the U.S. average. States
in the Southern market also generally maintain a lower cost of living and lower
tax burdens than the rest of the United States. The Company believes that all of
these factors will serve to attract businesses and workers to the region,
increase consumption and help to maintain the region's strong growth
characteristics.
Several major car manufacturers have recently opened automobile plants in
the Southern market, while others are planning to do so. These include Nissan
and General Motors in Tennessee, BMW in South Carolina and Mercedes-Benz in
Alabama. Tennessee and Georgia now rank third and fifth, respectively, in terms
of United States car production. Although the Company does not directly sell its
products to automobile manufacturers, the automobile plants in the Southern
market contribute dramatically to regional steel demand, including the steel
products of original equipment manufacturers and other light industrial
manufacturers which the Company supplies.
Capital Investments
Since 1986, the Predecessor and the Company have made significant capital
expenditures to modernize facilities, increase manufacturing capacity, improve
operating efficiencies, and maintain environmental compliance. The most
important of these improvements were the installation of the single strand
continuous caster and the LMF in 1990 and a major blast furnace upgrade and
reline in 1989. These investments have allowed the Company to increase its
production and shipping rates from 864,000 tons in fiscal 1989 to 1,014,000 tons
in fiscal 1997. During fiscal 1997, the Company completed modernization of its
hot strip mill and modification of its continuous caster at a cost of
approximately $14.4 million.
Management has identified several capital investment opportunities which it
believes will allow the Company to further reduce production costs, increase
production and shipping capacity, and improve product quality. The most
significant investment opportunities include: (i) installation of additional
galvanizing capacity, (ii) new bosh technology at its blast furnace and (iii)
other projects including the upgrading of the plate mill to improve plate
product quality and increase production capability. The Company estimates that
the foregoing investments will cost in excess of $40 million and will be
initiated at various times during fiscal 1998 and 1999. The Company is in the
process of trying to obtain the financing for these projects and, if successful,
is targeting completion by fiscal year 2000. As a result of these investments,
the Company believes it will be able to increase its annual production and
shipping capacity, further reduce costs, enhance product quality, improve its
product mix and, thereby, increase profitability (assuming other factors remain
constant).
Raw Materials, Energy and Related Services
The Company is an ore-based integrated steel producer that purchases its
raw materials in the open market from multiple sources through competitively bid
contracts.
Iron Ore. The Company uses iron ore pellets and lump iron ore to produce the
iron used in its steel-making operations. The Company currently obtains
virtually all of its iron ore from two suppliers (one
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Canadian and one Venezuelan) at or below prevailing world market prices. The
iron ore is shipped to Mobile, Alabama by seagoing vessels, where it is unloaded
at the Alabama State Docks. The majority of the pellet and lump ore inventory is
held at this location until needed by the Company. The ore is then loaded into
dedicated unit trains and delivered to Gadsden by rail.
Coal. The Company's steel-making operations require a substantial amount of high
and medium volatile metallurgical grade coal. Over the years, the Company has
obtained its coal from several producers under negotiated annual supply
contracts. The Company believes that it has realized significant savings by
producing coke from coal in the Company's coke ovens as opposed to purchasing
coke directly from suppliers.
Limestone. The Company uses limestone to produce molten iron in the blast
furnace. The Company obtains its limestone, by truck, from three suppliers in
Alabama pursuant to short-term supply contracts or in spot buys. As limestone is
abundant in Alabama, the Company has not had, nor does it expect to have, any
availability problems in the future.
Oxygen. The Company's steel operations consume large amounts of oxygen. The
Company purchases its oxygen from an air separation plant located on the
Company's premises (the "Oxygen Facility") which is owned and operated by the
oxygen supplier. The Company's contract to purchase oxygen from the Oxygen
Facility expires in December 2012.
Scrap. The Company's basic oxygen furnace consumes up to 30% of its metallic
charge in the form of scrap steel. Approximately 40% of that charge is recycled
from the Company's internal operations. The remainder is purchased through
dealers in the open market. While the growth of electric arc furnace based
mini-mills has created pressures on the availability and cost of scrap, the
Company foresees no difficulty in obtaining sufficient scrap to support its
operations.
Energy. The Company purchases the majority of its electrical requirements from
Alabama Power Company under an open-ended contract. This contract provides for
price increases tied to the cost of fuels used by the utility to produce
electricity, which must be approved by the Public Service Commission of Alabama.
The Company co-generates approximately 20% of its electric power requirement.
Historically, the Company has been adequately supplied with electricity and does
not anticipate any curtailment in its operations resulting from energy
shortages.
Natural gas, which the Company uses in its reheat operations, is purchased
at spot prices at the wellhead in the Southeastern United States and is
transported to the mill through local pipeline distribution networks pursuant to
transmission contracts. Historically, the Company has been adequately supplied
with natural gas. During the winter of 1997, however, the Company incurred
significantly higher prices for natural gas than had been experienced
historically, and these higher prices had an adverse impact on the Company's
financial results. The Southeast region of the United States has substantial
deposits of natural gas, and the Company expects an adequate supply of natural
gas to be available.
Transportation. Shipments of coal and iron ore pellets to the Gadsden mill are
made by both the Norfolk Southern and CSX railroads. The Company owns and
maintains railroad tracks on the Gadsden mill's property, on which such
shipments arrive.
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Competition
The Company competes with domestic and foreign steel producers on the basis
of price, proximity to market, quality and service. The Company's competitors
can be divided into four categories: (i) integrated steel mills located within
the Southern market, (ii) integrated steel mills located outside the Southern
market, (iii) mini-mills located in the Southern market and (iv) foreign steel
mills. To a lesser extent, the Company also competes with mini-mills located
outside the Southern market.
The only other integrated mill in the Southern market is the Fairfield
Works, U.S.S. Division of USX Corporation, located in Fairfield, Alabama ("USX-
Fairfield"). This mill produces galvanized, cold-rolled and hot-rolled bands and
tubular products. USX-Fairfield produces over two million tons of steel per year
and specializes in wider galvanized and cold-rolled steel products than the
Company. USX-Fairfield does not currently produce any steel plate products.
Integrated steel mills located outside the Southern market are primarily
Midwestern and Northern mills of the large domestic steel companies which are
high volume producers of wide sheet products primarily targeted at the
automotive and appliance industries. Only a small portion of the steel sheet
produced by these Midwestern and Northern mills has the same gauge and width as
the Company's sheet products. These mills compete in the Southern market to the
extent that they can offer steel products at competitive prices. However, the
Company believes that it enjoys a significant cost advantage relative to its
Midwestern and Northern competitors, which typically must absorb between $15 and
$25 per ton in freight costs in order to compete in the Southern market.
Furthermore, the Company believes that Southern customers prefer to purchase
from local producers assuming equivalent pricing.
The three mini-mills located in the Southern market, Nucor Corporation
("Nucor"), located in Hickman, AK and Berkeley, SC and Tuscaloosa Steel Corp.
("Tuscaloosa") located in Tuscaloosa, AL generally do not compete directly with
the Company. Nucor's Hickman mill produces approximately 1.4 million tons of
hot-rolled sheet products per year. Whereas the Company produces hot-rolled
sheet in gauges of .056 to .312 inches and with a maximum width of 48 inches,
Nucor's Hickman mill produces primarily hot-rolled sheet in gauges of .071 to
.625 inches and in widths of 48 to 61 inches. Nucor's Hickman mill does not
currently produce any steel plate products or galvanized sheet products. Nucor-
Hickman is currently installing galvanizing and cold rolling facilities. When
online by the first quarter of 1999, Nucor-Hickman will have 500,000 to 600,000
tons of hot-dip galvanize and 700,000 to 800,000 tons of cold rolling capacity,
depending on product mix. Pickling facilities are also being added in this
expansion. Nucor will sell the 500,000 to 600,000 tons of galvanized to the
building and agricultural markets and will consume 100,000 to 150,000 tons of
cold roll in their own Vulcraft division.
Nucor has also just completed its Berkeley mini-mill which is now
operational. This plant has 1.8 million tons of annual capacity with expansion
capability to 2.5 million tons. Nucor's stated plan is to sell 40% of this
output as hot band down to .053 inches thick and the balance as cold rolled plus
some pickled and oiled. Nucor-Berkeley expects to complete galvanizing
facilities by mid-1998.
Tuscaloosa, owned by British Steel America Inc., has normally produced
approximately 500,000 tons of hot-rolled sheet and plate products per year.
Recent plans call for less production of hot roll and the production of discrete
plate up to 2.5 inches. The Company believes that its hot-rolled sheet and plate
products are of higher quality than Tuscaloosa's products as the rolling of both
hot-rolled and plate products as well as conversion of stainless steel are
performed on a single mill, Tuscaloosa is a relatively limited supplier. The
Tuscaloosa mill does not currently produce any galvanized or cold-rolled sheet
products. Tuscaloosa has recently completed a capital expenditure program
designed to allow it to
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produce its own slabs and increase its annual production capacity by a minimum
of 200,000 tons. This program will also allow Tuscaloosa to reduce costs and
increase capacity, however, product scope and quality will not be substantially
effected.
A new mini-mill, known as Trico Steel Company ("Trico"), has been
constructed by a joint venture consisting of LTV, British Steel plc. and
Sumitomo Metal Industries, Ltd. This mill began operations during 1997, but
according to published reports, has been slow to come up to production capacity.
Unlike the existing mini-mills located in the Southern market, the Trico mill
has equipment capable of producing light-gauge hot-rolled products. The Trico
mini-mill is expected to have an annual capacity of 2.2 million tons. The
Company believes that this mini-mill will focus on a different product mix than
that which is currently produced by the Company.
Since purchased steel scrap represents only 15% of the Company's raw
material, compared to 100% for its mini-mill competitors, and the Company's
blast furnace facility produces molten iron at a cost less than scrap, the
Company enjoys a cost advantage over mini-mills at the liquid steel stage of
each process. Management believes that, at current scrap steel price levels, the
Company's current cost structure will be competitive with its mini-mill
competitors in the Southern market.
Historically, foreign steel producers were considerable competitors through
their aggressive pricing policies. Foreign steel producers currently provide
commodity products such as hot bands and a limited range of plate products. Most
of these products are routed to service centers. The Company differentiates
itself from its foreign competitors by offering shorter lead times and a broader
range of products; however, in 1996 actions by steel producers in Russia, the
Ukraine, South Africa and China prompted the Company and another domestic
producer to file anti-dumping actions with the International Trade Commission
against those nations. Those actions charged that steel plate is unfairly being
delivered to U.S ports at prices less than the cost to produce those products.
On December 2, 1997, the International Trade Commission ruled in favor of the
petitioners by a unanimous vote and limited the amount of foreign steel plate
that could be shipped into the United States from those countries. In addition,
the ruling regulated the prices of foreign steel plate from those countries. The
Company believes that this decision will reverse the negative impact which the
illegal dumping had on results of operations during fiscal 1997.
Employees
The Company's approximately 200 operating managers have considerable
experience in the steel industry. Over half have more than 20 years of industry
experience with most of the remaining managers ranging in experience from five
to 20 years. The Company's 22 senior operating managers have an average of over
25 years of industry experience and an average of over 20 years at the Gadsden
mill itself.
As of October 31, 1997, the Company had approximately 1,900 employees. .
Substantially all of the Company's hourly employees and 47 salaried office and
clerical employees are represented by the United Steel Workers of America (the
"USWA"). In April 1993, the Predecessor completed negotiation of a collective
bargaining agreement with the USWA which expired on April 1, 1996. This
collective bargaining agreement allowed the Company to reduce and redeploy its
hourly workforce and established a "gain-sharing" program that permits employees
to increase their compensation based upon productivity (as measured by man-hours
per ton). On April 1, 1996, the Company agreed upon a contract with the USWA
which replaced the previous contract expiring on that date. The new contract is
for a term of 54
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months expiring on October 1, 2000. It includes wage increases, certain benefit
increases including other postretirement benefits, changes to local work rules,
language restricting the Company from participation in non-represented
businesses and gives the USWA representation on the Company's strategic planning
committee. Although the Predecessor experienced a 1 1/2 day work stoppage in
1989, it has not experienced any work stoppages since, and the Company believes
that it has satisfactory relationships with its union-represented employees and
the USWA.
In accordance with its collective bargaining agreement with the USWA, the
Company's profit sharing obligations are based on earnings before taxes,
extraordinary items and certain other defined adjustments. The Company is
required to contribute each year to the profit sharing pool 16.5% of earnings to
its hourly employees and 9.75% of earnings to its salaried employees. During
fiscal years 1996 and 1997, the Company granted profit sharing to employees of
its consolidated subsidiary, Alabama Structural Beams, Inc. ("ASBI"). During
fiscal year 1995, profit sharing payments were made to employees of both the
Company and ASBI. Profit sharing payment obligations for the years ended October
31, 1997, 1996 and 1995 approximated $10,000, $139,000 and $13,021,000,
respectively.
The Company provides a defined contribution plan for its hourly employees
and a 401(k) savings and investment plan for both hourly and salaried employees.
The Company annually funds its obligations under the defined contribution and
401(k) plans. There are no other pension plans. Effective April 1, 1996, the
Company initiated and sponsors a defined benefit health care plan that provides
postretirement medical benefits to full-time employees who have worked 30 years,
or have reached the age of 60 with 15 years of service or have reached the age
of 65 while in service with the Company.
Environmental Compliance
The Company is subject to a broad range of federal, state and local
environmental laws and regulations, including those governing discharges to the
air and water, the handling and disposal of solid and/or hazardous wastes, and
the remediation of contamination associated with releases of hazardous
substances. The Company conducts continuous environmental compliance and
monitoring programs and believes that it is currently in substantial compliance
with all known material and applicable environmental regulations except as
follows:
During 1992, the U.S. Environmental Protection Agency ("EPA") asserted that
a waste water ditch system on the Company's property should be remediated and
closed. At October 31, 1994, the Predecessor had remediated a portion of the
ditch. The Company believes that the most probable course of action for the
remainder of the ditch will involve sampling soil and water and possibly
removing some contaminated soil at a nominal cost. The less likely, but more
expensive course of action would involve sampling soil and water, closing and
securing the ditch with the possibility of some contaminated soil remaining in
place, and monitoring for any migration of the contaminants. This remediation
would cost $1.1 million for closure with post-closure monitoring costs over
thirty years of $2.8 million. The Predecessor also agreed to a $1.1 million
civil penalty, of which $300,000 was to be offset by future capital
expenditures, related to this issue. As of October 31, 1996, the $800,000
penalty had been paid. Subsequently, the $300,000 of capital expenditures were
not approved by the EPA, and during fiscal year 1997 the Company made an
additional penalty payment of that amount plus interest.
The Predecessor settled with the Alabama Department of Environmental
Management ("ADEM") during 1994 for all outstanding air and water violations,
and the Company believes that its facility now operates, as a general matter, in
substantial compliance with existing air emission regulations and its water
discharge permit, subject, however, to the matters set forth below.
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The Company faces an enforcement action under the Clean Water Act. The U.S.
Department of Justice notified the Company that it, at the request of the EPA,
was prepared to take "appropriate enforcement action in federal court" against
the Company for alleged violations of its water discharge permit, and invited
the Company to discuss a possible settlement prior to filing suit. The Company
opened discussions with the Justice Department in an attempt to settle these
claims. These discussions have resulted in substantial agreement as to certain
additional upgrades to the Company's waste water treatment system; however, no
agreement has been reached as to civil penalties for past violations. On August
28, 1997, while negotiations were ongoing with the Justice Department, a 60-day
notice of intent to file a citizen suit under the Clean Water Act was sent by
one Johnny Williams, a resident of Rainbow City, Alabama. Prior to expiration of
the 60-day period, the Justice Department filed its action under the Clean Water
Act, thus precluding the citizen suit (see United States v. Gulf States Steel.
Inc., CV 97-S-2755-M filed October 17, 1997). On October 27, 1997, Mr. Williams
moved to intervene in the government's action. Despite the filing, the Company
and the Justice Department are still exploring possible settlement of the civil
penalty. The Clean Water Act provides for civil penalties of up to $25,000 per
day for violations occurring before January 30, 1997 and $27,500 per day for
violations occurring on or after January 30, 1997. At this time it is not
possible to predict what level of civil penalties the Justice Department will
ultimately seek for these exceedances, or when agreement will be reached with
the Company.
During negotiations with the Justice Department over the Clean Water Act
matter described above, the Justice Department raised remediation of Black Creek
as a possible issue. The EPA is now investigating Black Creek and has performed
sampling in Black Creek and Lake Gadsden. Sampling results thus far indicate
levels of metals, primarily lead and zinc, in the sediment of Black Creek and in
certain locations in Lake Gadsden. The levels of metals in the sediment
generally increase with depth, indicating historical discharges are a greater
contributor to the elevated levels. The EPA has made no determination of what
remediation, if any, will be necessary. The EPA has indicated another round of
sampling will be performed to define the scope of the potential remediation. The
Company has expressed its position to the EPA that its contribution, if any, to
the sediment findings is divisible, and that apportioned, rather than joint and
several liability, is appropriate. Additionally, the Company's relative
contribution, if any, to the sediment results must be further reduced to the
extent that it is the result of a federally permitted discharge. The combined
effect of the Company's analysis is that any potential liability that is
assignable to it is so small as to be de minimis. Given current information, it
is not possible to predict the scope or cost of any potentially required
remediation of Black Creek and/or Lake Gadsden, nor is it known whether the
Company's analysis regarding its potential liability will be accepted.
On February 20, 1996, ADEM issued a Notice of Violation ("NOV") to the
Company for continuing violation of opacity limits from the combustion stacks of
the coke ovens, and included in the NOV a requirement that the Company install
continuous opacity monitors in the stacks. The Company appealed this
requirement, and it was subsequently withdrawn by ADEM on the condition that the
Company employ an independent contractor to conduct visible emission readings on
the stacks. The Company complied with this condition. While there has been no
renewed request by ADEM that the Company install opacity monitors, ADEM has, in
subsequent NOV's, identified such monitors as a possible future requirement. The
Company has taken the position, in its communications with ADEM, that the
installation of such monitors on its existing stacks is not feasible; however,
it is not currently possible to predict whether ADEM will again attempt to
require that continuous opacity monitors be installed in the coke oven
combustion stacks.
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For the fiscal years ended October 31, 1997 and 1996 and during the periods
from April 21, 1995 to October 31, 1995 and from November 1, 1994 to April 20,
1995, capital expenditures for environmental projects were $4.1 million, $6.4
million, $4.0 million and $2.9 million, respectively, and environmental
compliance expenses were $6.0 million, $5.8 million, $2.5 million and $3.1
million, respectively. The Company currently estimates that expenditures for
environmental capital projects in fiscal 1998 will be approximately $3.1
million. As of October 31, 1997, the Company has accrued $750,000 for unresolved
environmental matters.
Though the Company believes that it has adequately provided for the cost of
all known environmental conditions, the applicable agencies could insist upon
different and possibly more costly remediative measures than those believed by
the Company to be adequate or required by existing law. The Company expects that
the resolution of these matters will not have a significant effect on the
Company's financial position, results of operations, or liquidity.
ITEM 2. PROPERTIES
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The mill is located on approximately 800 acres in Gadsden, Alabama, which
is approximately 120 miles west of Atlanta, Georgia and 60 miles northeast of
Birmingham, Alabama. The mill comprises an aggregate of approximately 3.1
million square feet of floor space and primarily consists of two batteries of 65
coke ovens each, a blast furnace, two BOF vessels, the LMF, the continuous
caster, a plate mill, a 54" hot strip mill, 54" and 58" temper mills, a 54"
tandem mill, and galvanizing and pickle lines. The Company's current iron
production capacity of 90,000 tons per month limits the Company's in-house slab
production to 96,000 tons per month ("TPM"), yielding an in-house capacity of
82,000 TPM of finished steel products. Since the finishing end of the Company's
operation has a higher relative capacity (96,000 TPM) than the caster (90,000
TPM), the Company has from time-to-time purchased steel slabs in the open market
at a higher cost than its internal production costs in order to increase product
shipments.
Although the Company will be required to make the significant capital
expenditures discussed above, the Company believes that its facilities and
equipment are well-maintained, in good operating condition and, in general,
suitable for the Company's purposes and adequate for its present operations.
ITEM 3. LEGAL PROCEEDINGS
- ------- -----------------
Other than the environmental proceedings described in Item 1 above, the
Company is not a party to any significant pending legal proceedings other than
litigation incidental to its normal business, including employee matters. The
Company believes that these proceedings will not have a significant effect on
its financial position, results of operations or liquidity. The majority of such
non-environmental claims against the Company are ordinarily covered by
insurance. There can be no assurance, however, that insurance will be available
in the future at reasonable rates.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------- ---------------------------------------------------
Not Applicable.
9
<PAGE>
PART II
-------
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS
- ------- ---------------------------------------------------------------------
The Company's Common Stock, par value $.01 per share, is not traded on an
established public trading market. As of the date of this filing, there was one
stockholder of record, GSS Holding Corp. ("Holdings"). Holdings has issued
Senior Subordinated Notes ("Notes") and, although the Company has no obligation
with respect to these Notes, the sole source of funds for the repayment of these
Notes are dividends from the Company. The Notes require Holdings to cause the
Company to pay dividends to Holdings to the maximum extent allowed. No dividends
were declared during fiscal 1997.
10
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
- ------- -----------------------
(dollars in millions except per share and per ton data)
<TABLE>
<CAPTION>
(Successor) (Predecessor)
-----------------------------------------------------------------------------------------
For the Period For the Period
Fiscal Year Ended April 21, 1995 Nov. 1, 1994 Fiscal Year Ended
October 31, to October 31, to April 20, October 31,
---------------------------- -------------- --------------- ----------------------
1997 1996 1995 1995 1994 1993
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Income Statement Data:
Net sales $ 436.5 $ 454.3 $ 255.8 $ 232.6 $ 457.4 $ 361.6
Cost of goods sold, excluding
depreciation 389.8 399.6 204.3 180.4 376.4 314.1
Effect of inventory write-up - - 13.2 - - -
Depreciation 18.4 15.3 7.3 8.7 17.7 15.9
Selling, general and administrative
expenses 16.2 15.3 10.6 11.2 15.6 21.5
Write-off of blooming mill 1.8 - - - - -
Profit sharing(1) - .1 5.8 7.2 - -
---------- ---------- --------- -------- --------- ---------
Operating profit 10.3 24.0 14.6 25.1 47.7 10.1
Net interest expense 26.9 24.7 12.4 5.2 14.3 15.0
---------- ---------- --------- -------- --------- ---------
Income (loss) before income taxes
and cumulative effect of
accounting change (16.6) (.7) 2.2 19.9 33.4 (4.9)
Provision (benefit) for income taxes (.8) (.3) 1.0 7.1 12.6 (0.8)
---------- ---------- --------- -------- --------- ---------
Income (loss) before cumulative
effect of accounting change(2) $ (15.8) $ (.4) $ 1.2 $ 12.8 $ 20.8 $ (4.1)
========== ========== ========= ======== ========= =========
Net income (loss) per share $ (5.12) $ (0.10) $ 0.33
Dividends paid and declared per
share - - $ 1.87
Balance Sheet Data:
Total assets $ 305.4 $ 304.3 $ 287.9 $ 220.5 $ 217.4 $ 242.9
Long-term debt (including current
portion) 228.2 211.5 188.8 96.1 96.9 128.6
Stockholders' equity and partners'
capital 19.5 38.0 38.3 58.6 45.8 25.3
Other Data:
EBITDA(3) $ 33.8 $ 41.3 $ 21.9 $ 34.0 $ 66.1 $ 26.9
Capital expenditures 31.1 25.6 16.8 11.6 16.9 7.0
Ratio of earnings to fixed
charges(4) -- -- 1.2x 4.5x 3.2x --
Net cash provided (used) by
operations $ 12.5 $ 5.7 $ 5.8 $ 12.4 $ 50.1 $ (3.4)
Net cash used in investing
activities (31.1) (25.5) (218.7) (11.6) (16.6) (7.0)
Net cash provided (used) by
financing activities 16.4 22.3 214.8 (0.8) (33.9) 10.3
Operating Data:
Total tons shipped (000s) 1014 1075 602 512 1059 928
Average selling price per ton
shipped(5) $ 423 $ 417 $ 420 $ 448 $ 421 $ 385
Average manufacturing cost per ton
shipped(5) 375 365 331 338 343 332
Operating profit per ton shipped(6) 10 22 46 49 45 11
Average rated capacity
utilization(7) 95.4% 93.6% 98.7% 94.6% 95.9% 95.5%
</TABLE>
(1) Profit sharing payments are made quarterly, and total 26.25% of income
before deduction for profit sharing and income tax expense. Profit sharing
payments were not made in fiscal 1993, which was a loss year, and were not
required in fiscal 1994 under the collective bargaining agreement. Profit
sharing payment obligations resumed on November 1, 1994. Profit sharing
expenses would have been $9.5 million and $0.3 million for fiscal 1994 and
the first quarter of fiscal 1994, respectively, had payments been required.
(2) Excludes $2.6 million of previously capitalized costs incurred for process
reengineering which were written off in 1997 as the cumulative effect of an
accounting change relating to the adoption of EITF 97-13. The effect of
this accounting change was not material for years prior to 1997.
(3) EBITDA is defined as operating profit plus depreciation and amortization.
The Company believes that EBITDA provides additional information for
determining its ability to meet debt service requirements. EBITDA does not
represent and should not be considered as an alternative to net income or
cash flow from operations as determined by generally accepted accounting
principles, and EBITDA does not necessarily indicate whether cash flow will
be sufficient for cash requirements.
(4) Ratio of earnings to fixed charges is defined as income (loss) before
income taxes and cumulative effect of accounting change plus amortization
of debt issuance cost and interest expense divided by the sum of interest
expense plus amortization of debt issuance costs. Earnings were
insufficient to cover fixed charges in 1993, 1996 and 1997 by approximately
$4.9 million, $0.7 million and $16.6 million, respectively.
(5) Excludes sales of coke by-products and sales by affiliates (Predecessor) or
subsidiary (Successor). Accordingly, average selling price and average
manufacturing cost per ton shipped are based on sales of flat rolled
products only.
(6) Excluding non-recurring effect of inventory write-up.
(7) Net tons of raw steel melted divided by the Company's estimated annual raw
steel production capacity.
11
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- ------- -------------------------------------------------
CONDITIONS AND RESULTS OF OPERATIONS
------------------------------------
The following discussion should be read in conjunction with the financial
statements of the Company and the notes thereto included elsewhere in this Form
10-K.
Results of Operations
To facilitate a comparison of the Company's operations with the results of
the Predecessor, the following discussion and analysis as it relates to the
Predecessor is based on pro forma statements of income prepared under the
assumption that the Acquisition of the Predecessor and related issuance of the
First Mortgage Notes (the "Notes") occurred at the beginning of the fiscal 1995
period.
The pro forma statement of income presented below is for discussion
purposes only and should not be construed to be indicative of the Company's
results of operations had the Acquisition of the Predecessor and issuance of the
Notes been consummated on the date assumed and does not project the Company's
results of operations for any future period.
The pro forma statement of income differs from the historical statement of
income of the Predecessor due to the following adjustments: (i) inventory is
costed on a FIFO basis instead of LIFO (the basis used by the Predecessor); (ii)
a non-recurring cost of $13.2 million due to the write-up in inventory from the
Predecessor's historical cost to fair value; (iii) a change in depreciation
expense resulting from the increased cost basis of plant and equipment resulting
from the allocation of the purchase price of the Company; (iv) management fees
are adjusted to reflect the provisions of the Company's management agreement;
(v) additional amortization expense related to debt issuance cost of the First
Mortgage Notes less the reversal of certain Predecessor amortization expense;
(vi) additional net interest expense based on the Company's debt structure;
(vii) the effect on profit sharing expense of the above adjustments; and (viii)
the effect on tax expense of the above adjustments.
12
<PAGE>
<TABLE>
<CAPTION>
Pro-forma
Year Ended Year Ended year ended
Oct. 31, Oct. 31, Oct. 31,
1997 1996 1995
--------------- -------------- --------------
(dollars in thousands)
<S> <C> <C> <C>
Net sales............................................ $ 436.5 $ 454.3 $ 488.4
Cost of goods sold, excluding depreciation........... 389.8 399.6 384.0
Effect of inventory write-up......................... - - 13.2
Depreciation......................................... 18.4 15.3 14.9
Selling, general and administrative expenses......... 16.2 15.3 19.5
Write-off of blooming mill assets 1.8 - -
Profit sharing....................................... - 0.1 12.2
-------- -------- --------
Operating profit..................................... 10.3 24.0 44.6
Other (income) expense:
Interest expense............................ 27.0 24.7 25.1
Interest income............................. (0.1) - (0.3)
-------- -------- --------
26.9 24.7 24.8
-------- -------- --------
Income (loss) before income taxes and cumu-
lative effect of accounting change............... (16.6) (0.7) 19.8
Provision (benefit) for income taxes................. (0.8) (0.3) 7.2
-------- -------- --------
Net income (loss) before cumulative effect
of accounting change $ (15.8) $ (0.4) $ 12.6
========= ========= ========
</TABLE>
Fiscal Year Ended October 31, 1997 Compared to Fiscal Year Ended October 31,
1996
Net Sales. Net sales decreased 3.9% to $436.5 million for the year 1997
from $454.3 million for the year 1996. This decrease was primarily caused by a
5.7% decrease in shipments of flat rolled products from 1,074,910 net tons in
fiscal year 1996 to 1,013,970 in fiscal 1997. Sales volume was lower due to
planned outages for upgrades at the Hot Strip Mill in April, May and June of
1997, as well as several unplanned outages at other production facilities. The
decrease in revenues due to lower sales volume was partially offset by an
increase in the average selling price for flat rolled steel from $417 per ton in
the 1996 period to $423 per ton in the 1997 period. This 1.4% increase in
average selling price resulted from an improved product mix as well as a slight
increase in transaction prices.
Cost of Goods Sold. Cost of goods sold, excluding depreciation,
decreased 2.5% to $389.8 million for the year 1997 from $399.6 million for the
year 1996, however, as a percentage of net sales, cost of goods sold, excluding
depreciation, increased to 89.3% in 1997 compared to 88.0% in 1996. Most of this
increase resulted from the aforementioned planned and unplanned outages at the
mill, however, higher hourly labor costs, high natural gas prices, and higher
raw materials prices, especially zinc, were only partially offset by benefits
resulting from the Company's cost reduction programs. Average manufacturing
costs for flat rolled products rose $10 per ton shipped from $365 in 1996 to
$375
13
<PAGE>
in 1997. Depreciation expense was $18.4 million in the 1997 period compared to
$15.3 million in the 1996 period. This increase was primarily due to continuing
expenditures for the Company's capital improvement projects.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses increased to $16.2 million, or 3.7% of net sales in
1997, from $15.3 million, or 3.4% of net sales in 1996. This increase was
primarily due to higher staffing costs, increased employee benefit plan costs
and costs relating to the Company's Year 2000 project initiatives.
Write-off of Blooming Mill Assets. During the third quarter of fiscal
1997, the Company closed its blooming mill operation as part of its capital
improvement program and upgrading of facilities. This closing resulted in a
non-recurring charge of $1.8 million for the write-off of non-salvageable fixed
assets associated with the blooming mill.
Profit Sharing. Profit sharing amounted to $10,000 in 1997 compared to
$139,000 in 1996. This amount was paid to employees of the Company's
consolidated subsidiary, ASBI. No other profit sharing payments were required
due to the consolidated net loss of the Company.
Operating Profit. As a result of the changes in net sales, cost of
goods sold, depreciation, selling, general and administrative expenses,
write-off of blooming mill assets and profit sharing discussed above, operating
profit decreased to $10.3 million, or 2.4% of net sales, in 1997, from $24.0
million, or 5.3% of net sales, in 1996. Excluding the non-recurring effect of
the write-off of blooming mill assets, operating profit for 1997 would have been
$12.1 million, or 2.8% of net sales.
Interest Expense. Interest expense, net of interest income, increased
to $26.9 million in the 1997 period from $24.7 million in the 1996 period. This
was primarily due to an increase in the average revolving credit facility loan
balance in fiscal 1997.
Income Taxes. The benefit for income taxes increased from $0.3 million
in fiscal 1996 to $0.8 million in fiscal 1997. This represents a drop in the
effective rate of the Company's tax benefit from 42.2%in 1996 to 4.6% in 1997.
This drop in the effective tax rate was primarily due to the establishment of a
valuation allowance for the Company's deferred tax assets which reduced the tax
benefit rate by 32.5%. The valuation allowance was established to recognize
uncertainties in the full realization of the recorded deferred tax assets.
Fiscal Year Ended October 31, 1996 Compared to Pro-Forma Fiscal Year Ended
October 31, 1995
Net Sales. Net sales decreased 7.0% to $454.3 million for the year 1996
from $488.4 million for the year 1995. This decrease was primarily caused by a
decrease in selling prices for flat rolled steel. The Company's average selling
price on flat rolled products was down 3.8% at $417 per ton in the 1996 period,
from $433 per ton in the 1995 period due to reduced transaction prices. Volume
was reduced due to several unplanned outages at the mill, primarily as a result
of the severe winter experienced in the Southeast resulting in natural gas
curtailments to the mill. Additionally, the Company had planned outages at the
Hot Strip Mill and Plate Mill during fiscal 1996 which further reduced
production. As a result, shipments fell 3.7% in flat roll products to 1,074,910
tons in 1996 compared to 1,114,180 tons in 1995.
14
<PAGE>
Cost of Goods Sold. Cost of goods sold, excluding depreciation,
increased 4.1% to $399.6 million for the year 1996 from $384.0 million for the
year 1995. As a percentage of net sales, cost of goods sold, excluding
depreciation, increased to 88.0% in 1996 from 78.6% in 1995. Approximately
one-third of this increase resulted from the aforementioned planned and
unplanned outages at the mill. Higher employment costs including the results of
the new labor agreement with the USWA, natural gas prices, and raw material
costs increased during fiscal 1996 resulting in average manufacturing costs for
flat rolled products increasing to $365 per ton in 1996 from $335 in 1995.
Depreciation costs were $15.3 million in 1996 and on a pro-forma basis $14.9
million in 1995.
Effect of Inventory Write-up. At the time of the Acquisition, the
purchase price allocated to inventory resulted in a $13.2 million write-up from
the Predecessor's historical cost. The $13.2 million write-up was expensed as
the inventory was sold during the period from April 21, 1995 to July 31, 1995.
This is a non-recurring cost.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased to $15.3 million, or 3.4% of net sales in
1996, from $19.5 million, or 4.0% of net sales in 1995. This decrease was
primarily due to lower sales and use tax expense of approximately $3.2 million.
These reductions resulted from: (1) the Company's being awarded "Enterprise
Zone" status by the State of Alabama thereby eliminating state sales and use
taxes to the Company, (2) recovery of prior periods overpayments, and (3)
reduced liabilities to city and county taxing authorities.
Profit Sharing. Profit sharing amounted to $0.1 million in 1996
compared to $ 12.2 million in 1995. This amount was paid to employees of the
Company's consolidated subsidiary, ASBI, who were not covered by a profit
sharing plan in 1995. No other profit sharing payments were required due to the
consolidated net loss of the Company.
Operating Profit. As a result of the changes in net sales, cost of
goods sold, effect of inventory write-up, depreciation, selling, general and
administrative expenses, and profit sharing discussed above, operating profit
decreased to $24.0 million, or 5.3% of net sales, in 1996, from $44.6 million,
or 9.1% of net sales, in 1995. Excluding the effect of the above mentioned
inventory write-up on a pro-forma basis, operating profit would have been $57.8
million, or 11.8% of net sales, in the 1995 period.
Interest Expense. Interest expense, net of interest income, decreased
to $24.7 million in the 1996 period from $24.8 million in the 1995 period. This
was largely due to an increase in capitalized interest in 1996.
Liquidity and Capital Resources
The Company's primary capital requirements consist of capital
expenditures and debt service. The company makes capital expenditures for the
replacement of existing plant and equipment, compliance with environmental
regulations, and the upgrading and improvement of manufacturing facilities. The
Company's capital expenditures for the year ended October 31, 1997 were $31.1
million compared to $25.5 million for the year ended October 31, 1996. For
fiscal year 1997, the Company incurred capital expenditures, excluding
capitalized interest, totaling $4.1 million for environmental projects and
expenditures totaling $25.0 million for the replacement, upgrading and
improvement of facilities and equipment.
15
<PAGE>
On April 21, 1995 the Company completed the Acquisition (see page 2).
In connection with the Acquisition, $190 million in First Mortgage Notes were
issued, upon which the Company is required to make semi-annual cash interest
payments of approximately $12.8 million ($25.7 annually). Although the Company
will not be required to make principal payments on the First Mortgage Notes
until maturity, in the event of Excess Cash Flow, as defined by the first
Mortgage Note Indenture, the Company will be required to purchase First Mortgage
Notes with 50% of such Excess Cash Flow. The Notes are senior obligations of the
Company and are secured by substantially all the assets of the Company except
accounts receivable and inventories. The Notes impose certain limitations on the
Company including the ability to incur additional indebtedness, pay dividends,
make certain restricted payments, create liens or sell substantially all of the
Company's assets.
Also, in connection with the Acquisition, the Company entered into an
agreement for a Revolving Credit Facility (the "Old Credit Facility") which
provided the Company with a credit facility of $70 million, subject to a
borrowing availability formula applied to eligible accounts receivable and
inventory of the Company and a requirement to maintain borrowing availability of
not less than $10 million at all times. The Revolving Credit Facility required
the Company to maintain a ratio of EBITDA (earnings before interest, taxes,
depreciation and amortization) to Cash Interest of 1.0 to 1.0 for the preceding
twelve month period measured at the end of each of the Company's fiscal quarters
and, under certain circumstances, to meet additional financial covenants.
At October 31, 1997, approximately $37.2 million was borrowed under this credit
facility.
On November 13, 1997, the Company entered into a new $80 million
Revolving Credit and Capital Expenditure Facility (the "New Credit Facility").
This credit facility included a $70 million revolving credit line and a $10
million equipment financing facility, and it was first used to replace and pay
off the outstanding balance of the Old Credit Facility. Available borrowings are
subject to limits based on eligible accounts receivable and inventories. The New
Credit Facility has an original term of three years through November 13, 2000,
at which time the agreement will automatically renew itself for one-year terms,
unless terminated by either party. Obligations under the revolving credit
facility are secured by inventories and accounts receivable, and the Company is
required to maintain a defined amount of consolidated adjusted tangible net
worth at all times. During November 1997, the Company recorded an extraordinary
expense of $1.0 million in connection with the refinancing, however, $0.8
million was a noncash transaction consisting of the write-off of prior
unamortized debt issuance costs. The New Credit Facility provides the Company
with significant additional financial flexibility in terms of relaxed financial
covenants and reduced borrowing costs.
At the time of the acquisition, Holdings issued certain promissory
notes to Capital Resource Lenders II, L.P. as a part of a related transaction.
Although the Company has no obligation with respect to the promissory notes,
Holdings is required to make payments thereon in accordance with the respective
terms thereof, for which the source of funds is expected to be dividend
distributions or loans from the Company. The promissory notes require Holdings
to cause the Company to pay dividends to Holdings to the maximum extent allowed
under the terms of the First Mortgage Notes indenture and applicable law until
the Holdings notes are repaid in full. No dividends were declared by the Company
during fiscal year 1997. In addition, in connection with the Acquisition,
Holdings issued a promissory note to the seller for which the source of funds
for repayment is also expected to be dividend distributions or loans from the
Company. There have been no cash payments required or made on the seller note
through October 31, 1997.
The Company has incurred losses in the current and prior years. An
anticipated outage to rework the blast furnace is currently scheduled for fiscal
year 1999, and this outage will impact operating results
16
<PAGE>
at that time. Although the Company has initiated recent cost reduction measures
and expects to realize benefits in operating performance from its capital
improvement program, there can be no assurance that any of these measures and
improvements will result in the full realization of the Company's recorded
deferred tax assets. Considering these factors the Company has established a
valuation allowance of $5.4 million relating to the net deferred tax assets. The
Company will continue to evaluate the need for a change in the valuation
allowance on a quarterly basis.
The Company believes that future cash flows from operations, together
with borrowings available under the New Credit Facility, will provide the
Company with sufficient liquidity and capital resources to conduct its business
activities (including its capital investments) and to meet its cash interest
payment requirements. Although the Company is continuously instituting cost
reduction initiatives and expects to benefit from improved operating performance
related to its capital investments, there can be no assurance that any or all of
these potential savings will be realized. Failure to achieve these cost
reduction initiatives or improve operating performance through these capital
investments, could adversely affect the financial results or liquidity of the
Company in the future. In addition, external factors affect the Company's market
and related transaction prices for its products as well as its cost structure
for outside purchases (i.e., ore, natural gas, electricity, etc.). Unfavorable
price movements in these items, among others, could adversely affect the
Company's financial results and its ability to maintain compliance with the
restrictive covenants in the Company's borrowing agreements. In the event that
the Company's financial results and/or borrowing availability under the New
Credit Facility were so affected, the Company's liquidity and capital resources
could be adversely effected which could also significantly limit the Company's
ability to withstand competitive pressures or adverse economic conditions.
Impact of the Year 2000 Issue
The Year 2000 Issue is the result of computer programs being written
using two digits rather than four to define the applicable year. Any of the
Company's computer programs that have time sensitive software may recognize a
date using "00" as the year 1900 rather than the year 2000. This could result in
a system failure or miscalculations causing disruptions of operations,
including, among other things, a temporary inability to process transactions,
send invoices, or engage in similar normal business activities.
The Company has conducted an assessment of its exposure to disruption
associated with the Year 2000 issue. Many of its computer based transactional
business systems are subject to potential failure. The Company believes that it
could be materially affected by such failures. In addition, certain process
control systems are also exposed. The Company is also vulnerable to third-party
failures to correct their systems but believes that such exposure is minimal.
The Company believes that no material contingencies exist that would require it
to modify its products.
The Company has recognized the serious nature of its exposure under the
Year 2000 Issue and has developed a modification plan that will minimize this
exposure. It has budgeted approximately $8.8 million (of which $6.2 million is
expected to be capitalized) for the purchase of Year 2000 compliant software and
consultant support all of which is expected to be funded through operating cash
flows. The primary purchased software is for an enterprise resource planning
system which will provide enhanced productivity and customer service benefits in
addition to mitigating potential consequences of the Year 2000. Through October
31, 1997, the Company has incurred capital expenditures for software of $2.3
million and has spent another $0.2 million for contractors to rewrite existing
systems. Those activities
17
<PAGE>
were initiated in late 1996 for all business systems. The Company has budgeted
an additional $0.4 million in expense for the rewrite of systems modules that
cannot be purchased as packages. The Company believes that these items, which
will be expensed as incurred, are not expected to have a material effect on its
results of operations. Approximately $2.6 million of previously capitalized
costs incurred for process reengineering were written off in fiscal year 1997 as
the Cumulative Effect of an Accounting Change relating to the adoption of EITF
97-13., Accounting for Costs Incurred in Connection with a Consulting Contract
or an Internal Project That Combines Business Process Reengineering and
Information Technology Transformation.
The Company anticipates completing the Year 2000 project by October 31,
1998, which is prior to any anticipated impact on its operating systems. A team
of information systems personnel is evaluating the progress and is developing
contingency plans that ensure the continued operation of the business. The
Company has appointed a task force to further evaluate and develop action plans
for minimizing the impact of the Year 2000 Issue on its process control systems.
The costs of the project and the date on which the Company believes it
will complete the Year 2000 modifications are based on management's best
estimates, which were derived utilizing numerous assumptions of future events,
including the continued availability of certain resources, third-party
modification plans and other factors. There can be no guarantee that these
estimates will be achieved and actual results could differ materially from those
anticipated. Specific factors that might cause material differences include, but
are not limited to, the availability and cost of personnel trained in this area,
the ability to locate and correct all relevant computer codes, and similar
uncertainties.
18
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ------- -------------------------------------------
Gulf States Steel, Inc. of Alabama
Consolidated Financial Statements
Years ended October 31, 1997 and 1996
and for the periods from April 21, 1995 to October 31,
1995 and from November 1, 1995 to April 20, 1995 with
Report of Independent Auditors
Contents
<TABLE>
<S> <C>
Report of Independent Auditors.........................................................................20
Audited Consolidated Financial Statements
Balance Sheets
Consolidated as of October 31, 1997 and 1996 (Successor)............................................21
Statements of Income
Consolidated for the years ended October 31, 1997 and 1996 and for the period
from April 21, 1995 to October 31, 1995 (Successor), and
combined for the period from November 1, 1994 to April 20, 1995 (Predecessor).......................22
Statements of Cash Flows
Consolidated for the years ended October 31, 1997 and 1996 and for the period
from April 21, 1995 to October 31, 1995 (Successor), and
combined for the period from November 1, 1994 to April 20, 1995 (Predecessor).......................23
Notes to Financial Statements..........................................................................25
</TABLE>
19
<PAGE>
Report of Independent Auditors
The Board of Directors and Stockholder
Gulf States Steel, Inc. of Alabama
We have audited the accompanying consolidated balance sheets of Gulf States
Steel, Inc. of Alabama (Successor) as of October 31, 1997 and 1996, and the
related consolidated statements of income and cash flows for the years ended
October 31, 1997 and 1996, and for the period from April 21, 1995 to October 31,
1995, and the combined statements of income and cash flows of Gulf States Steel,
Inc. of Alabama (Predecessor) for the period from November 1, 1994 to April 20,
1995. Our audits also included the financial statement schedule listed in the
index at Item 14(a). These financial statements and schedule are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements and schedule based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Gulf States Steel,
Inc. of Alabama (Successor) at October 31, 1997 and 1996, and the related
consolidated results of its operations and its cash flows for the years ended
October 31, 1997 and 1996, and for the period from April 21, 1995 to October 31,
1995, and the combined results of operations and cash flows of Gulf States
Steel, Inc. of Alabama (Predecessor) for the period from November 1, 1994 to
April 20, 1995, in conformity with generally accepted accounting principles.
Also, in our opinion, the related financial statement schedule, when considered
in relation to the basic financial statements taken as a whole, presents fairly
in all material respects the information set forth therein.
As discussed in Note 4 to the consolidated financial statements, in 1997 the
Company changed its method of accounting for process reengineering costs.
Birmingham, Alabama
December 5, 1997
20
<PAGE>
Gulf States Steel, Inc. of Alabama
Consolidated Balance Sheets
(dollars in thousands)
<TABLE>
<CAPTION>
October 31,
1997 1996
------------------------------
<S> <C> <C>
Assets
Current assets:
Cash and cash equivalents $ 2,359 $ 4,458
Accounts receivable, less allowance for doubtful
accounts of $390 in 1997 and $1,050 in 1996 33,385 40,788
Inventories 54,651 58,383
Deferred income taxes 3,311 2,850
Prepaids and other current assets 7,140 2,873
------------------------------
Total current assets 100,846 109,352
Property, plant and equipment, net 197,706 186,893
Deferred charges, less accumulated amortization of
$3,109 in 1997 and $1,864 in 1996 6,840 8,079
------------------------------
Total assets $ 305,392 $ 304,324
==============================
Liabilities and Stockholder's Equity
Current liabilities:
Accounts payable $ 33,998 $ 34,878
Accrued payroll and employee benefits 4,851 5,713
Accrued interest payable 1,272 1,270
Accrued workers compensation 3,056 3,358
Accrued gain sharing 2,934 2,966
Other accrued liabilities 7,902 2,841
Income taxes payable 174 156
Current portion of long-term debt 643 643
------------------------------
Total current liabilities 54,830 51,825
Long-term debt 227,556 210,839
Deferred income taxes 1,313 1,469
Common stock warrants subject to put options 2,225 2,225
Stockholder's equity:
Common stock, par value $.01 per share; 4,000,000 shares
authorized, 3,610,000 shares issued and outstanding 36 36
Additional paid-in capital 39,050 39,050
Notes receivable from officers (750) (750)
Accumulated deficit (18,868) (370)
------------------------------
Total stockholder's equity 19,468 37,966
------------------------------
Total liabilities and stockholder's equity $ 305,392 $ 304,324
==============================
</TABLE>
See accompanying notes.
21
<PAGE>
Gulf States Steel, Inc. of Alabama
Consolidated Statements of Income
(dollars in thousands)
<TABLE>
<CAPTION>
Period from Period from
Year ended October 31, April 21, 1995 to November 1, 1994
1997 1996 October 31, 1995 to April 20, 1995
-------------- --------------- ----------------- -----------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Net Sales $ 436,510 $ 454,283 $ 255,821 $ 232,618
Cost of goods sold, excluding
depreciation 389,780 399,547 204,341 180,367
Effect of inventory write-up - - 13,195 -
Depreciation 18,443 15,345 7,261 8,683
Selling, general and administrative
expenses 16,145 15,249 10,639 11,213
Write-off of blooming mill 1,800 - - -
Profit sharing 10 139 5,824 7,197
------------------------------------------------ -----------
Operating profit 10,332 24,003 14,561 25,158
Other (income) expense:
Interest expense 27,019 24,685 12,668 5,234
Interest income (76) (42) (262) (4)
------------------------------------------------ -----------
26,943 24,643 12,406 5,230
------------------------------------------------ -----------
Income (loss) before income taxes (16,611) (640) 2,155 19,928
Provision (benefit) for income taxes (760) (270) 910 7,126
------------------------------------------------ -----------
Income (loss) before cumulative effect
of accounting change (15,851) (370) 1,245 12,802
Cumulative effect of accounting change (2,647) - - -
------------------------------------------------ -----------
Net income (loss) $ (18,498) $ (370) $ 1,245 $ 12,802
================================================ ===========
Earnings per share:
Income (loss) before cumulative
effect of accounting change $ (4.39) $ (.10) $ .33
Cumulative effect of accounting
change (.73) - -
------------------------------ -----------
Net income (loss) $ (5.12) $ (.10) $ .33
============================== ===========
Weighted average common and common
equivalent shares outstanding 3,610,000 3,610,000 3,799,838
============================== ===========
</TABLE>
See accompanying notes.
22
<PAGE>
<TABLE>
<CAPTION>
Gulf States Steel, Inc. of Alabama
Consolidated Statements of Cash Flows
(dollars in thousands)
Period from Period from
Year ended October 31, April 21, 1995 to November 1, 1994
1997 1996 October 31, 1995 to April 20, 1995
--------------------------------------------- -------------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Operating activities:
Net income (loss) $ (18,498) $ (370) $ 1,245 $ 12,802
Adjustments to reconcile net income
(loss) to net cash provided by
operating activities:
Depreciation, including amounts
capitalized in inventories 18,443 15,485 6,870 8,994
Amortization 1,524 1,663 618 415
Write-off of blooming mill 1,800 -- -- --
Deferred income taxes (617) (1,134) (247) 1,824
Changes in operating assets and liabilities:
Accounts receivable 7,403 (1,130) (4,218) 3,899
Inventories 3,732 (1,708) (497) (871)
Effect of inventory write-up -- -- 13,195 --
Prepaids and other current assets (4,267) (1,979) 284 --
Deferred charges (7) (49) (9,894) (1,547)
Accounts payable (880) (692) (2,174) (10,175)
Accrued payroll and employee benefits (862) 967 (1,628) 1,946
Accrued interest payable 2 86 1,184 (33)
Other accrued liabilities 4,727 (4,402) (93) 1,913
Income taxes payable 18 (1,001) 1,157 (6,790)
--------- --------- --------- ---------
Net cash provided by operations 12,518 5,736 5,802 12,377
Investing activities:
Acquisition of predecessor company -- -- (201,954) --
Building and equipment purchases (31,056) (25,535) (16,792) (11,611)
Proceeds from disposal of equipment -- 70 -- --
--------- --------- --------- ---------
Net cash used in investing activities (31,056) (25,465) (218,746) (11,611)
</TABLE>
23
<PAGE>
<TABLE>
<CAPTION>
Gulf States Steel, Inc. of Alabama
Consolidated Statements of Cash Flows (continued)
(dollars in thousands)
Period from Period from
Year ended October 31, April 21, 1995 to November 1, 1994
1997 1996 October 31, 1995 to April 20, 1995
------------------------------------------------- ------------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Financing activities:
Proceeds from first mortgage notes $ -- $ -- $ 190,000 $ --
Proceeds from long-term debt -- 3,525 -- --
Payments of long-term debt (653) (329) -- (18,839)
Net borrowings (payments) on revolving
credit agreement 17,092 19,094 1,000 18,079
Payment of dividends -- -- (5,013) --
Capital contribution -- -- 28,853 --
------------------------------------------------- ------------------
Net cash provided (used) by financing
activities 16,439 22,290 214,840 (760)
------------------------------------------------- ------------------
Net increase (decrease) in cash and
cash equivalents (2,099) 2,561 1,896 6
Cash and cash equivalents at beginning
of period 4,458 1,897 1 179
------------------------------------------------- ------------------
Cash and cash equivalents at end of
period $ 2,359 $ 4,458 $ 1,897 $ 185
------------------------------------------------- ------------------
Supplemental cash flow information:
Cash paid (received) during the period
for:
Interest $ 28,386 $ 26,817 $ 12,511 $ 5,267
Income taxes (18) 1,865 -- 12,092
Supplemental schedule of non-cash
operating and financing activities:
Dividends declared and payable $ -- $ -- $ 1,749 $ --
</TABLE>
See accompanying notes.
24
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements
October 31, 1997
1. Significant Accounting Policies
Description of the Company
The Company owns and operates a fully integrated steel mill in Gadsden, Alabama,
which has been a leading producer of steel products in the Southern United
States since its inception in 1904. Approximately 80% of the Company's employees
are covered under a contract with the United Steelworkers of America (the
"USWA") which expires on October 1, 2000.
The accompanying financial statements present the consolidated financial
position, results of operations and cash flows of Gulf States Steel, Inc. of
Alabama (GSS) and its wholly-owned subsidiary, Alabama Structural Beams, Inc.
(ASB) (collectively the Company or Successor) since the Acquisition (see Note 2)
on April 21, 1995. GSS is a wholly-owned subsidiary of GSS Holding Corp.
(Holding), a Delaware corporation, which is controlled by Watermill Ventures,
Ltd. The accompanying Predecessor financial statements present the combined
financial position, results of operations and cash flows of GSS, ASB, DSC
Equipment Associates, LTD. (DSC), Will's Creek Associates (WCA) and Villa II
Associates (VA) prior to the Acquisition.
All material intercompany accounts and transactions have been eliminated.
Cash Equivalents
Investments with maturities of three months or less at the time of purchase are
considered to be cash equivalents.
Income Taxes
The Company (GSS and ASB) is included in the consolidated federal income tax
return of its parent. Under terms of a federal tax sharing agreement with its
parent, federal income tax expense is allocated to GSS and ASB on a separate
return basis.
Inventories
The Company's inventories are valued at the lower of cost, as determined by the
first-in, first-out (FIFO) method, or market. The Predecessor's inventories were
valued at the lower of cost, as determined by the last-in, first-out (LIFO)
method, or market.
25
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Property, Plant and Equipment
Property, plant and equipment for the Predecessor and for the Company subsequent
to the Acquisition is stated at cost. Property, plant and equipment acquired by
the Company in the Acquisition is recorded at an amount which represents the
remaining portion of the purchase price after allocation of fair value to other
acquired current assets and assumed liabilities and which is not in excess of
the fair value. Depreciation is computed using the straight-line method over
estimated useful lives of 3 to 12 years.
Deferred Charges
The Company's deferred charges include debt issuance costs which are expected to
benefit future periods and are being amortized over eight years. The
Predecessor's deferred charges included organization, preoperating and prepaid
lease costs which were expected to benefit future periods and were being
amortized over five years. Financing costs for the Predecessor's restructured
senior secured notes were also being amortized over five years.
Earnings Per Share
Earnings per share is based upon the weighted average number of common shares
outstanding and the dilutive common equivalent shares. The Company has
outstanding common stock warrants subject to put options to purchase 190,000
shares of common stock. The warrants are considered common equivalent shares
and, if dilutive, are included in the average shares outstanding using the
treasury stock method. Earnings per share data for the Predecessor for the
periods prior to the Acquisition has been omitted because its capital structure
is not comparable to that of the Company.
The Financial Accounting Standards Board (FASB) issued Statement No. 128
Earnings Per Share which is effective for the Company for fiscal 1998. This
statement is not expected to have a material effect on the Company's financial
statements when adopted.
26
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
1. Significant Accounting Policies (continued)
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amount of revenues and expenses during the reporting period. Actual
results could differ from those estimates.
2. Acquisition
On April 21, 1995, the Company (f/k/a Gulf States Steel Acquisition Corp.)
completed an acquisition of substantially all of the assets and certain
liabilities of the Gadsden, Alabama facilities of Gulf States Steel, Inc. of
Alabama and other affiliates, collectively referred to as the Predecessor (the
Acquisition). Funds for the Acquisition were obtained from the net proceeds of
the sale of 190,000 units, each consisting of a $1,000 face amount of 13.5%
First Mortgage Note and a Warrant to purchase one share of common stock, and a
capital contribution from Holding to the Company of $28.9 million in cash and a
$15 million note issued by Holding to the seller.
The Acquisition was accounted for using the purchase method of accounting and is
included in the Company's financial statements from the date of the Acquisition.
In connection with the Acquisition of the Predecessor for approximately $202
million cash (including direct acquisition expenses) plus a note of $15 million,
the Company acquired assets with a fair value of $273 million and assumed
liabilities of $56 million.
During December 1996, the Company agreed to pay the seller $1 million in
settlement of certain liabilities related to the purchase of the Company. This
settlement was less than the estimated liability recorded in connection with the
acquisition and resulted in a gain of $893,000 which is reflected in the results
of operations for the year ended October 31, 1996.
The following unaudited pro forma information presents the results of operations
as though the aforementioned Acquisition, which occurred on April 21, 1995, had
occurred as of the beginning of the period presented below (dollars in
thousands):
<TABLE>
<CAPTION>
Period from November
1, 1994 to April 20,
1995
-----------------------
(Predecessor)
<S> <C>
Net sales $ 232,618
Net income 11,378
</TABLE>
27
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
3. Inventories
Inventories consist of the following (dollars in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Raw materials $ 19,534 $ 16,920
Work-in-process 13,528 11,803
Finished goods 21,589 29,660
---------------------------------------------
$ 54,651 $ 58,383
=============================================
</TABLE>
At the time of the Acquisition, the purchase price allocated to inventories
resulted in a $13.2 million write-up from the Predecessor's historical cost. The
$13.2 write-up was expensed as the inventories were sold during the period from
April 21, 1995 to July 31, 1995. This is a non-recurring cost.
4. Property, Plant and Equipment
Property, plant and equipment consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Land $ 1,268 $ 1,268
Buildings 6,089 6,055
Machinery and equipment 216,520 186,943
Construction in progress 14,460 14,982
---------------------------------------------
238,337 209,248
Accumulated depreciation (40,631) (22,355)
=============================================
$ 197,706 $ 186,893
=============================================
</TABLE>
During 1997, the Company recorded a $1.8 million charge to write down assets of
the blooming mill that is being shut down.
Effective October 31, 1997, the Company changed its method of accounting for
costs incurred for process reengineering. These costs, totaling $2.6 million at
October 31, 1997, were previously capitalized by the Company and are being
written off in 1997 as the cumulative effect of an accounting change. This
accounting change is in accordance with a consensus reached by the Emerging
Issues Task Force, Issue 97-13, Accounting for Costs Incurred in Connection with
a Consulting Contract or an Internal Project That Combines Business Process
Reengineering and Information Technology Transformation. The income tax benefit
relating to this write-off is reserved by a deferred income tax valuation
allowance. The effect of this accounting change is not material for years prior
to 1997.
28
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes of Financial Statements (continued)
5. Long-Term Debt
Long-term debt of the Company consists of the following (dollars in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Revolving credit facility $ 37,186 $ 20,094
First mortgage notes 188,470 188,192
Equipment notes 2,543 3,196
---------------------------------------------
228,199 211,482
Less current portion (643) (643)
---------------------------------------------
$ 227,556 $ 210,839
=============================================
</TABLE>
Revolving Credit Facility
As of October 31, 1997, the Company had a $70 million revolving credit facility
with two banks which was scheduled to expire on April 21, 2000. Available
borrowings were subject to limits based on eligible accounts receivable and
inventories, less outstanding letters of credit. The Company was committed to
maintaining a minimum availability at all times of $10 million. Interest on
borrowings under the facility was calculated, at the Company's option, at either
the bank's Eurodollar rate plus an applicable margin, which was initially 3.25%,
or the prime rate plus 1%. The interest rate in effect at October 31, 1997 was
8.91%. Obligations under the revolving credit facility were secured by accounts
receivable and inventories. Under the terms of the credit facility, the Company
was required to maintain a ratio of consolidated EBITDA (earnings before
interest, income taxes, depreciation and amortization, as defined) to interest
expense plus consolidated current maturities of long-term liabilities, as
defined, of 1.0 to 1.0. Additionally, if the revolving loan balance exceeded $45
million or borrowing availability under the facility was less than $20 million
at the end of any fiscal quarter, certain other financial covenants applied.
On November 13, 1997, the Company entered into an $80 million credit facility
which included a $70 million revolving credit facility and $10 million equipment
financing facility. Available borrowings on the revolving credit facility are
subject to limits based on eligible accounts receivable and inventories, less
outstanding letters of credit. This credit facility has an original term of
three years through November 13, 2000, at which time the agreement will
automatically renew itself for one-year terms thereafter. This facility was used
to pay off the outstanding amount of the previous $70 million revolving credit
facility. Borrowings under the facility bear interest, at the Company's option,
at either the adjusted LIBOR rate plus an applicable margin, which is initially
3.00%, or the prime rate plus .75%. Obligations under the revolving credit
facility are secured by inventories and accounts receivable. Under the revolving
credit facility, the Company is required to maintain at all times a stated
amount of consolidated adjusted tangible net worth, as defined. In November,
1997, in connection with the refinancing of the revolving
29
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
5. Long-Term Debt (continued)
credit facility, the Company recorded an extraordinary expense of $1.0 million,
consisting of a write-off of unamortized debt issuance costs and a prepayment
penalty.
First Mortgage Notes
The First Mortgage Notes (Notes) mature April 15, 2003. Interest on the Notes
accrues at 13.5% per annum with semiannual interest payments due on April 15 and
October 15. Under the Notes, the Company is required to make excess cash flow
payments, as defined, beginning with the fiscal year ending October 31, 1996.
The Company did not have excess cash flow, as defined, in the fiscal year ending
October 31, 1997 or 1996, therefore no payment was required. The Notes are
senior obligations of the Company and are secured by substantially all of the
assets of the Company except accounts receivable and inventories. The Notes are
redeemable at the option of the Company on or after April 15, 1999 at amounts
ranging from 106.75% of face value in 1999 to 100.00% of face value in 2001 and
thereafter. The Company is required to purchase all of the outstanding Notes in
the event of a change of control and to offer to purchase a portion of the Notes
in the event of one or more public equity offerings. The Notes impose certain
limitations on the Company including the ability to incur additional
indebtedness, pay dividends, make certain other restricted payments, create
liens, consummate certain mergers or consolidations or sell substantially all of
the Company's assets.
The Company has 190,000 warrants outstanding, which were included with the Notes
in the units sold by the Company. Each warrant entitles the holder thereof to
purchase one share of common stock, subject to certain adjustments, at a price
of $.01 per share. The warrants are exercisable upon the occurrence of an
Exercise Event (as defined in the warrant agreement) and expire 180 days after
becoming exercisable, but in any event no later than April 15, 2003. Pursuant to
the warrant agreement, under certain circumstances the Company or Holding is
required to make an offer to purchase all outstanding warrants and warrant
shares in cash at a price equal to the current market value, as defined,
thereof. The warrants have been assigned a value resulting in a debt discount of
$2,225,000 at issuance, which is being amortized over the term of the Notes. The
warrants are reflected as common stock warrants subject to put options in the
Company's accompanying consolidated balance sheets.
Equipment Notes
Principal and interest payments are made monthly, with the interest rates from
3.65% above the LIBOR rate to prime plus 0.75%. The Notes mature from April 1,
2001 to October 1, 2001. The Equipment Notes are secured by a security interest
in equipment that is purchased with the proceeds of these notes.
30
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
5. Long-Term Debt (continued)
Maturities of long-term debt consists of the following (dollars in thousands):
<TABLE>
<S> <C>
1998 $ 643
1999 37,829
2000 643
2001 623
2002 --
Thereafter through 2003 190,000
------------------------
$ 229,738
Less unamortized discount on the Notes (1,539)
========================
$ 228,199
========================
</TABLE>
For the years ended October 31, 1997 and 1996, interest of $2.0 million and $2.2
million was capitalized, respectively.
6. Stockholders' Equity and Partners' Capital
Changes in stockholder's equity (Successor) and stockholders' equity and
partners' capital (Predecessor) were as follows (dollars in thousands):
<TABLE>
<CAPTION>
Period from Period from
Year ended October 31, April 21, 1995 to November 1, 1994
1997 1996 October 31, 1995 to April 20, 1995
---------------------------------------------------- -------------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Balance at beginning of period $ 37,966 $ 38,336 $ -- $ 45,841
Net income (loss) (18,498) (370) 1,245 12,802
Dividends paid and payable -- -- (6,762) --
Capital contributions -- -- 43,853 43,853
---------------------------------------------------- -------------------
Balance at end of period $ 19,468 $ 37,966 $ 38,336 $ 58,643
==================================================== ===================
</TABLE>
31
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
7. Stock Option Plan
Holding's 1995 Employee, Director and Consultant Stock Option Plan (Holding
Stock Option Plan) provides for the issuance of up to 50,000 shares of Gulf
States Steel Holding Corporation non-voting, $0.01 par value common stock
through grants of incentive stock options and non-qualified stock options (for
Holding's Class C common stock) to key employees, directors and consultants of
Holding and its subsidiaries (including the Company).
The options vested 40% on April 21, 1997, and 20% per annum for the next three
years. Options expire ten years after the grant date unless the employee owns
more than 10% of the total combined value of all classes of capital stock of the
Company or an affiliate whereby the options will expire in five years. The
Company accounts for its stock options in accordance with APB Opinion No. 25 and
related interpretations, and intends to continue to do so.
Options granted pursuant to the Holdings Stock Option Plan become immediately
exercisable upon the occurrence of a Change in Control (as defined). The
purchase price for shares as to which an option is exercised may be payable,
among other things, by delivery of a personal, interest bearing recourse note.
At the election of an employee the Company is required to repurchase, in any
fiscal year, up to 20% of the options granted to such employee (or 20% of the
shares acquired pursuant to the exercise of options), up to an aggregate of 60%
of the options and/or the shares.
The fair value of each option is estimated on the date of the grant using the
minimum value method with the following weighted average assumptions used in
1997: dividend yield of zero percent, risk-free interest rate of 6.34%, and
expected life of ten years. Based on this calculation, the fair value of the
options is nominal.
A summary of the status of the Holding Stock Option Plan as of October 31, 1997
and 1996, and the changes during those dates, is presented below:
<TABLE>
<CAPTION>
1997 1996
------------------------------- --------------------------------
Weighted Weighted
Average Average
Shares Exercise Price Shares Exercise Price
------------------------------- --------------------------------
<S> <C> <C> <C> <C>
Outstanding at beginning of year $ 38,600 $ 0.01 $ -- $ --
Granted -- -- 41,000 0.01
Canceled -- -- (2,400) 0.01
============ ============
Outstanding at end of year $ 38,600 0.01 $ 38,600 0.01
============ ============
Options exercisable at end of year 15,440 --
</TABLE>
32
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
7. Stock Option Plan (continued)
The following table summarizes information about the stock options outstanding
at October 31, 1997:
<TABLE>
<CAPTION>
Options Outstanding Options Exercisable
---------------------------------- ----------------------------------
Weighted
Number average Number Weighted
outstanding at remaining outstanding at average
October 31, contractual October 31, exercise
Range of exercise prices 1997 life 1997 price
- ----------------------------------------------------------------- ----------------------------------
<S> <C> <C> <C> <C>
$0.01 38,600 8.5 15,440 $ 0.01
</TABLE>
Had compensation expense for the Company's stock option plan been determined
based on the fair value at the grant date for awards under this plan, consistent
with the method of FASB Statement No. 123, the Company's net loss would not have
increased for 1997 or 1996. The effects of FASB Statement No. 123 on pro forma
net loss in 1997 and 1996 is not likely to be representative of the effects on
pro forma net income or loss in future years.
8. Employee Profit Sharing
GSS is required by the terms of an agreement, which expires October 1, 2000,
between GSS and the United Steelworkers of America (the Union), to make
quarterly profit sharing payments to its union employees. Such payments are
16.5% of profits excluding extraordinary items, pre-tax income or loss from
significant sales of property, plant and equipment, income and investments
applicable to affiliates, cumulative effect on prior years of changes in
accounting principle, pre-tax income or loss from increases or decreases in
value of equipment permanently taken out of service and deferred costs arising
out of permanent closure of any department of substantial portion. In addition,
GSS makes quarterly profit sharing payments to salaried administrative personnel
equivalent to 9.75% of profits before deduction for profit sharing and income
tax expense, with inventories valued on the basis of the lower of cost, on a
first-in, first-out basis, or market.
ASB is required by the terms of an agreement with the Union to make quarterly
profit sharing payments to its Union employees. Such payments are 10% of profits
before taxes and before deduction for profit sharing.
33
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
9. Income Taxes
The Company is included in the consolidated federal income tax return of its
parent. The federal tax sharing agreement with its parent requires the Company
to pay to its parent an amount equivalent to its federal income tax expense as
if the Company was filing a separate tax return.
The components of net deferred tax amounts recognized in the balance sheets are
as follows (dollars in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
---------------------------------------------
<S> <C> <C>
Deferred tax liabilities:
Basis of property, plant and equipment $21,793 $13,858
Accrued gain sharing - 96
Allowance for doubtful accounts 245 171
---------------------------------------------
Total deferred tax liabilities $22,038 $14,125
Deferred tax assets:
Net operating loss carryforward $23,550 $10,009
Alternative minimum tax credit carryforward 2,048 2,048
Accrued employee benefits 3,174 2,613
Environmental - 279
Inventories 662 557
---------------------------------------------
Total deferred tax assets $29,434 $15,506
Valuation allowance (5,398) -
---------------------------------------------
Net deferred tax asset $(1,998) $(1,381)
=============================================
</TABLE>
At October 31, 1997, the Company has net operating loss carryforwards of
approximately $63,392,000 that expire in 2011 and 2012.
34
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
10. Income Taxes (continued)
The Company's effective tax rate differs from the applicable U.S. federal
statutory rate for the period due to the following:
<TABLE>
<CAPTION>
Period from Period from
April 21, 1995 November 1
Year ended October 31, to October 31, 1994 to
1997 1996 1995 April 20, 1995
----------------- ---------------- ----------------- ------------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Tax expense (benefit) at the
federal statutory rate (35.0)% (35.0)% 35.0% 35.0%
Increase (decrease) resulting from:
State income taxes (2.1)% (3.3) 3.3 2.1
Expenses not tax deductible 0.9% 3.8 0.7 -
Deferred income tax valuation
allowance 32.5% - - -
(Income) loss from affiliates with no
associated (tax benefit) tax - - - (0.1)
Benefit of AMT credit - - - (2.5)
Other (0.9)% (7.7) 3.2 1.3
----------------- ---------------- ----------------- ------------------
Effective rate (4.6)% (42.2)% 42.2% 35.8%
================= ================ ================= ==================
</TABLE>
The provision (benefit) for income taxes consists of the following (dollars in
thousands):
<TABLE>
<CAPTION>
Period from Period from
April 21, 1995 November 1,
Year Ended October 31, to October 31, 1994 to April 20,
1997 1996 1995 1995
----------------- ---------------- ----------------- ------------------
(Successor) (Predecessor)
<S> <C> <C> <C> <C>
Current:
Federal $ (130) $ 864 $ 1,151 $ 4,831
State (13) - 6 471
----------------- ---------------- ----------------- ------------------
(143) 864 1,157 5,302
Deferred:
Federal (562) (1,037) (329) 1,662
State (55) (97) 82 162
----------------- ---------------- ----------------- ------------------
(617) (1,134) (247) 1,824
----------------- ---------------- ----------------- ------------------
$ (760) $ (270) $ 910 $ 7,126
================= ================ ================= ==================
</TABLE>
Income taxes payable at October 31, 1997 and 1996 include amounts for federal
income taxes of $174,000 and $156,000, respectively, due Holding under a tax
sharing agreement.
35
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
10. Related Parties
The Company has separate management agreements with two affiliates and an
insurance service agreement with another affiliate. The management agreements
obligate the Company to pay annual fees totaling $1,250,000. The insurance
agreement calls for fees equal to 15% of the total annual cost of the Company's
insurance program. All agreements contain provisions for reimbursement of
expenses in addition to the annual fees. Total amounts paid to affiliates for
services under management agreements for the years ended October 31, 1997 and
1996 and for the period from April 21, 1995 to October 31, 1996 were $1,545,000,
$1,378,000 and $722,000, respectively, including $295,000, $128,000 and $66,000
in reimbursed expenses. Total fees paid to an affiliate under the insurance
services agreement for the years ended October 31, 1997 and 1996 totaled
$213,000 and $175,000, respectively. Fees totaling $3 million were paid to
related parties and affiliates for services rendered and as reimbursement for
expenses incurred in connection with the Acquisition and the offering of the
Notes.
Notes receivable from officers of $750,000 at October 31, 1997 and 1996 are
evidenced by promissory notes bearing interest at 6.5% and becoming due on April
15, 2015, or on such earlier date upon the occurrence of certain events as
stated in each such promissory note, including upon termination of employment
for cause. The indebtedness is secured by a pledge of the officers' interest in
a limited partnership.
The Predecessor had significant transactions with its parent, primarily related
to management services provided to the Predecessor. Management fees and other
expenses charged to the Predecessor by its parent for the period from November
1, 1994 to April 20, 1995 were approximately $3.4 million.
36
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
11. Commitments and Contingencies
Commitments
The Company has two purchase agreements with suppliers whereby agreed-upon
volumes of ore pellets will be supplied. Contract volumes under one agreement
are established six months prior to the beginning of each contract year with a
minimum of 695,000 natural metric tons. Volumes under the other agreement have
been established at 688,000 natural metric tons for contract years 1998 and
1999, and 172,000 natural metric tons for contract year 2000. However, the
Company can increase or decrease the amounts under the second agreement by ten
percent at its discretion. Prices under the agreements are adjusted annually
based on a formula. Amounts paid under the contracts, excluding freight charges,
totaled $42.3 million and $46.6 million for the years ended October 31, 1997 and
1996, respectively, $24.7 million for the period from April 21, 1995 to October
31, 1995, and $19.9 million for the period from November 1, 1994 to April 20,
1995. At October 31, 1997, the Company has a minimum obligation of approximately
$36.5 million under the above agreements.
The Company has commitments for construction projects related to plant expansion
and environmental improvements of approximately $6.8 million at October 31,
1997.
Although the Company has no obligation with respect to the senior subordinated
notes, the seller note or redeemable preferred stock of Holding, the sole source
of funds for these obligations is expected to be dividend distributions or loans
from the Company. The Holding's senior subordinated notes require Holding to
cause the Company to pay dividends to Holding to the maximum extent permitted
under the indenture for the Notes and applicable law. Accordingly, on September
6, 1995, the Company's Board of Directors approved a dividend to Holding in the
amount of $5,013,000, or $1.39 per share. Effective October 31, 1995, a dividend
of $1,749,000, or $0.48 per share, was declared and paid on December 14, 1995.
No dividends were declared for the years ended October 31, 1997 and 1996.
Contingencies
The Company is subject to a broad range of federal, state and local
environmental laws and regulations, including those governing discharges to the
air and water, the handling and disposal of solid and/or hazardous wastes, and
the remediation of contamination associated with releases of hazardous
substances. The Company conducts continuous environmental compliance and
monitoring programs and believes that it is currently in substantial compliance
with all known material and applicable environmental regulations except as
follows:
37
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
11. Commitments and Contingencies (continued)
During 1992, the Environmental Protection Agency (EPA) asserted that a waste
water ditch system on the Company's property should be remediated and closed. At
October 31, 1994, the Predecessor had remediated a portion of the ditch. The
Company believes that the most probable course of action for the remainder of
the ditch will involve sampling soil and water and possibly removing some
contaminated soil at a nominal cost. The less likely, but more expensive course
of action would involve sampling soil and water, closing and securing the ditch
with the possibility of some contaminated soil remaining in place, and
monitoring for any migration of the contaminants. This remediation would cost
$1.1 million for closure, with post-closure monitoring costs over thirty years
of $2.8 million. The Predecessor also agreed to a $1.1 million civil penalty, of
which $300,000 was to be offset by future capital expenditures related to this
issue. During 1997, the $300,000 of capital expenditures was not approved by the
EPA, and the $300,000 was assessed as a penalty, with accrued interest. This
amount was paid and expensed in 1997.
During 1996, the Company was contacted by the U. S. Department of Justice (DOJ),
at the request of the U.S. Environmental Protection Agency (EPA), about alleged
violations of its water discharge permit. Since December 21, 1994, there have
been exceedences of certain of the permit limits, but the Company asserts these
have been sporadic and non-continuous, and the Company has taken, and continues
to take, remedial measures. During 1997, the DOJ filed its action under the
provisions of the Clean Water Act against the Company.
The DOJ has indicated that it was seeking three things in the Clean Water Act
case: (i) injunctive relief for plant water treatment upgrades at the plant;
(ii) a "significant" penalty; and (iii) some remediation of Black Creek, the
off-site receiving stream for the Company's discharge. Basic agreement has been
reached regarding the waste water treatment upgrades and will require future
capital expenditures already included in the Company's capital expenditure
plans. Negotiations are continuing on penalties, including the possibility that
some portion of any monetary penalty will be offset by capital expenditures.
The EPA has conducted, and is continuing to conduct, sampling of sediments in
Black Creek and Lake Gadsden. The EPA has indicated that it is considering a
removal action of sediments in Black Creek, and possibly Lake Gadsden, using
federal funds. Discussions have been opened with the EPA and the DOJ as to what
potential liability, if any, the Company may have in this regard. The Company's
position is that the sediment contamination is largely the result of prior
owners' discharges, which are reasonably quantifiable, and for which the Company
should not be held responsible. Moreover, the Company also cannot be held
responsible to the extent the sediment data result from federally permitted
discharges by the Company.
38
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
11. Commitments and Contingencies (continued)
It is not known at this time the scope or extent of sediment remediation the EPA
will deem necessary, nor is it possible to quantify the total cost of any such
remediation. If the EPA proceeds with a federally-funded remediation, it may
later seek cost recovery from potentially responsible parties, including the
Company. The Company believes it would have valid defenses to any cost recovery
action that would minimize or eliminate any liability it may have for the costs
of any remediation.
Although the Company believes that it has adequately provided for the cost of
all known environmental conditions, the applicable agencies could insist upon
different, and possibly more costly, remediative measures than those believed by
the Company to be adequate or required by existing law. The Company has accrued
$750,000 at October 31, 1997 for unresolved environmental matters and does not
expect that the final resolution of these matters will have a significant effect
on the Company's financial position, results of operations or liquidity.
During fiscal years 1997 and 1996, and during the periods from April 21, 1995 to
October 31, 1995 and from November 1, 1994 to April 20, 1995, capital
expenditures for environmental projects were $4.1 million, $6.4 million, $4.0
million and $2.9 million, respectively, and environmental compliance expenses
were $6.0 million, $5.8 million, $2.5 million and $3.1 million, respectively.
The Company currently estimates that expenditures for environmental capital
projects in fiscal 1998 will be approximately $3.1 million.
The Company is involved in litigation arising from its normal operations,
including employee matters, the resolution of which is not expected to have a
significant effect on the Company's financial position, results of operations or
liquidity.
39
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
12. Pension Plan
The Company has a defined contribution pension plan covering all employees
represented by the Union. For the period from April 1, 1997 to October 31, 1997,
the Company's required contribution to the plan was $.70 per hour for all paid
qualified hours for each eligible participant. For the period from November 1,
1996 to March 31, 1997, and during fiscal years 1996 and 1995, the Company's
required contribution to the plan was $.60 per hour. Pension expense for the
years ended October 31, 1997 and 1996, and for the periods from April 21, 1995
to October 31, 1995 and November 1, 1994 to April 20, 1995 was $2.2 million,
$2.1 million, $1.1 million and $1.0 million, respectively.
13. Postretirement Benefit Plan
Effective April 1, 1996 for union employees and November, 1996 for non-union
employees, the Company initiated and sponsors defined benefit health care plans
that provide postretirement medical benefits to full-time employees who have
worked 30 years, or have reached the age of 60 with 15 years of service, or have
reached the age of 65 while in service with the Company. The plans are
contributory and contain other cost-sharing features such as deductibles and
coinsurance. The accounting for the plans anticipates future cost-sharing
changes to the written plans that are consistent with the Company's expressed
intent to increase the retiree contribution rate annually for the expected
general inflation rate for that year. The Company's policy is to fund the cost
of medical benefits in amounts determined at the discretion of management.
40
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
13. Postretirement Benefit Plan (continued)
The following table presents the plans' funded status reconciled with amounts
recognized in the Company's consolidated balance sheet (dollars in thousands):
<TABLE>
<CAPTION>
October 31,
1997 1996
---------------- -----------------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees $ (340) $ (185)
Fully eligible active plan participants (4,319) (2,948)
Other active plan participants (11,069) (7,301)
---------------- -----------------
(15,728) (10,434)
Plan assets at fair value 3,493 3,373
---------------- -----------------
Accumulated postretirement benefit obligation
in excess of plan assets (12,235) (7,061)
Unrecognized obligation (asset):
Unrecognized prior service cost 8,268 6,356
Unrecognized net (gain) or loss 1,199 (74)
---------------- -----------------
Accrued postretirement benefit cost $ (2,768) $ (779)
================ =================
</TABLE>
Net periodic postretirement benefit cost includes the following components:
<TABLE>
<CAPTION>
<S> <C> <C>
Service Cost $ 576 $ 282
Interest Cost 1,079 464
Actual return on assets (120) (244)
Net amortization and deferral 458 277
---------------- -----------------
Net periodic postretirement benefit cost $ 1,993 $ 779
================ =================
</TABLE>
The annual assumed rate of increase in the per capita cost of covered benefits
(i.e., health care cost trend rate) is 7.5% for pre-65 medical costs and 6.0%
for post-65 medical costs for 1997 and is assumed to decrease gradually to 5% by
2002, and remain at that level thereafter. The health care cost trend rate
assumption has a significant effect on the amounts reported. For example,
increasing the assumed health care cost trend rates by one percentage point in
each year would increase the accumulated postretirement benefit obligation as of
October 31, 1997 by $3,822,000, and the aggregate of the service and interest
cost components of net periodic postretirement benefit cost for 1997 by
$428,000. The unrecognized prior service cost resulting from the Plans'
initiations is being amortized on a straight-line basis over seventeen years for
the Union Plan and eleven years for the Non-Union Plan, which is the average
remaining years of service of the Plans' participants.
41
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
13. Postretirement Benefit Plan (continued)
The discount rate used in determining the accumulated postretirement benefit
obligation was 7.75% and 8.25% at November 30, 1997 and 1996, respectively. The
trust holding the Union Plan's assets is subject to federal income taxes at a
34% tax rate. The Union Plan's assets are invested in U.S. Treasury obligations.
The expected long-term rate of return on plan assets, after estimated income
taxes, was 7.5% and 6.8% at November 30, 1997 and 1996, respectively.
14. Concentration of Credit Risk
The Company is one of the largest steel coil and plate producers in the Southern
United States, where most of its customers are located. Approximately 42% of its
sales are to wholesalers and the remaining 58% are to miscellaneous
manufacturers and end users. No customer accounted for as much as 10% of the
Company's net sales. The Company performs periodic credit evaluations of its
customers' financial condition and generally does not require collateral.
15. Fair Value of Financial Instruments
The carrying amounts of cash and cash equivalents approximates their fair value.
The carrying value of notes outstanding under the Revolving Credit Agreement
approximates its fair value. The fair market value of the First Mortgage Notes
at October 31, 1997 is $194,750,000.
42
<PAGE>
Gulf States Steel, Inc. of Alabama
Notes to Financial Statements (continued)
16. Summary of Quarterly Results of Operations (unaudited)
The following is a summary of unaudited quarterly results of operations (dollars
in thousands, except per share data):
<TABLE>
<CAPTION>
Three months ended
--------------------------------------------------------------------------------
October 31, July 31, April 30, January 31, 1997
1997 1997 1997
------------------- -------------------- ------------------- -------------------
<S> <C> <C> <C> <C>
Net sales $ 109,863 $ 108,402 $ 106,928 $ 111,317
Operating profit (loss) 368 (543) 5,390 5,117
Loss before cumulative
effect of accounting
change (6,234) (7,678) (1,097) (842)
Cumulative effect of
accounting change (2,647) - - -
Net loss (8,881) (7,678) (1,097) (842)
Earnings per share:
Loss before cumulative
effect of accounting
change (1.73) (2.13) (.30) (.23)
Cumulative effect of
accounting change (.73) - - -
Net loss (2.46) (2.13) (.30) (.23)
<CAPTION>
Three months ended
-------------------------------------------------------------------------------
October 31, July 31, April 30, January 31,
1996 1996 1996 1996
------------------- ------------------- ------------------- --------------------
<S> <C> <C> <C> <C>
Net sales $ 123,285 $ 114,540 $ 104,676 $ 111,782
Operating profit (loss) 11,630 7,497 (721) 5,597
Net income (loss) 3,196 733 (4,149) (150)
Net income (loss) per share .84 .19 (1.15) (.04)
</TABLE>
43
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ------- ------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
None.
PART III
--------
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- -------- --------------------------------------------------
The information contained on pages 4, 5, 6 and 7 of Gulf States Steel, Inc.
of Alabama's Proxy Statement dated January 23, 1998, with respect to directors
and executive officers of the Company, is incorporated herein by reference in
response to this item.
ITEM 11. EXECUTIVE COMPENSATION
- -------- ----------------------
The information contained on pages 7, 8, and 9 of Gulf States Steel, Inc.
of Alabama's Proxy Statement dated January 23, 1998, with respect to directors
and executive officers of this Company, is incorporated herein by reference in
response to this item.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
- -------- -----------------------------------------------
AND MANAGEMENT
--------------
The information contained on pages 2 and 3 of Gulf States Steel, Inc. of
Alabama's Proxy Statement dated January 23, 1998, with respect to directors and
executive officers of this Company, is incorporated herein by reference in
response to this item.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- -------- ----------------------------------------------
The information contained on pages 9, 10, and 11 of Gulf States Steel, Inc.
of Alabama's Proxy Statement dated January 23, 1998, with respect to directors
and executive officers of this Company, is incorporated herein by reference in
response to this item.
44
<PAGE>
PART IV
-------
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
- -------- ----------------------------------------------------
ON FORM 8-K
-----------
ITEM 14 (a)1. INDEX TO FINANCIAL STATEMENTS COVERED BY REPORT
- ------------- -----------------------------------------------
OF INDEPENDENT AUDITORS
-----------------------
The Financial Statements of Gulf States Steel, Inc. of Alabama are included
in Item 8:
Balance Sheets
Consolidated as of October 31, 1997 and 1996
Statements of Income
Consolidated for the years ended October 31, 1997 and 1996 and the period
April 21, 1995 to October 31, 1995 (Successor) and combined for the period
November 1, 1994 to April 20, 1995 (Predecessor )
Statements of Cash Flows
Consolidated for the years ended October 31, 1997 and 1996 and the period
April 21, 1995 to October 31, 1995 (Successor) and combined for the period
November 1, 1994 to April 20, 1995 (Predecessor)
Notes to Financial Statements
ITEM 14 (a)2. INDEX TO CONSOLIDATED FINANCIAL STATEMENT SCHEDULES
- ------------- ---------------------------------------------------
The following financial statement schedules of Gulf States Steel, Inc. of
Alabama are included in Item 14 (d):
<TABLE>
<CAPTION>
Form 10-K Schedules Description Page Number
------------------- ----------- -----------
<S> <C> <C>
II Valuation and Qualifying Accounts 48
</TABLE>
All other schedules for which provision is made in the applicable
accounting regulation of the Securities and Exchange Commission are not required
under the related instructions or are inapplicable, and therefore have been
omitted.
45
<PAGE>
ITEM 14 (a) 3. EXHIBITS
- -------------- --------
The Exhibits listed on the Exhibit Index below are filed or incorporated by
reference as part of this report and such Exhibit Index is hereby incorporated
herein by reference.
Exhibit Index
(a) Exhibits
Exhibit No. Description
- ----------- -----------
3.1 --Certificate of Incorporation of the Registrant, as amended.
(Incorporated by reference to Exhibit 3.1 to the Registrant's
registration statement on Form S-1, Registration No. 33-92496
filed with the Securities and Exchange Commission on May 19,
1995.)
3.2 --By-Laws of the Registrant (Incorporated by reference to Exhibit
3.2 to the Registrant's registration statement on Form S-1,
Registration No. 33-92496 filed with the Securities and
Exchange Commission on May 19, 1995.)
10.1 --Indenture, dated as of April 21, 1995 (the "Indenture") by and
between the Registrant and Shawmut Bank Connecticut, National
Association, as Trustee. (Incorporated by reference to Exhibit
4.1 to the Registrant's registration statement on Form S-1,
Registration No. 33-92496 filed with the Securities and
Exchange Commission on May 19, 1995.)
10.2 --Form of New Note (included as part of Exhibit 4.1 hereto)
(Incorporated by reference to Exhibit 4.2 to the Registrant's
registration statement on Form S-1, Registration No. 33-92496
filed with the Securities and Exchange Commission on May 19,
1995.)
10.3 --Intercreditor Agreement dated as of April 21, 1995, by and
among GSS Holding Corp., the Registrant, ASB Acquisition
Corp., NationsBank of Georgia, as Agent and Shawmut Bank
Connecticut, National Association, as Trustee. (Incorporated by
reference to Exhibit 4.3 to the Registrant's registration
statement on Form S-1, Registration No. 33-92496 filed with the
Securities and Exchange Commission on May 19, 1995.)
10.4 --Amendment to Intercreditor Agreement (see Exhibit 4.3 hereto)
dated as of November 13, 1997, by and among GSS Holding Corp.,
the Registrant, Alabama Structural Beam Corp., Fleet Capital
Corporation, as Agent, and State Street Bank and Trust Company,
as Trustee.
10.5 --Loan and Security Agreement dated November 13, 1997, by and
among the Registrant, Alabama Structural Beam Corp., Fleet
Capital Corporation, as Agent, and the financial institutions
listed therein.
10.6 --Asset Purchase Agreement dated January 13, 1995, by and among
Gulf States Steel, Inc. of Alabama, GSS Acquisition Corp. and
GSS Holding Corp., together with (i) Real Estate Purchase
Agreement dated January 13, 1995 by and between Wills Creek
Associates, Ltd. and GSS Acquisition Corp. (ii) Caster Purchase
Agreement dated January 13, 1995, between DSC Equipment
Associates, Ltd. and GSS Acquisition Corp. and (iii) Asset
Purchase Agreement dated January 13, 1995, between Alabama
Structural Beams, Inc. and Alabama Structural Beams Acquisition
Corp. (Incorporated by reference to Exhibit 10.1 to the
Registrant's registration statement on Form S-1, Registration
No. 33-92496 filed with the Securities and Exchange Commission
on May 19, 1995.)
10.7 --Assignment Agreement dated as of March 30, 1995, by and among
GSS Acquisition Corp. and the Registrant. (Incorporated by
reference to Exhibit 10.2 to the Registrant's registration
statement on Form S-1, Registration No. 33-92496 filed with the
Securities and Exchange Commission on May 19, 1995.)
10.8 --Assignment Agreement dated as of March 30, 1995, by and among
Alabama Structural Beams Acquisition Corp., a Delaware
corporation, and Alabama Structural Beams Acquisition Corp., an
Alabama corporation. (Incorporated by reference to Exhibit 10.3
to the Registrant's registration statement on Form S-1,
Registration No. 33-92496 filed with the Securities and
Exchange Commission on May 19, 1995.)
46
<PAGE>
10.9 --Tax Sharing Agreement dated as of April 21, 1995, among GSS
Holding Corp. the Registrant and Alabama Structural Beam
Acquisition Corp. (Incorporated by reference to Exhibit 10.5 to
the Registrant's registration statement on Form S-1,
Registration No. 33-92496 filed with the Securities and
Exchange Commission on May 19, 1995.)
10.10 --Management Consulting Services Agreement dated April 21, 1995,
between the Registrant and Spectrum Management Company, Inc.
(Incorporated by reference to Exhibit 10.6 to the Registrant's
registration statement on Form S-1, Registration No. 33-92496
filed with the Securities and Exchange Commission on May 19,
1995.)
10.11 --Management Consulting Services Agreement dated April 21, 1995,
between the Registrant and Hancock Venture Partners, Inc.
(Incorporated by reference to Exhibit 10.7 to the Registrant's
registration statement on Form S-1, Registration No. 33-92496
filed with the Securities and Exchange Commission on May 19,
1995.)
10.12 --Insurance Services Agreement dated April 21, 1995, between the
Registrant and Risk Management Solutions, Inc. (Incorporated
by reference to Exhibit 10.8 to the Registrant's registration
statement on Form S-1, Registration No. 33-92496 filed with the
Securities and Exchange Commission on May 19, 1995.)
10.13 --GSS Holding Corp. 1995 Employee, Director and Consultant Stock
Option Plan (Incorporated by reference to Exhibit 10.9 to the
Registrant's registration statement on Form S-1, Registration
No. 33-92496 filed with the Securities and Exchange Commission
on May 19, 1995.)
10.14 --Iron Ore Sales Agreement dated as of May 5, 1994 by and between
Quebec Cartier Mining Company and the Registrant. (Incorporated
by reference to Exhibit 10.10 to the Registrant's registration
statement on Form S-1, Registration No. 33-92496 filed with the
Securities and Exchange Commission on May 19, 1995.)
10.15 --Employment contracts with named executive officers.
(Incorporated by reference to the Registrant's annual report
on Form 10-K for the fiscal year ended October 31, 1995 filed
with the Securities and Exchange Commission on January 27,
1996.)
11 --Computation of earnings per share.
12 --Computation of ratios.
21 --Subsidiaries of the Registrant (Incorporated by reference to
Exhibit 21 to the Registrant's registration statement on Form
S-1, Registration No. 33-92496 filed with the Securities and
Exchange Commission on May 19, 1995.)
27 --Financial Data Schedule.
47
<PAGE>
ITEM 14 (b). REPORTS ON FORM 8-K
- ------------ -------------------
No reports on Form 8-K were filed during the fourth quarter ended
October 31, 1997.
ITEM 14 (c). EXHIBITS
- ------------ --------
The response to this portion of item 14 is submitted as a separate
section of this report.
ITEM 14 (d). CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
- ------------ -----------------------------------------
Schedule II
GULF STATES STEEL, INC. OF ALABAMA
Valuation and Qualifying Accounts
<TABLE>
<CAPTION>
Balance at Charged to Deductions- Balance at
Beginning of Costs and Write-offs(a) End of
Description Period Expenses Period
- --------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Allowance for Doubtful accounts:
Year ended October 31, 1997 $1,050,000 -- 660,126 $ 389,874
Year ended October 31, 1996 $1,509,000 (234,520) 224,480 $1,050,000
Period from April 21, 1995 to
October 31, 1995 (Successor) $1,509,000 (8,893) (8,893) $1,509,000
Period from November 1, 1994 to
April 20, 1995 (Predecessor) $1,509,000 4,987 4,987 $1,509,000
</TABLE>
(a) Uncollectible accounts written off, net of recoveries.
48
<PAGE>
GULF STATES STEEL, INC. OF ALABAMA
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
<TABLE>
<CAPTION>
GULF STATES STEEL, INC. OF ALABAMA
(Registrant)
<C> <S>
1/23/98 /s/ John D. Lefler
- ------------------------- -------------------------------------------------------
Date John D. Lefler, President and Chief Executive
Officer (Principal Executive Officer)
1/23/98 /s/ Hugh D. Bennett
- ------------------------- -------------------------------------------------------
Date Hugh D. Bennett, Vice President and CFO
(Principal Financial and Accounting Officer)
</TABLE>
Pursuant to the requirements of the Securities Exchange Act of 1934, this report
has been signed below by the following persons on behalf of the registrant in
the capacity and on the dated indicated.
<TABLE>
<C> <S>
1/23/98 /s/ Steven E. Karol
- ------------------------- -------------------------------------------------------
Date Steven E. Karol, Chairman of the Board, Director
1/23/98 /s/ John D. Lefler
- ------------------------- -------------------------------------------------------
Date John D. Lefler, Director
1/23/98 /s/ Robert W. Ackerman
- ------------------------- -------------------------------------------------------
Date Robert W. Ackerman, Director
1/23/98 /s/ Dale S. Okonow
- ------------------------- -------------------------------------------------------
Date Dale S. Okonow, Director
1/23/98 /s/ William S. Karol
- ------------------------- -------------------------------------------------------
Date William S. Karol, Director
1/23/98 /s/ Howard H. Stevenson
- ------------------------- -------------------------------------------------------
Date Howard H. Stevenson, Director
1/23/98 /s/ Robert M. Wadsworth
- ------------------------- -------------------------------------------------------
Date Robert M. Wadsworth, Director
1/23/98 /s/ Alexander S. McGrath
- ------------------------- -------------------------------------------------------
Date Alexander S. McGrath, Director
</TABLE>
49
<PAGE>
Exhibit 10.4
AMENDMENT TO INTERCREDITOR AGREEMENT
Dated: November 13,1997
THIS AMENDMENT TO INTERCREDITOR AGREEMENT (this "Amendment") is made
and entered into this 13 day of November, 1997, by and among GSS HOLDING CORP.,
a Delaware corporation with an office at c/o Watermill Ventures, 800 South
Street, Waltham, Massachusetts 02154 ("Holdings"); GULF STATES STEEL, INC. OF
ALABAMA ("GSS"), an Alabama corporation with its chief executive office and
principal place of business at 174 South 26th Street, Gadsden, Alabama 35904;
ALABAMA STRUCTURAL BEAM CORP. ("ASB"), an Alabama corporation with its chief
executive office and principal place of business at 174 South 26th Street,
Gadsden, Alabama 35904; (GSS and ASB being referred to collectively as
"Borrowers," and individually as a "Borrower"); the various financial
institutions parties from time to time to the Loan Agreement (as defined below)
(such financial institutions and their respective successors and assigns
referred to collectively herein as "Lenders," and individually as a "Lender");
and FLEET CAPITAL CORPORATION, a Rhode Island corporation with an office at 200
Glastonbury Boulevard, Glastonbury, Connecticut 06033 ("Fleet'), in its capacity
as collateral and administrative agent for the Lenders (together with its
successors and assigns in such capacity, "Agent"); and STATE STREET BANK AND
TRUST COMPANY with an office at 777 Main Street, Hartford, Connecticut 06115,
Attention: Corporate Trust Department, as trustee for the benefit of those
holders of the First Mortgage Notes (together with its successors and assigns in
such capacity, "Trustee").
Recitals:
---------
WHEREAS, Holdings, Gulf States Steel Acquisition Corp. ("GS
Acquisition"), ASB Acquisition Corp. ("ASB Acquisition"), NationsBank of
Georgia, N.A. ("NationsBank") and Shawmut Bank Connecticut, National Association
("Shawmut") entered into a certain Intercreditor Agreement dated April 21, 1995
(as at any time amended, the "Intercreditor Agreement"), pursuant to which the
parties thereto set forth their relative rights with respect to the Collateral
and other rights, priorities and interests under the Revolving Credit Facility,
the Indenture and the other documents executed in connection therewith.
Capitalized terms used herein and not otherwise defined herein shall have the
meaning ascribed to such terms in the Intercreditor Agreement.
WHEREAS, GS Acquisition has changed its name to and is now known as
Gulf States Steel, Inc. of Alabama; ASB Acquisition has changed its name to and
is now known as Alabama Structural Beam Corp.; and State Street Bank and Trust
Company is the successor trustee to Shawmut Bank Connecticut, National
Association.
WHEREAS, GSS and ASB have requested that Lenders make available to them
a revolving credit facility, which shall be evidenced by a certain Loan and
Security Agreement dated on or about the date hereof among GSS, ASB, Agent and
Lenders (as at any time amended, the "Loan Agreement"), and which shall be used
to refinance their mutual and collective enterprise of manufacturing steel and
steel-related products.
WHEREAS, the Intercreditor Agreement and the Indenture contemplate that
GSS and ASB may from time to time enter into Permitted Bank Refinancings. GSS
and ASB now wish to enter into a Permitted Bank Refinancing with Agent and
Lenders.
1
<PAGE>
WHEREAS, the Intercreditor Agreement and the Indenture require that
Agent, as the representative of the Lenders under the Permitted Bank
Refinancing, execute this Amendment pursuant to which Agent will become the
"Agent" for all purposes under the Intercreditor Agreement and will agree to
comply with all the terms of the Intercreditor Agreement.
WHEREAS, the parties hereto desire to amend the Intercreditor Agreement
as hereinafter set forth.
NOW, THEREFORE, for TEN DOLLARS ($10.00) in hand paid and other good
and valuable consideration, the receipt and sufficiency of which are hereby
severally acknowledged, the parties hereto, intending to be legally bound
hereby, agree as follows:
1. Amendments to Intercreditor Agreement. The Intercreditor
Agreement is hereby amended as follows:
(a) The definition of "Inventory" that is contained in
Article I of the Intercreditor Agreement is hereby deleted
in its entirety and the following new definition is
substituted in lieu thereof:
"Inventory" shall mean all now owned or hereafter
-----------
acquired inventory of the Company or ASB including, without
limitation, all goods, merchandise, raw materials, work-in-
process and finished goods intended for sale or lease, of
every kind and description now or at any time hereafter owned
by the Company or ASB, together with all the containers,
packing, packaging, shipping and similar materials related
thereto, and including such inventory as is temporarily out of
the Company's or ASB's custody or possession and items in
transit and including any returns and repossessions upon any
accounts, documents, instruments or chattel paper relating to
or arising from the sale of inventory (as such documents,
instruments or chattel paper relate to the sale of such
inventory) and including, without limitation, all other
classes of merchandise, materials, parts, supplies, work-in-
process, inventories and finished products intended for sale
by the Company or ASB and all substitutions therefor or
replacements thereof, and all additions and accessions
thereto, and all invoices, ledgers, books of account, records,
files (whether in printed form or stored electronically),
computer programs, computer disks or tape files, computer
printouts, computer runs and other computer-prepared
information relating to any of the foregoing.
(b) Effective November 13, 1997, any and all references
contained in the Intercreditor Agreement to "Agent" or "NationsBank of Georgia,
N.A." shall be deemed to mean and refer to "Fleet Capital Corporation, in its
capacity as Agent, and its successors and assigns;" and any and all references
contained in the Intercreditor Agreement to `Banks" shall be deemed to mean and
refer to the Lenders listed on the signature pages hereof and their respective
successors and assigns.
2. Acknowledgments; Agreements; Reaffirmations.
--------------------------------------------
2
<PAGE>
(a) Fleet, in its capacity as Agent, and Lenders, in
their capacities as Banks, each agrees that it shall be bound by and comply
with the terms of the Intercreditor Agreement, as modified herein.
(b) ASB, GSS and Trustee each (i) acknowledges and
agrees, and NationsBank joins in such acknowledgment and also agrees, that
effective November 13, 1997, (A) Fleet Capital Corporation, in its capacity as
Agent, is substituted for NationsBank of Georgia, N.A., as the Agent for all
purposes under the Intercreditor Agreement, and is entitled to all of
NationsBank's rights, remedies and privileges, and NationsBank is relieved and
fully discharged of any and all of its duties and obligations under the
Intercreditor Agreement, (B) the Lenders listed on the signature pages hereof,
are substituted for the Banks for all purposes under the Intercreditor
Agreement, and are entitled to all of the Banks' rights, remedies and privileges
thereunder; (ii) agrees to be bound by the Intercreditor Agreement, as modified
herein; and (iii) reaffirms that such Intercreditor Agreement is and shall
remain in full force and effect.
(c) Fleet, in its capacity as Agent, and Lenders, in
their capacities as Banks and Trustee each agree that NationsBank consents to
the substitution provided for in Section 2(b)(i)(A) but makes no representations
whatsoever to Agent, any Lender or to Trustee with respect to the validity or
effectiveness of the Intercreditor Agreement or with respect to the perfection
or priority of the liens thereunder.
3. Governing Law. This Amendment shall be governed by and
--------------
construed in accordance with the internal laws of the State of New York.
4. Successors and Assigns. This Amendment shall be binding
-----------------------
upon and inure to the benefit of the parties hereto and their respective
successors and assigns.
5. Counterparts; Telecopied Signatures. This Amendment may
------------------------------------
be executed in any number of counterparts and by different parties to this
Amendment on separate counterparts, each of which, when so executed, shall be
deemed an original, but all such counterparts shall constitute one and the same
agreement. Any signature delivered by a party by facsimile transmission shall be
deemed to be an original signature hereto.
6. Further Assurances. Each of the parties hereto agrees to
-------------------
take such further actions as the other parties shall reasonably request from
time to time in connection herewith to evidence or give effect to the amendments
set forth herein or any of the transactions contemplated hereby.
7. Section Titles. Section title and references used in
---------------
this Amendment shall be without substantive meaning of content of any kind
whatsoever and are not a part of the agreements among the parties hereto.
IN WITNESS WHEREOF, the parties hereto have caused this Amendment to be
duly executed under seal and delivered by their respective duly authorized
officers on the date first written above.
3
<PAGE>
TRUSTEE:
-------------------------------------
STATE STREET BANK AND TRUST COMPANY
By:
----------------------------------
Elizabeth C. Hammer
Title: Vice President
GULF STATES STEEL, INC. OF ALABAMA
By:
----------------------------------
Jeffrey S. Stein, Vice President
and Assistant Secretary
ALABAMA STRUCTURAL BEAM CORP.
By:
----------------------------------
Jeffrey S. Stein, Vice President
and Assistant Secretary
4
<PAGE>
LENDERS:
--------
FLEET CAPITAL CORPORATION
By:
----------------------------------
Title:
-------------------------------
CONGRESS FINANCIAL CORPORATION
By:
----------------------------------
Title:
-------------------------------
AGENT:
------
FLEET CAPITAL CORPORATION,
as Agent
By:
----------------------------------
Title:
-------------------------------
JOINER SOLELY FOR PURPOSES OF
SECTION 2(b)(i)(A):
--------------------
NATIONSBANK N.A., f/k/a NATIONSBANK, N.A. (SOUTH),
f/k/a NATIONSBANK OF GEORGIA, N.A.
as Agent:
By:
----------------------------------
Title:
-------------------------------
5
<PAGE>
EXHIBIT 10.5
-----------------------------------------------------------------
GULF STATES STEEL, INC. OF ALABAMA and ALABAMA STRUCTURAL BEAM CORP.,
as Borrowers
-----------------------------------------------------------------
=================================================================
LOAN AND SECURITY AGREEMENT
Dated: November 13, 1997
$80,000,000.00
=================================================================
-----------------------------------------------------------------
THE FINANCIAL INSTITUTIONS
PARTY HERETO FROM TIME TO TIME, as Lenders
and
FLEET CAPITAL CORPORATION, as Agent
--------------------------------------------------------------
<PAGE>
TABLE OF CONTENTS
<TABLE>
Page
----
<CAPTION>
<S> <C>
SECTION 1. CREDIT FACILITIES -2-
1.1. Revolver Facility -2-
-----------------
1.2. Equipment Loans -3-
---------------
1.3. LC Facility -3-
-----------
SECTION 2. INTEREST, FEES AND CHARGES -7-
2.1. Interest -7-
--------
2.2. Fees -9-
----
2.3. Computation of Interest and Fees -10-
--------------------------------
2.4. Reimbursement of Expenses -10-
-------------------------
2.5. Bank Charges -11-
------------
2.6. Illegality -11-
----------
2.7. Increased Costs -11-
---------------
2.8. Capital Adequacy -12-
----------------
2.9. Funding Losses -13-
--------------
2.10. Maximum Interest -13-
----------------
SECTION 3. LOAN ADMINISTRATION -14-
3.1. Manner of Borrowing and Funding Loans -14-
-------------------------------------
3.2. Defaulting Lender -17-
-----------------
3.3. Special Provisions Governing LIBOR Loans -17-
----------------------------------------
3.4. Borrowers' Representative -18-
-------------------------
3.5. All Loans to Constitute One Obligation -18-
--------------------------------------
SECTION 4. PAYMENTS -18-
4.1. General Payment Provisions -18-
--------------------------
4.2. Repayment of Revolver Loans -19-
---------------------------
4.3. Repayment of Equipment Loans -20-
----------------------------
4.4. Payment of Other Obligations -20-
----------------------------
4.5. Marshaling; Payments Set Aside -21-
------------------------------
4.6. Allocation of Payments from Borrowers. -21-
-------------------------------------
4.7. Application of Payments and Collections -21-
---------------------------------------
4.8. Loan Accounts -22-
-------------
4.9. Withholding Tax Exemption -22-
-------------------------
4.10. Nature and Extent of Each Borrower's Liability -23-
----------------------------------------------
SECTION 5. ORIGINAL TERM AND TERMINATION -24-
5.1. Original Term of Commitments -24-
----------------------------
5.2. Termination -25-
-----------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
SECTION 6. COLLATERAL SECURITY -26-
6.1. Grant of Security Interest in Collateral -26-
----------------------------------------
6.2. Other Collateral. -26-
----------------
6.3. Lien Perfection; Further Assurances -27-
-----------------------------------
6.4. Lien on Deposit Accounts -27-
------------------------
SECTION 7. COLLATERAL ADMINISTRATION -27-
7.1. General Provisions -27-
------------------
7.2. Administration of Accounts -28-
--------------------------
7.3. Administration of Inventory -29-
---------------------------
7.5. Payment of Charges -31-
------------------
SECTION 8. REPRESENTATIONS AND WARRANTIES -31-
8.1. General Representations and Warranties -31-
--------------------------------------
8.2. Reaffirmation of Representations and Warranties -35-
-----------------------------------------------
8.3. Survival of Representations and Warranties -36-
------------------------------------------
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS -36-
9.1. Affirmative Covenants -36-
---------------------
9.2. Negative Covenants -38-
------------------
9.3. Specific Financial Covenant -41-
---------------------------
SECTION 10. CONDITIONS PRECEDENT -41-
10.1. Conditions Precedent to Initial Credit Extensions -41-
-------------------------------------------------
10.2. Conditions Precedent to all Credit Extensions -42-
---------------------------------------------
10.3. Limited Waiver of Conditions Precedent -43-
--------------------------------------
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT -43-
11.1. Events of Default -43-
-----------------
11.2. Acceleration of the Obligations -45-
-------------------------------
11.3. Other Remedies -46-
--------------
11.4. Setoff -47-
------
11.5. Remedies Cumulative; No Waiver -47-
------------------------------
SECTION 12. AGENT -48-
12.1. Appointment, Authority and Duties of Agent -48-
------------------------------------------
12.2. Agreements Regarding Collateral -49-
-------------------------------
12.3. Reliance By Agent -49-
-----------------
12.4. Action Upon Default -50-
-------------------
12.5. Ratable Sharing -50-
---------------
12.6. Indemnification of Agen -50-
-----------------------
12.7. Limitation on Responsibilities of Agent -51-
---------------------------------------
12.8. Successor Agent and Co-Agents -52-
-----------------------------
12.9. Consents, Amendments and Waivers; Out-of-Formula Loans -53-
------------------------------------------------------
12.10. Due Diligence and Non-Reliance -54-
------------------------------
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
12.11. Representations and Warranties of Lenders -54-
-----------------------------------------
12.12. The Required Lenders -55-
--------------------
12.13. Several Obligations -55-
-------------------
12.14. Agent in its Individual Capacity -55-
--------------------------------
12.15. No Third Party Beneficiaries -55-
----------------------------
12.16. Notice of Transfer -55-
------------------
12.17. Replacement of Certain Lenders -55-
------------------------------
12.18. Remittance of Payments and Collections. -56-
--------------------------------------
SECTION 13. BENEFIT OF AGREEMENT; ASSIGNMENTS AND
PARTICIPATIONS -56-
13.1. Successors and Assigns -56-
----------------------
13.2. Participations -57-
--------------
13.3. Assignments -57-
-----------
13.4. Reserved -58-
--------
13.5. Tax Treatment -58-
-------------
SECTION 14. MISCELLANEOUS -58-
14.1. Power of Attorney -58-
-----------------
14.2. General Indemnity -59-
-----------------
14.3. Survival of All Indemnities -60-
---------------------------
14.4. Modification of Agreement -60-
-------------------------
14.5. Severability -60-
------------
14.6. Cumulative Effect; Conflict of Terms -60-
------------------------------------
14.7. Execution in Counterparts -60-
-------------------------
14.8. Agent's or Required Lenders' Consent -60-
------------------------------------
14.9. Notice -60-
------
14.10. Credit Inquiries -61-
----------------
14.11. Time of Essence -61-
---------------
14.12. Entire Agreement; Appendix A, Exhibits and Schedules -61-
----------------------------------------------------
14.13. Interpretation -61-
--------------
14.14. Obligations of Lenders Several -61-
------------------------------
14.15. Governing Law; Consent To Forum -61-
-------------------------------
14.16. Waivers by Borrowers -62-
--------------------
</TABLE>
<PAGE>
LIST OF EXHIBITS AND SCHEDULES
------------------------------
Exhibit A Form of Revolver Note
Exhibit B Form of Notice of Conversion/Continuation
Exhibit C Form of Notice of Borrowing
Exhibit D Form of Compliance Certificate
Exhibit E Form of Opinion Contents
Exhibit F Form of Assignment and Acceptance
Exhibit G Form of Notice
Schedule 7.1.1 Borrowers' Business Locations
Schedule 8.1.1 Jurisdictions in which Borrowers and each of their
Subsidiaries is Authorized to do Business
Schedule 8.1.4 Capital Structure of Borrowers
Schedule 8.1.5 Corporate Names
Schedule 8.1.13 Tax Identification Numbers of Borrowers and their Subsidiaries
Schedule 8.1.15 Patents, Trademarks, Copyrights and Licenses
Schedule 8.1.18 Contracts Restricting Borrowers' Right to Incur Debts; Surety
Obligations
Schedule 8.1.19 Litigation
Schedule 8.1.21 Capitalized and Operating Leases
Schedule 8.1.22 Pension Plans
Schedule 8.1.24 Labor Contracts
Schedule 9.2.5 Permitted Liens
<PAGE>
FINAL: November 13, 1997
LOAN AND SECURITY AGREEMENT
THIS LOAN AND SECURITY AGREEMENT is made on November 13, 1997, by and
among GULF STATES STEEL, INC. OF ALABAMA (individually and in its capacity as
representative of ASB pursuant to Section 3.4 hereof, "GSS"), an Alabama
corporation with its chief executive office and principal place of business at
174 South 26th Street, Gadsden, Alabama 35904; ALABAMA STRUCTURAL BEAM CORP.
("ASB"), an Alabama corporation with its chief executive office and principal
place of business at 174 South 26th Street, Gadsden, Alabama 35904 (GSS and ASB
being referred to collectively as "Borrowers," and individually as a
"Borrower"); the financial institutions listed on the signature pages hereof and
their respective successors and assigns which become "Lenders" as provided
herein (such financial institutions and their respective successors and assigns
referred to collectively herein as "Lenders," and individually as a "Lender");
and FLEET CAPITAL CORPORATION, a Rhode Island corporation with an office at 200
Glastonbury Boulevard, Glastonbury, Connecticut 06033, in its capacity as
collateral and administrative agent for the Lenders pursuant to Section 12
hereof (together with its successors in such capacity, "Agent").
Capitalized terms used in this Agreement have the meanings assigned to them in
Appendix A, General Definitions.
R e c i t a l s:
----------------
Each Borrower has requested that Lenders make available a revolving
credit facility to Borrowers, which shall be used by Borrowers to pay all
outstanding Debt owing to the Prior Lenders and to finance their mutual and
collective enterprise of manufacturing steel and steel-related products. In
order to utilize the financial powers of each Borrower in the most efficient and
economical manner, and in order to facilitate the financing of each Borrower's
needs, Lenders will, at the request of either Borrower, make loans to each
Borrower under the revolving credit facility on a combined basis and in
accordance with the provisions hereinafter set forth. Borrowers' business is a
mutual and collective enterprise and Borrowers believe that the consolidation of
all revolving credit loans under this Agreement will enhance the aggregate
borrowing powers of each Borrower and ease the administration of their revolving
credit loan relationship with Lenders, all to the mutual advantage of Borrowers.
Lenders' willingness to extend credit to Borrowers and to administer each
Borrower's collateral security therefor, on a combined basis as more fully set
forth in this Agreement, is done solely as an accommodation to Borrowers and at
Borrowers' request in furtherance of Borrowers' mutual and collective
enterprise. Borrowers also have requested that Lenders make available to GSS a
capital expenditure facility in Lenders' sole and absolute discretion.
-1-
<PAGE>
NOW, THEREFORE, for Ten Dollars ($10.00) and other good and valuable
consideration, the parties hereto hereby agree as follows:
SECTION 1. CREDIT FACILITIES
Subject to the terms and conditions of, and in reliance upon the
representations and warranties made in, this Agreement and the other Loan
Documents, Lenders severally agree to the extent and in the manner hereinafter
set forth to make their respective Pro Rata shares of the Commitments available
to Borrowers, in an aggregate amount up to $80,000,000, as follows:
1.1. Revolver Facility.
-----------------
1.1.1. Revolver Loans. Each Lender agrees, severally to the
--------------
extent of its Revolver Commitment and not jointly with the other Lenders, upon
the terms and subject to the conditions set forth herein, to make Revolver Loans
to Borrowers on any Business Day during the period from the date hereof through
the day before the Commitment Termination Date, not to exceed in aggregate
principal amount outstanding at any time such Lender's Revolver Commitment at
such time, which Revolver Loans may be repaid and reborrowed in accordance with
the provisions of this Agreement; provided, however, that Lenders shall have no
-------- -------
obligation to Borrowers whatsoever to make any Revolver Loan if at the time of
the proposed funding thereof the aggregate principal amount of all of the
Revolver Loans and Pending Revolver Loans then outstanding exceeds, or would
exceed after the funding of such Revolver Loan, the Borrowing Base. Each
Borrowing of Revolver Loans shall be funded by Lenders on a Pro Rata basis in
accordance with their respective Revolver Commitments (except for Revolver Loans
funded by Fleet as Settlement Loans). The Revolver Loans shall bear interest as
set forth in Section 2.1 hereof. Each Revolver Loan shall, at the option of
Borrowers, be made or continued as, or converted into, part of one or more
Borrowings that, unless specifically provided herein, shall consist entirely of
Base Rate Loans or LIBOR Loans; provided, however, that Borrowers shall use
-------- -------
their best efforts to ensure that the average principal amount of LIBOR Loans
outstanding during any Fiscal Quarter does not exceed 80% of the average
principal amount of all Loans outstanding during such Fiscal Quarter. If the
average principal amount of LIBOR Loans for a Fiscal Quarter exceeds the average
principal amount of all Loans during such Fiscal Quarter, then Borrowers shall
use their best efforts to reduce the amount of LIBOR Loans outstanding to less
than 80% of the principal amount of all Loans outstanding at such time.
1.1.2. Out-of-Formula Loans. If the unpaid balance of Revolver
--------------------
Loans outstanding at any time should exceed the Borrowing Base at such time (an
"Out-of-Formula Condition"), such Revolver Loans shall nevertheless constitute
Obligations that are secured by the Collateral and entitled to all of the
benefits of the Loan Documents. In the event that Lenders are willing in their
sole and absolute discretion to make Out-of-Formula Loans, such Out-of-Formula
Loans shall be payable on demand and shall bear interest as provided in this
Agreement for Revolver Loans generally.
1.1.3. Use of Proceeds. The proceeds of the Revolver Loans
---------------
shall be used by Borrowers solely for one or more of the following purposes: (i)
to satisfy any Debt owing on the Closing Date to the Prior Lenders arising from
loans, and interest and fees payable in
-2-
<PAGE>
connection therewith, made by them under that certain Loan and Security
Agreement dated as of April 21, 1995, as amended, among Borrowers, NationsBank
of Georgia, N.A., as agent for the Prior Lenders and the Prior Lenders; (ii) to
pay the fees and transaction expenses associated with the closing of the
transactions described herein; (iii) to pay any of the Obligations; and (iv) to
make expenditures for other lawful corporate purposes of Borrowers to the extent
such expenditures are not prohibited by this Agreement or Applicable Law. In no
event may any Revolver Loan proceeds be used by any Borrower to make a
contribution to the equity of any Subsidiary, to purchase or to carry, or to
reduce, retire or refinance any Debt incurred to purchase or carry, any Margin
Stock or for any related purpose that violates the provisions of Regulations G,
T, U or X of the Board of Governors.
1.1.4. Revolver Notes. The Revolver Loans made by each Lender
--------------
and interest accruing thereon shall be evidenced by the records of Agent and
such Lender and by the Revolver Note payable to such Lender (or the assignee of
such Lender), which shall be executed by Borrowers, completed in conformity with
this Agreement and delivered to such Lender on the Closing Date. All outstanding
principal amounts and accrued interest under the Revolver Loans shall be due and
payable as set forth in Section 4.2 hereof.
1.2. Equipment Loans. Lenders may, in their sole and absolute
---------------
discretion, severally to the extent of such Lender's Equipment Loan Commitment
and not jointly with the other Lenders, during the period from and after the
Closing Date through the Original Term, make Equipment Loans to GSS, in an
aggregate amount not to exceed in the aggregate principal amount outstanding at
any time such Lender's Equipment Loan Commitment at such time, to finance GSS'
purchase of Eligible Equipment. Lenders shall have no obligation to honor any
request by GSS for an Equipment Loan but may do so in their sole and absolute
discretion. If Lenders shall elect to make an Equipment Loan to GSS, then GSS
shall satisfy each of the Equipment Loan Conditions prior to the making of such
Equipment Loan and shall execute or cause to be executed amendments to this
Agreement, the Indenture and the Intercreditor Agreement to the extent required
by Lenders, each of which amendment shall be in form and substance satisfactory
to Agent and Lenders. In addition to such other terms as Lenders may require,
the proceeds of each Equipment Loan shall not exceed 70% of the Equipment
Purchase Price of new Eligible Equipment so purchased. All Equipment Loans shall
bear interest at the variable rates specified in subsection 2.1.1 hereof and
shall be evidenced by and repaid in accordance with the terms of the Equipment
Notes.
1.3. LC Facility.
-----------
1.3.1 Procurement of Letters of Credit. Fleet agrees, during
--------------------------------
the term of this Agreement and for so long as no Default or Event of Default
exists, to request from Bank one or more Letters of Credit on Borrowers' request
therefor from time to time, subject to the following terms and conditions:
(i) Each Borrower acknowledges that Bank's willingness
to issue any Letter of Credit is conditioned upon Bank's
receipt of (A) the LC Guaranty duly executed and delivered to
Bank by Fleet, (B) an LC Application with respect to the
requested Letter of Credit and (C) such other instruments and
agreements as Bank may customarily require for the issuance of
a letter of credit of equivalent type and amount as the
requested Letter of Credit. Fleet shall have
-3-
<PAGE>
no obligation to execute any LC Guaranty or to join with any
Borrower in executing an LC Application unless (x) Fleet
receives an LC Request from such Borrower at least 3 Business
Days prior to the date on which such Borrower desires to
submit such LC Application to Bank and (y) each of the LC
Conditions is satisfied on the date of Fleet's receipt of the
LC Request and at the time of the requested execution of the
LC Application. Any Letter of Credit issued on the Closing
Date shall be for an amount in Dollars that is greater than
$250,000. In no event shall Fleet or any other Lender have any
liability or obligation to any or all Borrowers or any
Subsidiary for any failure or refusal by Bank to issue, for
Bank's delay in issuing, or for any error of Bank in issuing
any Letter of Credit.
(ii) The Letters of Credit may be requested hereunder by
a Borrower only if they are to be used (a) to support
obligations of Borrowers incurred in the ordinary course of
its business, as presently conducted, on a standby basis or
(b) for such other purposes as Agent and Lenders may approve
from time to time.
(iii) Borrowers jointly and severally agree to reimburse
Bank for any draw under any Letter of Credit immediately upon
demand, and to pay Bank the amount of all other liabilities
and obligations payable to Bank under or in connection with
any Letter of Credit immediately when due, irrespective of any
claim, setoff, defense or other right that any or all
Borrowers may have at any time against Bank or any other
Person. If Fleet shall pay any amount under a LC Guaranty with
respect to any Letter of Credit, then Borrowers shall be
jointly and severally obligated to pay to Fleet, in Dollars on
the first Business Day following the date on which payment was
made by Fleet under such LC Guaranty, an amount equal to the
amount paid by Fleet under such LC Guaranty (or, if payment
thereunder was made by Fleet in a currency other than Dollars,
an amount equal to the Dollar equivalent of such currency at
the time of Fleet's payment under such LC Guaranty, in each
case) together with interest from and after the date of
Fleet's payment under such LC Guaranty until payment in full
is made by Borrowers at a variable rate per annum in effect
from time to time hereunder for Revolver Loans constituting
Base Rate Loans.
(iv) Borrowers assume all risks of the acts, omissions
or misuses of any Letter of Credit by the beneficiary thereof.
The obligation of Borrowers to reimburse Fleet for any payment
made by Fleet under the LC Guaranty shall be absolute,
unconditional, irrevocable and joint and several and shall be
paid without regard to any lack of validity or enforceability
of any Letter of Credit, the existence of any claim, setoff,
defense or other right which any or all Borrowers may have at
any time against a beneficiary of any Letter of Credit, or
improper honor by Bank of any draw request under a Letter of
Credit. If presentation of a demand, draft, certificate or
other document does not comply with the terms of a Letter of
Credit and a Borrower contends that, as a consequence of such
noncompliance it has no obligation to reimburse Bank for any
payment made with respect thereto, Borrowers shall
nevertheless be
-4-
<PAGE>
obligated to reimburse Fleet for any payment made under the LC
Guaranty with respect to such Letter of Credit, but without
waiving any claim a Borrower may have against Bank in
connection therewith. All disputes regarding any Letter of
Credit shall be resolved by Borrowers directly with Bank.
(v) No Letter of Credit shall be extended or amended in
any respect that is not solely ministerial, unless all of the
LC Conditions are met as though a new Letter of Credit were
being requested and issued.
1.3.2 Participations.
(i) Immediately upon the issuance by Bank of
any Letter of Credit, each Lender (other than Fleet) shall be
deemed to have irrevocably and unconditionally purchased and
received from Fleet, without recourse or warranty, an
undivided interest and participation equal to the Pro Rata
share of such Lender (a "Participating Lender") in all LC
Obligations arising in connection with such Letter of Credit
and any security therefor or guaranty pertaining thereto, but
in no event greater than an amount which, when added to such
Lender's Pro Rata share of all Revolver Loans and LC
Obligations then outstanding, exceeds such Lender's Revolver
Commitment.
(ii) If Fleet makes any payment under an LC
Guaranty and Borrowers do not repay or cause to be repaid the
amount of such payment on the Reimbursement Date, Fleet shall
promptly notify Agent, which shall promptly notify each
Participating Lender, of such payment and each Participating
Lender shall promptly and unconditionally pay to Agent, for
the account of Fleet, in Dollars in immediately available
funds, the amount of such Participating Lender's Pro Rata
share of such payment, and Agent shall promptly pay such
amounts to Fleet. If a Participating Lender does not make its
Pro Rata share of the amount of such payment available to
Agent, such Lender agrees to pay to Agent for the account of
Fleet, forthwith on demand, such amount together with interest
thereon at the Federal Funds Rate. The failure of any
Participating Lender to make available to Agent for the
account of Fleet such Participating Lender's Pro Rata share of
the LC Obligations shall not relieve any other Participating
Lender of its obligation hereunder to make available to Agent
its Pro Rata share of the LC Obligations, but no Participating
Lender shall be responsible for the failure of any other
Participating Lender to make available to Agent its Pro Rata
share of the LC Obligations on the date such payment is to be
made.
(iii) Whenever Fleet receives a payment on
account of the LC Obligations, including any interest thereon,
as to which Agent has previously received payments from any
Lender for the account of Fleet, Fleet shall promptly pay to
each Participating Lender which has funded its participating
interest therein, in immediately available funds, an amount
equal to such Participating Lender's Pro Rata share thereof.
-5-
<PAGE>
(iv) The obligation of each Participating
Lender to make payments to Agent for the account of Fleet in
connection with Fleet's payment under a LC Guaranty shall be
absolute, unconditional and irrevocable, not subject to any
counterclaim, setoff, qualification or exception whatsoever
(other than for Fleet's gross negligence or willful
misconduct), and shall be made in accordance with the terms
and conditions of this Agreement under all circumstances and
irrespective of whether or not any or all Borrowers may assert
or have any claim for any lack of validity or unenforceability
of this Agreement or any of the other Loan Documents; the
existence of any Default or Event of Default; any draft,
certificate or other document presented under a Letter of
Credit having been determined to be forged, fraudulent,
invalid or insufficient in any respect or any statement
therein being untrue or inaccurate in any respect; or the
existence of any setoff or defense any Obligor may have with
respect to any of the Obligations
(v) Neither Fleet nor any of its officers,
directors, employees or agents shall be liable to any
Participating Lenders for any action taken or omitted to be
taken under or in connection with any of the LC Documents
except as a result of actual gross negligence or willful
misconduct on the part of Fleet. Fleet does not assume any
responsibility for any failure or delay in performance or
breach by any or all Borrowers or any other Person of any of
its obligations under any of the LC Documents. Fleet does not
make to Participating Lenders any express or implied warranty,
representation or guaranty with respect to the Collateral, the
LC Documents, or other Obligor. Fleet shall not be responsible
to any Participating Lender for any recitals, statements,
information, representations or warranties contained in, or
for the execution, validity, genuineness, effectiveness or
enforceability of or any of the LC Documents; the validity,
genuineness, enforceability, collectibility, value or
sufficiency of any of the Collateral or the perfection of any
Lien therein; or the assets, liabilities, financial condition,
results of operations, business, creditworthiness or legal
status of any Borrower or any other Obligor or any Account
Debtor. In connection with its administration of and
enforcement of rights or remedies under any of the LC
Documents, Fleet shall be entitled to act, and shall be fully
protected in acting upon, any certification, notice or other
communication in whatever form believed by Fleet, in good
faith, to be genuine and correct and to have been signed or
sent or made by a proper Person. Fleet may consult with and
employ legal counsel, accountants and other experts and to
advise it concerning its rights, powers and privileges under
the LC Documents and shall be entitled to act upon, and shall
be fully protected in any action taken in good faith reliance
upon, any advise given by such experts. Fleet may employ
agents and attorneys-in-fact in connection with any matter
relating to the LC Documents and shall not be liable for the
negligence, default or misconduct of any such agents or
attorneys-in-fact selected by Fleet with reasonable care.
Fleet shall not have any liability to any Participating Lender
by reason of Fleet's refraining to take any action under any
of the LC Documents without having first received written
instructions from the Required Lenders to take such action.
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<PAGE>
1.3.3 Cash Collateral Account. If any LC Obligations, whether
-----------------------
or not then due or payable, shall for any reason be outstanding (i) at any time
when an Event of Default has occurred and is continuing, (ii) on any date that
Availability is less than zero, or (iii) on or at any time after the Commitment
Termination Date, then Borrowers shall, on Agent's request, forthwith deposit
with Agent, in cash, an amount equal to 110% of the maximum aggregate amount of
all LC Obligations then outstanding. If Borrowers fail to make such deposit on
the first Business Day following Agent's demand therefor, Lenders may (and shall
upon direction of the Required Lenders) advance such amount as Revolver Loans
(whether or not an Out-of-Formula Condition is created thereby). Such cash
(together with any interest accrued thereon) shall be held by Agent in the Cash
Collateral Account and may be invested, in Agent's discretion, in Cash
Equivalents. Each Borrower hereby pledges to Agent and grants to Agent a
security interest in, for the benefit of Agent in such capacity and for the Pro
Rata benefit of Lenders, all Cash Collateral held in the Cash Collateral Account
from time to time and all proceeds thereof, as security for the payment of all
Obligations, whether or not then due or payable. From time to time after cash is
deposited in the Cash Collateral Account, Agent may apply Cash Collateral then
held in the Cash Collateral Account to the payment of any amounts, in such order
as Agent may elect, as shall be or shall become due and payable by Borrowers to
Agent or any Lender with respect to the LC Obligations which may be then
outstanding. Neither any Borrower nor any other Person claiming by, through or
under or on behalf of any Borrower shall have any right to withdraw any of the
Cash Collateral held in the Cash Collateral Account, including any accrued
interest, provided that upon termination or expiration of all Letters of Credit
and the payment and satisfaction of all of the LC Obligations outstanding, any
Cash Collateral remaining in the Cash Collateral Account shall be returned to
Borrowers unless an Event of Default then exists (in which event Agent may apply
such Cash Collateral to the payment of any other Obligations outstanding, with
any surplus to be turned over to Borrowers).
1.3.4 Indemnifications.
----------------
(i) In addition to any other indemnity which
any or all Borrowers may have to Agent or any Lender under any
of the other Loan Documents and without limiting such other
indemnification provisions, each Borrower hereby agrees to
indemnify and defend each of the Agent Indemnitees and Lender
Indemnitees and to hold each of the Agent Indemnitees and
Lender Indemnitees harmless from and against any and all
Claims which any of the Agent Indemnitees or any of the Lender
Indemnitees may (other than as the actual result of their own
gross negligence or willful misconduct) incur or be subject to
as a consequence, directly or indirectly, of (a) the issuance
of, payment or failure to pay or any performance or failure to
perform under any Letter of Credit or LC Guaranty or (b) any
suit, investigation or proceeding as to which Agent or any
Lender is or may become a party to as a consequence, directly
or indirectly, of the issuance of any Letter of Credit or any
LC Guaranty or the payment or failure to pay thereunder.
(ii) Each Participating Lender agrees to
indemnify and defend each of the Fleet Indemnitees (to the
extent the Fleet Indemnitees are not reimbursed by Borrowers
or any other Obligor, but without limiting the indemnification
obligations of Borrowers under this Agreement), on a Pro Rata
-7-
<PAGE>
basis, from and against any and all Claims which may be
imposed on, incurred by or asserted against any of the Fleet
Indemnitees in any way related to or arising out of Fleet's
administration or enforcement of rights or remedies under any
of the LC Documents or any of the transactions contemplated
thereby (including costs and expenses which Borrowers are
obligated to pay under Section 14.2 hereof), provided that no
Participating Lender shall be liable to any of the Fleet
Indemnitees for any of the foregoing to the extent that they
result solely from the willful misconduct or gross negligence
of such Fleet Indemnitees.
SECTION 2. INTEREST, FEES AND CHARGES
2.1. Interest.
--------
2.1.1. Rates of Interest. Borrowers jointly and severally
-----------------
agree to pay interest in respect of all unpaid principal amounts of the Loans
from the respective dates such principal amounts are advanced until paid
(whether at stated maturity, on acceleration or otherwise) at a rate per annum
equal to the applicable rate indicated below:
(i) for Loans made or outstanding as Base Rate
Loans, .75% plus the Base Rate in effect from time to time; or
----
(ii) for Loans made or outstanding as LIBOR
Loans, 3.00% plus the relevant Adjusted LIBOR Rate for the
----
applicable Interest Period selected by a Borrower in
conformity with this Agreement.
Upon determining the Adjusted LIBOR Rate for any Interest
Period requested by Borrowers, Agent shall promptly notify Borrowers thereof by
telephone and, if so requested by Borrowers, confirmed in writing. Such
determination shall, absent manifest error, be final, conclusive and binding on
all parties and for all purposes. The applicable rate of interest for all Loans
bearing interest based upon the Base Rate shall be increased or decreased, as
the case may be, by an amount equal to any increase or decrease in the Base
Rate, with such adjustments to be effective as of the opening of business on the
day that any such change in the Base Rate becomes effective. Interest on each
Loan shall accrue from and including the date on which such Loan is made,
converted to a Loan of another Type or continued as a LIBOR Loan to (but
excluding) the date of any repayment thereof; provided, however, that, if a Loan
-------- -------
is repaid on the same day made, one day's interest shall be paid on such Loan.
The Base Rate on the date hereof is 8.50% per annum and, therefore, the rate of
interest in effect hereunder on the date hereof, expressed in simple interest
terms, is 9.25% per annum with respect to any portion of the Loans bearing
interest as a Base Rate Loan.
2.1.2 Conversions and Continuations.
-----------------------------
-8-
<PAGE>
(i) Borrowers may on any Business Day,
subject to the giving of a proper Notice of
Conversion/Continuation as hereinafter described, elect (A) to
continue all or any part of a LIBOR Loan by selecting a new
Interest Period therefor, to commence on the last day of the
immediately preceding Interest Period, or (B) to convert all
or any part of a Loan of one Type into a Loan of another Type;
provided, however, that no outstanding Loans may be converted
-----------------
into or continued as LIBOR Loans when any Default or Event of
Default exists. Any conversion of a LIBOR Loan into a Base
Rate Loan shall be made on the last day of the Interest Period
for such LIBOR Loan. Any conversion or continuation made with
respect to less than the entire outstanding balance of the
Revolver Loans or the Equipment Loan, must be allocated among
Lenders on a Pro Rata basis, and the Interest Period for Loans
converted into or continued as LIBOR Loans shall be
coterminous for each Lender.
(ii) Whenever Borrowers desire to convert or
continue Loans under Section 2.1.2(i), a Borrower shall give
Agent written notice (or telephonic notice promptly confirmed
in writing) substantially in the form of Exhibit B ("Notice of
---------
Conversion/Continuation"), signed by an authorized officer of
such Borrower, at least 2 Business Days before the requested
conversion or continuation date, in the case of a conversion
into or continuation of LIBOR Loans and on the requested
conversion date, in the case of a conversion into Base Rate
Loans. Promptly after receipt of a Notice of
Conversion/Continuation, Agent shall notify each Lender in
writing of the proposed conversion or continuation. Each such
Notice of Conversion/Continuation shall be irrevocable and
shall specify the aggregate principal amount of the Loans to
be converted or continued, the date of such conversion or
continuation (which shall be a Business Day) and whether the
Loans are being converted into or continued as LIBOR Loans
(and, if so, the duration of the Interest Period to be
applicable thereto) or Base Rate Loans. If, upon the
expiration of any Interest Period in respect of any LIBOR
Loans Borrowers shall have failed to deliver the Notice of
Conversion/Continuation, Borrowers shall be deemed to have
elected to convert such LIBOR Loans to Base Rate Loans.
2.1.3. Interest Periods. In connection with the making or
----------------
continuation of, or conversion into, each Borrowing of LIBOR Loans, Borrowers
shall select an interest period (each an "Interest Period") to be applicable to
such LIBOR Loan, which interest period shall commence on the date such LIBOR
Loan is made and shall end on a numerically corresponding day in the first,
third or sixth month thereafter; provided, however, that:
-----------------
(i) the initial Interest Period for a LIBOR
Loan shall commence on the date of such Borrowing (including
the date of any conversion from a Loan of another Type) and
each Interest Period occurring thereafter in respect of such
Revolver Loan shall commence on the date on which the next
preceding Interest Period expires;
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<PAGE>
(ii) if any Interest Period would otherwise
expire on a day that is not a Business Day, such Interest
Period shall expire on the next succeeding Business Day,
provided that if any Interest Period in respect of LIBOR Loans
would otherwise expire on a day which is not a Business Day
but is a day of the month after which no further Business Day
occurs in such month, such Interest Period shall expire on the
next preceding Business Day;
(iii) any Interest Period that begins on a
day for which there is no numerically corresponding day in the
calendar month at the end of such Interest Period shall expire
on the last Business Day of such calendar month;
(iv) no Interest Period with respect to any
portion of principal of a Loan shall extend beyond a date on
which a Borrower is required to make a scheduled payment of
such portion of principal;
(v) no Interest Period shall extend beyond
the last day of the Original Term; and
(vi) there shall be no more than 5 Interest
Periods in effect at any one time.
2.1.4. Interest Rate Not Ascertainable. If Agent shall
-------------------------------
determine (which determination shall, absent manifest error, be final,
conclusive and binding upon all parties) that on any date for determining the
Adjusted LIBOR Rate for any Interest Period, by reason of any changes arising
after the date of this Agreement affecting the London interbank market or any
Lender's or Bank's position in such market, adequate and fair means do not exist
for ascertaining the applicable interest rate on the basis provided for in the
definition of Adjusted LIBOR Rate, then, and in any such event, Agent shall
forthwith give notice (by telephone confirmed in writing) to GSS of such
determination. Until Agent notifies GSS that the circumstances giving rise to
the suspension described herein no longer exist, the obligation of Lenders to
make LIBOR Loans shall be suspended, and such affected Loans then outstanding
shall, at the end of the then applicable Interest Period or at such earlier time
as may be required by Applicable Law, bear the same interest as Base Rate Loans.
2.1.5. Default Rate of Interest. Interest shall accrue at the
------------------------
Default Rate (i) with respect to the principal amount of any portion of the
Obligations (and, to the extent permitted by Applicable Law, all past due
interest) that is not paid on the due date thereof (whether due at stated
maturity, on demand, upon acceleration or otherwise) until paid in full, and
(ii) with respect to the principal amount of all of the Obligations (and, to the
extent permitted by Applicable Law, all past due interest) upon the earliest to
occur of (x) a Borrower's receipt of notice from Agent of Required Lenders'
election to charge the Default Rate based upon the existence of any Event of
Default (which notice Agent shall send only with the consent or at the direction
of the Required Lenders) or (y) the commencement by or against any Borrower of
an Insolvency Proceeding, whether or not under the circumstances described in
either clause (i) or (ii) hereof Agent or Lenders elect to accelerate the
maturity or demand payment of any of the Obligations. To the fullest extent
permitted by Applicable Law, the Default Rate shall apply and accrue on any
judgment entered with respect to any of the Obligations and to the unpaid
principal amount of the Obligations during any Insolvency Proceeding of a
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<PAGE>
Borrower. Each Borrower acknowledges that the cost and expense to Agent and each
Lender attendant upon the occurrence of an Event of Default are difficult to
ascertain or estimate and that the Default Rate is a fair and reasonable
estimate to compensate Agent and Lender for such added cost and expense.
2.2. Fees.
----
2.2.1. Closing Fee. Borrowers shall be jointly and severally
-----------
obligated to pay to Agent a closing fee of $350,000, which shall be fully earned
and, except to the extent otherwise required by Applicable Law, non-refundable
on the Closing Date and shall be paid concurrently with the funding of the
initial Loans hereunder. Agent shall distribute $87,500 of the closing fee to
Congress and $262,500 of the closing fee to Fleet.
2.2.2. Unused Line Fee. Borrowers shall be jointly and
---------------
severally obligated to pay to Agent, for the Pro Rata benefit of Lenders, a fee
equal to .375% per annum of the amount by which the Average Revolver Loan
Balance for any month (or portion thereof that the agreement is in effect) is
less than $70,000,000, such fee to be paid on the first day of the following
month; but if this Agreement is terminated on a day other than the first day of
a month, then any such fee payable for the month in which termination shall
occur shall be paid on the effective date of such termination.
2.2.3. Audit and Appraisal Fees. Borrowers shall be jointly
------------------------
and severally obligated to reimburse Lenders (other than Fleet unless a Default
or Event of Default exists) for all reasonable costs and expenses incurred by
any Lender in connection with all audits and appraisals of any Obligor's books
and records and such other matters pertaining to any Obligor or any Collateral
any such Lender shall deem appropriate; provided, that, unless a Default or
Event of Default exists, Borrowers shall not be obligated to reimburse Agent or
Lenders for more than an aggregate of 4 such audits or appraisals in any Fiscal
Year. On the Closing Date, Borrowers shall be jointly and severally obligated to
pay to Fleet all out-of-pocket expenses incurred by Fleet in connection with the
audit and appraisal of each Borrower's business and Properties prior to the
Closing Date. For purposes hereof, "reasonable costs and expenses" of Congress
shall mean $600 per day per person plus out-of-pocket costs.
2.2.4. Annual Agency Fee. In consideration of Fleet's
-----------------
syndication of the Commitments and service as Agent hereunder, Borrowers shall
be jointly and severally obligated to pay to Agent an annual agency fee of
$60,000 per year, which fee shall be payable monthly in advance in an amount
equal to 1/12th of such fee, commencing on the Closing Date and on the first day
of each month thereafter.
2.2.5. LC Facility Fees. Borrowers shall be jointly and
----------------
severally obligated to pay all fees at any time payable to Bank for each Letter
of Credit. In no event shall Fleet be liable to Bank, any Borrower or any other
Person for any fees payable in respect of any Letter of Credit by reason of
Fleet's joining in any LC Application or otherwise. Borrowers shall also be
jointly and severally obligated to pay to Agent, for the Pro Rata benefit of
Lenders:
(i) for each LC Guaranty of each standby Letter of Credit, a
fee equal to 2% per annum of the aggregate face amount of such
Letter of Credit outstanding
-11-
<PAGE>
from time to time during the term of this Agreement which
shall be due and payable on the first Business Day of each
month ; and
(ii) for each LC Guaranty of each documentary Letter of Credit, a
fee equal to 2% per annum of the face amount of each such Letter
of Credit, payable upon the issuance of such Letter of Credit.
2.2.6. General Provisions. All fees shall be fully earned by
------------------
the identified recipient thereof pursuant to the foregoing provisions of this
Agreement on the due date thereof and, except as otherwise set forth herein or
required by Applicable Law, shall not be subject to rebate, refund or proration.
All fees provided for in Section 2.2 are and shall be deemed to be for
compensation for services and are not, and shall not be deemed to be, interest
or any other charge for the use, forbearance or detention of money.
2.3. Computation of Interest and Fees. All interest, fees and other
--------------------------------
charges provided for in this Agreement shall be calculated daily and shall be
computed on the actual number of days elapsed over a year of 360 days. For
purposes of computing interest hereunder, all Payment Items received by Agent
shall be deemed applied by Agent on account of the Obligations (subject to final
payment of such items) one Business Day after the Agent receives such items in
immediately available funds in the Payment Account, and Agent shall be deemed to
have received such Payment Item on the date specified in Section 4.7 hereof.
2.4. Reimbursement of Expenses. If, at any time or times regardless of
-------------------------
whether or not an Event of Default then exists, Agent, any Lender or any
Participant incurs legal or accounting expenses or any other out-of-pocket costs
or expenses in connection with (i) the negotiation and preparation of this
Agreement or any of the other Loan Documents, any amendment of or modification
of this Agreement or any of the other Loan Documents, or any sale or attempted
sale of any interest herein to a Participant; (ii) the administration of this
Agreement or any of the other Loan Documents and the transactions contemplated
hereby and thereby; (iii) any litigation, contest, dispute, suit, proceeding or
action (whether instituted by Agent, any Lender, an Obligor or any other Person)
in any way relating to the Collateral, this Agreement or any of the other Loan
Documents or any Borrower's affairs; (iv) any attempt to enforce any rights of
Agent, any Lender or any Participant against any or all Borrowers or any other
Person which may be obligated to Agent or a Lender by virtue of this Agreement
or any of the other Loan Documents, including the Account Debtors; or (v)
subject to Section 2.2.3 above, any attempt to inspect, verify, protect,
preserve, restore, collect, sell, liquidate or otherwise dispose of or realize
upon the Collateral; then all such legal and accounting expenses and other
out-of-pocket costs and expenses of Agent or any Lender shall be charged to
Borrowers. All amounts chargeable to Borrowers under this Section 2.4 shall be
Obligations secured by all of the Collateral, shall be payable on demand to
Agent, Lenders or to such Participant, as the case may be.
2.5. Bank Charges. Borrowers shall pay to Agent, on demand, any and all
------------
fees, costs or expenses which Agent or any Lender pays to a bank or other
similar institution (including any fees paid by Agent or any Lender to any
Participant) arising out of or in connection with (i) the forwarding to a
Borrower or any other Person on behalf of Borrower by Agent or any Lender of
proceeds of Loans made by Lenders to a Borrower pursuant to this Agreement and
(ii) the depositing for collection by Agent or any Lender of any Payment Item
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<PAGE>
received or delivered to Agent or any Lender on account of the Obligations. Each
Borrower acknowledges and agrees that Agent may charge such costs, fees and
expenses to Borrowers based upon Agent's good faith estimate of such costs, fees
and expenses as they are incurred by Agent or any Lender.
2.6. Illegality. Notwithstanding anything to the contrary contained
----------
elsewhere in this Agreement, if (i) any change in any law or regulation or in
the interpretation thereof by any governmental authority charged with the
administration thereof shall make it unlawful for a Lender to make or maintain a
LIBOR Loan or to give effect to its obligations as contemplated hereby with
respect to a LIBOR Loan or (ii) at any time such Lender determines that the
making or continuance of any LIBOR Loan has become impracticable as a result of
a contingency occurring after the date hereof which adversely affects the London
interbank market or the position of such Lender in such market, then such Lender
shall after such determination give Agent and any Borrower notice thereof and
may thereafter (1) declare that LIBOR Loans will not thereafter be made by such
Lender, whereupon any request by a Borrower for a LIBOR Loan shall be deemed a
request for a Base Rate Loan unless such Lender's declaration shall be
subsequently withdrawn (which declaration shall be withdrawn promptly after the
cessation of the circumstances described in clause (i) or (ii) above); and (2)
require that all outstanding LIBOR Loans made by such Lender be converted to
Base Rate Loans, under the circumstances of clause (i) or (ii) of this Section
2.6 insofar as such Lender determines the continuance of LIBOR Advances to be
impracticable, in which event all such LIBOR Loans shall be converted
automatically to Base Rate Loans as of the date of any Borrower's receipt of the
aforesaid notice from such Lender.
2.7. Increased Costs. If, by reason of (a) the introduction of or any
---------------
change (including any change by way of imposition or increase of Statutory
Reserves or other reserve requirements) in or in the interpretation of any law
or regulation, or (b) the compliance with any guideline or request from any
central bank or other governmental authority or quasi-governmental authority
exercising control over banks or financial institutions generally (whether or
not having the force of law):
(i) any Lender shall be subject after the date hereof,
to any Tax, duty or other charge with respect to any LIBOR
Loan or its obligation to make LIBOR Loans, or a change
shall result in the basis of taxation of payment to any
Lender of the principal of or interest on its LIBOR Loans or
its obligation to make LIBOR Loans (except for changes in
the rate of Tax on the overall net income of such Lender
imposed by the jurisdiction in which such Lender's principal
executive office is located); or
(ii) any reserve (including any imposed by the Board of
Governors), special deposits or similar requirement against
assets of, deposits with or for the account of, or credit
extended by, any Lender shall be imposed or deemed
applicable or any other condition affecting its LIBOR Loans
or its obligation to make LIBOR Loans shall be imposed on
such Lender or the London interbank market;
and as a result thereof there shall be any increase in the cost to such Lender
of agreeing to make or making, funding or maintaining LIBOR Loans (except to the
extent already included
-13-
<PAGE>
in the determination of the applicable Adjusted LIBOR Rate for LIBOR Loans), or
there shall be a reduction in the amount received or receivable by such Lender,
then such Lender shall promptly after determining such increased costs give any
Borrower notice thereof and Borrowers shall from time to time, upon written
notice from and demand by such Lender (with a copy of such notice and demand to
Agent), pay to Agent for the account of such Lender, within 5 Business Days
after the date specified in such notice and demand, an additional amount
sufficient to indemnify such Lender against such increased cost. A certificate
as to the amount of such increased cost, submitted to Borrowers by such Lender,
shall be final, conclusive and binding for all purposes, absent manifest error.
If any Lender shall advise Agent at any time that, because of the
circumstances described hereinabove in this Section 2.7 or any other
circumstances arising after the date of this Agreement affecting such Lender or
the London interbank market or such Lender's position in such market, the
Adjusted LIBOR Rate, as determined by Agent, will not adequately and fairly
reflect the cost to such Lender of funding LIBOR Loans, then, and in any such
event:
(i) Agent shall forthwith give notice (by telephone
confirmed in writing) to GSS and Lenders of such advice;
(ii) Borrowers' right to request and such Lender's
obligation to make LIBOR Loans shall be immediately
suspended and Borrowers' right to continue a LIBOR Loan
as such beyond the then applicable Interest Period shall
also be suspended, until each condition giving rise to
such suspension no longer exists; and
(iii) such Lender shall make a Base Rate Loan as part of
the requested Borrowing of LIBOR Loans, which Base Rate
Loan shall, for all purposes, be considered part of such
Borrowing.
For purposes of this Section 2.7, all references to a Lender shall be
deemed to include any bank holding company or bank parent of such Lender.
2.8. Capital Adequacy. If any Lender determines that after the date
----------------
hereof (a) the adoption of any Applicable Law regarding capital requirements for
banks or bank holding companies or the subsidiaries thereof, (b) any change in
the interpretation or administration of any such Applicable Law by any
governmental authority, central bank, or comparable agency charged with the
interpretation or administration thereof, or (c) compliance by such Lender or
its holding company with any request or directive of any such governmental
authority, central bank or comparable agency regarding capital adequacy (whether
or not having the force of law), has the effect of reducing the return on such
Lender's capital to a level below that which such Lender could have achieved
(taking into consideration such Lender's and its holding company's policies with
respect to capital adequacy immediately before such adoption, change or
compliance and assuming that such Lender's capital was fully utilized prior to
such adoption, change or compliance) but for such adoption, change or compliance
as a consequence of such Lender's commitment to make the Loans pursuant hereto
by any amount deemed by such Lender to be material:
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<PAGE>
(i) Agent shall promptly, after its receipt of a
certificate from such Lender setting forth such Lender's
determination of such occurrence, give notice thereof to GSS
and Lenders; and
(ii) Borrowers shall pay to Agent, for the account of
such Lender, as an additional fee from time to time,
on demand, such amount as such Lender certifies to be the
amount reasonably calculated to compensate such Lender for
such reduction.
A certificate of such Lender claiming entitlement to compensation as
set forth above will be conclusive in the absence of manifest error. Such
certificate will set forth the nature of the occurrence giving rise to such
compensation, the additional amount or amounts to be paid to such Lender
(including the basis for such Lender's determination of such amount), and the
method by which such amounts were determined. In determining such amount, such
Lender may use any reasonable averaging and attribution method. For purposes of
this Section 2.8 all references to a Lender shall be deemed to include any bank
holding company or bank parent of such Lender.
2.9. Funding Losses. Borrowers shall be jointly and severally obligated
--------------
to compensate Lenders, upon Agent's written request (which request shall set
forth the basis for requesting such amounts and which request shall, absent
manifest error, be final, conclusive and binding upon all of the parties
hereto), for all losses, expenses and liabilities (including any interest paid
by a Lender to lenders of funds borrowed by such Lender to make or carry its
LIBOR Loans to the extent not recovered by such Lender in connection with the
re-employment of such funds), which any Lender may sustain: (i) if for any
reason (other than a default by such Lender) a Borrowing of, or conversion to or
continuation of, LIBOR Loans does not occur on the date specified therefor in a
Notice of Borrowing or Notice of Conversion/ Continuation (whether or not
withdrawn), (ii) if any repayment (including any conversions pursuant to Section
2.1.2 hereof) of any its LIBOR Loans occurs on a date that is not the last day
of an Interest Period applicable thereto, or (iii) if, for any reason, Borrowers
default in their obligation to repay LIBOR Loans when required by the terms of
this Agreement. For purposes of this Section 2.9, all references to a Lender
shall be deemed to include any bank holding company or bank parent of such
Lender. The calculations of all amounts payable to a Lender under this Section
2.9 shall be made as though such Lender had actually funded or committed to fund
its LIBOR Loan through the purchase for an underlying deposit in an amount equal
to the amount of such LIBOR Loan and having a maturity comparable to the
relevant Interest Period for such LIBOR Loan; provided, however, any Lender may
-------- -------
fund its LIBOR Loans in any manner it deems fit and the foregoing assumption
shall be utilized only for the calculation of amounts payable under this Section
2.9.
2.10. Maximum Interest. Regardless of any provision contained in this
----------------
Agreement or any of the other Loan Documents, in no contingency or event
whatsoever shall the aggregate of all amounts that are contracted for, charged
or received by Agent and Lenders pursuant to the terms of this Agreement or any
of the other Loan Documents and that are deemed interest under Applicable Law
exceed the highest rate permissible under any Applicable Law. No agreements,
conditions, provisions or stipulations contained in this Agreement or any of the
other Loan Documents or the exercise by Agent of the right to accelerate the
payment or the maturity of all or any portion of the Obligations, or the
exercise
-15-
<PAGE>
of any option whatsoever contained in any of the Loan Documents, or the
prepayment by any or all Borrowers of any of the Obligations, or the occurrence
of any contingency whatsoever, shall entitle Agent or any Lender to charge or
receive in any event, interest or any charges, amounts, premiums or fees deemed
interest by Applicable Law (such interest, charges, amounts, premiums and fees
referred to herein collectively as "Interest") in excess of the Maximum Rate and
in no event shall Borrowers be obligated to pay Interest exceeding such Maximum
Rate, and all agreements, conditions or stipulations, if any, which may in any
event or contingency whatsoever operate to bind, obligate or compel Borrowers to
pay Interest exceeding the Maximum Rate shall be without binding force or
effect, at law or in equity, to the extent only of the excess of Interest over
such Maximum Rate. If any Interest is charged or received in excess of the
Maximum Rate ("Excess"), each Borrower acknowledges and stipulates that any such
charge or receipt shall be the result of an accident and bona fide error, and
such Excess, to the extent received, shall be applied first to reduce the
principal Obligations and the balance, if any, returned to Borrowers, it being
the intent of the parties hereto not to enter into a usurious or otherwise
illegal relationship. The right to accelerate the maturity of any of the
Obligations does not include the right to accelerate any interest that has not
otherwise accrued on the date of such acceleration, and Agent and Lenders do not
intend to collect any unearned interest in the event of any such acceleration.
Each Borrower recognizes that, with fluctuations in the rates of interest set
forth in Section 2.1.1 of this Agreement, and the Maximum Rate, such an
unintentional result could inadvertently occur. All monies paid to Agent or any
Lender hereunder or under any of the other Loan Documents, whether at maturity
or by prepayment, shall be subject to any rebate of unearned interest as and to
the extent required by Applicable Law. By the execution of this Agreement, each
Borrower covenants that (i) the credit or return of any Excess shall constitute
the acceptance by such Borrower of such Excess, and (ii) no Borrower shall seek
or pursue any other remedy, legal or equitable, against Agent or any Lender,
based in whole or in part upon contracting for, charging or receiving any
Interest in excess of the Maximum Rate. For the purpose of determining whether
or not any Excess has been contracted for, charged or received by Agent or any
Lender, all interest at any time contracted for, charged or received from any or
all Borrowers in connection with any of the Loan Documents shall, to the extent
permitted by Applicable Law, be amortized, prorated, allocated and spread in
equal parts throughout the full term of the Obligations. Borrowers, Agent and
Lenders shall, to the maximum extent permitted under Applicable Law, (i)
characterize any non-principal payment as an expense, fee or premium rather than
as Interest and (ii) exclude voluntary prepayments and the effects thereof. The
provisions of this Section 2.10 shall be deemed to be incorporated into every
Loan Document (whether or not any provision of this Section is referred to
therein). All such Loan Documents and communications relating to any Interest
owed by any or all Borrowers and all figures set forth therein shall, for the
sole purpose of computing the extent of Obligations, be automatically recomputed
by Borrowers, and by any court considering the same, to give effect to the
adjustments or credits required by this Section 2.10.
SECTION 3. LOAN ADMINISTRATION
3.1. Manner of Borrowing and Funding Loans. Borrowings under the
-------------------------------------
Commitments established pursuant to Section 1 hereof shall be made and funded as
follows:
3.1.1. Notice of Borrowing.
-------------------
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<PAGE>
(i) Whenever any Borrower desires to make a
Borrowing under this Agreement (other than a Borrowing
resulting from a conversion or continuation pursuant to
Section 2.1.2), such Borrower shall give Agent prior written
notice (or telephonic notice promptly confirmed in writing) of
such Borrowing request (a "Notice of Borrowing"), which shall
be in the form of Exhibit C annexed hereto and signed by an
---------
authorized officer of such Borrower. Such Notice of Borrowing
shall be given by such Borrower no later than 2:00 p.m. at the
office of Agent designated by Agent from time to time (a) on
the Business Day of the requested funding date of such
Borrowing, in the case of Base Rate Loans, and (b) at least 2
Business Days prior to the requested funding date of such
Borrowing, in the case of LIBOR Loans. Notices received after
2:00 p.m. shall be deemed received on the next Business Day.
The Loans made by each Lender on the Closing Date shall be in
excess of $250,000 and shall be made as Base Rate Loans and
thereafter may be made or continued as or converted into Base
Rate Loans or LIBOR Loans. Each Notice of Borrowing (or
telephonic notice thereof) shall be irrevocable and shall
specify (a) the principal amount of the Borrowing, (b) the
date of Borrowing (which shall be a Business Day), (c) whether
the Borrowing is to consist of Base Rate Loans or LIBOR Loans,
(d) in the case of LIBOR Loans, the duration of the Interest
Period to be applicable thereto, and (e) the account of
Borrowers to which the proceeds of such Borrowing are to be
disbursed. Borrowers may not request any LIBOR Loans if a
Default or Event of Default exists.
(ii) Unless payment is otherwise timely made
by Borrowers, the becoming due of any amount required to be
paid under this Agreement or any of the other Loan Documents
as principal, accrued interest, fees or other charges
(including the repayment of any LC Obligations) shall be
deemed irrevocably to be a request for Revolver Loans on the
due date of, and in an aggregate amount required to pay, such
principal, accrued interest, fees or other charges, and the
proceeds of such Revolver Loans may be disbursed by way of
direct payment of the relevant Obligation and shall bear
interest as Base Rate Loans. Neither Agent nor any Lender
shall have any obligation to Borrowers to honor any deemed
request for a Revolver Loan when an Out-of-Formula Condition
exists or would result therefrom, but may do so in their
discretion and without regard to the existence of, and without
being deemed to have waived, any Default or Event of Default.
(iii) As an accommodation to Borrowers,
Agent and Lenders may permit telephonic requests for
Borrowings and electronic transmittal of instructions,
authorizations, agreements or reports to Agent by Borrowers;
provided, however, that Borrowers shall confirm each such
-----------------
telephonic request for a Borrowing of LIBOR Loans by delivery
of the required Notice of Borrowing to Agent by facsimile
transmission promptly, but in no event later than 5:00 p.m. on
the same day. Unless Borrowers specifically direct Agent and
Lenders in writing not to accept or act upon telephonic or
electronic communications from Borrowers, neither Agent nor
any Lender shall have any liability to Borrowers for any loss
or damage suffered by such Borrowers as a
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result of Agent's or any Lender's honoring of any requests,
execution of any instructions, authorizations or agreements or
reliance on any reports communicated to it telephonically or
electronically and purporting to have been sent to Agent or
Lenders by a Borrower and neither Agent nor any Lender shall
have any duty to verify the origin of any such communication
or the identity or authority of the Person sending it.
3.1.2. Fundings by Lenders. Subject to its receipt of notice
-------------------
from Agent of a Notice of Borrowing as provided in Section 3.1.1 (except in the
case of a deemed request by a Borrower for a Revolver Loan as provided in
Sections 3.1.1(ii) or 3.1.3(ii) hereof, in which event no Notice of Borrowing
need be submitted), each Lender shall timely honor its Commitment by funding its
Pro Rata share of each Borrowing of Loans that is properly requested by a
Borrower and that such Borrower is entitled to receive under the Loan Agreement.
Agent shall notify Lenders of each Notice of Borrowing by 11:00 a.m. on the
proposed funding date (in the case of Base Rate Loans) or by 3:00 p.m. at least
2 Business Days before the proposed funding date (in the case of LIBOR Loans).
Each Lender shall deposit with Agent an amount equal to its Pro Rata share of
the Borrowing requested by such Borrower at Agent's designated bank in
immediately available funds not later than 4:00 p.m. on the date of funding of
such Borrowing, unless Agent's notice to Lenders is received after 3:00 p.m. on
the proposed funding date of a Base Rate Loan, in which event Lenders shall
deposit with Agent their respective Pro Rata shares of the requested Borrowing
on or before 4:00 p.m. of the next Business Day. Subject to its receipt of such
amounts from Lenders, Agent shall, provided it has not received notice from a
Lender that one or more of the applicable conditions set forth in Section 10 is
not satisfied, make the proceeds of the Loans received by it available to such
Borrower by disbursing such proceeds as provided in Section 3.1.4 hereof. Unless
Agent shall have been notified in writing by a Lender prior to the proposed time
of funding that such Lender does not intend to deposit with Agent an amount
equal such Lender's Pro Rata share of the requested Borrowing, Agent may assume
that such Lender has deposited or promptly will deposit its share with Agent and
Agent may in its discretion disburse a corresponding amount to such Borrower on
the applicable funding date. If a Lender's Pro Rata share of such Borrowing is
not in fact deposited with Agent, then, if Agent has disbursed to such Borrower
an amount corresponding to such share, then such Lender agrees to pay, and in
addition Borrowers jointly and severally agree to repay, to Agent forthwith on
demand such corresponding amount, together with interest thereon, for each day
from the date such amount is disbursed by Agent to or for the benefit of such
Borrower until the date such amount is paid or repaid to Agent, (a) in the case
of Borrowers, at the interest rate applicable to such Borrowing and (b) in the
case of such Lender, at the Federal Funds Rate. If such Lender repays to Agent
such corresponding amount, such amount so repaid shall constitute a Revolver
Loan, and if both such Lender and Borrowers shall have repaid such corresponding
amount, Agent shall promptly return to Borrowers such corresponding amount in
same day funds.
3.1.3. Settlement and Settlement Loans.
-------------------------------
(i) In order to facilitate the
administration of the Revolver Loans under this Agreement,
Lenders agree (which agreement shall not be for the benefit of
or enforceable by any Borrower) that settlement among them
with respect to the Revolver Loans may take place on a
periodic basis on dates
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<PAGE>
determined from time to time by Agent (each a "Settlement
Date"), which may occur before or after the occurrence or
during the continuance of a Default or Event of Default and
whether or not all of the conditions set forth in Section 10
of this Agreement have been met. On each Settlement Date,
payment shall be made by or to each Lender in the manner
provided herein and in accordance with the Settlement Report
delivered by Agent to Lenders with respect to such Settlement
Date so that, as of each Settlement Date and after giving
effect to the transaction to take place on such Settlement
Date, each Lender shall hold its Pro Rata share of all
Revolver Loans and participations in LC Obligations then
outstanding. Agent shall request settlement with the Lenders
on a basis not less frequently than once every 5 Business
Days.
(ii) Between Settlement Dates, Agent may
request Fleet to advance, and Fleet may, but shall in no event
be obligated to, advance to Borrowers out of Fleet's own funds
the entire principal amount of any Borrowing of Revolver Loans
that are Base Rate Loans requested or deemed requested
pursuant to this Agreement (any such Revolver Loan funded
exclusively by Fleet being referred to as a "Settlement
Loan"). Each Settlement Loan shall constitute a Revolver Loan
hereunder and shall be subject to all of the terms, conditions
and security applicable to other Revolver Loans, except that
all payments thereon shall be payable to Fleet solely for its
own account. The obligation of Borrowers to repay such
Settlement Loans to Fleet shall be evidenced by the records of
Fleet and need not be evidenced by any promissory note. Agent
shall not request Fleet to make any Settlement Loan if (A)
Agent shall have received written notice from any Lender that
one or more of the applicable conditions precedent set forth
in Section 10 hereof will not be satisfied on the requested
funding date for the applicable Borrowing or (B) Agent has
knowledge that the requested Borrowing would exceed the amount
of Availability on the funding date. Fleet shall not otherwise
be required to determine whether the applicable conditions
precedent set forth in Section 10 hereof have been satisfied
or the requested Borrowing would exceed the amount of
Availability on the funding date applicable thereto prior to
making, in its sole discretion, any Settlement Loan. On each
Settlement Date, or, if earlier, upon demand by Agent for
payment thereof, the then outstanding Settlement Loans shall
be immediately due and payable. Borrowers shall be deemed to
have requested Revolver Loans to be made on each Settlement
Date in the amount of all outstanding Settlement Loans and the
proceeds of such Revolver Loans shall be applied to the
repayment of such Settlement Loans. Agent shall notify the
Lenders of the outstanding balance of Revolver Loans prior to
1:00 p.m. on each Settlement Date and each Lender shall
deposit with Agent an amount equal to its Pro Rata share of
the amount of Revolver Loans deemed requested in immediately
available funds not later than 4:00 p.m. on such Settlement
Date, and without regard to whether any Default or Event of
Default exists or any of the conditions in Section 10 are not
satisfied. If any Settlement Loan is not repaid on the due
date thereof, then on the second Business Day after Fleet's
request each Lender (other than Fleet) shall purchase a
participating interest in such Settlement Loan in an amount
equal to its Pro Rata share of such Settlement Loan by
transferring to Fleet, in immediately available funds,
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<PAGE>
the amount of such participation. The proceeds of Settlement
Loans may be used solely for purposes for which Revolver Loans
generally may be used in accordance with Section 1.1.3 hereof.
If any amounts received by Fleet in respect of any Settlement
Loans are later required to be returned or repaid by Fleet to
any or all Borrowers or any other Obligor or their respective
representatives or successors-in-interest, whether by court
order, settlement or otherwise, the other Lenders shall, upon
demand by Fleet with notice to Agent, pay to Agent for the
account of Fleet, an amount equal to each other Lender's Pro
Rata share of all such amounts required to be returned by
Fleet.
3.1.4. Disbursement Authorization. Each Borrower hereby
--------------------------
irrevocably authorizes Agent to disburse the proceeds of each Loan requested by
either Borrower, or deemed to be requested pursuant to Section 3.1.1 or Section
3.1.3(ii), as follows: (i) the proceeds of each Loan requested under Section
3.1.1(i) shall be disbursed by Agent in accordance with the terms of the written
disbursement letter from Borrowers in the case of the initial Borrowing, and, in
the case of each subsequent Borrowing, by wire transfer to the Funding Account
or such bank account as may be agreed upon by Borrowers and Agent from time to
time in writing; and (ii) the proceeds of each Revolver Loan requested under
Section 3.1.1(ii) or Section 3.1.3(ii) shall be disbursed by Agent by way of
direct payment of the relevant interest or other Obligation. Any proceeds
received by either of Borrowers or in payment of any of the Obligations shall be
deemed to have been received by both Borrowers.
3.2. Defaulting Lender. If any Lender shall, at any time, fail to make
-----------------
any payment to Agent or Fleet that is required hereunder, Agent may, but shall
not be required to, retain payments that would otherwise be made to such
defaulting Lender hereunder and apply such payments to such defaulting Lender's
defaulted obligations hereunder, at such time, and in such order, as Agent may
elect in its sole discretion. With respect to the payment of any funds from
Agent to a Lender or from a Lender to Agent, the party failing to make the full
payment when due pursuant to the terms hereof shall, upon demand by the other
party, pay such amount together with interest on such amount at the Federal
Funds Rate. The failure of any Lender to fund its portion of any Loan shall not
relieve any other Lender of its obligation, if any, to fund its portion of the
Loan on the date of Borrowing, but no Lender shall be responsible for the
failure of any other Lender to make any Loan to be made by such Lender on the
date of any Borrowing. Solely for purposes of voting or consenting to matters
with respect to any of the Loan Documents, Collateral or any Obligations and
determining a defaulting Lender's Pro Rata share of payments and proceeds of
Collateral, a defaulting Lender shall not be deemed to be a "Lender" and such
Lender's Commitment shall be deemed to be zero (0).
3.3. Special Provisions Governing LIBOR Loans.
----------------------------------------
3.3.1. Number of LIBOR Loans. In no event may the number of LIBOR
---------------------
Loans outstanding at any time to any Lender exceed 5.
3.3.2 Minimum Amounts. Each election of LIBOR Loans pursuant to
---------------
Section 3.1.1(i), and each continuation of or conversion to LIBOR Loans pursuant
to Section 2.1.2 hereof, shall be in a minimum amount of $1,000,000 and integral
multiples of $250,000 in excess of that amount.
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3.3.3 LIBOR Lending Office. Each Lender's initial LIBOR
--------------------
Lending Office is set forth opposite its name on the signature pages hereof.
Each Lender shall have the right at any time and from time to time to designate
a different office of itself or of any Affiliate as such Lender's LIBOR Lending
Office, and to transfer any outstanding LIBOR Loans to such LIBOR Lending
Office. No such designation or transfer shall result in any liability on the
part of Borrowers for increased costs or expenses resulting solely from such
designation or transfer. Increased costs or expenses resulting from a change in
Applicable Law occurring subsequent to any such designation or transfer shall be
deemed not to result solely from such designation or transfer.
3.4. Borrowers' Representative. ASB hereby irrevocably appoints GSS,
-------------------------
and GSS agrees to act under this Agreement, as the agent and representative of
itself and ASB for all purposes under this Agreement, including requesting
Borrowings, selecting whether any Loan or portion thereof is to bear interest as
a Base Rate Loan or a LIBOR Loan, and receiving account statements and other
notices and communications to Borrowers (or either of them) from Agent or
Lenders. Agent and Lenders may rely, and shall be fully protected in relying, on
any Notice of Borrowing, Notice of Conversion/Continuation, disbursement
instructions, reports, information or any other notice or communication made or
given by GSS, whether in its own name, on behalf of ASB or on behalf of "the
Borrowers," and neither Agent nor any Lender shall have any obligation to make
any inquiry or request any confirmation from or on behalf of ASB as to the
binding effect on ASB of any such request, instruction, report, information,
notice or communication, nor shall the joint and several character of Borrowers'
liability for the Loans be affected, provided that the provisions of this
Section 3.4 shall not be construed so as to preclude any Borrower from directly
requesting Borrowings or taking other actions permitted to be taken by "a
Borrower" hereunder. Agent and Lenders intend to maintain a single Loan Account
in the name of "Gulf States Steel, Inc. of Alabama" hereunder, and each Borrower
expressly agrees to such arrangement and confirms that such arrangement shall
have no effect on the joint and several character of such Borrower's liability
for the Loans.
3.5. All Loans to Constitute One Obligation. The Loans shall constitute
--------------------------------------
one general Obligation of Borrowers and shall be secured by Agent's Lien upon
all of the Collateral; provided, however, that Agent and each Lender shall be
-----------------
deemed to be a creditor of each Borrower and the holder of a separate claim
against each Borrower to the extent of any Obligations jointly and severally
owed by Borrowers to Agent or such Lender.
SECTION 4. PAYMENTS
4.1. General Payment Provisions. All payments (including all
--------------------------
prepayments) of principal of and interest on the Loans, LC Obligations and other
Obligations that are payable to Agent or any Lender shall be made to Agent in
Dollars without any offset or counterclaim and free and clear of (and without
deduction for) any present or future Taxes, and, with respect to payments made
other than by application of balances in the Payment Account, in immediately
available funds not later than 12:00 noon on the due date (and payment made
after such time on the due date to be deemed to have been made on the next
succeeding Business Day). All payments received by Agent shall be distributed by
Agent to Lenders on
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a Pro Rata basis, subject to the right of offset that Agent may have as to
amounts otherwise to be remitted to a particular Lender by reason of amounts due
Agent from such Lender under any of the Loan Documents and Agent shall give such
Lender concurrent notice therewith.
4.2. Repayment of Revolver Loans.
---------------------------
4.2.1. Payment of Principal. The outstanding principal amounts
--------------------
with respect to the Revolver Loans shall be due and payable as follows:
(i) Any portion of the Revolver Loans
consisting of the principal amount of Base Rate Loans shall be
paid by Borrowers to Agent, for the Pro Rata benefit of
Lenders (or, in the case of Settlement Loans, for the sole
benefit of Fleet) unless timely converted to a LIBOR Loan in
accordance with this Agreement, immediately upon (a) each
receipt by Agent, any Lender or any Borrower of any proceeds
of any of the Accounts or Inventory, to the extent of such
proceeds, (b) the Commitment Termination Date, and (c) in the
case of Settlement Loans, the earlier of Fleet's demand for
payment or on each Settlement Date with respect to all
Settlement Loans outstanding on such date.
(ii) Any portion of the Revolver Loans
consisting of the principal amount of LIBOR Loans shall be
paid by Borrowers to Agent, for the Pro Rata benefit of
Lenders, unless converted to a Base Rate Loan or continued as
a LIBOR Loan in accordance with the terms of this Agreement,
upon (a) the last day of the Interest Period applicable
thereto and (b) the Commitment Termination Date. In no event
shall Borrowers be authorized to pay any LIBOR Loan prior to
the last day of the Interest Period applicable thereto unless
(x) otherwise agreed in writing by Agent or Borrowers are
otherwise expressly authorized or required by any other
provision of this Agreement to pay any LIBOR Loan outstanding
on a date other than the last day of the Interest Period
applicable thereto, and (y) Borrowers pay to Agent, for the
Pro Rata benefit of Lenders and concurrently with any
prepayment of a LIBOR Loan, the amount due Agent and Lenders
under Section 2.9 hereof as a consequence of such prepayment.
(iii) Notwithstanding anything to the
contrary contained elsewhere in this Agreement, if an
Out-of-Formula Condition shall exist, Borrowers shall, on the
sooner to occur of Agent's demand or the first Business Day
after Borrowers have obtained knowledge of such Out-of-Formula
Condition, repay the outstanding Revolver Loans that are Base
Rate Loans in an amount sufficient to reduce the aggregate
unpaid principal amount of all Revolver Loans by an amount
equal to such excess; and, if such payment of Base Rate Loans
is not sufficient to eliminate the Out-of-Formula Condition,
then Borrowers shall immediately either (a) deposit with
Agent, for the Pro Rata benefit of Lenders, for application to
any outstanding Revolver Loans bearing interest as LIBOR Loans
as the same become due and payable at the end of the
applicable Interest Periods, cash in an amount sufficient to
eliminate such Out-of-Formula Condition, to be held by Agent
pending disbursement of same to Lenders, but subject to
Agent's Lien thereon and rights of offset with respect
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thereto, or (b) pay the Revolver Loans outstanding as LIBOR
Loans to the extent necessary to eliminate such Out-of-Formula
Condition and also pay to Agent for the Pro Rata benefit of
Lenders any and all amounts required by Section 2.9 hereof to
be paid by reason of the prepayment of a LIBOR Loan prior to
the last day of the Interest Period applicable thereto.
4.2.2. Payment of Interest. Interest accrued on the Revolver
-------------------
Loans shall be due and payable on (i) the first calendar day of each month (for
the immediately preceding month), computed through the last calendar day of the
preceding month, with respect to any Revolver Loan (whether a Base Rate Loan or
LIBOR Loan) and (ii) the last day of the applicable Interest Period in the case
of a LIBOR Loan. Accrued interest shall also be paid by Borrowers on the
Commitment Termination Date. With respect to any Base Rate Loan converted into a
LIBOR Loan pursuant to Section 2.1.2 on a day when interest would not otherwise
have been payable with respect to such Base Rate Loan, accrued interest to the
date of such conversion on the amount of such Base Rate Loan so converted shall
be paid on the conversion date.
4.3. Reserved.
--------
4.4. Payment of Other Obligations. Borrowers shall pay all costs, fees
----------------------------
and charges pursuant to this Agreement as and when provided in Section 2.2
hereof, to Agent or to any other Person designated by Agent in writing. The
balance of the Obligations requiring the payment of money, including the LC
Obligations, shall be payable by Borrowers to Agent, for the Pro Rata benefit of
Lenders, as and when provided in the Loan Documents, or, if no date of payment
is otherwise specified in the Loan Documents, on demand.
4.5. Marshaling; Payments Set Aside. Neither Agent nor any Lender shall
------------------------------
be under any obligation to marshall any assets in favor of any Borrower or any
other Obligor or against or in payment of any or all of the Obligations. To the
extent that Borrowers make a payment or payments to Agent or Lenders or any of
such Persons receives payment from the proceeds of any Collateral or exercises
its right of setoff, and such payment or payments or the proceeds of such
enforcement or setoff or any part thereof are subsequently invalidated, declared
to be fraudulent or preferential, set aside or required to be repaid to a
trustee, receiver or any other party, then to the extent of such recovery, the
obligation or part thereof originally intended to be satisfied, and all Liens,
rights and remedies therefor, shall be revived and continued in full force and
effect as if such payment had not been made or such enforcement or setoff had
not occurred. The provisions of the immediately preceding sentence of this
Section 4.5 shall survive any termination of the Commitments and payment in full
of the Obligations.
4.6. Allocation of Payments from Borrowers. All monies to be applied to
-------------------------------------
the Obligations, whether such monies represent voluntary payments by any
Borrower or any Guarantor or are received pursuant to demand for payment or
realized from any disposition of Collateral, shall be allocated among Agent and
such of the Lenders as are entitled thereto (and, with respect to monies
allocated to Lenders, on a Pro Rata basis unless otherwise provided herein): (i)
first, to Agent to pay principal and accrued interest on any portion of the
Revolver Loans which Agent may have advanced on behalf of any Lender in
accordance with the terms of this Agreement and for which Agent has not been
reimbursed by such Lender or Borrowers; (ii) second, to Fleet to pay the
principal and accrued interest on any portion of the Settlement Loans
outstanding, to be shared with Lenders that have acquired a participating
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<PAGE>
interest in such Settlement Loans; (iii) third, to Fleet to pay the principal
amount of and any accrued interest on any payment made by Fleet under a LC
Guaranty to the extent that Fleet has not been reimbursed in full and has not
received from each Participating Lender a participation payment as required by
Section 1.2.2 hereof; (iv) fourth, to Agent and Fleet to pay the amount of
Extraordinary Expenses that have not been reimbursed to Agent or Fleet by
Borrowers or Lenders, together with interest accrued thereon at the rate
applicable to Revolver Loans that are Base Rate Loans; (v) fifth, to Agent to
pay any Indemnified Amount that has not been paid to Agent by Borrowers or
Lenders, together with interest accrued thereon at the rate applicable to
Revolver Loans that are Base Rate Loans; (vi) sixth, to Agent to pay any fees
due and payable to Agent, to the extent that Lenders have not been reimbursed by
Borrowers therefor; (vii) seventh, to Lenders for any Indemnified Amount that
they have paid to Agent and any Extraordinary Expenses that they have reimbursed
to Agent; (viii) eighth, to the Participating Lenders to pay principal and
interest on their participations in the LC Obligations outstanding (or, to the
extent any of the LC Obligations are contingent and an Event of Default then
exists, deposited in the Cash Collateral Account to provide security for the
payment of the LC Obligations); and (ix) ninth, to Lenders in payment of the
unpaid principal and accrued interest in respect of the Loans and any other
Obligations then outstanding to be shared among Lenders on a Pro Rata basis, or
on such other basis as may be agreed upon in writing by Lenders (which agreement
or agreements may be entered into without notice to or the consent or approval
of Borrowers). The allocations set forth in this Section 4.6 are solely to
determine the rights and priorities of Agent and Lenders as among themselves and
may be changed by Agent and Lenders without notice to or the consent or approval
of Borrowers or any other Person.
4.7. Application of Payments and Collections. All Payment Items
---------------------------------------
received by Agent by 12:00 noon on any Business Day shall be deemed received on
that Business Day. All payments or other forms of payment received by Agent
after 12:00 noon on any Business Day shall be deemed received on the following
Business Day. Except to the extent that the manner of application to the
Obligations of payments or proceeds of Collateral is expressly governed by other
provisions of this Agreement, each Borrower irrevocably waives the right to
direct the application of any and all payments and collections at any time or
times hereafter received by Agent or any Lender from or on behalf of such
Borrower, and each Borrower does hereby irrevocably agree that Agent and Lenders
shall have the continuing exclusive right to apply and reapply any and all such
payments and collections received at any time or times hereafter by Agent,
Lenders or any of their agents against the Obligations, in such manner as Agent
and Lenders may deem advisable, notwithstanding any entry by Agent and Lenders
upon any of their books and records. If as the result of collections of Accounts
as authorized by Section 7.2.6 a credit balance exists, such credit balance
shall not accrue interest in favor of Borrowers, but shall be available to
Borrowers at any time or times for so long as no Default or Event of Default
exists.
4.8. Loan Accounts; the Register; Account Stated.
-------------------------------------------
4.8.1. Loan Accounts. Each Lender shall maintain in accordance
-------------
with its usual and customary practices an account or accounts (a "Loan Account")
evidencing the Debt of Borrowers to such Lender resulting from each Loan owing
to such Lender from time to time, including the amount of principal and interest
payable to such Lender from time to time hereunder and under each Note payable
to such Lender.
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<PAGE>
4.8.2. The Register. Agent shall maintain a register (the
------------
"Register") which shall include a master account and a subsidiary account for
each Lender and in which accounts (taken together) shall be recorded (i) the
date and amount of each Borrowing made hereunder, the Type of each Loan
comprising such Borrowing and any Interest Period applicable thereto, (ii) the
effective date and amount of each Assignment and Acceptance delivered to and
accepted by it and the parties thereto, (iii) the amount of any principal or
interest due and payable or to become due and payable from Borrowers to each
Lender hereunder or under the Notes, and (iv) the amount of any sum received by
Agent from Borrowers or any other Obligor and each Lender's share thereof. The
Register shall be available for inspection by Borrowers or any Lender at the
offices of Agent at any reasonable time and from time to time upon reasonable
prior notice.
4.8.3. Entries Binding. The entries made in the Register and
---------------
each Loan Account shall constitute rebuttably presumptive evidence of the
information contained therein; provided, however, that if a copy of information
-------- -------
contained in the Register or any Loan Account is provided to any Person, or any
Person inspects the Register or any Loan Account, at any time or from time to
time, then the information contained in the Register or the Loan Account, as
applicable shall be conclusive and binding on such Person for all purposes
absent manifest error, unless such Person notifies Agent in writing within 30
days after such Person's receipt of such copy or such Person's inspection of the
Register or Loan Account of its intention to dispute the information contained
therein.
4.9. Withholding Tax Exemption. At least 5 Business Days prior to the
-------------------------
first date on which interest or fees are payable hereunder for the account of
any Lender, each Lender that is not incorporated under the laws of the United
States or any state thereof agrees that it will deliver to Borrowers and Agent 2
duly completed copies of United States Internal Revenue Service Form 1001 or
4224, certifying in either case that such Lender is entitled to receive payment
under this Agreement and its Notes without deduction or withholding of any
United States federal income taxes. Each Lender which so delivers a Form 1001 or
4224 further undertakes to deliver to Borrowers and Agent 2 additional copies of
such form (or a successor form) on or before the date that such form expires
(currently, 3 successive calendar years for Form 1001 and one calendar year for
Form 4224) or becomes obsolete or after the occurrence of any event requiring a
change in the form so delivered by it, and such amendments thereto or extensions
or renewals thereof as may be reasonably requested by Borrowers or Agent, in
each case, certifying that such Lender is entitled to receive payments under
this Agreement and its Notes without deduction or withholding of any United
States federal income taxes, unless an event (including any change in treaty,
law or regulation) has occurred prior to the date on which any such delivery
would otherwise be required that renders all such forms inapplicable or that
would prevent such Lender from duly completing and delivering any such form with
respect to it and such Lender advises Borrowers and Agent that it is not capable
or receiving payments without any deduction or withholding of United States
federal income taxes.
4.10. Nature and Extent of Each Borrower's Liability.
----------------------------------------------
(i) Joint and Several Liability. Each Borrower shall be
---------------------------
liable for, on a joint and several basis, and hereby guarantees the timely
payment by the Borrowers of, all
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<PAGE>
of the Loans and other Obligations (except that ASB shall not be liable for any
Equipment Loans made by Lenders to GSS), regardless of which Borrower actually
may have received the proceeds of any Loans or other extensions of credit
hereunder or the amount of such Loans received or the manner in which Agent or
any Lender accounts for such Loans or other extensions of credit on its books
and records, it being acknowledged and agreed that Loans to either Borrower
inure to the mutual benefit of both Borrowers and that Agent and Lenders are
relying on the joint and several liability of Borrowers in extending the Loans
and other financial accommodations hereunder. Each Borrower hereby
unconditionally and irrevocably agrees that upon default in the payment when due
(whether at stated maturity, by acceleration or otherwise) of any principal of,
or interest owed on, any of the Loans or other Obligations, such Borrower shall
forthwith pay the same, without notice or demand. Notwithstanding anything
contained in this Section 4.10 to the contrary, ASB shall not be directly or
indirectly liable for any Equipment Loans made by Lenders to GSS.
(ii) Unconditional Nature of Liability. Each Borrower's joint
---------------------------------
and several liability hereunder with respect to, and guaranty of, the Loans and
other Obligations shall, to the fullest extent permitted by Applicable Law, be
unconditional irrespective of (i) the validity, enforceability, avoidance or
subordination of any of the Obligations or of any promissory note or other
document evidencing all or any part of the Obligations, (ii) the absence of any
attempt to collect any of the Obligations from any other Obligor or any
Collateral or other security therefor, or the absence of any other action to
enforce the same, (iii) the waiver, consent, extension, forbearance or granting
of any indulgence by Agent or any Lender with respect to any provision of any
instrument evidencing or securing the payment of any of the Obligations, or any
other agreement now or hereafter executed by the other Borrower and delivered to
Agent or any Lender, (iv) the failure by Agent to take any steps to perfect or
maintain the perfected status of its security interest in or Lien upon, or to
preserve its rights to, any of the Collateral or other security for the payment
or performance of any of the Obligations or Agent's release of any Collateral or
of its Liens upon any Collateral, (v) Agent's or any Lenders' election, in any
proceeding instituted under the Bankruptcy Code, for the application of Section
1111(b)(2) of the Bankruptcy Code, (vi) any Borrowing or grant of a security
interest by the other Borrower, as debtor-in-possession under Section 364 of the
Bankruptcy Code, (vii) the release or compromise, in whole or in part, of the
liability of any other Obligor for the payment of any of the Obligations, (ix)
any amendment or modification of any of the Loan Documents or waiver of any
Default or Event of Default thereunder, (x) any increase in the amount of the
Obligations beyond any limits imposed herein or in the amount of any interest,
fees or other charges payable in connection therewith, or any decrease in the
same, (xi) the disallowance of all or any portion of Agent's or any Lender's
claims for the repayment of any of the Obligations under Section 502 of the
Bankruptcy Code, or (viii) any other circumstance that might constitute a legal
or equitable discharge or defense of any Borrower. After the occurrence and
during the continuance of any Event of Default, Agent may proceed directly and
at once, without notice to any Obligor, against any or all of Obligors to
collect and recover all or any part of the Obligations, without first proceeding
against any other Obligor or against any Collateral or other security for the
payment or performance of any of the Obligations, and Borrowers waive any
provision that might otherwise require Agent under Applicable Law to pursue or
exhaust its remedies against any Collateral or Obligor before pursuing another
Obligor. Each Borrower consents and agrees that Agent shall be under no
obligation to marshall any assets in favor of any Obligor or against or in
payment of any or all of the Obligations.
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<PAGE>
(iii) No Reduction in Liability for Obligations. No payment
-----------------------------------------
or payments made by an Obligor or received or collected by Agent from a Borrower
or any other Person by virtue of any action or proceeding or any setoff or
appropriation or application at any time or from time to time in reduction of or
in payment of the Obligations shall be deemed to modify, reduce, release or
otherwise affect the liability of any Borrower under this Agreement, each of
whom shall remain jointly and severally liable for the payment and performance
of all Loans and other Obligations until the Obligations are paid in full and
this Agreement is terminated.
(iv) Contribution. Each Borrower is unconditionally obligated
------------
to repay the Obligations (except that ASB shall not be liable either directly or
indirectly for the payment of any Equipment Loans) as a joint and several
obligor under this Agreement. If, as of any date, the aggregate amount of
payments made by a Borrower on account of the Obligations and proceeds of such
Borrower's Collateral that are applied to the Obligations exceeds the aggregate
amount of Loan proceeds actually used by such Borrower in its business (such
excess amount being referred to as an "Accommodation Payment"), then the other
Borrower (such Borrower being referred to as a "Contributing Borrower") shall be
obligated to make contribution to such Borrower (the "Paying Borrower") in an
amount equal to (A) the product derived by multiplying the sum of each
Accommodation Payment of each Borrower by the Allocable Percentage of the
Borrower from whom contribution is sought less (B) the amount, if any, of the
----
then outstanding Accommodation Payment of such Contributing Borrower (such last
mentioned amount which is to be subtracted from the aforesaid product to be
increased by any amounts theretofore paid by such Contributing Borrower by way
of contribution hereunder, and to be decreased by any amounts theretofore
received by such Contributing Borrower by way of contribution hereunder);
provided, however, that a Paying Borrower's recovery of contribution hereunder
- -------- -------
from the other Borrower shall be limited to that amount paid by the Paying
Borrower in excess of its Allocable Percentage of all Accommodation Payments
then outstanding of all Borrowers. As used herein, the term "Allocable
Percentage" shall mean, on any date of determination thereof, a fraction the
denominator of which shall be equal to the number of Borrowers who are parties
to this Agreement on such date and the numerator of which shall be 1; provided,
--------
however, that such percentages shall be modified in the event that contribution
- -------
from a Borrower is not possible by reason of insolvency, bankruptcy or otherwise
by reducing such Borrower's Allocable Percentage equitably and by adjusting the
Allocable Percentage of the other Borrower proportionately so that the Allocable
Percentages of all Borrowers at all times equals 100%.
(v) Subordination. Each Borrower hereby subordinates any
-------------
claims, including any right of payment, subrogation, contribution and indemnity,
that it may have from or against any other Obligor, and any successor or assign
of any other Obligor, including any trustee, receiver or debtor-in-possession,
howsoever arising, due or owing or whether heretofore, now or hereafter
existing, to the payment in full of all of the Obligations.
SECTION 5. ORIGINAL TERM AND TERMINATION OF COMMITMENTS
5.1. Original Term of Commitments. Subject to each Lender's right to
----------------------------
cease making Loans to Borrowers when any Default exists or upon termination of
the Commitments as provided in Section 5.2 hereof, the Commitments shall be in
effect for a period of 3 years
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<PAGE>
from the date hereof, through November 13, 2000 (the "Original Term") and this
Agreement shall automatically renew itself for 1 year periods thereafter (each a
"Renewal Term"), unless terminated as provided in Section 5.2 hereof.
5.2. Termination.
-----------
5.2.1. Termination by Agent. Agent may (and upon the direction
--------------------
of the Required Lenders, shall) terminate the Commitments upon at least 90 days
prior written notice to any Borrower as of the last day of the Original Term or
any Renewal Term and without notice upon or after the occurrence of an Event of
Default. The Commitments shall automatically terminate as provided in Section
11.2 hereof.
5.2.2. Termination by Borrowers. Upon at least 30 days prior
------------------------
written notice to Agent, any Borrower may, at its option, terminate the
Commitments; provided, however, no such termination by any Borrower shall be
-------- -------
effective until Borrowers have satisfied all of the Obligations and executed in
favor of and delivered to Agent and each Lender a general release of all Claims
that Borrowers may have against Agent or any Lender. For purposes hereof, the
Obligations shall not be deemed to have been satisfied until all Obligations for
the payment of money have been paid to Agent in same day funds and all
Obligations that are at the time in question contingent (including all LC
Obligations that exist by virtue of an outstanding Letter of Credit) have been
fully cash collateralized in favor and to the satisfaction of Agent or Agent has
received as beneficiary a direct pay letter of credit in form and from an
issuing bank acceptable to Agent and providing for direct payment to Agent of
all such contingent Obligations at the time they become fixed (including
reimbursement of all sums paid by Agent under any LC Guaranty). Any notice of
termination given by Borrowers shall be irrevocable unless Agent otherwise
agrees in writing. Borrowers may elect to terminate the Commitments in their
entirety only. No section of this Agreement, Type of Loan available hereunder or
Commitment may be terminated by any Borrower singly.
5.2.3. Termination Charges. On the effective date of
-------------------
termination of the Commitments pursuant to Section 5.2.2, Borrowers shall be
jointly and severally obligated to pay to Agent, for the Pro Rata benefit of
Lenders (in addition to the then outstanding principal, accrued interest, fees
and other charges owing under the terms of this Agreement and any of the other
Loan Documents), as liquidated damages for the loss of the bargain and not as a
penalty, an amount equal to 3% of the Average Revolver Loan Balance from the
Closing Date to the effective date of termination if termination occurs during
the first Loan Year; 1% of the Average Revolver Loan Balance for the 12-month
period immediately preceding the effective date of termination if termination
occurs during the second Loan Year; and .5% of the Average Revolver Loan Balance
for the 12-month period immediately preceding the effective date of termination
if termination occurs during the third Loan Year. In no event shall any
termination charge be payable if the effective date of termination occurs on the
last day of the Original Term or in any Renewal Term.
5.2.4. Effect of Termination. On the effective date of
---------------------
termination by Agent or by Borrowers, all of the Obligations shall be
immediately due and payable and Lenders shall have no obligation to make any
Loans and Fleet shall have no obligation to join in execution of any LC
Application or issue any LC Guaranties to or for the direct or indirect benefit
of any or all Borrowers or any other Person. All undertakings, agreements,
covenants, warranties
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<PAGE>
and representations of each Borrower contained in the Loan Documents shall
survive any such termination and Agent shall retain its Liens in the Collateral
and all of its rights and remedies under the Loan Documents notwithstanding such
termination until Borrowers have satisfied the Obligations to Agent and Lenders,
in full, in the manner set forth in Section 5.2.2. Notwithstanding the payment
in full of the Obligations, Agent shall not be required to terminate its
security interests in any of the Collateral unless, with respect to any loss or
damage Agent may incur as a result of the dishonor or return of any Payment
Items applied to the Obligations, Agent shall have received either (i) a written
agreement, executed by Borrowers and any Person whose loans or other advances to
Borrowers are used in whole or in part to satisfy the Obligations, indemnifying
Agent and Lenders from any such loss or damage; or (ii) such monetary reserves
and Liens on the Collateral for such period of time as Agent, in its reasonable
discretion, may deem necessary to protect Agent and Lenders from any such loss
or damage. The provisions of Section 4.5 hereof and all obligations of Borrowers
to indemnify Agent and each Lender pursuant to this Agreement shall in all
events survive any termination of the Commitments.
SECTION 6. COLLATERAL SECURITY
6.1. Grant of Security Interest in Collateral. To secure the prompt
----------------------------------------
payment and performance of all of the Obligations (other than the Equipment
Loans), each Borrower hereby grants to Agent, for the benefit of itself as Agent
and for the Pro Rata benefit of Lenders, a continuing security interest in and
Lien upon all of the following Property and interests in Property of such
Borrower, whether now owned or existing or hereafter created, acquired or
arising and wheresoever located:
(i) All Accounts;
(ii) All Inventory;
(iii) All Instruments;
(iv) All Chattel Paper;
(v) All Documents;
(vi) All General Intangibles (other than
Intellectual Property);
(vii) All monies now or at any time or times
hereafter in the possession or under the control of Lender or
a bailee or Affiliate of Lender, including any Cash Collateral
in the Cash Collateral Account;
(viii) All accessions to, substitutions for and all
replacements, products and cash and non-cash proceeds of (i)
through (vii) above, including proceeds of and unearned
premiums with respect to insurance policies insuring any of
the Collateral; and
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<PAGE>
(ix) All books and records (including customer
lists, files, correspondence, tapes, computer programs, print-
outs, and other computer materials and records) of Borrowers
pertaining to any of (i) through (viii) above.
6.2. Other Collateral. In addition to the items of Property
----------------
referred to in Section 6.1 above, the Obligations shall also be secured by the
Cash Collateral to the extent provided herein and all of the other items of
Property from time to time described in any of the Security Documents as
security for any of the Obligations.
6.3. Lien Perfection; Further Assurances. Promptly after Agent's
-----------------------------------
request therefor, Borrowers shall execute and deliver to Agent such instruments,
assignments or documents as are necessary under the UCC or other Applicable Law
to perfect Agent's Lien in the Collateral, and shall take such other action as
may be requested by Agent to give effect to or carry out the intent and purposes
of this Agreement. Unless prohibited by Applicable Law, each Borrower hereby
authorizes Agent to execute and file any such financing statement on such
Borrower's behalf. The parties agree that a carbon, photographic or other
reproduction of this Agreement shall be sufficient as a financing statement and
may be filed in any appropriate office in lieu thereof.
6.4. Lien on Deposit Accounts. As additional security for the payment
------------------------
and performance of the Obligations, each Borrower hereby grants to Agent, for
the benefit of itself as Agent and for the Pro Rata benefit of Lenders, a
continuing security interest in and lien upon, and hereby collaterally assigns
to Agent, all of such Borrower's right, title and interest in and to any
deposits or other sums at any time credited to each such Deposit Account,
including any sums in any blocked account or any special lockbox account and in
the accounts in which sums are deposited and such blocked accounts and special
lockbox accounts. In connection with the foregoing, each Borrower hereby
authorizes and directs each such bank or other depository to pay or deliver to
Agent upon its written demand therefor made at any time upon the occurrence and
during the continuation of an Event of Default and without further notice to
such Borrower (such notice being hereby expressly waived), all balances in each
Deposit Account maintained by such Borrower with such depository for application
to the Obligations then outstanding, and the rights given Agent in this Section
shall be cumulative with and in addition to Agent's other rights and remedies in
regard to the foregoing Property as proceeds of Collateral. Each Borrower hereby
irrevocably appoints Agent as such Borrower's attorney-in-fact to collect any
and all such balances to the extent any such payment is not made to Agent by
such bank or other depository after demand thereon is made by Agent pursuant
hereto.
SECTION 7. COLLATERAL ADMINISTRATION
7.1. General Provisions.
7.1.1. Location of Collateral. All tangible items of
----------------------
Collateral, other than Inventory in transit, shall at all times be kept by
Borrowers at one or more of the business locations of Borrowers set forth in
Schedule 7.1.1 hereto and shall not be moved therefrom, without the prior
- --------------
written approval of Agent, except that prior to an Event of Default and
acceleration of the maturity of the Obligations in consequence thereof,
Borrowers may (i) make sales or other dispositions of any Collateral to the
extent authorized by Section 9.2.9 hereof,
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<PAGE>
(ii) may move Inventory or any record relating to any Collateral to a location
in the United States other than those shown on Schedule 7.1.1 hereto so long as
Borrowers have given Agent at least 30 Business Days' prior written notice of
such new location and prior to moving any Inventory to such location Borrowers
have executed and delivered to Agent UCC-1 financing statements and any other
appropriate documentation to perfect or continue the perfection of Agent's Liens
with respect to such Inventory and all proceeds thereof, and (iii) remove
Equipment in connection with dispositions of Equipment that are authorized by
subsection 7.4.2 hereof.
7.1.2. Insurance of Collateral; Insurance and Condemnation
---------------------------------------------------
Proceeds. Each Borrower shall maintain and pay for insurance upon all
- --------
Collateral, wherever located, covering casualty, hazard, public liability,
theft, malicious mischief, and such other risks in such amounts and with such
insurance companies as are reasonably satisfactory to Agent. All proceeds
payable under each such policy shall be payable to Agent for application to the
Obligations. Each Borrower shall deliver the originals or certified copies of
such policies to Agent with satisfactory lender's loss payable endorsements
reasonably satisfactory to Agent, naming Agent as sole loss payee, assignee or
additional insured, as appropriate. Each policy of insurance or endorsement
shall contain a clause requiring the insurer to give not less than 30 days prior
written notice to Agent in the event of cancellation of the policy for any
reason whatsoever and a clause specifying that the interest of Agent shall not
be impaired or invalidated by any act or neglect of any Borrower or the owner of
the Property or by the occupation of the premises for purposes more hazardous
than are permitted by said policy. If any Borrower fails to provide and pay for
such insurance, Agent may, at its option, but shall not be required to, procure
the same and charge each Borrower therefor. Each Borrower agrees to deliver to
Agent, promptly as rendered, true copies of all reports made in any reporting
forms to insurance companies. For so long as no Event of Default exists, each
Borrower shall have the right to settle, adjust and compromise any claim with
respect to any insurance maintained by each Borrower provided that all proceeds
thereof are applied in the manner specified in this Agreement, and Agent agrees
promptly to provide any necessary endorsement to any checks or drafts issued in
payment of any such claim. At any time that an Event of Default exists, only
Agent shall be authorized to settle, adjust and compromise such claims. Agent
shall have all rights and remedies with respect to such policies of insurance as
are provided for in this Agreement and the other Loan Documents.
7.1.3. Protection of Collateral. All expenses of protecting,
------------------------
storing, warehousing, insuring, handling, maintaining and shipping any
Collateral, all Taxes imposed under any Applicable Law on any of the Collateral
or in respect of the sale thereof, and all other payments required to be made by
Agent to any Person to realize upon any Collateral shall be borne and paid by
Borrowers. If Borrowers fail to pay promptly any portion thereof when due, Agent
may, at its option, but shall not be required to, pay the same and charge
Borrowers therefor. Agent shall not be liable or responsible in any way for the
safekeeping of any of the Collateral or for any loss or damage thereto (except
for reasonable care in the custody thereof while any Collateral is in Agent's
actual possession) or for any diminution in the value thereof, or for any act or
default of any warehouseman, carrier, forwarding agency, or other Person
whomsoever, but the same shall be at Borrowers' sole risk.
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7.1.4. Defense of Title to Collateral. Each Borrower shall at
------------------------------
all times defend its title to the Collateral and Agent's Liens therein against
all Persons and all claims and demands whatsoever.
7.2. Administration of Accounts.
--------------------------
7.2.1. Records and Schedules of Accounts. Each Borrower shall
---------------------------------
keep accurate and complete records of its Accounts and all payments and
collections thereon and shall submit to Agent on such periodic basis as Agent
shall request a sales and collections report for the preceding period, in form
satisfactory to Agent. On or before the 20th day of each month from and after
the date hereof, each Borrower shall deliver to Agent, in form acceptable to
Agent, a detailed aged trial balance of all Accounts existing as of the last day
of the preceding month, specifying the names, addresses, face value, dates of
invoices and due dates for each Account Debtor obligated on an Account so listed
("Schedule of Accounts"), and, upon Agent's request therefor, copies of proof of
delivery and the original copy of all documents, including repayment histories
and present status reports relating to the Accounts so scheduled and such other
matters and information relating to the status of then existing Accounts as
Agent shall reasonably request. In addition, if Accounts in an aggregate face
amount in excess of $100,000 cease to be Eligible Accounts in whole or in part,
Borrowers shall notify Agent of such occurrence promptly (and in any event
within 2 Business Days) after any Borrower's having obtained knowledge of such
occurrence and the Borrowing Base shall thereupon be adjusted to reflect such
occurrence. At the request of Agent made at any time, each Borrower shall
deliver to Agent copies of invoices or invoice registers related to all of its
Accounts.
7.2.2. Discounts, Allowances, Disputes. If any Borrower grants
-------------------------------
any discounts, allowances or credits that are not shown on the face of the
invoice for the Account involved, Borrowers shall report such discounts,
allowances or credits, as the case may be to Agent as part of the next required
aged trial balance of all accounts (the "Schedule of Accounts"). If any amounts
due and owing in excess of $100,000 are in dispute between any Borrower and any
Account Debtor, Borrowers shall provide Agent with written notice thereof at the
time of submission of the next Schedule of Accounts, explaining in detail the
reason for the dispute, all claims related thereto and the amount in
controversy. Upon and after the occurrence of an Event of Default, Agent shall
have the right to settle or adjust all disputes and claims directly with the
Account Debtor and to compromise the amount or extend the time for payment of
any Accounts comprising a part of the Collateral upon such terms and conditions
as Agent may deem advisable, and to charge the deficiencies, costs and expenses
thereof, including attorney's fees, to Borrowers.
7.2.3. Taxes. If an Account of any Borrower includes a charge
-----
for any Tax payable to any governmental taxing authority, Agent is authorized,
in its sole discretion, to pay the amount thereof to the proper taxing authority
for the account of such Borrower and to charge Borrowers therefor; provided,
--------
however, that neither Agent nor Lenders shall be liable for any Taxes that may
- -------
be due by any or all Borrowers.
7.2.4. Account Verification. Whether or not a Default or an
--------------------
Event of Default exists, Agent shall have the right at any time, in the name of
Agent, any designee of Agent or any Borrower to verify the validity, amount or
any other matter relating to any Accounts of any
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<PAGE>
Borrower by mail, telephone, telegraph or otherwise. Borrowers shall cooperate
fully with Agent in an effort to facilitate and promptly conclude any such
verification process.
7.2.5. Maintenance of Dominion Account; Collection of Accounts.
-------------------------------------------------------
Borrowers shall maintain a Dominion Account pursuant to a lockbox or other
arrangement acceptable to Agent and, in the case of such Dominion Account and
lockbox arrangement, with such bank as may be selected by Borrowers and be
acceptable to Agent. Borrowers shall issue to each such lockbox bank an
irrevocable letter of instruction directing such bank to deposit all payments or
other remittances received in the lockbox to the Dominion Account. Borrowers
shall enter into agreements, in form satisfactory to Agent, with each bank at
which a Dominion Account is maintained by which such bank shall immediately
transfer to the Payment Account all monies deposited to the Dominion Account.
All funds deposited in each Dominion Account shall be subject to Agent's Lien.
Borrowers shall obtain the agreement (in favor of and in form and content
satisfactory to Agent and Lenders) by each bank at which a Dominion Account is
maintained to waive any offset rights against the funds deposited into such
Dominion Account, except offset rights in respect of charges incurred in the
administration of such Dominion Account. Neither Agent nor Lenders assume any
responsibility to any or all Borrowers for such lockbox arrangement or Dominion
Account, including any claim of accord and satisfaction or release with respect
to deposits accepted by any bank thereunder.
7.2.6. Collection of Accounts and Proceeds of Collateral. To
-------------------------------------------------
expedite collection, Borrowers shall endeavor in the first instance to make
collection of their Accounts for Agent and Lenders. All Payment Items received
by any Borrower in respect of its Accounts, together with the proceeds of any
other Collateral, shall be held by such Borrower as trustee of an express trust
for Agent's benefit and shall immediately deposit same in kind the its Dominion
Account. Agent retains the right at all times after the occurrence of a Default
or an Event of Default to notify Account Debtors of each Borrower that Accounts
have been assigned to Agent and to collect Accounts directly in its own name and
to charge to Borrowers the collection costs and expenses, incurred by Agent or
Lenders, including reasonable attorneys' fees.
7.3. Administration of Inventory.
---------------------------
7.3.1. Records and Reports of Inventory. Each Borrower shall
--------------------------------
keep accurate and complete records of its Inventory and shall furnish Agent and
Lenders inventory reports respecting such Inventory in form and detail
satisfactory to Agent and Lenders at such times as Agent and Lenders may
request, but prior to the occurrence of a Default or Event of Default, no more
frequently than once each week. Borrowers shall conduct a physical inventory of
each Borrower's inventory no less frequently than annually and shall provide to
Agent and Lenders a report based on each such physical inventory promptly
thereafter, together with such supporting information as Agent shall request.
7.3.2. Returns of Inventory. No Borrower shall return any of
--------------------
its Inventory to a supplier or vendor thereof, or any other Person, whether for
cash, credit against future purchases or then existing payables, or otherwise,
unless (i) such return is in the ordinary course of business of such Borrower
and such Person; (ii) no Default or Event of Default exists or would result
therefrom; (iii) the return of such Inventory will not result in an
Out-of-Formula Condition; (iv) Borrowers promptly notifies Agent thereof if the
aggregate Value of all
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<PAGE>
Inventory returned in any month exceeds $250,000; and (v) any payments received
by any Borrower in connection with any such return as promptly turned over to
Agent for application to the Obligations.
7.4. Reserved.
--------
7.5. Payment of Charges. All amounts chargeable to Borrowers under this
------------------
Section 7 hereof shall be Obligations secured by all of the Collateral, shall be
payable on demand.
SECTION 8. REPRESENTATIONS AND WARRANTIES
8.1. General Representations and Warranties. To induce Agent and
--------------------------------------
Lenders to enter into this Agreement and to make available the Commitments, each
Borrower warrants and represents to Agent and Lenders that:
8.1.1. Organization and Qualification. Each Borrower and each
------------------------------
of its Subsidiaries is a corporation duly incorporated, validly existing and in
good standing under the laws of the jurisdiction of its incorporation. Each
Borrower and each of its Subsidiaries is duly qualified and is authorized to do
business and is in good standing as a foreign corporation in each state or
jurisdiction listed on Schedule 8.1.1 hereto and in all other states and
--------------
jurisdictions in which the failure of any such Borrower or any of such
Subsidiaries to be so qualified would have a Material Adverse Effect.
8.1.2. Corporate Power and Authority. Each Borrower and each of
-----------------------------
its Subsidiaries is duly authorized and empowered to enter into, execute,
deliver and perform this Agreement and each of the other Loan Documents to which
it is a party. The execution, delivery and performance of this Agreement and
each of the other Loan Documents have been duly authorized by all necessary
corporate action and do not and will not (i) require any consent or approval of
the shareholders of any Borrower or any of its Subsidiaries; (ii) contravene the
charter, articles or certificate of incorporation or by-laws of any Borrower or
any of its Subsidiaries; (iii) violate, or cause any Borrower or any of its
Subsidiaries to be in default under, any provision of any Applicable Law, order,
writ, judgment, injunction, decree, determination or award in effect having
applicability to such Borrower or any such Subsidiary; (iv) result in a breach
of or constitute a default under any indenture or loan or credit agreement or
any other agreement, lease or instrument to which any Borrower or any of its
Subsidiaries is a party or by which it or its Properties may be bound or
affected; or (v) result in, or require, the creation or imposition of any Lien
(other than Permitted Liens) upon or with respect to any of the Properties now
owned or hereafter acquired by any Borrower or any of its Subsidiary.
8.1.3. Legally Enforceable Agreement. This Agreement is, and
-----------------------------
each of the other Loan Documents when delivered under this Agreement will be, a
legal, valid and binding obligation of each Borrower and each of its
Subsidiaries signatories thereto enforceable against them in accordance with the
respective terms of such Loan Documents, except as the enforceability thereof
may be limited by bankruptcy, insolvency or other similar laws of general
application affecting the enforcement of creditors' rights.
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<PAGE>
8.1.4. Capital Structure. As of the date hereof, Schedule 8.1.4
----------------- --------------
hereto states (i) the correct name of each Subsidiary, its jurisdiction of
incorporation and the percentage of its Voting Stock owned by each Person, (ii)
the name of each corporate Affiliate of each Borrower and the nature of the
affiliation and (iii) the number of authorized and issued Equity Interests (and
treasury shares) of each Borrower and each of its Subsidiaries. Each Borrower
has good title to all of the shares it purports to own of the Equity Interests
of each of its Subsidiaries, free and clear in each case of any Lien other than
Permitted Liens. All such Equity Interests have been duly issued and are fully
paid and non-assessable.
8.1.5. Corporate Names. During the 5-year period preceding the
---------------
date of this Agreement, no Borrower nor any of its Subsidiaries has been known
as or used any corporate, fictitious or trade names except those listed on
Schedule 8.1.5 hereto. Except as set forth on Schedule 8.1.5, no Borrower nor
- -------------- --------------
any of its Subsidiaries has been the surviving corporation of a merger or
consolidation or acquired all or substantially all of the assets of any Person.
8.1.6. Business Locations; Agent for Process. As of the date
-------------------------------------
hereof, the chief executive office and other places of business of each Borrower
and each of its Subsidiaries are as listed on Schedule 7.1.1 hereto. During the
--------------
5-year period preceding the date of this Agreement, no Borrower nor any of its
Subsidiaries has had an office, place of business or agent for service of
process other than as listed on Schedule 7.1.1. Except as shown on Schedule
-------------- --------
7.1.1 on the date hereof, no Inventory of any Borrower or any Subsidiary is
- -----
stored with a bailee, warehouseman or similar Person, nor is any Inventory
consigned to any Person.
8.1.7. Title to Properties; Priority of Liens. Each Borrower
--------------------------------------
and each of its Subsidiaries has good and marketable title to and fee simple
ownership of, or valid and subsisting leasehold interests in, all of its real
Property, and good title to all of its personal Property, in each case free and
clear of all Liens except Permitted Liens. Each Borrower has paid or discharged,
and has caused each of its Subsidiaries to pay and discharge, all lawful claims
which, if unpaid, might become a Lien against any Properties of such Borrower or
such Subsidiary that is not a Permitted Lien. The Liens granted to Agent under
Section 6 hereof are first priority Liens, subject only to those Permitted Liens
which are expressly permitted by the terms of this Agreement to have priority
over the Liens of Agent.
8.1.8. Accounts. Agent may rely, in determining which Accounts
--------
are Eligible Accounts, on all statements and representations made by a Borrower
with respect to any Account. Unless otherwise indicated in writing to Agent,
with respect to each Account, Borrowers warrant that:
(i) It is genuine and in all respects what it purports to
be, and it is not evidenced by a judgment;
(ii) It arises out of a completed, bona fide sale and
delivery of goods by a Borrower in the ordinary course of its
business and substantially in accordance with the terms and
conditions of all purchase orders, contracts or other documents
relating thereto and forming a part of the contract between a
Borrower and the Account Debtor;
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<PAGE>
(iii) It is for a liquidated amount maturing as stated in
the duplicate invoice covering such sale or rendition of
services, a copy of which has been furnished or is available to
Agent on request;
(iv) Such Account, and Agent's security interest therein,
is not, and will not (by voluntary act or omission of a
Borrower) be in the future, subject to any offset, Lien,
deduction, defense, dispute, counterclaim or any other adverse
condition except for disputes resulting in returned goods where
the amount in controversy is deemed by Agent to be immaterial,
and each such Account is absolutely owing to a Borrower and is
not contingent in any respect or for any reason;
(v) The contract under which such Account arose does not
condition or restrict a Borrower's right to assign to Agent the
right to payment thereunder unless such Borrower has obtained
the Account Debtor's consent to such collateral assignment or
complied with any conditions to such assignment (regardless of
whether under the UCC or other Applicable Law any such
restrictions are ineffective to prevent the grant of a Lien
upon such Account in favor of Agent);
(vi) Such Borrower has not made any agreement with any
Account Debtor thereunder for any extension, compromise,
settlement or modification of any such Account or any deduction
therefrom, except discounts or allowances which are granted by
a Borrower in the ordinary course of its business for prompt
payment and which are reflected in the calculation of the net
amount of each respective invoice related thereto and are
reflected in the Schedules of Accounts submitted to Agent
pursuant to Section 7.2.1 hereof;
(vii) To the best of such Borrower's knowledge, there
are no facts, events or occurrences which are reasonably likely
to impair the validity or enforceability of any of its Accounts
or reduce the amount payable thereunder from the face amount of
the invoice and statements delivered to Agent with respect
thereto;
(viii) To the best of such Borrower's knowledge, the
Account Debtor thereunder (1) had the capacity to contract at
the time any contract or other document giving rise to the
Account was executed and (2) such Account Debtor is Solvent;
and
(ix) To the best of such Borrower's knowledge, there
are no proceedings or actions which are threatened or pending
against any Account Debtor thereunder and which are reasonably
likely to result in any material adverse change in such
Account Debtor's financial condition or the collectibility of
such Account.
8.1.9. Financial Statements; Fiscal Year. The Consolidated and
---------------------------------
consolidating balance sheets of Borrowers and such other Persons described
therein (including the accounts of all Subsidiaries of Borrowers for the
respective periods during which a Subsidiary
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<PAGE>
relationship existed) as of September 30, 1997, and the related statements of
income, changes in stockholder's equity, and changes in financial position for
the periods ended on such dates, have been prepared in accordance with GAAP, and
present fairly the financial positions of Borrowers and such Persons at such
dates and the results of Borrowers' operations for such periods. Since September
30, 1997, there has been no material change in the condition, financial or
otherwise, of any Borrower and such other Persons as shown on the Consolidated
balance sheet as of such date and no material change in the aggregate value of
Equipment and real Property owned by any Borrower or such other Persons.
8.1.10. Full Disclosure. The financial statements referred to in
---------------
Section 8.1.9 hereof do not contain any untrue statement of a material fact and
neither this Agreement nor any other written statement contains or omits any
material fact necessary to make the statements contained herein or therein not
materially misleading. There is no fact or circumstances in existence on the
date hereof which any Borrower has failed to disclose to Agent in writing that
may reasonably be expected to have a Material Adverse Effect.
8.1.11. Solvent Financial Condition. Each Borrower and each of
---------------------------
its Subsidiaries is now Solvent and, after giving effect to the Loans to be made
hereunder, the Letters of Credit to be issued in connection therewith and the
consummation of the other transactions described in the Loan Documents, each
Borrower and each of its Subsidiaries will be Solvent.
8.1.12. Surety Obligations. Except as set forth on Schedule
------------------ --------
8.1.12 hereto on the date hereof, no Borrower nor any of its Subsidiaries is
- ------
obligated as surety or indemnitor under any surety or similar bond or other
contract issued or entered into any agreement to assure payment, performance or
completion of performance of any undertaking or obligation of any Person.
8.1.13. Taxes. The federal tax identification number of each
-----
Borrower and each of its Subsidiaries is as shown on Schedule 8.1.13 hereto.
---------------
Each Borrower and each of its Subsidiaries has filed all federal, state and
local tax returns and other reports it is required by law to file and has paid,
or made provision for the payment of, all Taxes upon it, its income and
Properties as and when such Taxes are due and payable, except to the extent
being Properly Contested. The provision for Taxes on the books of each Borrower
and each of its Subsidiaries are adequate for all years not closed by applicable
statutes, and for its current Fiscal Year.
8.1.14. Brokers. There are no claims for brokerage commissions,
-------
finder's fees or investment banking fees in connection with the transactions
contemplated by this Agreement or any of the other Loan Documents.
8.1.15. Patents, Trademarks, Copyrights and Licenses. Each
--------------------------------------------
Borrower and each of its Subsidiaries each owns or possesses all Intellectual
Property necessary for the present and planned future conduct of its business
without any conflict with the rights of others; there is no objection to or
pending Intellectual Property Claim with respect to any Borrower's right to use
any such Intellectual Property and no Borrower is aware of any grounds for
challenge or objection thereto; and, except as may be disclosed on Schedule
--------
8.1.15, no Borrower pays any royalty or other compensation to any Person for the
- ------
right to use
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<PAGE>
any Intellectual Property. All such patents, trademarks, service marks,
tradenames, copyrights, licenses and other similar rights are listed on
Schedule 8.1.15 hereto.
- ---------------
8.1.16. Governmental Approvals. Each Borrower and each of its
----------------------
Subsidiaries has, and is in good standing with respect to, all Governmental
Approvals necessary to continue to conduct its business as heretofore or
proposed to be conducted by it and to own or lease and operate its Properties as
now owned or leased by it.
8.1.17. Compliance with Laws. Each Borrower and each of its
--------------------
Subsidiaries has duly complied with, and its Properties, business operations and
leaseholds are in compliance in all material respects with, the provisions of
all Applicable Law (except to the extent that any such noncompliance with
Applicable Law would not reasonably be expected to have a Material Adverse
Effect) and there have been no citations, notices or orders of noncompliance
issued to any Borrower or any of its Subsidiaries under any such law, rule or
regulation. No Inventory has been produced in violation of the Fair Labor
Standards Act (29 U.S.C. 201 et seq.). With respect to matters arising under any
-- ---
Environmental Laws, the representations and warranties contained in the
Environmental Certificate are true and correct on the date hereof.
8.1.18. Restrictions. No Borrower nor any of its Subsidiaries is
------------
a party or subject to any contract, agreement, or charter or other corporate
restriction, which has or could be reasonably expected to have a Material
Adverse Effect. Except as set forth on Schedule 8.1.18 hereto, no Borrower nor
---------------
any of its Subsidiaries is a party or subject to any contract or agreement
(other than this Agreement) which restricts its right or ability to incur Debt,
none of which prohibit the execution of or compliance with this Agreement or the
other Loan Documents by any Borrower or any of its Subsidiaries, as applicable.
8.1.19. Litigation. Except as set forth on Schedule 8.1.19
---------- ---------------
hereto, there are no actions, suits, proceedings or investigations pending on
the date hereof, or to the knowledge of any Borrower, threatened on the date
hereof, against or affecting any Borrower or any of its Subsidiaries, or the
business, operations, Properties, prospects, profits or condition of any
Borrower or any of its Subsidiaries, which, if determined adversely to any
Borrower or any of its Subsidiaries, would have a Material Adverse Effect. To
the knowledge of any Borrower, no Borrower nor any of its Subsidiaries is in
default on the date hereof with respect to any order, writ, injunction,
judgment, decree or rule of any court, governmental authority or arbitration
board or tribunal.
8.1.20. No Defaults. No Default or Event of Default exists at
-----------
the time, or would result from the funding, of any Loan or other extension of
credit. Except for the default by GSS under the Indenture arising from ASB's
leasing of certain Equipment from Regions Banks, as assignee of Taylor Machine
Works, Inc., which default shall be cured by Borrowers within thirty (30) days
after the date hereof, no Borrower nor any of its Subsidiaries is in default,
and no event has occurred and no condition exists which constitutes or which
with the passage of time or the giving of notice or both would constitute a
default, under any Material Contract or in the payment of any Debt of any
Borrower or any of its Subsidiaries to any Person for Money Borrowed.
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<PAGE>
8.1.21. Leases. Schedule 8.1.21 hereto is a complete listing of
------ ---------------
all material capitalized and operating leases of each Borrower and each of its
Subsidiaries on the date hereof. Each Borrower and each of its Subsidiaries is
in substantial compliance with all of the terms of each of its respective
capitalized and operating leases and there is no basis upon which the lessors
under any such leases could terminate same or declare such Borrower or any of
its Subsidiaries in default thereunder.
8.1.22. Pension Plans. Except as disclosed on Schedule 8.1.22
------------- ---------------
hereto, no Borrower nor any of its Subsidiaries has any Plan on the date hereof.
Each Borrower and each of its Subsidiaries is in full substantial compliance
with the requirements of ERISA and the regulations promulgated thereunder with
respect to each Plan. No fact or situation that is reasonably likely to result
in a material adverse change in the financial condition of any Borrower or any
of its Subsidiaries exists in connection with any Plan. No Borrower nor any of
its Subsidiaries has any withdrawal liability in connection with a Multiemployer
Plan.
8.1.23. Trade Relations. There exists no actual or threatened
---------------
termination, cancellation or limitation of, or any materially adverse
modification or change in, the business relationship between any Borrower and
any customer or any group of customers whose purchases individually or in the
aggregate are material to the business of such Borrower, or with any material
supplier or group of suppliers, and there exists no condition or state of facts
or circumstances which is reasonably likely to have a Material Adverse Effect or
prevent any Borrower from conducting such business after the consummation of the
transaction contemplated by this Agreement in substantially the same manner in
which it has heretofore been conducted.
8.1.24. Labor Relations. Except as described on Schedule 8.1.24
--------------- ---------------
hereto, no Borrower nor any of its Subsidiaries is a party to any collective
bargaining agreement on the date hereof. On the date hereof, there are no
material grievances, disputes or controversies with any union or any other
organization of any Borrower's or any of its Subsidiaries' employees, or, to any
Borrower's knowledge, any threats of strikes, work stoppages or any asserted
pending demands for collective bargaining by any union or organization.
8.1.25. Investment Company Act; Public Utility Holding Company
------------------------------------------------------
Act. No Obligor is an "investment company" or a "person directly or indirectly
- ---
controlled by or acting on behalf of an investment company" within the meaning
of the Investment Company Act of 1940, or a "holding company," or a "subsidiary
company" of a "holding company," or an "affiliate" of a "holding company" or of
a "subsidiary company" of a "holding company," within the meaning of the Public
Utility Holding Company Act of 1935.
8.1.26. Margin Stock. No Borrower nor any of its Subsidiaries is
------------
engaged, principally or as one of its important activities, in the business of
extending credit for the purpose of purchasing or carrying any Margin Stock.
8.2. Reaffirmation of Representations and Warranties. Each
-----------------------------------------------
representation and warranty contained in this Agreement and the other Loan
Documents shall be deemed to be reaffirmed by each Borrower upon each delivery
of a Notice of Borrowing to Agent in accordance with Section 3.1 of this
Agreement, except for changes in the nature of a
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<PAGE>
Borrower's or, if applicable, any of its Subsidiaries' business or operations
that may occur after the date hereof in the ordinary course of business so long
as Agent has consented to such changes or such changes are not violative of any
provision of this Agreement. Notwithstanding the foregoing, representations and
warranties which by their terms are applicable only to a specific date shall be
deemed made only at and as of such date.
8.3. Survival of Representations and Warranties. All representations
------------------------------------------
and warranties of Borrowers contained in this Agreement or any of the other Loan
Documents shall survive the execution, delivery and acceptance thereof by Agent,
Lenders and the parties thereto and the closing of the transactions described
therein or related thereto.
SECTION 9. COVENANTS AND CONTINUING AGREEMENTS
9.1. Affirmative Covenants. For so long as there are any Commitments
---------------------
outstanding and thereafter until payment in full of the Obligations, each
Borrower covenants that, unless otherwise consented to by the Required Lenders
in writing, it shall and shall cause each of its Subsidiaries to:
9.1.1. Visits and Inspections. Permit representatives of Agent
----------------------
or any Lender, from time to time, as often as may be reasonably requested, but
only during normal business hours and (except when a Default or Event of Default
exists) upon reasonable prior notice, to visit and inspect the Properties of
each Borrower and each of its Subsidiaries, inspect, audit and make extracts
from its books and records, and discuss with its officers, employees and
independent accountants, such Borrower's and each Subsidiary's business,
financial condition, business prospects and results of operations.
9.1.2. Notices. Notify Agent and Lenders in writing, promptly
-------
after such Borrower's obtaining knowledge thereof, (i) of the commencement of
any litigation affecting any Obligor or any of its Properties, whether or not
the claims asserted in such litigation are considered by Borrowers to be covered
by insurance, and of the institution of any administrative proceeding, to the
extent that such litigation or proceeding, if determined adversely to such
Obligor, would reasonably be expected to have a Material Adverse Effect; (ii) of
any material labor dispute to which any Obligor may become a party, any strikes
or walkouts relating to any of its plants or other facilities, and the
expiration of any labor contract to which it is a party or by which it is bound;
(iii) of any material default by any Obligor under or termination of any
Material Contract or any note, indenture, loan agreement, mortgage, lease, deed,
guaranty or other similar agreement relating to any Debt of such Obligor
exceeding $500,000; (iv) of any Default or Event of Default; (v) of any default
by any Person under any note or other evidence of Debt payable to an Obligor in
an amount exceeding $1,000,000; (vi) of any judgment against any Obligor in an
amount exceeding $1,000,000; (vii) of the assertion by any Person of any
Intellectual Property Claim, the adverse resolution of which would reasonably be
expected to have a Material Adverse Effect; (viii) of any violation or asserted
violation of ERISA or any Environmental Law, the adverse resolution of which
would reasonably be expected to have a Material Adverse Effect; and (ix) of any
Environmental Release by an Obligor or on any Property owned or occupied by an
Obligor.
9.1.3. Financial Statements. Keep adequate records and books of
--------------------
account with respect to its business activities in which proper entries are made
in accordance with GAAP
-40-
<PAGE>
reflecting all its financial transactions; and cause to be prepared and to be
furnished to Agent and Lenders the following (all to be prepared in accordance
with GAAP applied on a consistent basis, unless Borrowers' certified public
accountants concur in any change therein, such change is disclosed to Agent and
is consistent with GAAP and, if required by the Required Lenders, the financial
covenant set forth in Section 9.3 is amended in a manner requested by the
Required Lenders to take into account the effects of such change):
(i) as soon as available, and in any event within 100
days after the close of each Fiscal Year, unqualified audited
financial statements of Borrowers and their Subsidiaries as of
the end of such Fiscal Year, on a Consolidated and
consolidating basis, certified without material qualification
by a firm of independent certified public accountants of
recognized national standing selected by Borrowers but
reasonably acceptable to Agent (except for a qualification for
a change in accounting principles with which the accountant
concurs), and setting forth in each case in comparative form
the corresponding Consolidated and consolidating figures for
the preceding Fiscal Year;
(ii) as soon as available, and in any event within 30
days after the end of each month hereafter (or 50 days after
the end of each month that is the end of a Fiscal Quarter),
including the last month of Borrowers' Fiscal Year, unaudited
interim financial statements of Borrowers and their
Subsidiaries as of the end of such month and of the portion of
Borrowers' fiscal year then elapsed, on a Consolidated and
consolidating basis, certified by the principal financial
officer of Borrowers as prepared in accordance with GAAP and
fairly presenting the Consolidated financial position and
results of operations of Borrowers and their Subsidiaries for
such month and period subject only to changes from audit and
year-end adjustments and except that such statements need not
contain notes;
(iii) promptly after the sending or filing thereof, as
the case may be, copies of any 10Qs, 10Ks or any proxy
statements, financial statements or reports which any Borrower
has made generally available to its shareholders and copies of
any regular, periodic and special reports or registration
statements which any Borrower files with the Securities and
Exchange Commission or any governmental authority which may be
substituted therefor, or any national securities exchange;
(iv) promptly after the filing thereof, copies of any
annual report to be filed in accordance with ERISA in
connection with each Plan; and
(v) such other data and information (financial and
otherwise) as Agent, from time to time, may reasonably
request, bearing upon or related to the Collateral or any
Borrower's and any of its Subsidiaries' financial condition or
results of operations.
Concurrently with the delivery of the financial statements
described in clause (i) of this Section 9.1.3, Borrowers shall deliver to Agent
and Lenders a copy of the accountants' letter to Borrowers' management that is
prepared in connection with such
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<PAGE>
financial statements and also shall cause to be prepared and shall deliver to
Agent and Lenders a certificate of the aforesaid certified public accountants
stating to Agent and Lenders that, based upon such accountants' audit of the
Consolidated financial statements of Borrowers and their Subsidiaries performed
in connection with their examination of said financial statements, nothing came
to their attention that caused them to believe that Borrowers were not in
compliance with Sections 9.2.2, 9.2.3, 9.2.4, 9.2.7 or 9.3 hereof, or, if they
are aware of such noncompliance, specifying the nature thereof, and
acknowledging, in a manner satisfactory to Agent, that they are aware that Agent
and Lenders are relying on such financial statements in making their decisions
with respect to the Loans. Concurrently with the delivery of the financial
statements described in clauses (i) and (ii) of this Section 9.1.3, or more
frequently if requested by any Lender during any period that a Default or Event
of Default exists, Borrowers shall cause to be prepared and furnished to Agent
and Lenders a Compliance Certificate in the form of Exhibit E hereto executed by
---------
the chief financial officer of Borrowers.
9.1.4. Landlord and Storage Agreements. Provide Agent with
-------------------------------
copies of all existing agreements, and promptly after execution thereof provide
Agent with copies of all future agreements, between any Borrower and any
landlord or warehouseman which owns any premises at which any Collateral may,
from time to time, be kept.
9.1.5. Projections. No later than 30 days prior to the end of
-----------
each Fiscal Year of Borrowers, deliver to Agent and Lenders the Projections of
Borrowers for the forthcoming Fiscal Year, month by month.
9.1.6. Taxes. Pay and discharge all Taxes prior to the date on
-----
which such Taxes become delinquent or penalties attach thereto, except and to
the extent only that such Taxes are being Properly Contested.
9.1.7. Compliance with Laws. Comply with all Applicable Law,
--------------------
including ERISA, all Environmental Laws and all laws, statutes, regulations and
ordinances regarding the collection, payment and deposit of Taxes, and obtain
and keep in force any and all Governmental Approvals necessary to the ownership
of its Properties or to the conduct of its business, to the extent that any such
failure to comply, obtain or keep in force would be reasonably likely to have a
Material Adverse Effect. Without limiting the generality of the foregoing, if
any Environmental Release shall occur at or on any of the Properties of any
Borrower or any of its Subsidiaries, Borrowers shall, or shall cause the
applicable Subsidiary to, act immediately to investigate the extent of, and to
make appropriate remedial action to eliminate, such Environmental Release,
whether or not ordered or otherwise directed to do so by any governmental
authority.
9.1.8. Insurance. In addition to the insurance required herein
---------
with respect to the Collateral, maintain and cause each of its Subsidiaries to
maintain, with financially sound and reputable insurers, insurance with respect
to its Properties and business against such casualties and contingencies of such
type (including product liability, business interruption, larceny, embezzlement,
or other criminal misappropriation insurance) and in such amounts as is
customary in the business of such Borrower or such Subsidiary.
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<PAGE>
9.2. Negative Covenants. For so long as there are any Commitments
------------------
outstanding and thereafter until payment in full of the Obligations, each
Borrower covenants that, unless the Required Lenders have first consented
thereto in writing, it shall not and shall not permit any of its Subsidiaries
to:
9.2.1. Fundamental Changes. Enter into any transaction to
-------------------
merge, reorganize, consolidate or amalgamate with any Person, or liquidate, wind
up or dissolve itself, except for mergers or consolidations of any Subsidiary
with another Subsidiary.
9.2.2. Loans. Make any loans or other advances of money to any
-----
Person other than to an officer or employee of a Borrower or a Subsidiary for
salary, travel advances, advances against commissions and other similar advances
in the ordinary course of business.
9.2.3. Total Debt. Create, incur, assume, guarantee or suffer
----------
to exist any Debt, except:
(i) the Obligations;
(ii) Subordinated Debt existing on the
Closing Date;
(iii) accounts payable by such Borrower or
any of its Subsidiaries to trade creditors and current
operating expenses (other than for Money Borrowed) which are
not aged more than 90 days from billing date or more than 60
days from the due date, in each case incurred in the ordinary
course of business and paid within such time period, unless
the same are being Properly Contested;
(iv) obligations to pay Rentals permitted by
Section 9.2.13;
(v) Permitted Purchase Money Debt;
(vi) Debt for Money Borrowed by such
Borrower, but only to the extent that such Debt is outstanding
on the date of this Agreement and is not to be satisfied on or
about the Closing Date from the proceeds of the initial Loans,
together with any extension, renewals or refinancings of such
Debt provided that the principal amount of such Debt is not
increased;
(vii) contingent liabilities arising out of
endorsements of checks and other negotiable instruments for
deposit or collection in the ordinary course of business;
(viii) the Long-Term Notes;
(ix) Debt referenced on Schedule 9.2.4
hereof; and
(x) Debt not included in paragraphs (i)
through (ix) above which is not secured by a Lien (unless such
Lien is a Permitted Lien) and does
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<PAGE>
not exceed at any time, in the aggregate, the sum of $5,000,000
as to all Borrowers and all of their Subsidiaries.
9.2.4. Affiliate Transactions. Enter into, or be a party to any
----------------------
transaction with any Affiliate or stockholder, except (i) the transactions
contemplated by the Loan Documents; (ii) payment of customary directors' fees
and indemnities; (iii) these transactions with Affiliates that are set forth on
Schedule 9.2.4 hereto; and (iv) in the ordinary course of and pursuant to the
- --------------
reasonable requirements of such Borrower's or such Subsidiary's business and
upon fair and reasonable terms which are fully disclosed to Agent and are no
less favorable to such Borrower or such Subsidiary than would obtain in a
comparable arm's length transaction with a Person not an Affiliate or
stockholder of such Borrower or such Subsidiary.
9.2.5. Limitation on Liens. Create or suffer to exist any Lien
-------------------
upon any of its Property, income or profits, whether now owned or hereafter
acquired, except:
(i) Liens at any time granted in favor of Agent;
(ii) Liens for Taxes (excluding any Lien imposed
pursuant to any of the provisions of ERISA) not yet due or
being Properly Contested;
(iii) Liens arising in the ordinary course of such
Borrower's or any of its Subsidiaries' business by operation of
law, but only if payment in respect of any such Lien is not at
the time required or the Debt secured by any such Lien is being
Properly Contested and such Liens do not materially detract
from the value of the Property of such Borrower or such
Subsidiary and do not materially impair the use thereof in the
operation of such Borrower's or such Subsidiary's business;
(iv) Purchase Money Liens securing Permitted
Purchase Money Debt;
(v) Liens arising by virtue of the rendition,
entry or issuance against such Borrower or any of its
Subsidiaries, or any Property of such Borrower or any of its
Subsidiaries, of any judgment, writ, order, or decree for so
long as any such Lien is in existence for less than 20
consecutive days after it first arises and is being Properly
Contested and is at all times junior in priority to any Liens
in favor of Agent;
(vi) Liens incurred or deposits made in the
ordinary course of business to secure the performance of
tenders, bids, leases, contracts (other than for the repayment
of Money Borrowed), statutory obligations and other similar
obligations or arising as a result of progress payments under
government contracts, provided that, to the extent any such
Liens attach to any of the Collateral, such Liens are at all
times subordinate and junior to the Liens upon the Collateral
in favor of Agent;
(vii) easements, rights-of-way, restrictions,
covenants or other agreements of record and other similar
charges or encumbrances on real
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<PAGE>
Property of such Borrower or any of its Subsidiaries that do
not interfere with the ordinary conduct of the business of such
Borrower or such Subsidiary;
(viii) Liens in existence immediately prior to the
Closing Date that are satisfied in full and released on the
Closing Date as a result of the application of such Borrower's
cash on hand at the Closing Date or the proceeds of the Loans
to be made on the Closing Date;
(ix) such other Liens as appear on Schedule
--------
9.2.5 hereto, to the extent provided therein; and
-----
(x) such other Liens as Required Lenders in
their sole discretion may hereafter approve in writing.
9.2.6. Subordinated Debt. Make any payment of all or any part
-----------------
of any Subordinated Debt or take any other action or omit to take any other
action in respect of any Subordinated Debt, except in accordance with the
subordination agreement relative thereto.
9.2.7. Distributions. Declare or make any Distribution;
-------------
provided, however, that for so long as no Default or Event of Default exists at
- -------- -------
such time or would result therefrom and to the extent not otherwise prohibited
by Applicable Law, (i) GSS may make Distributions to its Parent to enable Parent
to pay income taxes attributable to the net income of GSS, (ii) ASB may make
Distributions to GSS and (iii) Borrowers may make Distributions described on
Schedule 9.2.4 hereto.
- --------------
9.2.8. Disposition of Assets. Sell, assign, lease, consign or
---------------------
otherwise dispose of any of its Properties or any interest therein, including
any disposition of Property as part of a sale and leaseback transaction, to or
in favor of any Person, except (i) sales of Inventory in the ordinary course of
business for so long as no Event of Default exists hereunder, (ii) dispositions
of Inventory to the extent authorized by Section 7.4.2 hereof, (iii) a transfer
of Property to a Borrower by a Subsidiary of such Borrower, (iv) dispositions
expressly authorized by other provisions of the Loan Documents, and (v)
dispositions of Property not constituting Collateral, to the extent that such
disposition would not have a Material Adverse Effect.
9.2.9. Stock of Subsidiaries. Permit any of its Subsidiaries to
---------------------
issue any additional shares of its capital stock except director's qualifying
shares.
9.2.10. Bill-and-Hold Sales, Etc. Make a sale to any customer on
------------------------
a bill-and-hold, guaranteed sale, sale and return, sale on approval or
consignment basis, or any sale on a repurchase or return basis.
9.2.11. Restricted Investments. Make or have any Restricted
----------------------
Investment.
9.2.12. Tax Consolidation. File or consent to the filing of any
-----------------
consolidated income tax return with any Person other than Parent, Borrowers and
their Subsidiaries.
9.2.13. Fiscal Year. Establish a fiscal year different from the
-----------
Fiscal Year.
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<PAGE>
9.2.14. Corporate Documents. Amend, modify or otherwise change
-------------------
any of the terms or provisions in any of its corporate charter, articles of
incorporation, bylaws or other governing documents as in effect on the date
hereof, except for changes that do not affect in any way such Borrower's or any
of its Subsidiaries' rights and obligations to enter into and perform the Loan
Documents to which it is a party and to pay all of the Obligations and that do
not otherwise have a Material Adverse Effect.
9.2.15. Conduct of Business. Engage in any business other than
-------------------
the business engaged in by it on the Closing Date and any business or activities
which are substantially similar, related or incidental thereto.
9.3. Specific Financial Covenant. For so long as there are any
---------------------------
Commitments outstanding and thereafter until payment in full of the Obligations,
Borrowers covenant that, unless otherwise consented to by the Required Lenders
in writing, they shall maintain Consolidated Adjusted Tangible Net Worth at all
times greater than ($9,000,000) (which amount represents the Consolidated
Adjusted Tangible Net Worth as of the most recent available month-end financial
statements prior to the Closing Date less Availability on the Closing Date).
----
SECTION 10. CONDITIONS PRECEDENT
10.1. Conditions Precedent to Initial Credit Extensions.
-------------------------------------------------
Notwithstanding any other provision of this Agreement or any of the other Loan
Documents, and without affecting in any manner the rights of Agent and Lenders
under the other sections of this Agreement, Lenders shall not be required to
fund any Loan requested by Borrowers or to join with any Borrower in the
extension of any LC Application unless, on or before November 20, 1997, each of
the following conditions has been and continues to be satisfied:
10.1.1. Loan Documents. Each of the Loan Documents shall have
--------------
been duly executed and delivered to Agent by each of the signatories thereto and
accepted by Agent and Lenders.
10.1.2. Availability. Agent shall have determined, and Lenders
------------
shall be satisfied that, immediately after Lenders have made the initial
Revolver Loans and Bank has issued the Letters of Credit to be issued on the
Closing Date, and Borrowers have paid (or made provision for payment of) all
closing costs incurred in connection with the Commitments, Availability is not
less than $15,000,000.
10.1.3. Evidence of Perfection and Priority of Liens. Agent
--------------------------------------------
shall have received copies of all filing receipts or acknowledgments issued by
any governmental authority to evidence any filing or recordation necessary to
perfect the Liens of Agent in the Collateral and evidence in form satisfactory
to Agent and Lenders that such Liens constitute valid and perfected security
interests and Liens, and that there are no other Liens upon any Collateral
except for Permitted Liens.
10.1.4. Governing Documents. Agent shall have received a copy of
-------------------
the Articles or Certificate of Incorporation and By-Laws of each Borrower and
each Obligor, and
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<PAGE>
all amendments thereto, certified by the Secretary of State or other appropriate
officials of the jurisdiction of each Borrower's and each Obligor's states of
incorporation.
10.1.5. Good Standing Certificates. Agent shall have received
--------------------------
good standing certificates for each Borrower and each Obligor, issued by the
Secretary of State or other appropriate official of such Borrower's or such
Obligor's jurisdiction of incorporation and each jurisdiction where the conduct
of such Borrower's or such Obligor's business activities or ownerships of its
Property necessitates qualification.
10.1.6. Opinion Letters. Agent shall have received a favorable,
---------------
written opinion of Mintz, Levin, Cohn, Ferris, Glovsky and Popeo, P.C. and the
respective local counsel to Borrowers and Agent, covering the matters set forth
on Exhibit E attached hereto.
---------
10.1.7. Insurance. Agent shall have received copies of the
---------
casualty insurance policies of Borrowers with respect to the Collateral,
together with loss payable endorsements on Agent's standard form of loss payee
endorsement naming Agent as loss payee with respect to each such policy and
copies of Borrowers' liability insurance policies, together with endorsements
naming Agent as a co-insured, all as required by the Loan Documents.
10.1.8. Lockbox; Dominion and Concentration Accounts. Agent shall
--------------------------------------------
have received the duly executed agreements establishing the Lockbox and each
Dominion Account, in each case with a financial institution acceptable to Agent
for the collection or servicing of the Accounts.
10.1.9. No Labor Disputes. Agent shall have received assurances
-----------------
satisfactory to it that there are no threats of strikes or work stoppages by any
employees, or organization of employees, of any Obligor which Agent reasonably
determines may have a Material Adverse Effect.
10.1.10. Compliance with Laws and Other Agreements. Agent shall
-----------------------------------------
have determined or received assurances satisfactory to it that none of the Loan
Documents or any of the transactions contemplated thereby violate any applicable
law, court order or agreement binding upon any Obligor.
10.1.11. No Material Adverse Change. No material adverse change
--------------------------
in the financial condition of any Obligor or in the quality, quantity or value
of any Collateral shall have occurred since September 30, 1997.
10.1.12. Amendment to Intercreditor Agreement. Trustee, Borrowers
------------------------------------
and Agent shall have executed an amendment to the Intercreditor Agreement, in
form and substance satisfactory to Agent and Lenders, pursuant to which Trustee
shall acknowledge, among other things, the first priority Lien of Agent in the
Collateral.
10.2. Conditions Precedent to all Credit Extensions. Notwithstanding
---------------------------------------------
any other provision of this Agreement or any of the other Loan Documents, and
without affecting in any manner the rights of Agent and Lenders under the other
sections of this Agreement, Lenders shall not be required to make any Loans or
otherwise extend any credit to or for the benefit
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<PAGE>
of Borrowers, unless and until each of the following conditions has been and
continues to be satisfied:
10.2.1. No Defaults. No Default or Event of Default shall exist
-----------
at the time of, or would result from, the funding of such Loan or other
extension of credit.
10.2.2. Satisfaction of Conditions in Other Loan Documents. Each
--------------------------------------------------
of the conditions precedent set forth in any other Loan Document shall have been
and shall remain satisfied.
10.2.3. No Litigation. No action, proceeding, investigation,
-------------
regulation or legislation shall have been instituted, threatened or proposed
before any court, governmental agency or legislative body to enjoin, restrain or
prohibit, or to obtain damages in respect of, or which is related to or arises
out of, this Agreement or the consummation of the transactions contemplated
hereby.
10.2.4. No Material Adverse Effect. No event shall have occurred
--------------------------
and no condition shall exist which has or may be reasonably likely to have a
Material Adverse Effect.
10.3. Limited Waiver of Conditions Precedent. If Lenders shall make
--------------------------------------
any Loans or otherwise extend any credit to Borrowers under this Agreement at a
time when any of the foregoing conditions precedent are not satisfied
(regardless of whether the failure of satisfaction of any such conditions
precedent was known or unknown to Agent or Lenders), the funding of such Loans
shall not operate as a waiver of the right of Agent and Lenders to insist upon
the satisfaction of all conditions precedent with respect to each subsequent
Borrowing requested by Borrowers or a waiver of any Default or Event of Default
as a consequence of the failure of any such conditions to be satisfied, unless
Agent, with the prior written consent of the Required Lenders, in writing waives
the satisfaction of any condition precedent in which event such waiver shall
only be applicable for the specific instance given and only to the extent and
for the period of time expressly stated in such written waiver.
SECTION 11. EVENTS OF DEFAULT; RIGHTS AND REMEDIES ON DEFAULT
11.1. Events of Default. The occurrence or existence of any one or more
-----------------
of the following events or conditions shall constitute an "Event of Default"
(each of which Events of Default shall be deemed to exist unless and until
waived by Agent and Lenders in accordance with the provisions of Section 12.9
hereof):
11.1.1. Payment of Obligations. Borrowers shall fail to pay (a)
----------------------
any installment of principal or interest on any Loan or any Note on the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise) or (b) any of the other Obligations within 5 days after the due date
thereof (whether due at stated maturity, on demand, upon acceleration or
otherwise).
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<PAGE>
11.1.2. Misrepresentations. Any representation, warranty or
------------------
other written statement to Agent or any Lender by or on behalf of any Obligor,
whether made in or furnished in compliance with or in reference to any of the
Loan Documents, proves to have been false or misleading in any material respect
when made or furnished or when reaffirmed pursuant to Section 8.2 hereof.
11.1.3. Breach of Specific Covenants. Any Borrower shall fail
----------------------------
or neglect to perform, keep or observe any covenant contained in Sections 6.3,
7.1.1, 7.1.2, 7.2.4, 7.2.5, 7.2.6, 9.1.1, 9.1.3, 9.2 or 9.3 hereof on the date
that such Borrower is required to perform, keep or observe such covenant.
11.1.4. Breach of Other Covenants. Any Borrower shall fail or
-------------------------
neglect to perform, keep or observe any covenant contained in this Agreement
(other than a covenant which is dealt with specifically elsewhere in Section
11.1 hereof) and the breach of such other covenant is not cured to Agent's and
the Required Lender's satisfaction within 30 days after the sooner to occur of
any Senior Officer's receipt of notice of such breach from Agent or the date on
which such failure or neglect first becomes known to any Senior Officer;
provided, however, that such notice and opportunity to cure shall not apply in
the case of any failure to perform, keep or observe any covenant which is not
capable of being cured at all or within such 30-day period or which is a willful
and knowing breach by any Borrower or which was the subject of a breach during
the prior 6-month period.
11.1.5. Default Under Security Documents/Other Agreements. Any
-------------------------------------------------
Borrower or any other Obligor shall default in the due and punctual observance
or performance of any liability or obligation to be observed or performed by it
under any of the Other Agreements or Security Documents.
11.1.6. Other Defaults. There shall occur any default or event
--------------
of default on the part of any Borrower or any Subsidiary of a Borrower under any
agreement, document or instrument to which such Borrower or such Subsidiary is a
party or by which such Borrower or such Subsidiary or any of their respective
Properties is bound, creating or relating to any Debt in excess of $100,000 if
the payment or maturity of such Debt may be accelerated in consequence of such
event of default or demand for payment of such Debt may be made (except that the
default that is referenced in Section 8.1.20 hereof and that exists as of the
date hereof, shall not constitute an Event of Default hereunder unless Borrowers
fail to cure such default within thirty (30) days after the date hereof).
11.1.7. Uninsured Losses. Any loss, theft, damage or
----------------
destruction of any of the Collateral not fully covered (subject to such
deductibles as Agent shall have permitted) by insurance if the amount not
covered by insurance exceeds $250,000.
11.1.8. Material Adverse Effect. There shall occur any event
-----------------------
or condition that has a Material Adverse Effect.
11.1.9. Solvency. Any Obligor shall cease to be Solvent.
--------
11.1.10. Insolvency Proceedings. Any Borrower shall commence,
----------------------
or shall consent to the commencement against it of, any Insolvency Proceeding or
any Insolvency
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<PAGE>
Proceeding shall be commenced against any Borrower and the same shall not have
been dismissed within 60 days after the commencement thereof.
11.1.11. Business Disruption; Condemnation. There shall occur
---------------------------------
a cessation of a substantial part of the business of any Obligor for a period
which may be reasonably expected to have a Material Adverse Effect; or any
Obligor shall suffer the loss or revocation of any license or permit now held or
hereafter acquired by such Obligor which is necessary to the continued or lawful
operation of its business; or any Obligor shall be enjoined, restrained or in
any way prevented by court, governmental or administrative order from conducting
all or any material part of its business affairs; or any material lease or
agreement pursuant to which any Obligor leases or occupies any premises on which
any Collateral is located shall be canceled or terminated prior to the
expiration of its stated term and such cancellation or termination has a
Material Adverse Effect or results in an Out-of-Formula Condition; or any
material part of the Collateral shall be taken through condemnation or the value
of such Property shall be materially impaired through condemnation.
11.1.12. Change of Ownership. Steven E. Karol, William S.
-------------------
Karol and Dale S. Okonow, or any combination of them, shall cease to control,
either directly or indirectly, at least 51% of the voting stock of Parent or
Parent shall cease to own all of the issued and outstanding capital stock of GSS
or GSS shall cease to own all of the issued and outstanding capital stock of
ASB.
11.1.13. ERISA. A Reportable Event shall occur which Agent, in
-----
its sole discretion, shall determine in good faith constitutes grounds for the
termination by the Pension Benefit Guaranty Corporation of any Plan or for the
appointment by the appropriate United States district court of a trustee for any
Plan, or if any Plan shall be terminated or any such trustee shall be requested
or appointed, or if any Borrower, any Subsidiary of a Borrower or any Obligor is
in "default" (as defined in Section 4219(c)(5) of ERISA) with respect to
payments to a Multiemployer Plan resulting from such Borrower's, such
Subsidiary's or such Obligor's complete or partial withdrawal from such Plan.
11.1.14. Challenge to Loan Documents. Any Obligor or any of
---------------------------
its Affiliates shall challenge or contest in any action, suit or proceeding the
validity or enforceability of any of the Loan Documents, the legality or
enforceability of any of the Obligations or the perfection or priority of any
Lien granted to Agent.
11.1.15. Judgment. A judgment or order for the payment of
--------
money in an amount that exceeds the uncontested insurance available therefor by
$1,000,000 or more shall be entered against any Borrower by any court or such
judgment or order shall result in the creation of a Lien upon any asset of any
Borrower that is not a Permitted Lien.
11.1.16. Repudiation of or Default Under Guaranty. Any
----------------------------------------
Guarantor shall revoke or attempt to revoke the Guaranty signed by such
Guarantor, shall repudiate such Guarantor's liability thereunder, or shall be in
default under the terms thereof, or shall fail to confirm in writing, promptly,
after receipt of Agent's written request therefor, such Guarantor's ongoing
liability under the Guaranty Agreement in accordance with the terms thereof.
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<PAGE>
11.1.17. Criminal Forfeiture. Any Obligor shall be convicted
-------------------
under any criminal law that could lead to a forfeiture of any Property of such
Obligor that would have a Material Adverse Effect.
11.1.18. Indenture. Any default or event of default shall
---------
occur under the Indenture or the Intercreditor Agreement.
11.2. Acceleration of the Obligations. Without in any way limiting
-------------------------------
the right of Agent to demand payment of any portion of the Obligations payable
on demand in accordance with this Agreement, upon or at any time after the
occurrence of an Event of Default and for so long as such Event of Default shall
exist, Agent may in its discretion (and, upon receipt of written instructions to
do so from the Required Lenders, shall) declare the principal of and any accrued
interest on the Loans and all other Obligations owing under any of the Loan
Documents to be, whereupon the same shall become without further notice or
demand (all of which notice and demand each Borrower expressly waives),
forthwith due and payable and Borrowers shall forthwith pay to Agent the entire
principal of and accrued and unpaid interest on the Loans and other Obligations
plus reasonable attorneys' fees and expenses if such principal and interest are
collected by or through an attorney-at-law. Notwithstanding the foregoing, upon
the occurrence of an Event of Default specified in Section 11.1.10 hereof, all
of the Obligations shall become automatically due and payable without
declaration, notice or demand by Agent and the Commitments shall automatically
terminate as if terminated by Agent pursuant to Section 5.2.1 hereof and with
the effect specified in Section 5.2.4 hereof.
11.3. Other Remedies. Upon and after the occurrence of an Event of
--------------
Default and for so long as such Event of Default shall exist, Agent may in its
discretion (and, upon receipt of written direction of the Required Lenders,
shall) exercise from time to time the following rights and remedies:
11.3.1. All of the rights and remedies of a secured party
under the UCC or under other Applicable Law, and all other legal and equitable
rights to which Agent may be entitled under any of the Loan Documents, all of
which rights and remedies shall be cumulative and shall be in addition to any
other rights or remedies contained in this Agreement or any of the other Loan
Documents, and none of which shall be exclusive.
11.3.2. The right to collect all amounts at any time
payable to any Borrower from any Account Debtor or other Person at any time
indebted to any Borrower.
11.3.3. The right to take immediate possession of any of
the Collateral, and to (i) require Borrowers to assemble the Collateral, at
Borrowers' expense, and make it available to Agent at a place designated by
Agent which is reasonably convenient to both parties, and (ii) enter any
premises where any of the Collateral shall be located and to keep and store the
Collateral on said premises until sold (and if said premises be the Property of
a Borrower, then such Borrower agrees not to charge Agent for storage thereof).
11.3.4. The right to sell or otherwise dispose of all or
any Collateral in its then condition, or after any further manufacturing or
processing thereof, at public or private sale or sales, with such notice as may
be required by Applicable Law, in lots or in bulk, for cash or on credit, all as
Agent, in its sole discretion, may deem advisable. Each Borrower
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<PAGE>
agrees that any requirement of notice to Borrowers or any other Obligor of any
proposed public or private sale or other disposition of Collateral by Agent
shall be deemed reasonable notice thereof if given at least 10 days prior
thereto, and such sale may be at such locations as Agent may designate in said
notice. Agent shall have the right to conduct such sales on any Borrower's or
any other Obligor's premises, without charge therefor, and such sales may be
adjourned from time to time in accordance with Applicable Law. Agent shall have
the right to sell, lease or otherwise dispose of the Collateral, or any part
thereof, for cash, credit or any combination thereof, and Agent may purchase all
or any part of the Collateral at public or, if permitted by law, private sale
and, in lieu of actual payment of such purchase price, may set off the amount of
such price against the Obligations. The proceeds realized from the sale or other
disposition of any Collateral may be applied, after allowing 2 Business Days for
collection, first to any Extraordinary Expenses incurred by Agent, second to
interest accrued with respect to any of the Obligations; and third, to the
principal balance of the Obligations. If any deficiency shall arise, each
Borrower and each Guarantor shall remain jointly and severally liable to Agent
therefor.
11.3.5. The right to require Borrowers to deposit with Agent
and Lenders funds equal to the LC Obligations and, if Borrowers fail promptly to
make such deposit, Lender may advance such amount as a Revolver Loan (whether or
not an Out-of-Formula Condition exists or is created thereby). Any such deposit
or advance shall be held by Agent as a reserve to fund future payments on the LC
Guaranty. At such time as the LC Guaranty has been paid or terminated and all
Letters of Credit have been drawn upon or expired, any amounts remaining in such
reserve shall be applied against any outstanding Obligations, or, if all
Obligations have been indefeasibly paid in full, returned to Borrowers.
Agent is hereby granted a license or other right, while any Event of Default
exists, to use, without charge, each Borrower's labels, patents, copyrights,
rights of use of any name, trade secrets, tradenames, trademarks and advertising
matter, or any Property of a similar nature, as it pertains to the Collateral,
in advertising for sale and selling any Collateral and each Borrower's rights
under all licenses and all franchise agreements shall inure to Agent's benefit.
11.4. Setoff. In addition to any Liens granted under any of the Loan
------
Documents and any rights now or hereafter available under Applicable Law, Agent
and each Lender (and each of their respective Affiliates) is hereby authorized
by Borrowers at any time that an Event of Default exists, without notice to
Borrowers or any other Person (any such notice being hereby expressly waived) to
set off and to appropriate and to apply any and all deposits, general or special
(including Debt evidenced by certificates of deposit whether matured or
unmatured (but not including trust accounts)) and any other Debt at any time
held or owing by Agent, such Lender or any of their Affiliates to or for the
credit or the account of any Borrower against and on account of the Obligations
of Borrowers arising under the Loan Documents to Agent, such Lender or any of
their Affiliates, including all Loans and LC Obligations and all claims of any
nature or description arising out of or in connection with this Agreement,
irrespective of whether or not (i) Agent or such Lender shall have made any
demand hereunder or (ii) Agent, at the request or with the consent of the
Required Lenders shall have declared the principal of and interest on the Loans
and other amounts due hereunder to be due and payable as permitted by this
Agreement and even though such Obligations may be contingent or unmatured or
(iii) the Collateral for the Obligations is adequate. Notwithstanding the
foregoing, each of Agent and Lenders agree with each other that it shall not,
without the
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express consent of the Required Lenders, and that it shall (to the extent that
it is lawfully entitled to do so) upon the request of the Required Lenders,
exercise its setoff rights hereunder against any accounts of any Borrower now or
hereafter maintained with Agent, such Lender or any Affiliate of any of them,
but no Borrower shall have a claim or cause of action against Agent or any
Lender for any setoff made without the consent of the Required Lenders and the
validity of any such setoff shall not be impaired by the absence of such
consent. If any party (or its Affiliate) exercises the right of setoff provided
for hereunder, such party shall be obligated to share any such setoff in the
manner and to the extent required by Section 12.5.
11.5. Remedies Cumulative; No Waiver.
------------------------------
11.5.1. All covenants, conditions, provisions, warranties,
guaranties, indemnities, and other undertakings of Borrowers contained in this
Agreement and the other Loan Documents, or in any document referred to herein or
contained in any agreement supplementary hereto or in any schedule given to
Agent or any Lender or contained in any other agreement between Agent or any
Lender and any or all Borrowers, heretofore, concurrently, or hereafter entered
into, shall be deemed cumulative to and not in derogation or substitution of any
of the terms, covenants, conditions, or agreements of Borrowers herein
contained.
11.5.2. The failure or delay of Agent or Lenders to
require strict performance by Borrowers of any provision of this Agreement or to
exercise or enforce any rights, Liens, powers, or remedies hereunder or under
any of the aforesaid agreements or other documents or security or Collateral
shall not operate as a waiver of such performance, Liens, rights, powers and
remedies, but all such requirements, Liens, rights, powers, and remedies shall
continue in full force and effect until all Loans and all other Obligations
owing or to become owing from Borrowers to Agent and Lenders shall have been
fully satisfied. None of the undertakings, agreements, warranties, covenants and
representations of Borrowers contained in this Agreement or any of the other
Loan Documents and no Event of Default by any Borrower under this Agreement or
any other Loan Documents shall be deemed to have been suspended or waived by
Agent, unless such suspension or waiver is by an instrument in writing
specifying such suspension or waiver and is signed by a duly authorized
representative of Agent and directed to Borrowers.
11.5.3. If Agent or Lenders shall accept performance by a
Borrower, in whole or in part, of any obligation that a Borrower is required by
any of the Loan Documents to perform only when a Default or Event of Default
exists, or if Agent or Lenders shall exercise any right or remedy under any of
the Loan Documents that may not be exercised other than when a Default or Event
of Default exists, Agent's acceptance of such performance by a Borrower or
Agent's exercise of any such right or remedy shall not operate to waive any such
Event of Default or to preclude the exercise by Agent or Lenders of any other
right or remedy, unless otherwise expressly agreed in writing by Agent.
SECTION 12. AGENT
12.1. Appointment, Authority and Duties of Agent.
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12.1.1. Each Lender hereby irrevocably appoints and designates
Fleet as Agent to act as herein specified. Agent may, and each Lender by its
acceptance of a Note shall be deemed irrevocably to have authorized Agent to,
enter into all Loan Documents to which Agent is to be a party on the Closing
Date and all amendments hereto and all Security Documents thereafter executed by
Borrowers, for its benefit and the Pro Rata benefit of Lenders and, except as
otherwise provided in this Section 12, to exercise such rights and powers under
this Agreement and the other Loan Documents as are specifically delegated to
Agent by the terms hereof and thereof, together with such other rights and
powers as are reasonably incidental thereto. Each Lender agrees that any action
taken by Agent or the Required Lenders in accordance with the provisions of this
Agreement or the other Loan Documents, and the exercise by Agent or the Required
Lenders of any of the powers set forth herein or therein, together with such
other powers as are reasonably incidental thereto, shall be authorized and
binding upon all Lenders. Without limiting the generality of the foregoing,
Agent shall have the sole and exclusive right and authority to (a) act as the
disbursing and collecting agent for Lenders with respect to all payments and
collections arising in connection with this Agreement and the other Loan
Documents; (b) execute and deliver as Agent each Loan Document and accept
delivery of each such agreement delivered by any or all Borrowers or any other
Obligor; (c) act as collateral agent for Lenders for purposes of the perfection
of all security interests and Liens created by this Agreement or the Security
Documents with respect to all material items of the Collateral and, subject to
the direction of the Required Lenders, for all other purposes stated therein,
provided that Agent hereby appoints, authorizes and directs each Lender to act
as a collateral sub-agent for Agent and the other Lenders for purposes of the
perfection of all security interest and Liens with respect to a Borrower's
Deposit Accounts maintained with, and all cash and Cash Equivalents held by,
such Lender; (d) subject to the direction of the Required Lenders, manage,
supervise or otherwise deal with the Collateral; and (e) except as may be
otherwise specifically restricted by the terms of this Agreement and subject to
the direction of the Required Lenders, exercise all remedies given to Agent or
Lenders with respect to any of the Collateral under the Loan Documents relating
thereto, Applicable Law or otherwise. The duties of Agent shall be ministerial
and administrative in nature, and Agent shall not have by reason of this
Agreement or any other Loan Document a fiduciary relationship with any Lender
(or any Lender's participants). Unless and until its authority to do so is
revoked in writing by the Required Lenders, Agent shall have the exclusive right
to determine whether any Accounts or Inventory constitute Eligible Accounts or
Eligible Inventory (basing such determination in each case upon the meanings
given to such terms in Appendix A), or whether to impose or release any reserve,
and to exercise its own credit judgment in connection therewith, which
determinations and judgments, if exercised in good faith, shall exonerate Agent
from any liability to Lenders or any other Person for any errors in judgment.
12.1.2. Agent (which term, as used in this sentence, shall
include reference to Agent's Affiliates and to the officers, directors,
employees and agents of Agent's Affiliates) shall not: (a) have any duties or
responsibilities except those expressly set forth in this Agreement and the
other Loan Documents or (b) be required to initiate or conduct any litigation,
foreclosure or collection proceedings hereunder or under any of the other Loan
Documents except to the extent directed to do so by the Required Lenders during
the continuance of any Event of Default.
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12.1.3. Agent may perform any of its duties by or through its
agents and employees and may employ agents and attorneys-in-fact and shall not
be responsible for the negligence or misconduct of any such agents or
attorneys-in-fact selected by it with reasonable care. Borrowers shall promptly
(and in any event, on demand) reimburse Agent for all reasonable expenses
(including all Extraordinary Expenses) incurred by Agent pursuant to any of the
provisions hereof or of any of the other Loan Documents or in the execution of
any of Agent's duties hereby or thereby created or in the exercise of any right
or power herein or therein imposed or conferred upon it or Lenders (excluding,
however, general overhead expenses), and each Lender agrees promptly to pay to
Agent, on demand, such Lender's Pro Rata share of any such reimbursement for
expenses (including Extraordinary Expenses) that is not timely made by Borrowers
to Agent.
12.1.4. The rights, remedies, powers and privileges conferred
upon Agent hereunder and under the other Loan Documents may be exercised by
Agent without the necessity of the joinder of any other parties unless otherwise
required by Applicable Law. If Agent shall request instructions from the
Required Lenders with respect to any act or action (including the failure to
act) in connection with this Agreement or any of the other Loan Documents, Agent
shall be entitled to refrain from such act or taking such action unless and
until Agent shall have received instructions from the Required Lenders; and
Agent shall not incur liability to any Person by reason of so refraining.
Without limiting the foregoing, no Lender shall have any right of action
whatsoever against Agent as a result of Agent acting or refraining from acting
hereunder or under any of the Loan Documents in accordance with the instructions
of the Required Lenders.
12.1.5. Agent shall promptly, upon receipt thereof, forward to
each Lender copies of any significant written notices, reports, certificates and
other information received by Agent from any Obligor (to the extent such Obligor
is not required by the terms of the Loan Documents to supply such information
directly to Lenders) and copies of the results of any field audits by Agent with
respect to Borrowers.
12.2. Agreements Regarding Collateral. Each Lender shall have a Pro
-------------------------------
Rata interest in the security interests and Liens in and to the Collateral and
any other Property granted and assigned to Agent under the Loan Documents.
Lenders hereby irrevocably authorize Agent, at its option and in its discretion,
to release any Lien upon any Collateral (i) upon the termination of the
Commitments and payment or satisfaction of all of the Obligations or (ii)
constituting Equipment sold or disposed of in accordance with the terms of this
Agreement if Borrowers certify to Agent that the sale disposition is made in
compliance with the terms of this Agreement (and Agent may rely conclusively on
any such certificate, without further inquiry). Agent shall have no obligation
whatsoever to any of the Lenders to assure that any of the Collateral exists or
is owned by a Borrower or is cared for, protected or insured or has been
encumbered, or that Agent's Liens have been properly or sufficiently or lawfully
created, perfected, protected or enforced or entitled to any particular priority
or to exercise at all or in any manner or under any duty of care, disclosure or
fidelity, or to continue exercising, any of the rights or powers granted or
available to Agent pursuant to this Agreement or any of the other Loan
Documents, it being understood and agreed that in respect of the Collateral, or
any act, omission or event related thereto, Agent may act in any manner it may
deem appropriate, in its discretion, given Agent's own interests in the
Collateral in its capacity as one of the Lenders.
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12.3. Reliance By Agent. Agent shall be entitled to rely, and shall
-----------------
be fully protected in so relying, upon any certification, notice or other
communication (including any thereof by telephone, telex, telegram, telecopier
message or cable) believed by it to be genuine and correct and to have been
signed, sent or made by or on behalf of the proper Person or Persons, and upon
advice and statements of legal counsel, independent accountants and other
experts selected by Agent. As to any matters not expressly provided for by this
Agreement or any of the other Loan Documents, Agent shall in all cases be fully
protected in acting or refraining from acting hereunder and thereunder in
accordance with the instructions of the Required Lenders, and such instructions
of the Required Lenders and any action taken or failure to act pursuant thereto
shall be binding upon Lenders.
12.4. Action Upon Default. Agent shall not be deemed to have
-------------------
knowledge of the occurrence of a Default or an Event of Default unless it has
received written notice from a Lender or any or all Borrowers specifying the
occurrence of such Default or Event of Default. If Agent shall receive such a
notice of the occurrence of a Default or an Event of Default or shall otherwise
acquire actual knowledge of any Default or Event of Default, Agent shall
promptly notify Lenders in writing and Agent shall take such action and assert
such rights under this Agreement and the other Loan Documents, or shall refrain
from taking such action and asserting such rights, as the Required Lenders shall
direct from time to time. If any Lender shall receive a notice of the occurrence
of a Default or an Event of Default or shall otherwise acquire actual knowledge
of any Default or Event of Default, such Lender shall promptly notify Agent and
the other Lenders in writing. As provided in Section 12.3 hereof, Agent shall
not be subject to any liability by reason of acting or refraining to act
pursuant to any request of the Required Lenders except for its own willful
misconduct or gross negligence. Before directing Agent to take or refrain from
taking any action or asserting any rights under this Agreement and the other
Loan Documents, the Required Lenders shall consult with and seek the advice of
(but without having to obtain the consent of) each other Lender, and promptly
after directing Agent to take or refrain from taking any such action or
asserting any such rights, the Required Lenders will so advise each other Lender
of the action taken or refrained from being taken and, upon request of any
Lender, will supply information concerning actions taken or not taken. In no
event shall the Required Lenders, without the prior written consent of each
Lender, direct Agent to accelerate and demand payment of the Loans held by one
Lender without accelerating and demanding payment of all other Loans. Agent
agrees that without the prior written consent of the Required Lenders, it will
not take any legal action or institute any action or proceeding against any
Obligor with respect to any of the Obligations or Collateral, or accelerate or
otherwise enforce its portion of the Obligations.
12.5. Ratable Sharing. If any Lender shall obtain any payment or
---------------
reduction (including any amounts received as adequate protection of a bank
account deposit treated as cash collateral under the Bankruptcy Code) of any
Obligation of Borrowers hereunder (whether voluntary, involuntary, through the
exercise of any right of set-off or otherwise) in excess of its Pro Rata share
of payments or reductions on account of such Obligations obtained by all of the
Lenders, such Lender shall forthwith (i) notify the other Lenders and Agent of
such receipt and (ii) purchase from the other Lenders such participations in the
affected Obligations as shall be necessary to cause such purchasing Lender to
share the excess payment or reduction, net of costs incurred in connection
therewith, on a Pro Rata
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basis, provided that if all or any portion of such excess payment or reduction
is thereafter recovered from such purchasing Lender or additional costs are
incurred, the purchase shall be rescinded and the purchase price restored to the
extent of such recovery or such additional costs, but without interest. Each
Borrower agrees that any Lender so purchasing a participation from another
Lender pursuant to this Section 12.5 may, to the fullest extent permitted by
Applicable Law, exercise all of its rights of payment (including the right of
set-off) with respect to such participation as fully as if such Lender were the
direct creditor of Borrowers in the amount of such participation.
12.6. Indemnification of Agent.
------------------------
12.6.1. Each Lender severally agrees to indemnify and defend
the Agent Indemnitees (to the extent not reimbursed by Borrowers under this
Agreement, but without limiting the indemnification obligation of Borrowers
under this Agreement), on a Pro Rata basis, and to hold each of the Agent
Indemnitees harmless from and against, any and all Claims which may be imposed
on, incurred by or asserted against any of the Agent Indemnitees in any way
related to or arising out of this Agreement or any of the other Loan Documents
or any other document contemplated by or referred to herein or therein or the
transactions contemplated hereby or thereby (including the costs and expenses
which Borrowers are obligated to pay under Section 14.2 hereof or amounts Agent
may be called upon to pay in connection with any lockbox or Dominion Account
arrangement contemplated hereby) or the enforcement of any of the terms hereof
or thereof or of any such other documents, provided that no Lender shall be
liable to any Agent Indemnitee for any of the foregoing to the extent that they
result solely from the willful misconduct or gross negligence of such Agent
Indemnitee.
12.6.2. Without limiting the generality of the foregoing
provisions of this Section 12.6, if Agent should be sued by any receiver,
trustee in bankruptcy, debtor-in-possession or other Person on account of any
alleged preference or fraudulent transfer received or alleged to have been
received from any Borrower or any other Obligor as the result of any transaction
under the Loan Documents, then in such event any monies paid by Agent in
settlement or satisfaction of such suit, together with all Extraordinary
Expenses incurred by Agent in the defense of same, shall be promptly reimbursed
to Agent by Lenders to the extent of each Lender's Pro Rata share.
12.6.3. Without limiting the generality of the foregoing
provisions of this Section 12.6, if at any time (whether prior to or after the
Commitment Termination Date) any action or proceeding shall be brought against
any of the Agent Indemnitees by an Obligor or by any other Person claiming by,
through or under an Obligor, to recover damages for any act taken or omitted by
Agent under any of the Loan Documents or in the performance of any rights,
powers or remedies of Agent against Obligor, any Account Debtor, the Collateral
or with respect to any Revolver Loans, or to obtain any other relief of any kind
on account of any transaction involving any Agent Indemnitees under or in
relation to any of the Loan Documents, Lenders agree to indemnify, defend and
hold the Agent Indemnitees harmless with respect thereto and to pay to the Agent
Indemnitees their respective Pro Rata shares of such amount as the Agent
Indemnitees shall be required to pay by reason of a judgment, decree, or other
order entered in such action or proceeding or by reason of any compromise or
settlement agreed to by the Agent Indemnitees, including all interest and costs
assessed against the Agent Indemnitees in defending or compromising such action,
together with
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attorneys' fees and other legal expenses paid or incurred by the Agent
Indemnitees in connection therewith; provided, however, that no Lender shall be
liable to any Agent Indemnitee for any of the foregoing to the extent that they
arise solely from the willful misconduct or gross negligence of such Agent
Indemnitee. In Agent's discretion, Agent may also reserve for or satisfy any
such judgment, decree or order from proceeds of Collateral prior to any
distributions therefrom to or for the account of Lenders.
12.7. Limitation on Responsibilities of Agent. Agent shall in all
---------------------------------------
cases be fully justified in failing or refusing to act hereunder unless it shall
have received further assurances to its satisfaction from Lenders of their
indemnification obligations under Section 12.6 hereof against any and all Claims
which may be incurred by Agent by reason of taking or continuing to take any
such action. Agent shall not be liable to Lenders (or any Lender's participants)
for any action lawfully taken or omitted to be taken under or in connection with
this Agreement or the other Loan Documents except as a result of actual gross
negligence or willful misconduct on the part of Agent. Agent does not assume any
responsibility for any failure or delay in performance or breach by any Obligor
or any Lender of its obligations under this Agreement or any of the other Loan
Documents. Agent does not make to Lenders, and no Lender makes to Agent or the
other Lenders, any express or implied warranty, representation or guarantee with
respect to the Revolver Loans, the Collateral, the Loan Documents or any
Obligor. Agent shall not be responsible to Lenders, and no Lender shall be
responsible to Agent or the other Lenders, for: (i) any recitals, statements,
information, representations or warranties contained in any of the Loan
Documents or in any certificate or other document furnished pursuant to the
terms hereof; (ii) the execution, validity, genuineness, effectiveness or
enforceability of, any of the Loan Documents; (iii) the validity, genuineness,
enforceability, collectibility, value, sufficiency or existence of any
Collateral, or the perfection or priority of any Lien therein; or (iv) the
assets, liabilities, financial condition, results of operations, business,
creditworthiness or legal status of any Obligor or any Account Debtor. Agent
shall have no obligation to any Lender to ascertain or inquire into the
existence of any Default or Event of Default, the observance or performance by
any Obligor of any of the duties or agreements of such Obligor under any of the
Loan Documents or the satisfaction of any conditions precedent contained in any
of the Loan Documents. Agent may consult with and employ legal counsel,
accountants and other experts and shall be entitled to act upon, and shall be
fully protected in any action taken in good faith reliance upon, any advice
given by such experts.
12.8. Successor Agent and Co-Agents.
-----------------------------
12.8.1. Subject to the appointment and acceptance of a
successor Agent as provided below, Agent may resign at any time by giving
written notice thereof to each Lender and Borrowers. Upon any such resignation,
the Required Lenders, after prior consultation with (but without having to
obtain consent of) each Lender, shall have the right to appoint a successor
Agent which shall be (i) a Lender, (ii) a United States based Affiliate of a
Lender, or (iii) a commercial bank that is organized under the laws of the
United States or of any State thereof and has a combined capital surplus of at
least $100,000,000 (or an asset based lending affiliate of any such bank) and is
reasonably acceptable to Borrowers (and for purposes hereof, any successor to
Fleet shall be deemed acceptable to Borrowers). Upon the acceptance by a
successor Agent of an appointment as an Agent hereunder, such successor Agent
shall thereupon succeed to and become vested with all the rights, powers,
privileges and
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duties of the retiring Agent without further act, deed or conveyance, and the
retiring Agent shall be discharged from its duties and obligations hereunder. If
a successor Agent shall not have been appointed within 30 days after Agent's
delivery of written notice of its resignation, then Agent shall have the right
to appoint a successor Agent from the group of existing Lenders, which successor
Agent shall thereupon become the Agent. After any retiring Agent's resignation
hereunder as Agent, the provisions of this Section 12 (including the provisions
of Section 12.6 hereof) shall continue in effect for its benefit in respect of
any actions taken or omitted to be taken by it while it was acting as Agent.
Notwithstanding anything to the contrary contained in this Agreement, any
successor by merger or acquisition of the stock or assets of Fleet shall
continue to be Agent hereunder unless such successor shall resign in accordance
with the provisions hereof.
12.8.2. It is the purpose of this Agreement that there shall
be no violation of any Applicable Law denying or restricting the right of
financial institutions to transact business as agent in any jurisdiction. It is
recognized that, in case of litigation under any of the Loan Documents, or in
case Agent deems that by reason of present or future laws of any jurisdiction
Agent might be prohibited from exercising any of the powers, rights or remedies
granted to Agent or Lenders hereunder or under any of the Loan Documents or from
holding title to or a Lien upon any Collateral or from taking any other action
which may be necessary hereunder or under any of the Loan Documents, Agent may
appoint an additional Person as a separate collateral agent or co-collateral
agent which is not so prohibited from taking any of such actions or exercising
any of such powers, rights or remedies. If Agent shall appoint an additional
Person as a separate collateral agent or co-collateral agent as provided above,
each and every remedy, power, right, claim, demand or cause of action intended
by any of the Loan Documents to be exercised by or vested in or conveyed to
Agent with respect thereto shall be exercisable by and vested in such separate
collateral agent or co-collateral agent, but only to the extent necessary to
enable such separate collateral agent or co-collateral agent to exercise such
powers, rights and remedies, and every covenant and obligation necessary to the
exercise thereof by such separate collateral agent or co-collateral agent shall
run to and be enforceable by either of them. Should any instrument from Lenders
be required by the separate collateral agent or co-collateral agent so appointed
by Agent in order more fully and certainly to vest in and confirm to him or it
such rights, powers, duties and obligations, any and all of such instruments
shall, on request, be executed, acknowledged and delivered by Lenders whether or
not a Default or Event of Default then exists. In case any separate collateral
agent or co-collateral agent, or a successor to either, shall die, become
incapable of acting, resign or be removed, all the estates, properties, rights,
powers, duties and obligations of such separate collateral agent or
co-collateral agent, so far as permitted by Applicable Law, shall vest in and be
exercised by the Agent until the appointment of a new collateral agent or
successor to such separate collateral agent or co-collateral agent.
12.9. Consents, Amendments and Waivers; Out-of-Formula Loans.
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12.9.1. No amendment or modification of any provision of this
Agreement shall be effective without the prior written agreement of the Required
Lenders and Borrowers, and no waiver of any Default or Event of Default shall be
effective without the prior written consent of the Required Lenders; provided,
--------
however, that, without the prior consent of all Lenders, no waiver of any
- -------
Default or Event of Default shall be effective if the Default or Event of
Default relates to Borrower's failure to observe or perform any covenant that
may not be amended
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without the unanimous written consent of Lenders as hereinafter set forth in
this Section 12.9.1. Notwithstanding the immediately preceding sentence, the
written agreement of all Lenders shall be required to effectuate any amendment,
modification or waiver that would (a) alter the provisions of Sections 2.6, 2.7,
2.8, 2.9, 4.6, 4.7, 5.1, 8.1.8, 12, 14.2 or 14.3, the definitions of
"Availability Reserve," "Borrowing Base" and the other defined terms used in
such definition, "Pro Rata," "Required Lenders" or any provision of this
Agreement obligating Agent to take certain actions at the direction of the
Required Lenders, or any provision of this Agreement regarding the Pro Rata
treatment or obligations of Lenders, (b) increase or otherwise modify any of the
Commitments (other than to reduce proportionately each Lender's Commitment in
connection with any overall reduction in the amount of the Commitments), (c)
alter or amend the rate of interest payable in respect of the Loans (except as
may be expressly authorized by the Loan Documents or as may be necessary, in
Agent's judgement, to comply with Applicable Law), (d) waive or agree to defer
collection of any fee, termination charge or other charge provided for under any
of the Loan Documents (except to the extent that the Required Lenders agree
after and during the continuance of any Event of Default to a waiver or deferral
of any termination charge provided for in Section 5.2.3 hereof) or the unused
line fee in Section 2.2.2 hereof, (e) subordinate the payment of any of the
Obligations to any other Debt or the priority of any Liens granted to Agent
under any of the Loan Documents to Liens granted to any other Person, except as
currently provided in or contemplated by the Loan Documents in connection with
any Borrower's incurrence of Permitted Purchase Money Debt, and except for Liens
granted by an Obligor to financial institutions with respect to amounts on
deposit with such financial institutions to cover returned items, processing and
analysis charges and other charges in the ordinary course of business that
relate to deposit accounts with such financial institutions, (f) alter the time
or amount of repayment of any of the Loans or waive any Event of Default
resulting from nonpayment of the Loans on the due date thereof (or within any
applicable period of grace), (g) forgive any of the Obligations, except any
portion of the Obligations held by a Lender who consents in writing to such
forgiveness, or (h) release any Obligor from liability for any of the
Obligations. In no event shall any amendment to the provisions of Section 3.1.3
be effective without the prior written consent of Fleet. No Lender shall be
authorized to amend or modify any Note held by it unless such amendment or
modification is consented to in writing by all Lenders; provided, however, that
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the foregoing shall not be construed to prohibit an amendment or modification to
any provision of this Agreement that may be effected pursuant to this Section
12.9.1 by agreement of Borrower and the Required Lenders even though such an
amendment or modification results in an amendment or modification of the Notes
by virtue of the incorporation by reference in each of the Notes of this
Agreement. The making of any Loans hereunder by any Lender during the existence
of a Default or Event of Default shall not be deemed to constitute a waiver of
such Default or Event of Default. Any waiver or consent granted by Lenders
hereunder shall be effective only if in writing and then only in the specific
instance and for the specific purpose for which it was given.
12.9.2. In connection with any proposed amendment to any of
the Loan Documents or waiver of any of the terms thereof or any Default or Event
of Default thereunder, no Borrower shall solicit, request or negotiate for or
with respect to any such proposed amendment or waiver of any of the provisions
of this Agreement or any of the other Loan Documents unless each Lender shall be
informed thereof by Borrowers or Agent (to the extent known by Agent) and shall
be afforded an opportunity of considering the same and supplied by Borrowers
with sufficient information to enable it to make an informed decision
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with respect thereto. No Borrower will, directly or indirectly, pay or cause to
be paid any remuneration or other thing of value, whether by way of supplemental
or additional interest, fee or otherwise, to any Lender (in its capacity as a
Lender hereunder) as consideration for or as an inducement to the consent to or
agreement by such Lender with any waiver or amendment of any of the terms and
provisions of this Agreement or any of the other Loan Documents unless such
remuneration or thing of value is concurrently paid, on the same terms, on a Pro
Rata basis to all Lenders.
12.9.3. Notwithstanding anything to the contrary contained in
this Agreement, Agent may (unless otherwise directed in writing by Required
Lenders) require Lenders to honor requests for Revolver Loans even though an
Event of Default exists and an Out-of-Formula Condition exists or would result
from the funding of such Revolver Loan so long as (a) the Revolver Loans
requested are to be used for the payment of payroll, payroll taxes and other
items deemed necessary by Agent to sustain either Borrowers' business; (b) after
giving effect to the funding of such Out-of-Formula Loans requested by Borrower,
the Out-of-Formula Condition is not increased by more than $500,000 above the
amount determined by Agent to exist on the date of discovery thereof; and (c)
the Out-of-Formula Condition is not permitted to exist for more than 5 Business
Days.
12.10. Due Diligence and Non-Reliance. Each Lender hereby
------------------------------
acknowledges and represents that it has, independently and without reliance upon
Agent or the other Lenders, and based upon such documents, information and
analyses as it has deemed appropriate, made its own credit analysis of each
Obligor and its own decision to enter into this Agreement, to fund the Loans to
be made by it hereunder and to purchase participations in the LC Obligations
pursuant to Section 1.3.2 hereof and each Lender has made such inquiries
concerning the Loan Documents, the Collateral and each Obligor as such Lender
feels necessary and appropriate, and has taken such care on its own behalf as
would have been the case had it entered into the other Loan Documents without
the intervention or participation of the other Lenders or Agent. Each Lender
hereby further acknowledges and represents that the other Lenders and Agent have
not made any representations or warranties to it concerning any Obligor, any of
the Collateral or with respect to the legality, validity, sufficiency or
enforceability of any of the Loan Documents. Each Lender also hereby
acknowledges that it will, independently and without reliance upon the other
Lenders or Agent, and based upon such financial statements, documents and
information as it deems appropriate at the time, continue to make and rely upon
its own credit decisions in making Loans and in taking or refraining to take any
other action under this Agreement or any of the other Loan Documents. Except for
notices, reports and other information expressly required to be furnished to
Lenders by Agent hereunder, Agent shall not have any duty or responsibility to
provide any Lender with any notices, reports or certificates furnished to Agent
by any Obligor or any credit or other information concerning the affairs,
financial condition, business or Properties of any Obligor (or any of its
Affiliates) which may come into possession of Agent or any of Agent's
Affiliates.
12.11. Representations and Warranties of Lenders. By its execution of
-----------------------------------------
this Agreement, each Lender hereby represents and warrants to each Borrower and
the other Lenders that it has the power to enter into and perform its
obligations under this Agreement and the other Loan Documents, and that it has
taken all necessary and appropriate action to authorize its execution and
performance of this Agreement and the other Loan Documents will
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be binding upon it and the obligations imposed upon it herein or therein will be
enforceable against it in accordance with the respective terms of such
documents.
12.12. The Required Lenders. As to any provisions of this Agreement
--------------------
or the other Loan Documents under which action may or is required to be taken
upon direction or approval of the Required Lenders, the direction or approval of
the Required Lenders shall be binding upon each Lender to the same extent and
with the same effect as if each Lender had joined therein. Notwithstanding
anything to the contrary contained in this Agreement, Borrowers shall not be
deemed to be a beneficiary of, or be entitled to enforce, sue upon or assert as
a defense to any of the Obligations, any provisions of this Agreement that
requires Agent or any Lender to act, or conditions their authority to act, upon
the direction or consent of the Required Lenders; and any action taken by Agent
or any Lender that requires the consent or direction of the Required Lenders as
a condition to taking such action shall, insofar as Borrowers are concerned, be
presumed to have been taken with the requisite consent or direction of the
Required Lenders.
12.13. Several Obligations. The obligations and commitments of each
-------------------
Lender under this Agreement and the other Loan Documents are several and neither
Agent nor any Lender shall be responsible for the performance by the other
Lenders of its obligations or commitments hereunder or thereunder.
Notwithstanding any liability of Lenders stated to be joint and several to third
Persons under any of the Loan Documents, such liability shall be shared, as
among Lenders, Pro Rata according to the respective Commitments of Lenders.
12.14. Agent in its Individual Capacity. With respect to its
--------------------------------
obligation to lend under this Agreement, the Loans made by it and each Note
issued to it, Agent shall have the same rights and powers hereunder and under
the other Loan Documents as any other Lender or holder of a Note and may
exercise the same as though it were not performing the duties specified herein;
and the terms "Lenders," "Required Lenders," or any similar term shall, unless
the context clearly otherwise indicates, include Agent in its capacity as a
Lender. Agent and its Affiliates may each accept deposits, maintain deposits or
credit balances for, invest in, lend money to, act as trustee under indentures
of, serve as financial advisor to, and generally engage in any kind of business
with any Borrower or any other Obligor, or any affiliate of a Borrower or any
other Obligor, as if it were any other bank and without any duty to account
therefor to the other Lenders.
12.15. No Third Party Beneficiaries. This Section 12 is not intended
----------------------------
to confer any rights or benefits upon any Borrower or any other Person except
Lenders and Agent, and no Person (including any or all Borrowers) other than
Lenders and Agent shall have any right to enforce any of the provisions of this
Section 12 except as expressly provided in Section 12.17 hereof. As between
Borrowers and Agent, any action that Agent may take or purport to take on behalf
of Lenders under any of the Loan Documents shall be conclusively presumed to
have been authorized and approved by Lenders as herein provided.
12.16. Notice of Transfer. Agent may deem and treat a Lender party to
------------------
this Agreement as the owner of such Lender's portion of the Revolver Loans for
all purposes, unless and until a written notice of the assignment or transfer
thereof executed by such Lender has been received by Agent.
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12.17. Replacement of Certain Lenders. If a Lender ("Affected
------------------------------
Lender") shall have (i) failed to fund its Pro Rata share of any Loan requested
by Borrowers which such Lender is obligated to fund under the terms of this
Agreement and which such failure has not been cured, (ii) requested compensation
from Borrowers under Section 2.7 to recover increased costs incurred by such
Lender (or its parent or holding company) which are not being incurred generally
by the other Lenders (or their respective parents or holding companies), or
(iii) delivered a notice pursuant to Section 2.6 hereof claiming that such
Lender is unable to extend LIBOR Loans to Borrowers for reasons not generally
applicable to the other Lenders, then, in any such case and in addition to any
other rights and remedies that Agent, any other Lender or any Borrower may have
against such Affected Lender, any Borrower or Agent may make written demand on
such Affected Lender (with a copy to Agent in the case of a demand by a Borrower
and a copy to Borrowers in the case of a demand by Agent) for the Affected
Lender to assign, and such Affected Lender shall assign pursuant to one or more
duly executed Assignment and Acceptances within 5 Business Days after the date
of such demand, to one or more Lenders willing to accept such assignment or
assignments, or to one or more Eligible Assignees designated by Agent, all of
such Affected Lender's rights and obligations under this Agreement (including
its Commitments and all Loans owing to it) in accordance with Section 13 hereof.
Agent is hereby irrevocably authorized to execute one or more Assignment and
Acceptances as attorney-in-fact for any Affected Lender which fails or refuses
to execute and deliver the same within 5 Business Days after the date of such
demand. The Affected Lender shall be entitled to receive, in cash and
concurrently with execution and delivery of each such Assignment and Acceptance,
all amounts owed to the Affected Lender hereunder or under any other Loan
Document, including the aggregate outstanding principal amount of the Revolver
Loans owed to such Lender, together with accrued interest thereon through the
date of such assignment. Upon the replacement of any Affected Lender pursuant to
this Section 12.17, such Affected Lender shall cease to have any participation
in, entitlement to, or other right to share in the Liens of Agent in any
Collateral and such Affected Lender shall have no further liability to Agent,
any Lender or any other Person under any of the Loan Documents (except as
provided in Section 12.6 hereof as to events or transactions which occur prior
to the replacement of such Affected Lender), including any commitment to make
loans or purchase participations in LC Obligations.
12.18. Remittance of Payments and Collections.
--------------------------------------
12.18.1. All payments by any Lender to Agent shall be made not
later than the time set forth elsewhere in this Agreement on the Business Day
such payment is due; provided, however, that if such payment is due on demand by
-------- -------
Agent and such demand is made on the paying Lender after 11:00 a.m. on such
Business Day, then payment shall be made by 11:00 a.m. on the next Business Day.
Payment by Agent to any Lender shall be made by wire transfer, promptly
following Agent's receipt of funds for the account of such Lender and in the
type of funds received by Agent; provided, however, that if Agent receives such
-------- -------
funds at or prior to 1:00 p.m., Agent shall pay such funds to such Lender by
2:00 p.m. on such Business Day, but if Agent receives such funds after 1:00
p.m., Agent shall pay such funds to such Lender by 2:00 p.m. on the next
Business Day.
12.18.2. With respect to the payment of any funds from Agent
to a Lender or from a Lender to Agent, the party failing to make full payment
when due pursuant to the terms hereof shall, on demand by the other party, pay
such amount together with interest
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thereon at the Federal Funds Rate. In no event shall Borrowers be entitled to
receive any credit for any interest paid by Agent to any Lender, or by any
Lender to Agent, at the Federal Funds Rate as provided herein.
SECTION 13. BENEFIT OF AGREEMENT; ASSIGNMENTS AND PARTICIPATIONS
13.1. Successors and Assigns. This Agreement shall be binding upon
----------------------
and inure to the benefit of Borrowers, Agent and Lenders and their respective
successors and assigns (which, in the case of Agent, shall include any successor
Agent appointed pursuant to Section 12.8 hereof), except that (i) no Borrower
shall have the right to assign its rights or delegate performance of any of its
obligations under any of the Loan Documents and (ii) any assignment by any
Lender must be made in compliance with Section 13.3 hereof. Agent may treat the
payee of any Note as the owner thereof for all purposes hereof unless and until
such payee complies with Section 13.3 in the case of an assignment thereof or,
in the case of any other transfer, a written notice of the transfer is filed
with Agent. Any assignee or transferee of a Note agrees by acceptance thereof to
be bound by all the terms and provisions of the Loan Documents. Any request,
authority or consent of any Person, who at the time of making such request or
giving such authority or consent is the holder of a Note, shall be conclusive
and binding on any subsequent holder, transferee or assignee of such Note or of
any Note or Notes issued in exchange therefor.
13.2. Participations.
--------------
13.2.1. Permitted Participants; Effect. Any Lender, upon the
----------------------
prior written consent of Borrower (unless the participation is to an Affiliate
of the Lender or occurs at such time an Event of Default exists), which consent
shall not be unreasonably withheld or delayed, may, in the ordinary course of
its business and in accordance with Applicable Law, at any time sell to one or
more banks or other financial institutions (each a "Participant") participating
interest in any of the Obligations owing to such Lender, any Commitment of such
Lender or any other interest of such Lender under any of the Loan Documents;
provided that, such approval shall not be unreasonably withheld or delayed, and
- --------
if Borrowers do not find the participant to be acceptable, Borrowers may within
120 days of such participation, terminate this Agreement and indefeasibly pay in
full all of the Obligations without any requirement that they pay the
termination charges pursuant to 5.2.3 hereof. In the event of any such sale by a
Lender of participating interests to a Participant, such Lender's obligations
under the Loan Documents shall remain unchanged, such Lender shall remain solely
responsible to the other parties hereto for the performance of such obligations,
such Lender shall remain the holder of any Note for all purposes under the Loan
Documents, all amounts payable by Borrowers under this Agreement and any of the
Notes shall be determined as if such Lender had not sold such participating
interests, and Borrowers and Agent shall continue to deal solely and directly
with such Lender in connection with such Lender's rights and obligations under
the Loan Documents. If a Lender sells a participation to a Person other than an
Affiliate of such Lender, then such Lender shall give prompt written notice
thereof to Borrowers and the other Lenders.
13.2.2. Voting Rights. Each Lender shall retain the sole right
-------------
to approve, without the consent of any Participant, any amendment, modification
or waiver of any provision of the Loan Documents other than an amendment,
modification or waiver with
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respect to any Loans or Commitment in which such Participant has an interest
which forgives principal, interest or fees or reduces the stated interest rate
or the stated rates at which fees are payable with respect to any such Loan or
Commitment, postpones the Commitment Termination Date, or any date fixed for any
regularly scheduled payment of interest or fees on such Loan or Commitment, or
releases from liability any Borrower or any Guarantor or releases any
substantial portion of any of the Collateral.
13.2.3. Benefit of Set-Off. Each Borrower agrees that each
------------------
Participant shall be deemed to have the right of set-off provided in Section
11.4 hereof in respect of its participating interest in amounts owing under the
Loan Documents to the same extent and subject to the same requirements under
this Agreement (including Section 12.5) as if the amount of its participating
interest were owing directly to it as a Lender under the Loan Documents,
provided that each Lender shall retain the right of set-off provided in Section
11.4 hereof with respect to the amount of participating interests sold to each
Participant. Lenders agree to share with each Participant, and each Participant
by exercising the right of set-off provided in Section 11.4 agrees to share with
each Lender, any amount received pursuant to the exercise of its right of
set-off, such amounts to be shared in accordance with Section 12.5 hereof as if
each Participant were a Lender.
13.3. Assignments.
-----------
13.3.1. Permitted Assignments. Any Lender may, in the ordinary
---------------------
course of its business and in accordance with Applicable Law, at any time assign
to any Eligible Assignee all or any part of its rights and obligations under the
Loan Documents, so long as (i) each assignment is of a constant, and not a
varying, ratable percentage of all of the transferor Lender's rights and
obligations under the Loan Documents with respect to the Loans and the LC
Obligations and, in the case of a partial assignment, is in a minimum principal
amount of $10,000,000 and integral multiples of $10,000,000 in excess of that
amount; (ii) except in the case of an assignment in whole of a Lender's rights
and obligations under the Loan Documents or an assignment by one original
signatory to this Agreement to another such signatory, immediately after giving
effect to any assignment, the aggregate amount of the Commitments retained by
the transferor Lender shall in no event be less than $20,000,000; and (iii) the
parties to each such assignment shall execute and deliver to Agent, for its
acceptance and recording, an Assignment and Acceptance. The consent of Agent
(and, provided no Default or Event of Default exists, Borrowers, which consent
shall not be unreasonably withheld or delayed) shall be required prior to an
assignment becoming effective with respect to an Eligible Assignee which is not
a Lender or an Affiliate of a Lender, and such assignment shall not become
effective until such time as notice thereof is given to Borrowers and Agent in
substantially the form of Exhibit G attached hereto. In the event any Lender
---------
desires to assign to one or more Eligible Assignee for which Borrowers' approval
is required, such Lender shall give Borrowers and Agent notice of this intent
and Borrowers shall have 20 days to approve the assignment. If Borrowers do not
find the participant or assignee to be acceptable, Borrowers may within 120 days
of such assignment, terminate this Agreement and indefeasibly pay in full all of
the Obligations without any requirement that they pay the termination charges
pursuant to 5.3.2 hereof. If Borrowers do not approve the assignment within such
20-day period, then Required Lenders may terminate this Agreement upon 120 days
written notice to Borrowers. In the event of termination by Required Lenders
under this Section, no prepayment premium shall be due or payable. Nothing
contained herein shall
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limit in any way the right of Lenders to assign (i) to any Eligible Assignee all
of their rights and obligations under the Loan Documents or (ii) all or any
portion of the Loans owing to it to any Federal Reserve Bank or the United
States Treasury as collateral security pursuant to Regulation A of the Board of
Governors and any Operating Circular issued by such Federal Reserve Bank,
provided that in the case of this clause (ii) any payment in respect of such
assigned Loans made by Borrowers to the assigning Lender in accordance with the
terms of this Agreement shall satisfy Borrowers' obligations hereunder in
respect of such assigned Loans to the extent of such payment, but no such
assignment shall release the assigning Lender from its obligations hereunder. If
a Lender (a "Non-continuing Lender") elects not to continue as a Lender at the
end of the Original Term or any Renewal Term or as a result of Borrowers'
refusal to consent to a participation or assignment by such Lender and the other
Lenders wish to continue as Lenders hereunder, upon 120 days prior written
notice of such election by the Non-continuing Lender given prior to the end of
the Original Term or any Renewal Term or following receipt of Borrowers' non-
approval, the remaining Lenders shall purchase the Non-continuing Lender's
interest in the Loans and Obligations in an amount equal to the principal,
accrued interest and share of fees, if any, of such Lender's interest in the
Loans and Obligations at such date.
13.3.2. Effect; Effective Date. Upon delivery to Agent of a
----------------------
notice of assignment substantially in the form attached as Exhibit G hereto,
---------
together with any consents required by Section 13.3.1, such assignment shall
become effective on the effective date specified in such notice of assignment.
On and after the effective date of such assignment, such Eligible Assignee shall
for all purposes be a Lender party to the Agreement and any other Loan Document
executed by the Lenders and shall have all the rights and obligations of the
Lender under the Loan Documents to the same extent as if it were an original
party thereto, and no further consent or action by Borrowers, Lenders or Agent
shall be required to release the transferor Lender with respect to the
Commitment (or portion thereof) of such Lender and Obligations assigned to such
Eligible Assignee. Upon the consummation of any assignment to an Eligible
Assignee pursuant to this Section 13.3.2, the transferor Lender, Agent and
Borrowers shall make appropriate arrangements so that replacement Notes are
issued to such transferor Lender and new Notes or, as appropriate, replacement
Notes, are issued to such Eligible Assignee, in each case in principal amounts
reflecting their respective Commitments, as adjusted pursuant to such
assignment.
13.3.3. Dissemination of Information. Each Borrower authorizes
----------------------------
each Lender and Agent to disclose to any Participant, any Eligible Assignee or
any other Person acquiring an interest in the Loan Documents by operation of law
(each a "Transferee"), and any prospective Transferee, any and all information
in Agent's or such Lender's possession concerning each Borrower, the
Subsidiaries of each Borrower or the Collateral, subject to appropriate
confidentiality undertakings on the part of such Transferee.
13.4. Reserved.
--------
13.5. Tax Treatment. If any interest in any Loan Document is
-------------
transferred to any Transferee that is organized under the laws of any
jurisdiction other than the United States or any State thereof, the transferor
Lender shall cause such Transferee, concurrently with the effectiveness of such
transfer, to comply with the provisions of Section 4.10 hereof.
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SECTION 14. MISCELLANEOUS
14.1. Power of Attorney. Each Borrower hereby irrevocably
-----------------
designates, makes, constitutes and appoints Agent (and all Persons designated by
Agent) as such Borrower's true and lawful attorney (and agent-in-fact) and
Agent, or Agent's designee, may, without notice to such Borrower and in either
such Borrower's or Agent's name, but at the cost and expense of Borrowers:
14.1.1. At such time or times as Agent or said designee, in
its sole discretion, may determine, endorse such Borrower's name on any Payment
Item or proceeds of the Collateral which come into the possession of Agent or
under Agent's control.
14.1.2. At such time or times upon or after the occurrence of
an Event of Default as Agent or Agent's designee in its sole discretion may
determine: (i) demand payment of the Accounts from the Account Debtors, enforce
payment of the Accounts by legal proceedings or otherwise, and generally
exercise all of such Borrower's rights and remedies with respect to the
collection of the Accounts; (ii) settle, adjust, compromise, discharge or
release any of the Accounts or other Collateral or any legal proceedings brought
to collect any of the Accounts or other Collateral; (iii) sell or assign any of
the Accounts and other Collateral upon such terms, for such amounts and at such
time or times as Agent deems advisable; (iv) take control, in any manner, of any
item of payment or proceeds relating to any Collateral; (v) prepare, file and
sign such Borrower's name to a proof of claim in bankruptcy or similar document
against any Account Debtor or to any notice of lien, assignment or satisfaction
of Lien or similar document in connection with any of the Collateral; (vi)
receive, open and dispose of all mail addressed to such Borrower and to notify
postal authorities to change the address for delivery thereof to such address as
Agent may designate; (vii) endorse the name of such Borrower upon any of the
items of payment or proceeds relating to any Collateral and deposit the same to
the account of Agent on account of the Obligations; (viii) endorse the name of
such Borrower upon any chattel paper, document, instrument, invoice, freight
bill, bill of lading or similar document or agreement relating to any Accounts
or Inventory of any Obligor and any other Collateral; (ix) use such Borrower's
stationery and sign the name of such Borrower to verifications of the Accounts
and notices thereof to Account Debtors; (x) use the information recorded on or
contained in any data processing equipment and computer hardware and software
relating to the Accounts, Inventory, Equipment and any other Collateral; (xi)
make and adjust claims under policies of insurance; and (xii) do all other acts
and things necessary, in Agent's determination, to fulfill such Borrower's
obligations under this Agreement.
14.2. General Indemnity. Each Borrower hereby agrees to indemnify
-----------------
and defend the Agent Indemnitees and the Lender Indemnitees and to hold the
Agent Indemnitees and the Lender Indemnitees harmless from and against any Claim
ever suffered or incurred by any of the Agent Indemnitees or Lender Indemnitees
arising out of or related to this Agreement or any of the other Loan Documents,
the performance by Agent or Lenders of their duties or the exercise of any of
their rights or remedies hereunder, or the result of any Borrower's failure to
observe, perform or discharge any of Borrowers' duties hereunder. Each Borrower
shall also indemnify and defend the Agent Indemnitees and the Lender Indemnitees
against and save the Agent Indemnitees and the Lender Indemnitees harmless from
all Claims of any Person arising out of, related to, or with respect to any
transactions entered into pursuant to
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this Agreement or Agent's Lien upon the Collateral. Without limiting the
generality of the foregoing, these indemnities shall extend to any Claims
asserted against any of the Agent Indemnitees and the Lender Indemnitees by any
Person under any Environmental Laws or similar laws by reason of any Borrower's
or any other Person's failure to comply with laws applicable to solid or
hazardous waste materials or other toxic substances. Additionally, if any Taxes
(excluding Taxes imposed upon or measured solely by the net income of Agent and
Lenders, but including, any intangibles tax, stamp tax, recording tax or
franchise tax) shall be payable by Agent or any Obligor on account of the
execution or delivery of this Agreement, or the execution, delivery, issuance or
recording of any of the other Loan Documents, or the creation or repayment of
any of the Obligations hereunder, by reason of any Applicable Law now or
hereafter in effect, Borrowers will pay (or will promptly reimburse Agent and
Lenders for the payment of) all such Taxes, including any interest and penalties
thereon, and will indemnify and hold Agent Indemnitees and Lender Indemnitees
harmless from and against liability in connection therewith. The foregoing
indemnities shall not apply to protect any of the Agent Indemnitees or Lender
Indemnitees for the consequences of their own gross negligence or willful
misconduct.
14.3. Survival of All Indemnities. Notwithstanding anything to the
---------------------------
contrary in this Agreement or any of the other Loan Documents, the obligation of
each Borrower and each Lender with respect to each indemnity given by it in this
Agreement, whether given by such Borrower to Agent Indemnitees or Lender
Indemnitees or by any Lender to any Agent Indemnitees, shall survive the payment
in full of the Obligations and the termination of any of the Commitments.
14.4. Modification of Agreement. This Agreement may not be modified,
-------------------------
altered or amended, except by an agreement in writing signed by Borrowers, Agent
and Lenders (or, where otherwise allowed by Section 12 hereof, the Required
Lenders); provided, however, that no consent, written or otherwise, of any
Borrower shall be necessary or required in connection with any amendment of any
of the provisions of Section 12 (other than Section 12.17) or any other
provision of this Agreement that affects only the rights, duties and
responsibilities of Lenders and Agent as among themselves so long as no such
amendment imposes any additional obligations on Borrowers.
14.5. Severability. Wherever possible, each provision of this
------------
Agreement shall be interpreted in such manner as to be effective and valid under
Applicable Law, but if any provision of this Agreement shall be prohibited by or
invalid under Applicable Law, such provision shall be ineffective only to the
extent of such prohibition or invalidity, without invalidating the remainder of
such provision or the remaining provisions of this Agreement.
14.6. Cumulative Effect; Conflict of Terms. To the fullest extent
------------------------------------
permitted by Applicable Law, the provisions of the Other Agreements and the
Security Documents are hereby made cumulative with the provisions of this
Agreement. Except as otherwise provided in any of the other Loan Documents by
specific reference to the applicable provision of this Agreement, if any
provision contained in this Agreement is in direct conflict with, or
inconsistent with, any provision in any of the other Loan Documents, the
provision contained in this Agreement shall govern and control.
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14.7. Execution in Counterparts. This Agreement and any amendments
-------------------------
hereto may be executed in any number of counterparts and by different parties
hereto in separate counterparts, each of which when so executed and delivered
shall be deemed to be an original and all of which counterparts taken together
shall constitute but one and the same instrument.
14.8. Agent's or Required Lenders' Consent. Whenever Agent's, Lenders'
------------------------------------
or Required Lenders' consent is required to be obtained under this Agreement or
any of the other Loan Documents as a condition to any action, inaction,
condition or event, Agent and each Lender shall be authorized to give or
withhold its consent in its sole and absolute discretion and to condition its
consent upon the giving of additional collateral security for the Obligations,
the payment of money or any other matter.
14.9. Notice. All notices, requests and demands to or upon a party
------
hereto shall be in writing and shall be sent by certified or registered mail,
return receipt requested, personal delivery against receipt or by telecopier or
other facsimile transmission and shall be deemed to have been validly served,
given or delivered when delivered against receipt or 3 Business Days after
deposit in the U.S. mail, certified mail postage prepaid, or, in the case of
facsimile transmission, when received (if on a Business Day and, if not received
on a Business Day, then on the next Business Day after receipt) at the office
where the noticed party's telecopier is located, in each case addressed to the
noticed party at the address shown for such party on the signature page hereof
or, in the case of a Person who becomes a Lender after the date hereof, at the
address shown on the Assignment and Acceptance by which such Person became a
Lender. Any written notice or demand that is not sent in conformity with the
provisions hereof shall nevertheless be effective on the date that such notice
is actually received by the noticed party.
14.10. Credit Inquiries. Each Borrower hereby authorizes and permits
----------------
Agent and Lenders (but Agent and Lenders shall have no obligation) to respond to
usual and customary credit inquiries from third parties concerning such Borrower
or any of its Subsidiaries.
14.11. Time of Essence. Time is of the essence of this Agreement, the
---------------
Agreements and the Security Documents.
14.12. Entire Agreement; Appendix A, Exhibits and Schedules. This
----------------------------------------------------
Agreement and the other Loan Documents, together with all other instruments,
agreements and certificates executed by the parties in connection therewith or
with reference thereto, embody the entire understanding and agreement between
the parties hereto and thereto with respect to the subject matter hereof and
thereof and supersede all prior agreements, understandings and inducements,
whether express or implied, oral or written. Appendix A, each of the Exhibits
and each of the Schedules attached hereto are incorporated into this Agreement
and by this reference made a part hereof.
14.13. Interpretation. No provision of this Agreement or any of the
--------------
other Loan Documents shall be construed against or interpreted to the
disadvantage of any party hereto by any court or other governmental or judicial
authority by reason of such party having or being deemed to have structured or
dictated such provision.
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<PAGE>
14.14. Obligations of Lenders Several. The obligations of each Lender
------------------------------
hereunder are several, and no Lender shall be responsible for the obligations or
Commitment of any other Lender. Nothing contained in this Agreement and no
action taken by Lenders pursuant hereto shall be deemed to constitute the
Lenders to be a partnership, association, joint venture or any other kind of
entity. The amounts payable at any time hereunder to each Lender shall be a
separate and independent debt, and each Lender shall be entitled, to the extent
not otherwise restricted hereunder, to protect and enforce its rights arising
out of this Agreement and any of the other Loan Documents and it shall not be
necessary for Agent or any other Lender to be joined as an additional party in
any proceeding for such purpose.
14.15. Governing Law; Consent To Forum. This Agreement has been
-------------------------------
negotiated, executed and delivered at and shall be deemed to have been made in
Glastonbury, Connecticut. This Agreement shall be governed by and construed in
accordance with the laws of the State of Connecticut; provided, however, that if
-------- -------
any of the Collateral shall be located in any jurisdiction other than
Connecticut, the laws of such jurisdiction shall govern the method, manner and
procedure for foreclosure of Agent's Lien upon such Collateral and the
enforcement of Agent's other remedies in respect of such Collateral to the
extent that the laws of such jurisdiction are different from or inconsistent
with the laws of the State of Connecticut. As part of the consideration for new
value received, and regardless of any present or future domicile or principal
place of business of any Borrower, any Lender or Agent, each Borrower hereby
consents and agrees that the State of Connecticut Superior Court Juridicial
District of Hartford/New Britain at Hartford, or, at Agent's option, the United
States District Court for the District of Connecticut, Hartford Division, shall
have jurisdiction to hear and determine any claims or disputes among Borrowers,
Agent and Lenders pertaining to this Agreement or to any matter arising out of
or related to this Agreement. Each Borrower expressly submits and consents in
advance to such jurisdiction in any action or suit commenced in any such Court,
and each Borrower hereby waives any objection which such Borrower may have based
upon lack of personal jurisdiction, improper venue or forum non conveniens and
----- --- ----------
hereby consents to the granting of such legal or equitable relief as is deemed
appropriate by such Court. Each Borrower hereby waives personal service of the
summons, complaint and other process issued in any such action or suit and
agrees that service of such summons, complaint and other process may be made by
certified mail addressed to such Borrower at the address set forth in this
Agreement and that service so made shall be deemed completed upon the earlier of
such Borrower's actual receipt thereof or 3 days after deposit in the U.S.
mails, proper postage prepaid. Nothing in this Agreement shall be deemed or
operate to affect the right of Agent to serve legal process in any other manner
permitted by law, or to preclude the enforcement by Agent of any judgment or
order obtained in such forum or the taking of any action under this Agreement to
enforce same in any other appropriate forum or jurisdiction.
14.16. Waivers by Borrowers. Each Borrower waives (i) the right to
--------------------
trial by jury (which Agent and each Lender hereby also waives) in any action,
suit, proceeding or counterclaim of any kind arising out of or related to any of
the Loan Documents, the Obligations or the Collateral; (ii) presentment, demand
and protest and notice of presentment, protest, default, non payment, maturity,
release, compromise, settlement, extension or renewal of any or all commercial
paper, accounts, contract rights, documents, instruments, chattel paper and
guaranties at any time held by Agent on which such Borrower may in any way be
liable and hereby ratifies and confirms whatever
-70-
<PAGE>
Agent may do in this regard; (iii) notice prior to taking possession or control
of the Collateral or any bond or security which might be required by any court
prior to allowing Agent to exercise any of Agent's remedies; (iv) the benefit of
all valuation, appraisement and exemption laws; and (v) notice of acceptance
hereof. Each Borrower acknowledges that the foregoing waivers are a material
inducement to Agent's and Lender's entering into this Agreement and that Agent
and Lenders are relying upon the foregoing waivers in its future dealings with
Borrowers. Each Borrower warrants and represents that it has reviewed the
foregoing waivers with its legal counsel and has knowingly and voluntarily
waived its jury trial rights following consultation with legal counsel. In the
event of litigation, this Agreement may be filed as a written consent to a trial
by the Court. Each Borrower hereby waives such rights as it may have to notice
and/or hearing under any applicable federal or state laws including, without
limitation, Connecticut General Statutes Sections 52-278a, et seq., as amended,
pertaining to the exercise by Agent and Lenders of such rights as the Agent and
Lenders may have including, but not limited to, the right to seek prejudgement
remedies and/or deprive Borrowers or any Guarantor of or affect the use of or
possession or enjoyment of any Borrower's or any Guarantor's property prior to
the rendition of a final judgment against any Borrower or any Guarantor. Each
Borrower further waives any right it may have to require Agent and Lenders to
provide a bond or other security as a precondition to or in connection with any
prejudgment remedy sought by Agent and Lenders, and waive any objection to the
issuance of such prejudgment remedy based on any offsets, claims, defenses or
counterclaims to any action brought by Agent and Lenders. Each Borrower hereby
represents covenants and agrees that the proceeds of the Loans evidenced by this
Agreement shall be used for general commercial purposes and that such Loans
constitute a "commercial transaction" as defined by the statutes of the State of
Connecticut.
-71-
<PAGE>
14.17. Not an "Alabama" Transaction Borrowers, Agent, and Lenders
----------------------------
expressly acknowledge and agree that (i) Borrowers' obligations hereunder were
not issued in the State of Alabama, and none of the Loan Documents were entered
into or delivered in the State of Alabama, and (ii) the transactions
contemplated by this Agreement and the related documents are intended to be
transactions in interstate commerce within the meaning of the Constitution of
the United States of America. If, notwithstanding the foregoing, any court of
competent jurisdiction should reach a contrary conclusion, each Borrower hereby
expressly waives, disclaims, and agrees not to assert or otherwise seek to
invoke any right, remedy, or option under or as a result of any applicable law
of the State of Alabama relating to the transacting of business in Alabama. Each
Borrower further acknowledges and agrees that it cannot require the Agent or any
Lender to perform any of its obligations hereunder in the State of Alabama,
other than the obligation to terminate or release Liens in the Collateral upon
the indefeasible payment in full of the Obligations.
[This space is intentionally left blank]
-72-
<PAGE>
IN WITNESS WHEREOF, this Agreement has been duly executed on the day
and year specified at the beginning of this Agreement.
BORROWERS:
---------
GULF STATES STEEL, INC. OF ALABAMA
By: /s/ Jeffrey S. Stein
---------------------------------------
Jeffrey S. Stein, Vice-President and
Assistant Secretary
Address:
174 South 26th Street
Gadsden, Alabama 35904
Attention: President
Telecopier No.: (205) 543-6218
--------------
ALABAMA STRUCTURAL BEAM CORP.
By: /s/ Jeffrey S. Stein
---------------------------------------
Jeffrey S. Stein, Vice-President and
Assistant Secretary
Address:
174 South 26th Street
Gadsden, Alabama 35904
Attention: President
Telecopier No.: (205) 543-6218
---------------
(Signatures continued on following page)
-73-
<PAGE>
LENDERS:
-------
FLEET CAPITAL CORPORATION
Revolver Commitment: $35,000,000 By: /s/ Timothy J. Broderick
Equipment Loan Commitment: $5,000,000 ---------------------------------
Total Commitment: $40,000,000 Title: Senior Vice President
------------------------------
LIBOR Lending Office:
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Office Head
Telecopier No.: (860) 657-7759
--------------
CONGRESS FINANCIAL CORPORATION
Revolver Commitment: $35,000,000 By: /s/ Edward I. Shifman
Equipment Loan Commitment: $5,000,000 ---------------------------------
Total Commitment: $40,000,000 Title: Senior Vice President
------------------------------
LIBOR Lending Office:
One Post Office Square
Boston, Massachusetts 02109
Attention: Mr. Marc Swartz
Telecopier No.: (617) 338-1497
--------------
AGENT:
-----
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Timothy J. Broderick
---------------------------------
Title: Senior Vice President
------------------------------
Address:
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Office Head
Telecopier No.: (860) 657-7759
--------------
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<PAGE>
APPENDIX A
GENERAL DEFINITIONS
When used in the Loan and Security Agreement dated November 13, 1997
(as at any time amended, the "Loan Agreement"), by and among GULF STATES STEEL,
INC. OF ALABAMA ("GSS"), an Alabama corporation with its chief executive office
and principal place of business at 174 South 26th Street, Gadsden, Alabama
35904; ALABAMA STRUCTURAL BEAM CORP. ("ASB"), an Alabama corporation with its
chief executive office and principal place of business at 174 South 26th Street,
Gadsden, Alabama 35904; (GSS and ASB being referred to collectively as
"Borrowers," and individually as a "Borrower"); the various financial
institutions listed on the signature pages thereto and their respective
successors and assigns which become "Lenders" as provided therein (such
financial institutions and their respective successors and assigns referred to
collectively herein as "Lenders," and individually as a "Lender"), and FLEET
CAPITAL CORPORATION, in its capacity as Agent for itself and the Lenders (in
such capacity, "Agent"), the following terms shall have the following meanings
(terms defined in the singular to have the same meaning when used in the plural
and vice versa):
Account - shall have the meaning given to "account" in the
-------
UCC.
Account Debtor - any Person who is or may become obligated
--------------
under or on account of an Account.
Accounts Formula Amount - on any date of determination
-----------------------
thereof, a amount equal to 85% of the net amount of Eligible
Accounts on such date. As used herein, the phrase "net amount
of Eligible Accounts" shall mean the face amount of such
Accounts on any date less any and all returns, rebates,
discounts (which may, at Agent's option, be calculated on
shortest terms), credits, allowances or Taxes (including
sales, excise or other taxes) at any time issued, owing,
claimed by Account Debtors, granted, outstanding or payable
in connection with, or any interest accrued on the amount of,
such Accounts at such date.
Adjusted LIBOR Rate - with respect to each Interest Period
-------------------
for a LIBOR Loan, an interest rate per annum (rounded
upwards, to the next 1/16th of 1%) equal to the quotient of
(a) the LIBOR Rate in effect for such Interest Period divided
by (b) a percentage (expressed as a decimal) equal to 100%
minus Statutory Reserves.
Affiliate - a Person (other than a Subsidiary): (i) which
---------
directly or indirectly through one or more intermediaries
controls, or is controlled by, or is under common control
with, a Person; (ii) which beneficially owns or holds 10% or
more of any class of the Voting Stock of a Person; or (iii)
10% or more of the Voting Stock (or in the case of a Person
which is not a corporation, 10% or more of the equity
securities) of which is beneficially owned or held by a
Person or a Subsidiary of a Person.
<PAGE>
Agent Indemnitees - Agent in its capacity as agent hereunder
-----------------
and all of Agent's officers, directors and agents.
Agreement - the Loan and Security Agreement referred to in
---------
the first sentence of this Appendix A, all Exhibits and
Schedules thereto and this Appendix A.
Applicable Law - all laws, rules and regulations applicable
--------------
to the Person, conduct, transaction, covenant or Loan
Documents in question, including all applicable common law
and equitable principles; all provisions of all applicable
state and federal constitutions, statutes, rules, regulations
and orders of governmental bodies; and orders, judgments and
decrees of all courts and arbitrators.
Assignment and Acceptance - an assignment and acceptance
-------------------------
entered into by a Lender and an Eligible Assignee and
accepted by Agent, in the form of Exhibit F.
---------
Availability - the amount that Borrowers are entitled to
------------
borrow from time to time as Revolver Loans, such amount being
the difference derived when the sum of the principal amount
of Revolver Loans then outstanding (including any amounts
that Agent or Lenders may have paid for the account of
Borrowers pursuant to any of the Loan Documents and that have
not been reimbursed by Borrowers and any outstanding
Settlement Loans) is subtracted from the Borrowing Base. If
the amount outstanding is equal to or greater than the
Borrowing Base, Availability is 0.
Availability Reserve - on any date of determination thereof,
--------------------
an amount equal to the sum of (i) a reserve for general
inventory shrinkage, whether as a result of theft or
otherwise, that is determined by Agent from time to time in
its reasonable credit judgment based upon Borrowers'
historical losses due to such shrinkage; (ii) all amounts of
past due rent or other charges owing at such time by any
Obligor to any landlord of any premises where any of the
Collateral is located; (iii) the LC Reserve; (iv) any amounts
which any Obligor is obligated to pay pursuant to the
provisions of any of the Loan Documents that Agent or any
Lender elects to pay for the account of such Obligor in
accordance with authority contained in any of the Loan
Documents; (v) a reserve in the amount of approximately
$170,000 until such time that the default referenced in
Section 8.1.20 is cured by Borrowers; (vi) a reserve in the
amount of monthly charges due from time to time to the
Alabama State Docks Department; and (vii) for so long as any
Event of Default exists, such additional reserves as Agent in
its sole and absolute discretion may elect to impose from
time to time, without waiving any such Event of Default or
Agent's entitlement to accelerate the maturity of the
Obligations as a consequence thereof.
Average Revolver Loan Balance - for any period, the amount
-----------------------------
obtained by adding the aggregate of the unpaid balance of
Revolver Loans and LC Obligations outstanding at the end of
each day for the period in question and by dividing such sum
by the number of days in such period.
Bank - Fleet National Bank and its successors and assigns.
----
Bankruptcy Code - title 11 of the United States Code.
---------------
<PAGE>
Base Rate - the rate of interest announced or quoted by Bank
--------
from time to time as its prime rate, which rate might not be
the lowest rate charged by Bank; and, if such prime rate for
commercial loans is discontinued by Bank as a standard, a
comparable reference rate designated by Bank as a substitute
therefor shall be the Base Rate.
Base Rate Loan - a Loan, or portion thereof, during any
--------------
period in which it bears interest at a rate based upon the
Base Rate.
Board of Governors - the Board of Governors of the Federal
------------------
Reserve Board.
Borrowing - a borrowing consisting of Loans made on the same
---------
day by Lenders (or by Fleet in the case of a Borrowing funded
by Settlement Loans).
Borrowing Base - on any date of determination thereof, an
--------------
amount equal to the lesser of: (a) the aggregate amount of
the Revolver Commitments minus the LC Obligations outstanding
on such date, or (b) an amount equal to (i) the sum of the
Accounts Formula Amount plus the Inventory Formula Amount on
----
such date minus (ii) the Availability Reserve on such date.
Business Day - any day excluding Saturday, Sunday and any day
------------
which is a legal holiday under the laws of the State of
Connecticut or is a day on which banking institutions located
in such state are closed; provided, however, that when used
-------- -------
with reference to a LIBOR Loan (including the making,
continuing, prepaying or repaying of any LIBOR Loan), the
term "Business Day" shall also exclude any day on which banks
are not open for dealings in Dollar deposits on the London
interbank market.
Business Interruption Insurance Assignment - the Collateral
------------------------------------------
Assignment of Business Interruption Insurance to be executed
by Borrowers on the Closing Date in favor of Lender, in form
and substance satisfactory to Agent, as security for the
payment of the Obligations.
Capital Expenditures - expenditures made or liabilities
--------------------
incurred for the acquisition of any fixed assets or
improvements, replacements, substitutions or additions
thereto which have a useful life of more than one year,
including the total principal portion of Capitalized Lease
Obligations.
Capitalized Lease Obligation - any Debt represented by
----------------------------
obligations under a lease that is required to be capitalized
for financial reporting purposes in accordance with GAAP.
Cash Collateral - cash or Cash Equivalents, and any interest
---------------
earned thereon, that is deposited with Agent in accordance
with the Agreement for the Pro Rata benefit of Lenders as
security for the Obligations to the extent provided in the
Agreement.
Cash Collateral Account - a demand deposit, money market or
-----------------------
other account established by Agent at such financial
institution as Agent may select in its discretion, which
account shall be in Agent's name and subject to Agent's Liens
for the Pro Rata benefit of Lenders.
Cash Equivalents - (i) marketable direct obligations issued
----------------
or unconditionally guaranteed by the United States government
and backed by the full faith and credit of the United States
<PAGE>
government having maturities of not more than 12 months from
the date of acquisition; (ii) domestic certificates of
deposit and time deposits having maturities of not more than
12 months from the date of acquisition, bankers' acceptances
having maturities of not more than 12 months from the date of
acquisition and overnight bank deposits, in each case issued
by any commercial bank organized under the laws of the United
States, any state thereof or the District of Columbia, which
at the time of acquisition are rated A-1 (or better) by
Standard & Poor's Corporation or P-1 (or better) by Moody's
Investors Services, Inc., and (unless issued by a Lender) not
subject to offset rights in favor of such bank arising from
any banking relationship with such bank; (iii) repurchase
obligations with a term of not more than 30 days for
underlying securities of the types described in clauses (i)
and (ii) entered into with any financial institution meeting
the qualifications specified in clause (ii) above; and (iv)
commercial paper having at the time of investment therein or
a contractual commitment to invest therein a rating of A-1
(or better) by Standard & Poor's Corporation or P-1 (or
better) by Moody's Investors Services, Inc., and having a
maturity within 9 months after the date of acquisition
thereof.
CERCLA - the Comprehensive Environmental Response
------
Compensation and Liability Act, 42 U.S.C. 9601 et seq. and
its implementing regulations.
Chattel Paper - shall have the meaning ascribed to the term
-------------
"chattel paper" in the UCC.
Claims - any and all claims, demands, liabilities,
------
obligations, losses, damages, penalties, actions, judgments,
suits, awards, remedial response, costs, expenses or
disbursements of any kind or nature whatsoever (including
reasonable attorneys', accountants' or consultants' fees and
expenses), whether arising under or in connection with the
Loan Documents, under any Applicable Law (including any
Environmental Law) or otherwise, that may now or hereafter be
suffered or incurred by a Person.
Closing Date - the date on which all of the conditions
------------
precedent in Section 10 of the Agreement are satisfied and
the initial Loans are made under the Agreement.
Collateral - all of the Property and interests in Property
----------
described in Section 6 of the Agreement, and all other
Property and interests in Property that now or hereafter
secure the payment and performance of any of the Obligations.
Commitment - at any date for any Lender, the aggregate amount
----------
of such Lender's Revolver Commitment and Equipment Loan
Commitment and "Commitments" means the aggregate amount of
all Revolver Commitments and Equipment Loan Commitments.
Commitment Termination Date - the date that is the soonest to
---------------------------
occur of (i) the last day of the Original Term, (ii) the date
on which an order for relief under any chapter of the
Bankruptcy Code is entered (or deemed entered) upon any
petition for such relief that is filed by or against any
Borrower or any Obligor, (iii) the date on which Agent elects
to terminate the Commitments pursuant to Section 5.2.1 of the
Agreement as a consequence of the occurrence of any Event of
Default, or (iv) the date on which Borrowers elect to
terminate the Commitments pursuant to Section 5.2.2 of the
Agreement.
<PAGE>
Compliance Certificate - a Compliance Certificate to be
----------------------
provided by Borrowers to Agent in accordance with, and in the
form annexed as Exhibit E to the Agreement.
---------
Congress - Congress Financial Corporation, a California
--------
corporation.
Consolidated - the consolidation in accordance with GAAP of
------------
the accounts or other items as to which such term applies.
Consolidated Adjusted Tangible Assets - all assets of
-------------------------------------
Borrowers except: (i) any surplus resulting from any write-up
of assets subsequent to September 30, 1997; (ii) deferred
assets, other than prepaid insurance and prepaid taxes; (iii)
patents, copyrights, trademarks, trade names, non-compete
agreements, franchises and other similar intangibles; (iv)
good will, including any amounts, however designated on a
Consolidated balance sheet of Borrowers and their respective
Subsidiaries, representing the excess of the purchase price
paid for assets or stock over the value assigned thereto on
the books of Borrowers; (v) Restricted Investments; (vi)
unamortized debt discount and expense; (vii) assets located
and notes and receivables due from obligors outside of the
United States of America except for Accounts that are
Eligible Accounts; and (viii) Accounts, notes and other
receivables due from Affiliates or employees.
Consolidated Adjusted Tangible Net Worth - at any date means,
----------------------------------------
on a Consolidated basis, a sum equal to:
(i) the net book value (after deducting related
depreciation, obsolescence, amortization, valuation, and other proper reserves)
at which the Consolidated Adjusted Tangible Assets of Borrowers would be shown
on a Consolidated balance sheet at such date in accordance with GAAP, minus
-----
(ii) the amount at which such Borrowers'
Consolidated liabilities (other than capital stock and surplus) would be shown
on such Consolidated balance sheet in accordance with GAAP, and including as
liabilities all reserves for contingencies and other potential liabilities
required to be accrued in accordance with GAAP.
Current Assets - at any date, the amount at which all of the
--------------
current assets of a Person would be properly classified as
current assets shown on a balance sheet at such date in
accordance with GAAP except that amounts due from Affiliates
and investments in Affiliates shall be excluded therefrom.
Debt - as applied to a Person means, without duplication: (i)
----
all items which in accordance with GAAP would be included in
determining total liabilities as shown on the liability side
of a balance sheet of such Person as of the date as of which
Debt is to be determined, including Capitalized Lease
Obligations; (ii) all obligations of other Persons which such
Person has guaranteed; (iii) all reimbursement obligations in
connection with letters of credit or letter of credit
guaranties issued for the account of such Person; and (iv) in
the case of Borrowers (without duplication), the Obligations.
Default - an event or condition the occurrence of which
-------
would, with the lapse of time or the giving of notice, or
both, become an Event of Default.
<PAGE>
Default Rate - a fluctuating rate per annum which, on any
------------
date, is equal to the Base Rate in effect for such date plus
2%.
Deposit Account - a demand, time, savings, passbook, money
---------------
market or other depository account, or a certificate of
deposit, maintained by a Borrower with any bank, savings and
loan association, credit union or other depository
institution.
Distribution - in respect of any entity, (i) any payment of
------------
any dividends or other distributions on Equity Interests of
the entity (except distributions in such Equity Interests) and
(ii) any purchase, redemption or other acquisition or
retirement for value of any Equity Interests of the entity or
any Affiliate of the entity unless made contemporaneously from
the net proceeds of the sale of Equity Interests.
Document - shall have the meaning ascribed to the term
--------
"document" in the UCC.
Dollars and the sign $ - lawful money of the United States of
----------------------
America.
Dominion Account - a special account of Agent established by
----------------
Borrowers at a bank selected by Borrowers, but acceptable to
Agent and Lenders in their discretion, and over which Agent
shall have sole and exclusive access and control for
withdrawal purposes.
Eligible Account - an Account arising in the ordinary course
----------------
of a Borrower's business from the sale of goods or rendition
of services which is payable in Dollars and which Agent, in
its sole credit judgment, deems to be an Eligible Account.
Without limiting the generality of the foregoing, no Account
shall be an Eligible Account if: (i) it arises out of a sale
made by a Borrower to a Subsidiary or an Affiliate of any
Borrower or to a Person controlled by an Affiliate of any
Borrower; (ii) it is unpaid for more than 60 days after the
original due date shown on the invoice; (iii) it is due or
unpaid more than 90 days after the original invoice date; (iv)
25% or more of the Accounts from the Account Debtor are not
deemed Eligible Accounts hereunder; (v) the total unpaid
Accounts of the Account Debtor exceed 15% of the net amount of
all Eligible Accounts or exceeds a credit limit established by
Agent for such Account Debtor, in each case to the extent of
such excess; (vi) any covenant, representation or warranty
contained in the Agreement with respect to such Account has
been breached; (vii) the Account Debtor is also a Borrower's
creditor or supplier, or the Account Debtor has disputed
liability with respect to such Account, or the Account Debtor
has made any claim with respect to any other Account due from
such Account Debtor to a Borrower, or the Account otherwise is
or may become subject to any right of setoff, counterclaim,
reserve or chargeback, provided that, the Accounts of such
Account Debtor shall be ineligible only to the extent of such
offset, counterclaim, disputed amount, reserve or chargeback;
(viii) an Insolvency Proceeding has been commenced by or
against the Account Debtor or the Account Debtor has failed,
suspended business or ceased to be Solvent; (ix) it arises
from a sale to an Account Debtor with its principal office,
assets or place of business outside the United States, unless
the sale is backed by an irrevocable letter of credit that is
issued or confirmed by a bank acceptable to Agent that is in
form and substance acceptable to Agent and payable in the full
amount of the Account in freely convertible Dollars at a place
of
<PAGE>
payment within the United States, and, if requested by
Agent, such letter of credit, or amounts payable thereunder,
is assigned to Lender; (x) it arises from a sale to the
Account Debtor on a bill-and-hold, guaranteed sale,
sale-or-return, sale-on-approval, consignment or any other
repurchase or return basis; (xi) the Account Debtor is the
United States of America or any department, agency or
instrumentality thereof, unless such Borrower assigns its
right to payment of such Account to Lender, in a manner
satisfactory to Agent, so as to comply with the Assignment of
Claims Act of 1940 (31 U.S.C. 3727 and 41 U.S.C. 15), or is a
state, county or municipality, or a political subdivision or
agency thereof and Applicable Law disallows or restricts an
assignment of Accounts on which it is the Account Debtor;
(xii) the Account Debtor is located in New Jersey, Minnesota
or any other state imposing similar conditions on the right of
a creditor to collect accounts receivable unless such Borrower
has either qualified to transact business in such state as a
foreign entity or filed a Notice of Business Activities Report
or other required report with the appropriate officials in
those states for the then current year; (xiii) the Account
Debtor is located in a state in which such Borrower is deemed
to be doing business under the laws of such state and which
denies creditors access to its courts in the absence of
qualification to transact business in such state or of the
filing of any reports with such state, unless such Borrower
has qualified as a foreign entity authorized to transact
business in such state or has filed all required reports;
(xiv) the Account is subject to a Lien other than a Permitted
Lien; (xv) the goods giving rise to such Account have not been
delivered to and accepted by the Account Debtor or the
services giving rise to such Account have not been performed
by such Borrower and accepted by the Account Debtor or the
Account otherwise does not represent a final sale; (xvi) the
Account is evidenced by chattel paper or an instrument of any
kind, or has been reduced to judgment; (xvii) such Borrower
has made any agreement with the Account Debtor for any
deduction therefrom, except for discounts or allowances which
are made in the ordinary course of business for prompt payment
and which discounts or allowances are reflected in the
calculation of the face value of each invoice related to such
Account; or (xviii) such Borrower has made an agreement with
the Account Debtor to extend the time of payment thereof.
Eligible Assignee - a Lender or a U.S. based Affiliate of a
-----------------
Lender; a commercial bank organized under the laws of the
United States or any state and having total assets in excess
of $5,000,000,000 or an asset based lending affiliate of any
such bank; or a finance company, insurance company, or any
other financial institution that is acceptable to Agent and
Lenders and that in the ordinary course of business extends
credit of the type evidenced by the Notes and has total assets
in excess of $500,000,000.
Eligible Equipment - such new manufacturing Equipment of a
------------------
Borrower which all Lenders, in their sole credit judgment
deems to be Eligible Equipment. Without limiting the
generality of the foregoing, no Equipment shall be Eligible
Equipment unless it: (i) has been purchased by a Borrower from
the manufacturer thereof; (ii) has been delivered to and
accepted by a Borrower and installed at premises owned or
leased by a Borrower; (iii) is subject to Agent's duly
perfected security interest and no other Lien that is not a
Permitted Lien unless the holder of any such Lien agrees in
writing with Agent, prior to Lenders' funding of the Equipment
Loan for such Eligible Equipment, to disclaim any interest in
such Eligible Equipment; (iv) does not and, after delivery to
and installation at a Borrower's premises, will not constitute
a fixture under Applicable Law unless each landlord and
mortgagee in respect of such premises has executed in favor of
Agent a landlord or
<PAGE>
mortgagee waiver in form and content satisfactory to Agent;
(v) does not and, after delivery to and installation at a
Borrower's premises, will not constitute an accession to other
Equipment that is subject to any Lien (whether or not a
Permitted Lien) in favor of any Person other than Agent unless
the holder of any such Lien agrees in writing to disclaim any
interest in the Eligible Equipment; and (vi) does not and,
after delivery to and installation at a Borrower's premises,
will not constitute a replacement for or substitution of any
Equipment that is subject to any Lien (whether or not a
Permitted Lien) in favor of any Person other than Agent unless
the holder of any such Lien agrees in writing to disclaim any
interest in the Eligible Equipment.
Eligible Inventory - such Inventory of a Borrower (other than
------------------
packaging materials, labels and supplies) which Agent, in its
sole credit judgment, deems to be Eligible Inventory. Without
limiting the generality of the foregoing, no Inventory shall
be Eligible Inventory unless: (i) it is raw materials,
finished goods or work-in-process that is, in Agent's opinion,
readily marketable in its current form; (ii) it is in good,
new and saleable condition; (iii) it is not slow-moving,
obsolete or unmerchantable; (iv) it meets all standards
imposed by any governmental agency or authority; (v) it
conforms in all respects to the warranties and representations
set forth in the Agreement; (vi) it is at all times subject to
Agent's duly perfected, first priority security interest and
no other Lien except a Permitted Lien; and (vii) it is in a
Borrower's possession and control, situated at a location in
compliance with the Agreement and is not in transit or outside
the continental United States.
Environmental Certificate - the Certificate Regarding
-------------------------
Environmental Matters to be executed by a Senior Officer and
containing representations and warranties concerning each
Borrower's and its Subsidiaries' compliance with Environmental
Laws.
Environmental Laws - all federal, state and local laws, rules,
------------------
regulations, ordinances, programs, permits, guidance documents
promulgated by regulatory agencies, orders and consent decrees
relating to human health and safety or the protection or
pollution of the environment, including CERCLA.
Environmental Release - a release as defined in CERCLA or
---------------------
under any applicable Environmental Law.
Equipment - all machinery, apparatus, equipment, fittings,
---------
furniture, fixtures, motor vehicles and other tangible
personal Property (other than Inventory) of every kind and
description used in a Borrower's operations or owned by a
Borrower or in which a Borrower has an interest, whether now
owned or hereafter acquired by a Borrower and wherever
located, and all parts, accessories and special tools and all
increases and accessions thereto and substitutions and
replacements therefor.
Equipment Loan - the Loans that may be made by Lenders to GSS
--------------
pursuant to Section 1.2 hereof.
Equipment Loan Commitment - at any date for any Lender the
-------------------------
principal amount set forth opposite such Lender's name under
the heading "Equipment Loan Commitment" on the signature pages
hereof or the signature page of the Assignment and Acceptance
by which it became a Lender, as modified from time to time
pursuant to the terms of the Agreement
<PAGE>
or to give effect to any applicable Assignment and Acceptance;
and "Equipment Loan Commitments" means the aggregate principal
--------------------------
amount of the Equipment Loan Commitments of all Lenders, the
maximum amount of which shall be $10,000,000.
Equipment Loan Conditions - with respect to each Equipment
-------------------------
Loan requested by GSS pursuant to Section 1.2 hereof, the
following conditions: (i) such request for an Equipment Loan
is in an amount equal to or greater than $1,000,000 in the
aggregate as to all Lenders; (ii) GSS has given to Agent a
Notice of Borrowing for such Equipment Loan at least fifteen
(15) days prior to the date on which GSS desires for such
Equipment Loan to be funded, in which Notice GSS has described
in detail the Eligible Equipment, the amount of the purchase
price, the identity, address and phone number of the seller,
and the expected delivery date; and (iii) GSS has executed in
favor of and delivered to Agent a UCC-1 financing statement or
statements satisfactory to Agent and sufficient to perfect
Agent's security interest in the Equipment purchased with the
proceeds of such Equipment Loan as a first priority Lien
thereon; (iv) GSS shall pay a fee of $50,000 to Agent, in
immediately available funds, at the time of the making of the
first Equipment Loan by Lenders, $12,500 of which shall be
payable to Congress and $37,500 of which shall be payable to
Fleet; and (v) GSS shall have executed and delivered to Agent
and Lenders an Equipment Security Agreement in form and
substance satisfactory to Agent and Lenders.
Equipment Note - an Equipment Note to be executed by GSS in
--------------
favor of each Lender as provided in Section 1.2 hereof, which
shall be in the form of Exhibit B attached hereto, shall be in
---------
the face amount of such Lender's Equipment Loan Commitment and
shall evidence all Equipment Loans made by such Lender to GSS
pursuant to the Agreement.
Equipment Purchase Price - the invoice price of Eligible
------------------------
Equipment purchased by GSS after the Closing Date for which
Lenders, upon GSS's request, may provide Equipment Loans in
accordance with the terms hereof.
Equity Interest - the interest of a shareholder in a
---------------
corporation, a partner (whether general or limited) in a
partnership (whether general, limited or limited liability), a
member in a limited liability company, or any other Person
having any other form of equity security.
ERISA - the Employee Retirement Income Security Act of 1974
-----
as amended, and all rules and regulations from time to time
promulgated thereunder.
Event of Default - as defined in Section 11 of the Agreement.
----------------
Extraordinary Expenses - all costs, expenses, fees, and
----------------------
advances which Agent may suffer or incur, whether prior to or
after the occurrence of an Event of Default, on account of or
in connection with (i) the repossession, storage, repair,
appraisal, insuring, completion of the manufacture of,
preparing for sale, advertising for sale, selling, collecting
or otherwise preserving or realizing upon any Collateral; (ii)
the defense of Agent's Lien upon any Collateral or the
priority thereof or any adverse claim with respect to the
Loans, the Loan Documents or the Collateral asserted by any
Obligor, any receiver or trustee for any Obligor or any
creditor or representative of creditors of any Obligor; (iii)
the settlement or satisfaction of any Liens upon any
Collateral (whether or not such Liens are Permitted Liens);
(iv) the collection of any of the Obligations; (v) the
negotiation, documentation, and
<PAGE>
closing of any restructuring or forbearance agreement with
respect to the Loan Documents or Obligations; (vi) amounts
advanced by Agent pursuant to Section 7.1.3 of the Agreement;
(vii) the enforcement of any of the provisions of any of the
Loan Documents; or (viii) any payment under indemnity or other
payment agreement provided by Agent to any financial
institution in connection with any Dominion Account. Such
costs, expenses and advances may include transfer fees, taxes,
storage fees, insurance costs, permit fees, utility
reservation and standby fees, legal fees, appraisal fees,
brokers' fees and commissions, auctioneers' fees and
commissions, accountants' fees, environmental study fees,
wages and salaries paid to employees of any or all Borrowers
or independent contractors in liquidating any Collateral,
travel expenses, all other fees and expenses payable or
reimbursable by Borrowers or any other Obligor under any of
the Loan Documents, and all other fees and expenses associated
with the enforcement of rights or remedies under any of the
Loan Documents, but excluding compensation paid to employees
(including inside legal counsel who are employees) of Agent.
Federal Funds Rate - for any period, a fluctuating interest
------------------
rate per annum equal for each date during such period to the
weighted average of the rates on overnight federal funds
transactions with members of the Federal Reserve System
arranged by federal funds brokers, as published for such day
(or, if such day is not a Business Day, for the next preceding
Business Day) in Atlanta, Georgia by the Federal Reserve Bank
of Atlanta, or if such rate is not so published for any day
which is a Business Day, the average of the quotations for
such day on such transactions received by Agent from 3 federal
funds brokers of recognized standing selected by Agent.
Fiscal Year - the fiscal year of Borrowers and their
-----------
Subsidiaries for accounting and tax purposes, which ends on
October 31 of each year.
Fiscal Quarter - each consecutive period of 13 weeks
--------------
beginning on the first day of a Fiscal Year (and, in the
case of any Fiscal Year of 53 weeks, the 14-week period
occurring at the end thereof.)
Funding Account - an account established by Borrowers or
---------------
either of them for receipt of proceeds of Loans or such other
account as Borrowers may specify in writing.
Fleet - Fleet Capital Corporation, a Rhode Island corporation,
-----
and its successors and assigns.
GAAP - generally accepted accounting principles in the United
----
States of America in effect from time to time.
General Intangibles - all general intangibles of a Borrower,
-------------------
whether now owned or hereafter created or acquired by a
Borrower, including all choses in action, causes of action,
company or other business records, inventions, blueprints,
designs, patents, patent applications, trademarks, trademark
applications, trade names, trade secrets, service marks, mask
works, goodwill, brand names, copyrights, registrations,
licenses, franchises, customer lists, tax refund claims,
computer programs, operational manuals, all claims under
guaranties, security interests or other security held by or
granted to a Borrower to secure payment of
<PAGE>
any of any of a Borrower's Accounts by an Account Debtor, all
rights to indemnification and all other intangible property of
a Borrower of every kind and nature (other than Accounts).
Governmental Approvals - means all authorizations, consents,
----------------------
approvals, licenses and exemptions of, registrations and
filings with, and reports to, all national state or local
government (whether domestic or foreign) and any political
subdivisions thereof in any other governmental,
quasi-governmental, judicial, administrative, public or
statutory instrumentality, authority, body, agency, bureau or
entity.
Guarantors - each Person who may hereafter guarantee payment
----------
or performance of the whole or any part of the Obligations.
Indemnified Amount - the amount of any loss, cost, expenses or
------------------
damages suffered or incurred by Agent Indemnitees and against
which Lenders or Borrowers have agreed to indemnify Agent
Indemnitees pursuant to the terms of the Agreement or any of
the other Loan Documents.
Indenture - the Indenture dated as of April 21, 1995, by and
---------
between GSS and the Trustee.
Insolvency Proceeding - any action, case or proceeding
---------------------
commenced by or against a Person, or any agreement of such
Person, for (a) the entry of an order for relief under any
chapter of the Bankruptcy Code or other insolvency or debt
adjustment law (whether state, federal or foreign), (b) the
appointment of a receiver, trustee, liquidator or other
custodian for such Person or any part of its Property, (c) an
assignment or trust mortgage for the benefit of creditors of
such Person, or (d) the liquidation, dissolution or winding up
of the affairs of such Person.
Instrument - shall have the meaning ascribed to the term
----------
"instrument" in the UCC.
Intellectual Property - Property constituting under any
---------------------
Applicable Law a patent, patent application, copyright,
trademark, service mark, tradename or mask work, or license or
other right to use any of the foregoing.
Intellectual Property Claim - the assertion by any Person of
---------------------------
a claim (whether asserted in writing, by action, suit or
proceeding or otherwise) that a Borrower's ownership, use,
marketing, sale or distribution of any Inventory, Equipment,
Intellectual Property or other Property is violative of any
ownership, patent, copyright, trademark or other rights of
such Person.
Intercreditor Agreement - the Intercreditor Agreement dated as
-----------------------
of April 21, 1995, among Borrowers, Parent, Trustee and
NationsBank of Georgia, N.A., as agent, as amended by that
certain Amendment to Intercreditor Agreement dated the date
hereof among Borrowers, Parent, Trustee and Agent.
Interest Period - shall have the meaning ascribed to it in
---------------
Section 2.1.3 of the Agreement.
Inventory - all of a Borrower's inventory, whether now owned
---------
or hereafter acquired, including all goods intended for sale
or lease by a Borrower, or for display or demonstration;
<PAGE>
all work in process; all raw materials and other materials and
supplies of every nature and description used or which might
be used in connection with the manufacture, printing, packing,
shipping, advertising, selling, leasing or furnishing of such
goods or otherwise used or consumed in a Borrower's business;
and all Documents evidencing and General Intangibles relating
to any of the foregoing, whether now owned or hereafter
acquired by a Borrower.
Inventory Formula Amount - on any date of determination
------------------------
thereof, an amount equal to the lesser of (i) $45,000,000 or
(ii) 65% of the Value of Eligible Inventory on such date
consisting of raw materials, work-in-process or finished
goods.
LC Application - an application to Bank for the issuance of a
--------------
Letter of Credit that is duly executed by a Borrower, with
Fleet as a co-applicant, for the issuance of the relevant
Letter of Credit subject to the satisfaction of the applicable
LC Conditions.
LC Conditions - the following conditions, the satisfaction of
-------------
each of which is required before Fleet shall be obligated to
join in the execution of an LC Application in connection with
a request to Bank for the issuance of a Letter of Credit: (i)
no Default or Event of Default exists and each of the
conditions set forth in Section 10 of the Agreement has been
and continues to be satisfied; (ii) after giving effect to the
issuance of the requested Letter of Credit and each Letter of
Credit to be issued and for which an LC Application has been
signed by Fleet, the LC Obligations would not exceed
$2,000,000 and no Out-of-Formula Condition would exist, and,
if no Revolver Loans are outstanding, the LC Obligations do
not exceed the Borrowing Base; (iii) the expiry date of the
Letter of Credit does not extend beyond the earlier to occur
of 365 days from the date of issuance or the 15th Business Day
prior to the last Business Day of the Original Term; and (iv)
the currency in which payment is to be made under the Borrower
Letter of Credit is Dollars.
LC Documents - any and all agreements, instruments and
------------
documents (other than an LC Application or an LC Guaranty)
required by Bank to be executed by any or all Borrowers or any
other Person and delivered to Bank for the issuance of a such
Letter of Credit.
LC Guaranty - a guaranty executed by Fleet in favor of Bank
-----------
pursuant to which Fleet shall guaranty the payment or
performance by the parties (other than Fleet) to an LC
Application for a Letter of Credit of such parties'
reimbursement obligations with respect to such Letter of
Credit.
LC Obligations - on any date of determination thereof, an
--------------
amount (in Dollars) equal to the sum of (i) all amounts then
due and payable by any Obligor on such date by reason of any
payment made on or before such date by Fleet under any LC
Guaranty plus (ii) the aggregate undrawn amount of all Letters
of Credit then outstanding or to be issued by Bank under an LC
Application theretofore submitted to Bank.
LC Request - a written request from any or all Borrowers to
----------
Fleet for Fleet to join in the execution of an LC Application
for the issuance of a Letter of Credit, which request shall
specify the identity and address of the intended beneficiary
of the requested Letter of Credit, the purpose for issuance of
the requested Letter of Credit, the proposed amount, issuance
date and expiry date of the requested Letter of Credit, the
conditions to payment under the
<PAGE>
requested Letter of Credit, and whether the requested Letter
of Credit may be drawn upon in a single or multiple draws.
LC Reserve - a reserve equal to 100% of the face amount of all
----------
Stand-by Letters of Credit and 40% of the face amount of all
documentary Letters of Credit.
Lender Indemnitee - a Lender in its capacity as a lender under
-----------------
the Agreement and its present and future officers, directors
and agents.
Lenders - Fleet (whether in its capacity as a provider of
-------
Loans under Section 1 of the Agreement or as the procurer of
Letters of Credit in accordance with Section 1.3 of the
Agreement) and any other Person who may from time to time
become a "Lender" under the Loan Agreement, and their
respective successors and permitted assigns.
Letter of Credit - any standby letter of credit or documentary
----------------
letter of credit issued by Bank for the account of any or all
Borrowers.
LIBOR Lending Office - with respect to a Lender, the office
--------------------
designated as a LIBOR Lending Office for such Lender on the
signature page hereof (or on any Assignment and Acceptance, in
the case of an assignee) and such other office of such Lender
or any of its Affiliates that is hereafter designated by
written notice to Agent.
LIBOR Loan - a Loan, or portion thereof, during any period in
----------
which it bears interest at a rate based upon the applicable
Adjusted LIBOR Rate.
LIBOR Rate - with respect to an Interest Period, the rate per
----------
annum determined by Fleet at which deposits of Dollars equal
to or comparable to the amount of the LIBOR Loan to which such
Interest Period relates and for a term comparable to such
Interest Period are offered to Bank by prime banks in the
London interbank foreign currency deposits market at
approximately 11:00 a.m., London time, two (2) Business Days
prior to the first day of such Interest Period. Each
determination by Fleet of any LIBOR Rate shall, in the absence
of any manifest error, be final, conclusive and binding.
Lien - any interest in Property securing an obligation owed
----
to, or a claim by, a Person other than the owner of the
Property, whether such interest is based on common law,
statute or contract. The term "Lien" shall also include
reservations, exceptions, encroachments, easements,
rights-of-way, covenants, conditions, restrictions, leases and
other title exceptions and encumbrances affecting Property.
For the purpose of the Agreement, each Borrower shall be
deemed to be the owner of any Property which it has acquired
or holds subject to a conditional sale agreement or other
arrangement pursuant to which title to the Property has been
retained by or vested in some other Person for security
purposes.
Loan Account - the loan account established by each Lender on
------------
its books pursuant to Section 4.8 of the Agreement.
Loan Documents - the Agreement, the Other Agreements and the
--------------
Security Documents.
Loan - a Revolver Loan or an Equipment Loan.
----
<PAGE>
Loan Year - a period commencing each calendar year on the same
---------
month and day as the date of the Agreement and ending on the
same month and day in the immediately succeeding calendar
year, with the first such period (i.e., the first Loan Year)
----
to commence on the date of this Agreement.
Long-Term Notes - those first mortgage notes in an aggregate
---------------
principal amount of $190,000,000 secured by the Real Estate,
Equipment and certain other assets of Borrowers, which notes
mature in the year 2003.
Margin Stock - shall have the meaning ascribed to it in
------------
Regulation U and Regulation G of the Board of Governors.
Material Adverse Effect - the effect of any event or condition
-----------------------
which, alone or when taken together with other events or
conditions occurring or existing concurrently therewith, (i)
has a material adverse effect upon the business, operations,
Properties or condition (financial or otherwise) of any
Obligor; (ii) has or may be reasonably expected to have any
material adverse effect whatsoever upon the validity or
enforceability of the Agreement or any of the other Loan
Documents; (iii) has any material adverse effect upon the
value of the whole or any material part of the Collateral, the
Liens of Agent with respect to the Collateral or the priority
of any such Liens; (iv) materially impairs the ability of any
Obligor to perform its obligations under this Agreement or any
of the other Loan Documents, including repayment of any of the
Obligations when due; or (v) materially impairs the ability of
Agent to enforce or collect the Obligations or realize upon
any of the Collateral in accordance with the Loan Documents
and Applicable Law.
Material Contract - an agreement to which an Obligor is a
-----------------
party (other than the Loan Documents) for which breach,
termination, cancellation, nonperformance or failure to renew
could reasonably be expected to have a Material Adverse
Effect.
Maximum Rate - the maximum non-usurious rate of interest
------------
permitted by Applicable Law that at any time, or from time to
time, may be contracted for, taken, reserved, charged or
received on the Debt in question or, to the extent that at any
time Applicable Law may thereafter permit a higher maximum
non-usurious rate of interest, then such higher rate.
Notwithstanding any other provision hereof, the Maximum Rate
shall be calculated on a daily basis (computed on the actual
number of days elapsed over a year of 365 or 366 days, as the
case may be).
Money Borrowed - means, as applied to any Person, (i) Debt
--------------
arising from the lending of money by any other Person to such
Person; (ii) Debt, whether or not in any such case arising
from the lending of money by another Person to such Person,
(A) which is represented by notes payable or drafts accepted
that evidence extensions of credit, (B) which constitutes
obligations evidenced by bonds, debentures, notes or similar
instruments, or (C) upon which interest charges are
customarily paid (other than accounts payable) or that was
issued or assumed as full or partial payment for Property;
(iii) Debt that constitutes a Capitalized Lease Obligation;
(iv) reimbursement obligations with respect to letters of
credit or guaranties of letters of credit and (v) Debt of such
Person under any guaranty of
<PAGE>
obligations that would constitute Debt for Money Borrowed
under clauses (i) through (iii) hereof, if owed directly by
such Person.
Multiemployer Plan - has the meaning set forth in Section
------------------
4001(a)(3) of ERISA.
Net Proceeds - proceeds (including cash receivable (when
------------
received) by way of deferred payment) received by a Borrower
from the sale, lease, transfer or other disposition of any
Property, including insurance proceeds and awards of
compensation received with respect to the destruction or
condemnation of all or part of such Property, net of: (i) the
reasonable and customary costs of such sale, lease, transfer
or other disposition; and (ii) amounts applied to repayment of
Debt (other than the Obligations) secured by a Permitted Lien
on the Property disposed of that is senior to Lender's Liens.
Notes - each Revolver Note and each Equipment Note, and any
-----
other promissory note executed by Borrowers at Agent's request
to evidence any of the Obligations.
Notice of Borrowing - as defined in Section 3.1.1(i) of the
-------------------
Agreement.
Notice of Conversion/Continuation - as defined in Section
---------------------------------
2.1.2(ii) of the Agreement.
Obligations - all debts, liabilities, obligations, covenants
-----------
and duties now or at any time or times hereafter owing by any
Borrower to Agent or any Lender, whether arising pursuant to
this Agreement or any of the other Loan Documents and whether
direct or indirect, absolute or contingent, due or to become
due, primary or secondary, or joint or several, including all
of the Loans and all interest payable in connection therewith
, all LC Obligations and all other sums chargeable to or
payable by any Borrower under the Loan Documents, heretofore
or hereafter entered into by a Borrower with or executed by a
Borrower in favor of Agent or any Lender, or Applicable Law.
Obligor - each Borrower, each Guarantor and any other Person
-------
that is at any time liable for the payment of the whole or any
part of the Obligations.
Original Term - as defined in Section 5.1 of the Agreement.
-------------
Other Agreements - the Notes, each LC Guaranty and any and all
----------------
agreements, instruments and documents (other than the
Agreement and the Security Documents), heretofore, now or
hereafter executed by any or all Borrowers, any Obligor or any
other Person and delivered to Agent or any Lender in respect
of the transactions contemplated by the Agreement.
Out-of-Formula Condition - as defined in Section 1.1.2 of the
------------------------
Agreement.
Out-of-Formula Loan - a Revolver Loan made when an
-------------------
Out-of-Formula Condition exists or the amount of any Revolver
Loan which, when funded, results in an Out-of-Formula
Condition.
Parent - GSS Holding Corp., a Delaware corporation.
------
Participant - as defined in Section 13.2.1.
-----------
<PAGE>
Payment Account - an account maintained by Agent (currently at
---------------
Harris Bank & Trust in Chicago, Illinois) to which all monies
from time to time deposited to a Dominion Account shall be
transferred and all other payments shall be sent in
immediately available federal funds.
Payment Items - all checks, drafts, or other items of payment
-------------
payable to a Borrower, including proceeds of any of the
Collateral.
Pending Revolver Loans - at any date, the aggregate principal
----------------------
amount of all Revolver Loans which have been requested in any
Notice of Borrowing received by Agent but which have not
theretofore been advanced by Agent or Lenders.
Permitted Lien - a Lien of a kind specified in Section 9.2.5
--------------
of the Agreement.
Permitted Purchase Money Debt - Purchase Money Debt of
-----------------------------
Borrowers and their Subsidiaries, which is secured by no Lien
or only by a Purchase Money Lien and which does not exceed at
any time an aggregate amount of $25,000,000. For the purposes
of this definition, the principal amount of any Purchase Money
Debt consisting of capitalized leases shall be computed as a
Capitalized Lease Obligation.
Person - an individual, partnership, corporation, limited
------
liability company, limited liability partnership, joint stock
company, land trust, business trust, or unincorporated
organization, or a government or agency or political
subdivision thereof.
Plan - an employee benefit plan now or hereafter maintained
----
for employees of Borrowers that is covered by Title IV of
ERISA.
Prior Lenders - NationsBank of Georgia, N.A. and Fleet.
-------------
Pro Rata - a share of or in all Loans, participations in LC
--------
Obligations (or, in the case of Fleet, the portion of LC
Obligations in which Fleet does not sell a participation
interest pursuant to Section 1.3.2 of the Agreement),
obligations to indemnify or reimburse Fleet as the procurer of
Letters of Credit or Agent, payments, proceeds, collections,
Collateral and Extraordinary Expenses, which share for any
Lender on any date shall be a percentage arrived at by
dividing the amount of the Commitment of such Lender on such
date by the aggregate amount of the Commitments of all Lenders
on such date.
Projections - Borrowers' forecasted Consolidated and
-----------
consolidating (a) balance sheets, (b) profit and loss
statements, (c) cash flow statements, and (d) capitalization
statements, all prepared on a consistent basis with Borrowers'
historical financial statements, together with appropriate
supporting details and a statement of underlying assumptions.
Properly Contested - in the case of any Debt of an Obligor
------------------
(including any Taxes) that is not paid as and when due or
payable by reason of such Obligor's bona fide dispute
concerning its liability to pay same or concerning the amount
thereof, (i) such Debt and any Liens securing same are being
properly contested in good faith by appropriate proceedings
promptly instituted and diligently conducted; (ii) such
Obligor has established appropriate
<PAGE>
reserves as shall be required in conformity with GAAP, (iii)
the non-payment of such Debt will not have a Material Adverse
Effect and will not result in a forfeiture of any assets of
such Obligor; (iv) no Lien is imposed upon any of such
Obligor's assets with respect to such Debt unless such Lien is
at all times junior and subordinate in priority to the Liens
in favor of Agent (except only with respect to property taxes
that have priority as a matter of applicable state law) and
enforcement of such Lien is stayed during the period prior to
the final resolution or disposition of such dispute; (v) if
the Debt results from or is determined by the entry, rendition
or issuance against a Obligor or any of its assets of a
judgment, writ, order or decree, such judgment, writ, order or
decree is stayed or bonded pending a timely appeal or other
judicial review; and (vi) if such contest is abandoned,
settled or determined adversely to such Obligor, such Obligor
forthwith pays such Debt and all penalties and interest in
connection therewith.
Property - any interest in any kind of property or asset,
--------
whether real, personal or mixed, or tangible or intangible.
Purchase Money Debt - means and includes (i) Debt (other than
-------------------
the Obligations) for the payment of all or any part of the
purchase price of any fixed assets, (ii) any Debt (other than
the Obligations) incurred at the time of or within 10 days
prior to or after the acquisition of any fixed assets for the
purpose of financing all or any part of the purchase price
thereof, and (iii) any renewals, extensions or refinancings
thereof, but not any increases in the principal amounts
thereof outstanding at the time.
Purchase Money Lien - a Lien upon fixed assets which secures
-------------------
Purchase Money Debt, but only if such Lien shall at all times
be confined solely to the fixed assets acquired through the
incurrence of the Purchase Money Debt secured by such Lien.
Regulation D - Regulation D of the Board of Governors.
------------
Register - the register maintained by Agent in accordance with
--------
Section 4.8.2 of the Agreement.
Renewal Term - as defined in Section 5.1 of the Agreement.
------------
Rentals - as defined in Section 9.2.13 of the Agreement.
-------
Reportable Event - any of the events set forth in Section
----------------
4043(b) of ERISA.
Required Lenders - at any date of determination thereof,
----------------
Lenders having Commitments representing at least 66-2/3% of
the aggregate Commitments at such time; provided, however,
-------- -------
that if any Lender shall be in breach of any of its
obligations hereunder to Borrowers or Agent, including any
breach resulting from its failure to honor its Commitment in
accordance with the terms of this Agreement, then, for so long
as such breach continues, the term "Required Lenders" shall
mean Lenders (excluding each Lender that is in breach of its
obligations hereunder) having Commitments representing at
least 66-2/3% of the aggregate Commitments at such time;
provided, further, however, that if the Commitments have been
-------- ------- -------
terminated, the term "Required Lenders" shall mean Lenders
(excluding each
<PAGE>
Lender that is in breach of its obligations hereunder) holding
Loans representing at least 66-2/3% of the aggregate principal
amount of Loans outstanding at such time.
Restricted Investment - any acquisition of Property by a
---------------------
Borrower or any of its Subsidiaries in exchange for cash or
other Property, whether in the form of an acquisition of
Equity Interests or indebtedness or obligations, or the
purchase or acquisition by a Borrower or any of its
Subsidiaries of any other Property, or a loan, advance,
capital contribution or subscription, except acquisitions of
the following: (a) fixed assets to be used in the business of
a Borrower or any of its Subsidiaries so long as the
acquisition costs thereof constitute Capital Expenditures
permitted hereunder; (b) goods held for sale or lease or to be
used in the manufacture of goods or the provision of services
by a Borrower or any of its Subsidiaries in the ordinary
course of business; (c) Current Assets arising from the sale
or lease of goods or the rendition of services in the ordinary
course of business of a Borrower or any of its Subsidiaries;
(d) investments in Subsidiaries of a Borrower to the extent
existing on the Closing Date; and (e) Cash Equivalents.
Revolver Commitment - at any date for any Lender, the
-------------------
obligation of such Lender to make Revolver Loans and to
participate in LC Obligations pursuant to the terms and
conditions of the Agreement, which shall not exceed the
principal amount set forth opposite such Lender's name under
the heading "Revolver Commitment" on the signature pages
hereof or the signature page of the Assignment and Acceptance
by which it became a Lender, as modified from time to time
pursuant to the terms of the Agreement or to give effect to
any applicable Assignment and Acceptance; and
"Revolver Commitments" means the aggregate principal amount of
--------------------
the Revolver Commitments of all Lenders, the maximum amount of
which shall be $70,000,000.
Revolver Loan - a Loan made by Lenders as provided in Section
-------------
1.1 of the Agreement or a Settlement Loan funded solely by
Fleet.
Revolver Note - a Revolver Note to be executed by Borrowers in
-------------
favor of each Lender in the form of Exhibit A attached hereto,
---------
which shall be in the face amount of such Lender's Revolver
Commitment and which shall evidence all Revolver Loans made by
such Lender to Borrowers pursuant to the Agreement.
Schedule of Accounts - as defined in Section 7.2.1 of the
--------------------
Agreement.
Security - shall have the same meaning as in Section 2(1) of
--------
the Securities Act of 1933.
Security Documents - the Business Interruption Insurance
------------------
Assignment and all other instruments and agreements now or at
any time hereafter securing the whole or any part of the
Obligations.
Senior Officer - the chairman of the board of directors, the
--------------
president or the chief financial officer of, or in-house legal
counsel to, Borrowers.
Settlement Date - as defined in Section 3.1.3(i) of the
---------------
Agreement.
<PAGE>
Settlement Loan - as defined in Section 3.1.3(ii) of the
---------------
Agreement.
Settlement Report - a report delivered by Agent to Lenders
-----------------
summarizing the amount of the outstanding Revolver Loans as of
the Settlement Date and the calculation of the Borrowing Base
as of such Settlement Date.
Solvent - as to any Person, such Person (i) owns Property
-------
whose fair saleable value is greater than the amount required
to pay all of such Person's Debts (including contingent
debts), (ii) is able to pay all of its Debts as such Debts
mature, (iii) has capital sufficient to carry on its business
and transactions and all business and transactions in which it
is about to engage; and (iv) is not "insolvent" within the
meaning of Section 101(32) of the Bankruptcy Code.
Statutory Reserves - on any date, the percentage (expressed as
------------------
a decimal) established by the Board of Governors which is the
then stated maximum rate for all reserves (including, but not
limited to, any emergency, supplemental or other marginal
reserve requirements) applicable to any member bank of the
Federal Reserve System in respect to Eurocurrency Liabilities
(or any successor category of liabilities under Regulation D).
Such reserve percentage shall include, without limitation,
those imposed pursuant to said Regulation D. The Statutory
Reserve shall be adjusted automatically on and as of the
effective date of any change in such percentage.
Subordinated Debt - Debt of any or all Borrowers that is fully
-----------------
and absolutely subordinated in right of payment to the
Obligations in a manner satisfactory to Agent.
Subsidiary - any Person a majority of the equity ownership or
----------
Voting Stock of which is at the time owned, directly or
indirectly, by a Borrower or by one or more other Subsidiaries
or by a Borrower and one or more other Subsidiaries.
Taxes - any present or future taxes, levies, imposts, duties,
-----
fees, assessments, deductions, withholdings or other charges
of whatever nature, including income, receipts, excise,
property, sales, use, transfer, license, payroll, withholding,
social security and franchise taxes now or hereafter imposed
or levied by the United States, or any state, local or foreign
government or by any department, agency or other political
subdivision or taxing authority thereof or therein and all
interest, penalties, additions to tax and similar liabilities
with respect thereto, but excluding, in the case of each
Lender, taxes imposed on or measured by the net income or
overall gross receipts of such Lender.
Transferee - as defined in Section 13.3.3 of the Agreement.
----------
Trustee - State Street Bank and Trust Company, as successor to
-------
Shawmut Bank Connecticut, National Association, and any other
successor trustee under the Indenture.
Type - the type of a Loan, which shall be either a LIBOR Loan
----
or a Base Rate Loan.
UCC - the Uniform Commercial Code (or any successor statute)
---
as adopted and in force in the State of Alabama or, when the
laws of any other state govern the method or manner of the
creation or perfection of any security interest in any of the
Collateral, the Uniform Commercial Code (or any successor
statute) of such state.
<PAGE>
Value - with reference to the value of Eligible Inventory,
-----
value determined on the basis of the lower of cost or market
of such Eligible Inventory, with the cost thereof calculated
on a first-in, first-out basis.
Voting Stock - Securities of any class or classes of a
------------
corporation the holders of which are ordinarily, in the
absence of contingencies, entitled to elect a majority of the
corporate directors (or Persons performing similar functions).
Accounting Terms. Unless otherwise specified herein, all terms
----------------
of an accounting character used in the Agreement shall be interpreted, all
accounting determinations under the Agreement shall be made, and all financial
statements required to be delivered under the Agreement shall be prepared in
accordance with GAAP, applied on a basis consistent with the most recent audited
Consolidated financial statements of Borrowers and their Subsidiaries heretofore
delivered to Agent and Lenders and using the same method for inventory valuation
as used in such audited financial statements, except for any change in which
Borrowers' independent public accountants concur or as required by GAAP unless
(i) Borrowers shall have objected to determining such compliance on such basis
at the time of delivery of such financial statements or (ii) Agent or any Lender
shall so object in writing within 30 days after the delivery of such financial
statements, in either of which events such calculations shall be made on a basis
consistent with those used in the preparation of the latest financial statements
as to which such objection shall not have been made. In the event of any change
in GAAP that occurs after the date of the Agreement and that is material to
Borrowers, Agent and Lenders shall the right to require either that conforming
adjustments be made to any financial covenants set forth in the Agreement, or
the components thereof, that are affected by such change or that Borrowers
report its financial condition based on GAAP as in effect immediately prior to
the occurrence of such change.
Other Terms. All other terms contained in the Agreement shall
-----------
have, when the context so indicates, the meanings provided for by the UCC to the
extent the same are used or defined therein.
Certain Matters of Construction. The terms "herein," "hereof"
-------------------------------
and "hereunder" and other words of similar import refer to the Agreement as a
whole and not to any particular section, paragraph or subdivision. Any pronoun
used shall be deemed to cover all genders. In the computation of periods of time
from a specified date to a later specified date, the word "from" means "from and
including" and the words "to" and "until" each means "to but excluding." The
section titles, table of contents and list of exhibits appear as a matter of
convenience only and shall not affect the interpretation of the Agreement. All
references to statutes and related regulations shall include any amendments of
same and any successor statutes and regulations. All references to any of the
Loan Documents shall include any and all amendment or modifications thereto and
any and all restatements, extensions or renewals thereof. All references to any
Person shall mean and include the successors and permitted assigns of such
Person. All references to "including" and "include" shall be understood to mean
"including, without limitation." All references to the time of day shall mean
the time of day on the day in question in Atlanta, Georgia, unless otherwise
expressly provided in the Agreement. A Default or an Event of Default shall be
deemed to exist at all times during the period commencing on the date that such
Default or Event of Default occurs to the date on which such Default or Event of
Default is waived in writing pursuant to this Agreement or, in the case of a
Default, is cured within any period of cure expressly provided in this
Agreement; and an Event of Default shall "continue" or be "continuing" until
such Event of Default has been waived in writing by Lender. Whenever the phrase
"to the best of Borrower's knowledge" or words of similar import relating to the
knowledge or the awareness of a Borrower are used herein, such phrase shall mean
and refer to (i)
<PAGE>
the actual knowledge of a Senior Officer of such Borrower or (ii) the knowledge
that a Senior Officer would have obtained if they had engaged in good faith and
the diligent performance of their duties, including the making of such
reasonable specific inquiries as may be necessary of the officers, employees or
agents of such Borrower and a good faith attempt to ascertain the existence or
accuracy of the matter to which such phrase relates.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
<PAGE>
IN WITNESS WHEREOF, this Appendix has been duly executed, on November
13, 1997.
BORROWERS:
---------
GULF STATES STEEL, INC. OF ALABAMA
By: /s/ Jeffrey S. Stein
------------------------------------
Jeffrey S. Stein, Vice-President
and Assistant Secretary
Address:
174 South 26th Street
Gadsden, Alabama 35904
Attention: President
Telecopier No.: (205) 543-6218
--------------
ALABAMA STRUCTURAL BEAM CORP.
By: /s/ Jeffrey S. Stein
------------------------------------
Jeffrey S. Stein, Vice-President and
Assistant Secretary
Address:
174 South 26th Street
Gadsden, Alabama 35904
Attention: President
Telecopier No.: (205) 543-6218
--------------
LENDERS:
-------
FLEET CAPITAL CORPORATION
Revolver Commitment: $35,000,000 By: /s/ Timothy J. Broderick
Equipment Commitment: $5,000,000 -------------------------------------
Total Commitment: $40,000,000
Title: Senior Vice President
----------------------------------
LIBOR Lending Office:
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Office Head
Telecopier No.: (860) 657-7759
--------------
<PAGE>
CONGRESS FINANCIAL CORPORATION
Revolver Commitment: $35,000,000 By: /s/ Edward I. Shifman
Term Loan Commitment: $5,000,000 -------------------------------------
Total Commitment: $40,000,000
Title: Senior Vice President
----------------------------------
LIBOR Lending Office:
One Post Office Square
Boston, Massachusetts 02109
Attention: Mr. Marc Swartz
Telecopier No.: (617) 338-1497
--------------
AGENT:
-----
FLEET CAPITAL CORPORATION,
as Agent
By: /s/ Timothy J. Broderick
------------------------------------
Title: Senior Vice President
---------------------------------
Address:
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Office Head
Telecopier No.: (860) 657-7759
--------------
<PAGE>
EXHIBIT A
FORM OF REVOLVER NOTE
November 13, 1997
U.S. $________.__
FOR VALUE RECEIVED, the undersigned, GULF STATES STEEL, INC. OF ALABAMA
("GSS"), an Alabama corporation, ALABAMA STRUCTURAL BEAM CORP. ("ASB"), an
Alabama corporation; GSS and ASB being referred to collectively as "Borrowers,"
and individually as a "Borrower"), hereby unconditionally, and jointly and
severally, promise to pay to the order of ________________ (herein, together
with any subsequent holder hereof, called the "Lender") the principal sum of
$_______________ or such lesser sum as may constitute Lender's Pro Rata share of
the outstanding principal amount of all Revolver Loans pursuant to the terms of
the Loan Agreement referred to below on the date on which such outstanding
principal amounts become due and payable pursuant to Section 4.2 of the Loan
Agreement (as defined below), in strict accordance with the terms thereof.
Borrowers likewise unconditionally, and jointly and severally, promise to pay to
Lender interest from and after the date hereof on Lender's Pro Rata share of the
outstanding principal amount of Revolver Loans at such interest rates, payable
at such times, and computed in such manner as are specified in Section 2.1 of
the Loan Agreement, in strict accordance with the terms thereof.
This Revolver Note ("Note") is issued pursuant to, and is one of the
"Revolver Notes" referred to in, the Loan and Security Agreement dated the date
hereof (as the same may be amended from time to time, the "Loan Agreement"),
among Borrowers, Fleet Capital Corporation ("Agent"), as agent for the financial
institutions from time to time parties thereto as lenders ("Lenders"), and such
Lenders, and Lender is and shall be entitled to all benefits thereof and of all
Loan Documents executed and delivered in connection therewith. The provisions of
the Loan Agreement are incorporated herein by this reference. All capitalized
terms used herein, unless otherwise defined herein, shall have the meanings
ascribed to such terms in the Loan Agreement.
The repayment of the principal balance of this Note is subject to the
provisions of Section 4.2 of the Loan Agreement. The entire unpaid principal
balance and all accrued interest on this Note shall be due and payable
immediately upon the termination of the Commitments as set forth in Section 5.2
of the Loan Agreement.
All payments of principal and interest shall be made in Dollars in
immediately available funds as specified in the Loan Agreement.
Upon or after the occurrence of an Event of Default and for so long as
such Event of Default exists, the principal balance and all accrued interest of
this Note may be declared due and payable in the manner and with the effect
provided in the Loan Agreement, and the unpaid principal balance hereof shall
bear interest at the Default Rate as and when provided in Section 2.1.5 of the
Loan Agreement. Borrowers jointly and severally agree to pay, and save Lender
harmless against, any liability for the payment of, all costs and expenses,
including, but not limited to, reasonable attorneys' fees, arising in connection
with the enforcement by Lender of any of its rights under this Note, the Loan
Agreement or any of the other Loan Documents.
<PAGE>
All principal amounts of Revolver Loans made by Lender to Borrowers
pursuant to the Loan Agreement, and all accrued and unpaid interest thereon,
shall be deemed outstanding under this Note and shall continue to be owing by
Borrowers in accordance with the terms of this Note and the Loan Agreement.
In no contingency or event whatsoever, whether by reason of advancement
of the proceeds hereof or otherwise, shall the amount paid or agreed to be paid
to Lender for the use, forbearance or detention of money advanced hereunder
exceed the highest lawful rate permissible under any law which a court of
competent jurisdiction may deem applicable hereto; and, in the event of any such
payment inadvertently paid by Borrowers or inadvertently received by Lender,
such excess sum shall be, at Borrowers' option, returned to Borrowers forthwith
or credited as a payment of principal, but shall not be applied to the payment
of interest. It is the intent hereof that Borrowers not pay or contract to pay,
and that Lender not receive or contract to receive, directly or indirectly in
any manner whatsoever, interest in excess of that which may be paid by Borrowers
under Applicable Law.
Time is of the essence of this Note. To the fullest extent permitted by
Applicable Law, each Borrower, for itself and its legal representatives,
successors and assigns, expressly waives presentment, demand, protest, notice of
dishonor, notice of non-payment, notice of maturity, notice of protest,
presentment for the purpose of accelerating maturity, diligence in collection,
and the benefit of any exemption or insolvency laws.
Wherever possible each provision of this Note shall be interpreted in
such a manner as to be effective and valid under Applicable Law, but if any
provision of this Note shall be prohibited or invalid under Applicable Law, such
provision shall be ineffective to the extent of such prohibition or invalidity
without invalidating the remainder of such provision or remaining provisions of
this Note. No delay or failure on the part of Lender in the exercise of any
right or remedy hereunder shall operate as a waiver thereof, nor as an
acquiescence in any default, nor shall any single or partial exercise by Lender
of any right or remedy preclude any other right or remedy. Lender, at its
option, may enforce its rights against any Collateral securing this Note without
enforcing its rights against any Borrower, any guarantor of the indebtedness
evidenced hereby or any other property or indebtedness due or to become due to
any Borrower. Each Borrower agrees that, without releasing or impairing such
Borrower's liability hereunder, Lender may at any time release, surrender,
substitute or exchange any Collateral securing this Note and may at any time
release any party primarily or secondarily liable for the indebtedness evidenced
by this Note.
The rights and obligations of Lender and Borrowers hereunder shall be
construed in accordance with and governed by the laws (without giving effect to
the conflict of law principles thereof) of the State of Georgia. This Note is
intended to take effect as an instrument under seal under Georgia law.
IN WITNESS WHEREOF, Borrowers have caused this Note to be executed and
delivered by its duly authorized officer on the date first above written.
BORROWER:
--------
GULF STATES STEEL, INC. OF ALABAMA
By:
-------------------------------------
Jeffrey S. Stein, Vice-President and
Assistant Secretary
(Signatures continued on following page)
<PAGE>
BORROWER
--------
ALABAMA STRUCTURAL BEAM CORP.
By:
--------------------------------------
Jeffrey S. Stein, Vice-President and
Assistant Secretary
<PAGE>
EXHIBIT B
---------
Form of Notice of Conversion/Continuation
-----------------------------------------
Date ______________,______
Fleet Capital Corporation, as Agent
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Loan Administration Officer
- ---------
Re: Loan and Security Agreement dated November 13, 1997, by and among
Gulf States Steel, Inc. of Alabama, Alabama Structural Beam Corp.,
Fleet Capital Corporation, as agent for certain Lenders from time to
time parties thereto, and such Lenders (as at any time amended, the
"Loan Agreement")
Gentlemen:
This Notice of Conversion/Continuation is delivered to you pursuant to
Section 2.1.2 of the Loan Agreement. Unless otherwise defined herein,
capitalized terms used herein shall have the meanings attributable thereto in
the Loan Agreement. Borrowers hereby give notice of their request as follows:
Check as applicable:
_ A conversion of Loans from one Type to another, as follows:
(i) The requested date of the proposed conversion is
______________, 19__ (the "Conversion Date");
(ii) The Type of Loans to be converted pursuant hereto are
presently __________________ [select either LIBOR Loans or Base Rate
Loans] in the principal amount of $_____________ outstanding as of the
Conversion Date;
(iii) The portion of the aforesaid Loans to be converted on
the Conversion Date is $_____________ (the "Conversion Amount");
(iv) The Conversion Amount is to be converted into a
____________ [select either a LIBOR Loan or a Base Rate Loan] (the
"Converted Loan") on the Conversion Date.
(v) [In the event a Borrower selects a LIBOR Loan:] Borrowers
hereby request that the Interest Period for such Converted Loan be for
a duration of _____ [insert length of Interest Period].
_ A continuation of LIBOR Loans for new Interest Period, as
follows:
<PAGE>
(i) The requested date of the proposed continuation is
_______________, 19__ (the "Continuation Date");
(ii) The aggregate amount of the LIBOR Loans subject to such
continuation is $__________________;
(iii) The duration of the selected Interest Period for the
LIBOR Loans which are the subject of such continuation is:
_____________ [select duration of applicable Interest Period];
Each Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and certifies that no Default or Event of
Default exists on the date hereof.
Borrowers have caused this Notice of Conversion/Continuation to be
executed and delivered by their duly authorized representative, this _______ day
of ______________, 19__.
----------------------------------
By:
--------------------------------------
Title:
-----------------------------------
<PAGE>
EXHIBIT C
---------
Form of Notice of Borrowing
---------------------------
Date ______________, ______
Fleet Capital Corporation, as Agent
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
Attention: Loan Administration Officer
- ---------
Re: Loan and Security Agreement dated November 13, 1997, by and among
Gulf States Steel, Inc. of Alabama, Alabama Structural Beam Corp.,
Fleet Capital Corporation, as agent for certain Lenders from time to
time parties thereto, and such Lenders (as at any time amended, the
"Loan Agreement")
Gentlemen:
This Notice of Borrowing is delivered to you pursuant to Section 3.1.1
of the Loan Agreement. Unless otherwise defined herein, capitalized terms used
herein shall have the meanings attributable thereto in the Loan Agreement.
Borrowers hereby request a [Revolver Loan] [Equipment Loan] in the aggregate
principal amount of $______________ to be made on _____________, _____, and to
consist of:
Check as applicable: _ Base Rate Loans in the aggregate principal
amount of $_____________
_ LIBOR Loans in the aggregate principal amount of
$___________, with Interest Periods as follows:
(i) As to $_____________, an Interest Period of ______
month(s);
(ii) As to $_____________, an Interest Period of ______
months;
(iii) As to $_____________, an Interest Period of ______
months.
Each Borrower hereby ratifies and reaffirms all of its liabilities and
obligations under the Loan Documents and hereby certifies that no Default or
Event of Default exists on the date hereof.
Borrowers have caused this Notice of Borrowing to be executed and
delivered by their duly authorized representative, this ______ day of
_____________, _____.
--------------------------------------
By:
------------------------------------
Title:
----------------------------------
<PAGE>
EXHIBIT D
---------
Compliance Certificate
[Letterhead of Borrower]
__________________, 19__
Fleet Capital Corporation, as Agent
200 Glastonbury Boulevard
Glastonbury, Connecticut 06033
The undersigned, the chief financial officer of Gulf States Steel, Inc.
of Alabama, on behalf of Gulf States Steel, Inc. and Alabama Structural Beam
Corp., (collectively, "Borrowers"), gives this certificate to Fleet Capital
Corporation ("Agent") in accordance with the requirements of Section 9.1.3 of
that certain Loan and Security Agreement dated November 13, 1997, among
Borrowers, Agent and the Lenders referenced therein ("Loan Agreement").
Capitalized terms used in this Certificate, unless otherwise defined herein,
shall have the meanings ascribed to them in the Loan Agreement.
1. Based upon my review of the balance sheets and statements of
income of Borrowers and their Subsidiaries for the [Fiscal Year] [quarterly
period] ending __________________, 19__, copies of which are attached hereto, I
hereby certify that:
(a) Consolidated Adjusted Tangible Net Worth is
$____________;
(b) Capital Expenditures during the period and for the Fiscal
Year to date total $_________ for Borrowers.
2. No Default exists on the date hereof, other than:
__________________________________________________________________ [if none, so
state]; and
3. No Event of Default exists on the date hereof, other than
__________ ____________________________________________________ [if none, so
state].
4. As of the date hereof, each Borrower is current in its payment
of all accrued rent and other charges to Persons who own or lease any premises
where any of the Collateral is located, and there are no pending disputes or
claims regarding any Borrower's failure to pay or delay in payment of any such
rent or other charges.
Very truly yours,
GULF STATES STEEL, INC. OF ALABAMA
By:
-------------------------------------------
Name:
-----------------------------------------
Chief Financial Officer
<PAGE>
EXHIBIT E
---------
OPINION LETTER REQUIREMENTS
With respect to each Borrower, Borrowers' counsel's opinion letter
should address the following in a manner satisfactory to Agent:
1. Each Borrower's due incorporation, valid existence, good standing and
qualification as a foreign corporation.
2. Corporate name of each Borrower.
3. Each Borrower's corporate power to execute, deliver and perform the Loan
Documents.
4. Each Borrower's due authorization to execute, deliver and perform the Loan
Documents, and its due execution and delivery thereof.
5. Each Borrower's execution, delivery and performance of the Loan Documents do
not (a) violate the articles or bylaws, (b) cause a breach or default under any
agreement, including the Indenture (c) violate any law, regulation, judgment or
order, or (d) result in or require a Lien or other encumbrance other than in
favor of Agent.
6. The number of issued and outstanding shares of stock of each Borrower.
7. The Loan Documents as legal, valid and binding obligations, enforceable
against all Obligors in accordance with their respective terms, subject to
standard bankruptcy and other creditor's rights and equity exceptions.
8. Counsel's lack of knowledge of litigation or other proceedings, except as
disclosed in Loan Agreement.
9. Absence of any registration, filing, consent or approval requirement of
governmental authority in connection with the execution, delivery and
performance of the Loan Documents.
10. Non-violation by the Loan Documents of any Applicable Laws relating to
interest or usury.
11. Due payment of all applicable taxes and fees required to be paid in
connection with the Loans, the Loan Documents, UCC-1 financing statements and
other Security Documents.
12. Creation in favor of Agent of a duly perfected security interest in the
Collateral described in the Security Documents.
13. Absence of violation of Section 7 of the Securities Exchange Act of 1934, as
amended, any regulations issued pursuant thereto, or regulations G, T, U and X
of the Board of Governors of the Federal Reserve System, by the transactions
contemplated by the Loan Documents.
14. Absence of requirement under the laws of applicable states for Agent or
Lenders to qualify in such states to enter into or enforce the provisions of the
Loan Documents.
<PAGE>
EXHIBIT F
---------
FORM OF ASSIGNMENT AND ACCEPTANCE
---------------------------------
Dated as of ______, 19__
Reference is made to the Loan and Security Agreement dated November __,
1997 (at any time amended, the "Loan Agreement"), among Gulf States Steel, Inc.
of Alabama, ("GSS"), and Alabama Structural Beam Corp., ("ASB;"), GSS and ASB
being referred to collectively as "Borrowers," and individually as a
"Borrower"), FLEET CAPITAL CORPORATION, in its capacity as agent ("Agent") for
the financial institutions from time to time party to the Loan Agreement
("Lenders"), and Lenders. Capitalized terms used herein and not otherwise
defined shall have the meanings assigned to such terms in the Loan Agreement.
______________________________________ (the "Assignor") and
______________________________________ (the "Assignee") agree as follows:
1. (A) Assignor hereby assigns to Assignee and Assignee hereby
purchases and assumes from Assignor (i) a principal amount of $________ of the
outstanding Revolver Loans held by Assignor and $_________ of participations of
Assignor in LC Obligations (which amounts, according to the records of Agent,
represent _______% of the total principal amount of outstanding Revolver Loans
and LC Obligations) and (ii) a principal amount of $__________ of Assignor's
Revolver Commitment (which amount includes Assignor's outstanding Revolver Loans
being assigned to Assignee pursuant to clause (i) above and which, according to
the records of Agent, represents (____%) of the total Revolver Commitments of
Lenders under the Loan Agreement); (B) Assignor hereby assigns to Assignee and
Assignee hereby purchases and assumes from Assignor (i) a principal amount of
$________ of the outstanding Equipment Loans and (ii) a principal amount of
$_________ of Assignor's Equipment Loan Commitment (which amount includes
Assignor's outstanding Equipment Loans being assigned to Assignee pursuant to
clause (i) above and which, according to the records of Agent, represents
________% of the total Equipment Commitments of the Lenders under the Loan
Agreement) (the items described in (A) and (B) above being herein collectively
referred to as the "Assigned Interests"), together with an interest in the Loan
Documents corresponding to the Assigned Interest. This Agreement shall be
effective from the date (the "Assignment Effective Date") on which Assignor
receives both (x) the principal amount of the Assigned Interest in the Loans on
the Assignment Effective Date, if any, and (y) a copy of this Agreement duly
executed by Assignee. From and after the Assignment Effective Date, Assignee
hereby expressly assumes, and undertakes to perform, all of Assignor's
obligations in respect of Assignor's Commitments to the extent, and only to the
extent, of Assignee's Assigned Interest, and all principal, interest, fees and
other amounts which would otherwise be payable to or for Assignor's account in
respect of the Assigned Interest shall be payable to or for Assignee's account,
to the extent such amounts have accrued subsequent to the Assignment Effective
Date.
<PAGE>
2. Assignor (i) represents that as of the date hereof, the aggregate of
its Commitments under the Loan Agreement (without giving effect to assignments
thereof, which have not yet become effective) is $__________, and the
outstanding balance of its Loans and participations in LC Obligations (unreduced
by any assignments thereof, which have not yet become effective) is $__________;
(ii) makes no representation or warranty and assumes no responsibility with
respect to any statements, warranties or representations made in or in
connection with the Loan Agreement or the execution, legality, validity,
enforceability, genuineness, sufficiency or value of the Loan Agreement or any
other instrument or document furnished pursuant thereto, other than that
Assignor is the legal and beneficial owner of the interest being assigned by it
hereunder and that such interest is free and clear of any adverse claim; (iii)
makes no representation or warranty and assumes no responsibility with respect
to the financial condition of Borrowers, the performance or observance by
Borrowers of any of their obligations under the Loan Agreement or any of the
Loan Documents[; and (iv) attaches the Notes held by it and requests that Agent
exchange such Notes for new Notes payable to Assignee and the Assignor in the
principal amounts set forth on Schedule A hereto].
----------
3. Assignee (i) represents and warrants that it is legally authorized
to enter into this Assignment and Acceptance; (ii) confirms that it has received
a copy of the Loan Agreement, together with copies of the most recent financial
statements delivered pursuant to Section 9.1.3 thereof, and copies of such other
Loan Documents and information as it has deemed appropriate to make its own
credit analysis and decision to enter into this Assignment and Acceptance; (iii)
agrees that it shall, independently and without reliance upon the Assignor and
based on such documents and information as it shall deem appropriate at the
time, continue to make its own credit decisions in taking or not taking action
under the Loan Agreement; (iv) confirms that it is eligible to become an
Assignee; (v) appoints and authorizes Agent to take such action as agent on its
behalf and to exercise such powers under the Loan Agreement as are delegated to
Agent by the terms thereof, together with such powers as are incidental thereto;
(vi) agrees that it will strictly observe and perform all the obligations that
are required to be performed by it as a "Lender" under the terms of the Loan
Agreement and the other Loan Documents; and (vii) agrees that it will keep
confidential all information with respect to Borrowers furnished to it by
Borrowers or the Assignor to the extent provided in the Loan Agreement.
4. Assignor acknowledges and agrees that it will not sell or otherwise
dispose of the Assigned Interest or any portion thereof, or grant any
participation therein, in a manner which, or take any action in connection
therewith which, would violate the terms of any of the Loan Documents.
5. This Agreement and all rights and obligations shall be interpreted
in accordance with and governed by the laws of the State of Connecticut. If any
provision hereof would be invalid under Applicable Law, then such provision
shall be deemed to be modified to the extent necessary to render it valid while
most nearly preserving its original intent; no provision hereof shall be
affected by another provision's being held invalid.
6. Each notice or other communication hereunder shall be in writing,
shall be sent by messenger, by telecopy or facsimile transmission or by
first-class mail, shall be deemed given when sent and shall be sent as follows:
If to Assignee, to the following address (or to such other address as
Assignee may designate from time to time):
--------------------------
--------------------------
<PAGE>
If to Assignor, to the following address (or to such other address as
Assignor may designate from time to time):
--------------------------
--------------------------
--------------------------
--------------------------
Payments hereunder shall be made by wire transfer of immediately
available Dollars as follows:
If to Assignee, to the following account (or to such other account as
Assignee may designate from time to time):
--------------------------
ABA No.
-------------------
--------------------------
Account No.
---------------
Reference:
----------------------
If to Assignor, to the following account (or to such other account as
Assignor may designate from time to time):
--------------------------
--------------------------
ABA No.
-------------------
For Account of:
-----------
Reference:
---------------------
IN WITNESS WHEREOF, the parties hereto have caused this Assignment and
Acceptance to be executed and delivered by their respective duly authorized
officers, as of the date first above written.
----------------------------------------
("Assignor")
By:
-----------------------------------
Title:
--------------------------------
-----------------------------------------
("Assignee")
By:
------------------------------------
Title:
---------------------------------
<PAGE>
SCHEDULE A TO ASSIGNMENT AND ACCEPTANCE
---------------------------------------
<PAGE>
EXHIBIT G
---------
FORM OF NOTICE
--------------
Reference is made to (i) the Loan and Security Agreement dated
November __, 1997 (at any time amended, the "Loan Agreement"), among Gulf States
Steel, Inc. of Alabama, ("GSS"), and Alabama Structural Beam Corp., ("ASB;"),
GSS and ASB being referred to collectively as "Borrowers," and individually as a
"Borrower"), FLEET CAPITAL CORPORATION in its capacity as agent ("Agent") for
the financial institutions from time to time party to the Loan Agreement
("Lenders"), and Lenders, and (ii) the Assignment and Acceptance dated as of
____________, 19__ (the "Assignment Agreement") between __________________ (the
"Assignor") and ____________________ (the "Assignee"). Except as otherwise
defined herein, capitalized terms used herein which are defined in the Loan
Agreement are used herein with the respective meanings specified therein.
The Assignor hereby notifies Borrowers and Agent of Assignor's intent
to assign to Assignee pursuant to the Assignment Agreement a principal amount of
(i) $________ of the outstanding Revolver Loans and participations in LC
Obligations held by Assignor, (ii) $___________ of Assignor's Revolver
Commitment (which amount includes the Assignor's outstanding Revolver Loans
being assigned to Assignee pursuant to clause (i) above), (iii) $_______________
of the outstanding Equipment Loans held by Assignor, and (iv) $_____________ of
Assignor's Equipment Loan Commitment (which amount includes Assignor's
outstanding portion of the Equipment Loans being assigned to Assignee pursuant
to clause (iii) above), together with an interest in the Loan Documents
corresponding to the interest in the Loans and Commitments so assigned. Pursuant
to the Assignment Agreement, Assignee has expressly assumed all of Assignor's
obligations under the Loan Agreement to the extent of the Assigned Interest (as
defined in the Assignment Agreement).
For purposes of the Loan Agreement, Agent shall deem Assignor's share
of the Revolver Commitment and Equipment Loan Commitment to be reduced by
$_________ and $__________, respectively, and Assignee's share of the Revolver
Commitment and Equipment Loan Commitment to be increased by $_________ and
$___________, respectively.
The address of the Assignee to which notices, information and payments
are to be sent under the terms of the Loan Agreement is:
------------------------
------------------------
------------------------
------------------------
Assignees LIBOR Lending Office address is as follows:
------------------------
------------------------
<PAGE>
------------------------
------------------------
This Notice is being delivered to Borrowers and Agent pursuant to
Section 12.3 of the Loan Agreement. Please acknowledge your receipt of this
Notice by executing and returning to Assignee and Assignor a copy of this
Notice.
IN WITNESS WHEREOF, the undersigned have caused the execution of this
Notice, as of _________________, 19__.
-------------------------------------------
("Assignor")
By:
---------------------------------------
Title:
------------------------------------
-------------------------------------------
("Assignee")
By:
---------------------------------------
Title:
--------------------------
ACKNOWLEDGED AND AGREED TO
AS OF THE DATE SET FORTH ABOVE:
BORROWERS:
- ---------
GULF STATES STEEL, INC. OF ALABAMA
By:
----------------------------
Title:
-------------------------
ALABAMA STRUCTURAL BEAM CORP.
By:
----------------------------
Title:
-------------------------
[Signatures continued on following page]
<PAGE>
FLEET CAPITAL CORPORATION,
as Agent
By:
----------------------------
Title:
-------------------------
<PAGE>
SCHEDULE 7.1.1
BUSINESS LOCATIONS
1. Borrowers currently has the following business locations, and
no others:
Chief Executive Office: 174 South 26th Street, Gadsden, Alabama 35904
Other Locations: none
2. Borrowers maintain their books and records relating to Accounts and
General Intangibles at:
174 South 26th Street, Gadsden, Alabama 35904
3. Borrowers have had no office, place of business or agent for process
located in any county other than as set forth above.
4. Each Subsidiary currently has the following business locations, and
no others:
Chief Executive Office: N/A
Other Locations:
5. Each Subsidiary maintains its books and records relating to Accounts
and General Intangibles at:
N/A
6. Each Subsidiary has had no office, place of business or agent for
process located in any county other than as set forth above, except:
N/A
<PAGE>
7. The following bailees, warehouseman, similar parties and consignees
hold inventory of a Borrower or one of its Subsidiaries:
<TABLE>
<CAPTION>
Name and Address of Party Nature of Relationship Amount of Inventory* Owner of Inventory
- ------------------------- ---------------------- -------------------- ------------------
<S> <C> <C> <C>
Hanna Steel Corp. Steel processing and 886,034.72 G.S.S
3001 Hickory Street warehousing
Gadsden, AL 35902
Feralloy Corporation Steel processing and 866,095.24 G.S.S.
100 Finloy Avenue warehousing
Birmingham, AL 35204
Doublecote Steel processing and G.S.S.
P.O. Box 7394 warehousing
Jackson, MS 39282
National Material Company Steel processing and 104,250.23 G.S.S.
3731 Amy Lynn Drive warehousing
Nashville, TN 37218
Hanna Steel Corporation Steel processing and 9,822.97 G.S.S.
3812 Commerce Avenue warehousing
Fairfield, AL 35064
Steel Service Company Steel processing and 1,901.22 G.S.S.
325 Lower Boundary Street warehousing
Macon, GA 31208
Chatham Steel Steel processing and G.S.S.
101 Pratt Highway warehousing
Birmingham, AL 35214
Southeastern Metal Process Steel processing and 88,030.47 G.S.S.
Route 3, Box 258 warehousing
Winder, GA 30680
Olympia Metals, Inc. Steel processing and 7,288.01 G.S.S.
Blair Bend Drive warehousing
Loudon, TN 37774
Smith Water Products Co. Steel processing and 161,286.83 G.S.S.
Highway No. 1 North warehousing
McBee, SC 29101
</TABLE>
<PAGE>
*As of September 30, 1997 (Note: Amount may vary from time to time).
<TABLE>
<S> <C> <C> <C>
A.O. Smith Water Products Co. Steel processing and 92,526.04 G.S.S.
401 Frederick Road warehousing
El Paso, TX 79905
Toledo Pickling & STL Sales Steel processing and G.S.S.
P.O. Box 3395, Station C warehousing
Toledo, OH 43607-4467
Voss Clark Steel processing and 575,435.92 G.S.S.
701 Loop Road warehousing
Jeffersonville, IN 47130
Southern Coil Steel processing and 16,794.11 G.S.S.
P.O. Box 232 warehousing
Fairfield, AL 35064
Piper Industries Steel processing and 142,053.48 G.S.S.
P.O. Box 1557 warehousing
Greenville, MS 38701
Chicago Steel Steel processing and 147,660.24 G.S.S.
700 Chase Street warehousing
Gary, IN 46404
Alabama State Docks Unload ocean vessels and 3,717,790 G.S.S.
P.O. Box 1588 store iron ore
Mobile, AL 36633
American Commercial Marine Steel shipping 37,400.00 G.S.S.
Service (barge loading)
P.O. Box 547
Gunterville, AL 35976
Steel Tech, Inc. Steel processing 11,724.19 G.S.S.
P.O. Box 43339
Louisville, KY 40253
Liberty Steel Steel processing 71,612.62 G.S.S.
P.O. Box 135
Canton, TN 38717
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Cargill Ind Steel processing 5,703.66 G.S.S.
600 Cowan Street
Nashville, TN 37207-5620
</TABLE>
*
<PAGE>
SCHEDULE 8.1.1
JURISDICTIONS IN WHICH BORROWERS
AND EACH SUBSIDIARY
IS AUTHORIZED TO DO BUSINESS
Name of Entity Jurisdictions
-------------- -------------
GSS Alabama
ASB Alabama
<PAGE>
SCHEDULE 8.1.4
CAPITAL STRUCTURE
1. The classes and number of authorized shares of Borrowers and each
Subsidiary and the record owner of such shares are as follows:
Borrower:
- --------
<TABLE>
<CAPTION>
Class of Stock Number of Shares Record Owners Number of Shares
-------------- Issued and Outstanding ------------- Authorized but Unissued
---------------------- -----------------------
<S> <C> <C> <C>
Common 3,610,000 GSS Holding Corp. 390,000
</TABLE>
Subsidiaries:
<TABLE>
<CAPTION>
Class of Stock Number of Shares Record Owners Number of Shares
-------------- Issued and Outstanding ------------- Authorized but Unissued
---------------------- -----------------------
<S> <C> <C> <C>
Common 100 Gulf States Steel, Inc. of 2,900
Alabama
</TABLE>
2. The number, nature and holder of all other outstanding Securities
of Borrowers and each of their Subsidiaries are as follows:
Holders of Notes under Indenture hold Warrants to purchase 190,000
shares of common stock of GSS.
3. The correct name and jurisdiction of incorporation of each of the
Subsidiaries of Borrowers and the percentage of its issued and
outstanding shares owned by a Borrower are as follows:
N/A
<TABLE>
<CAPTION>
Name Jurisdiction of Incorporation Percentage of Shares
---- ----------------------------- Owned by Borrower
-----------------
<S> <C> <C>
N/A
</TABLE>
<PAGE>
4. The name of each of each Borrower's corporate or joint venture
Affiliates and the nature of the affiliation are as follows:
GSS Holding Corp. - Parent
<PAGE>
SCHEDULE 8.1.5
CORPORATE NAMES
1. Each Borrower's correct corporate name, as registered with the
Secretary of State of the State of its state of incorporation, is:
Borrower State
-------- -----
Gulf States Steel, Inc. of Alabama Alabama
Alabama Structural Beam Corp. Alabama
2. In the conduct of its business, Borrowers have used the following
names:
Gulf State Steel Acquisition Corp. Alabama Structural Beam
GSS Acquisition Corp. Acquisition Corp. ASB Acquisition
Corp.
3. Each Subsidiaries' correct corporate name, as registered with the
Secretary of State of the State of its incorporation, is:
N/A
4. In the conduct of its business, each Subsidiary has used the
following names:
N/A
<PAGE>
SCHEDULE 8.1.12
SURETY OBLIGATIONS
None.
<PAGE>
SCHEDULE 8.1.13
TAX IDENTIFICATION NUMBERS OF BORROWERS AND SUBSIDIARIES
Borrowers' Tax ID Numbers are as follows:
Name of Borrower Tax ID Number
---------------- -------------
GSS 63-1141013
ASB 63-1141014
Name of Subsidiary Tax ID Number
------------------ -------------
N/A
<PAGE>
SCHEDULE 8.1.15
PATENTS, TRADEMARKS, COPYRIGHTS AND LICENSES
1. Under Trademark Agreement with LTV Steel Co., Ltd., Borrowers may use
the following trademarks on a nonexclusive, royalty-free basis.
<TABLE>
<CAPTION>
Trademark Status Product
- --------- ------ -------
<S> <C> <C>
DURA-FORM R Formable atomospheric-resistant steel sheet
DURA-PLATE R Formable atomospheric-resistant steel sheet
GREEN DOT R Hot dip galvanized steel sheets
MAXT-FORM R High strength, low alloy steels
MA-50 - Micro-alloyed, high strength, low alloy steels
REPUBLIC 35 -
50 -
60 -
70 -
80 -
A-441 -
M -
REPUBLIC P45 - Hot rolled, high strength, low alloy sheet and strip
P50 -
P55 -
REPUBLIC 100-AR Abrasion resistant steel plate
</TABLE>
- ------------------------------
R denotes registered trademark
- - denotes unregistered trademark
<PAGE>
<TABLE>
<CAPTION>
Trademark Status Product
- --------- ------ -------
<S> <C> <C>
RN - Renitrogenized high strength, cold rolled steels
ULTIMET - Ladle metallergy steel products
X-42-W - High strength, low alloy steels
X-45-W -
X-50-W -
X-55-W -
X-60-W -
X-65-W -
X-70-W -
X-80-W - As rolled high strength, low
X-90-W - alloy bar and plate
X-100-W -
</TABLE>
- ------------------------------
R denotes registered trademark
- - denotes unregistered trademark
2. Under a Patent Agreement with LTV, Borrowers may use the following patents on
a nonexclusive, royalty-free basis.
<TABLE>
<CAPTION>
Pat No.Issued Inventor Title
------------- ------- -----
<S> <C> <C>
3,552,5891-5-71 S.W. Wheeler Process for Maintaining Pressure Tight Seal on
Blase Furnace Bell
3,783,0401-1-74 J.B. Ballance et al. Low Carbon High Strength Steel
3,912,34510-14-75 H.C. Overton Bearing Chocking Assembly for Mill Rolls
3,920,23011-18-75 J.C. Murphy Blast Furnace Fuel Injector Land
3,966,2826-29-76 H.C. Overton Bearing Chocking Assembly for Mill Rolls
4,041,8958-16-77 H.C. Overton et al. Coating Thickness and Distribution Control
</TABLE>
<PAGE>
<TABLE>
<C> <C> <S>
4,101,7537-18-78 G.H. Buff et al. Flash Welding Apparatus and Method
4,235,59311-25-80 W.H. Malone Blast Stove
4,290,7519-22-81 W.H. Malone et al. Blast Furnace Stove
4,294,43210-13-81 M.J. Blair et al. Method and Apparatus for Cooling BOF Hood
Paneling
4,346,1298-24-82 C.E. Docker et al. Method and Apparatus for Thickness Control of a
Coating
4,376,2423-8-83 G.E. Buff et al. Flash Welding Apparatus and Method
4,397,6988-9-83 A.T. Davenport et al. Method of Making As-Hot-Rolled Plate
4,418,10011-29-83 J.L. Bedwell et al. Apparatus and Method for Reducing Spangle in
Galvanize Products
4,465,1178-14-84 C.G. Mason Ingot Mold Shields
4,534,0028-6-85 R.G. Urban Method and Apparatus to Optimize Cut Lengths of
Material
</TABLE>
Applications
------------
Dkt. 82.51 Hurtuk D.J. et al. Compacted Graphite Ingot
<PAGE>
SCHEDULE 8.1.18
CONTRACTS RESTRICTING BORROWERS' RIGHT TO INCUR DEBTS
Contracts that restrict the right of a Borrower to incur Debt:
<TABLE>
<CAPTION>
Title of Contract Identity of Parties Nature of Restriction Term of Contract
----------------- ------------------- --------------------- ----------------
<S> <C> <C> <C>
Indenture GSS, State Street Limitation on Permitted April 15, 2003
Bank, as Trustee Indebtedness
</TABLE>
<PAGE>
SCHEDULE 8.1.19
LITIGATION
Thyssen Stahl Aktiengesefschaft, a German company ("Thyssen"), had sent
several letters to Borrowers' predecessors in interest claiming infringement on
several patents which it owns. Thyssen has not requested any specific amount of
damages. No correspondence has been received from Thyssen since 1989.
The Borrowers are not a party to any other significant pending legal
proceedings other than litigation incidental to its business which the Borrowers
believe not materially affect its financial position or results of operation, as
follows:
Litigation Status
Worker's Compensation Claims in Litigation
William White vs. GSS
- ---------------------
Attorney Leon Garmon
Date of Injury 5-21-87 Shoulder injury 12% upper extremity
rating
Date of Injury 8-27-92 Right knee injury (total knee
replacement)
Work Status Retired 1993
David F. Smith
- --------------
Attorney Leon Garmon
Date of Injury 10-11-92 Back injury - three back surgeries
Rating 10% whole person
Vocational Rating 31%-45%
Work Status Released to return to work with restriction.
Mr. Smith is receiving Social security
Disability and claims he is 100%.
Trial is set for October 15, 1997
Larry Pankey
- ------------
Attorney Clarence Rhea
Date of Injury 11-25-93 - Head injury
Rating 0% whole person
Work Status Released to return to full work. Mr. Pankey claims
he is 100% disabled.
Trial is set for October 1, 1997. Mr Pankey's claim of disability was presented
to a Grand Jury for Workers' Compensation Fraud on September 5, 1997. No notice
has been given on an indictment.
Truman Wright
- -------------
Attorney Gary Bone
Date of Injury 12-31-91 - Right knee - 2 surgeries
Date of Injury 02-18-94 - Left knee - 1 surgery
Rating Right Knee 3% whole person
Rating Left Knee 7% lower extremity
<PAGE>
Work Status Currently working full duty
Currently negotiating settlement.
John Isom
- ---------
Attorney Richard Rhea
Date of Alleged Injury 03-06-95 - Right knee
Rating 0%
Work Status Currently working full duty
Claim was denied based on Mr. Isom's history of Osgood Schlatter's disease. Case
was heard August 8, 1997, currently pending Court's decision.
Joe Morgan
- ----------
Attorney Jay Stover
Date of Injury 9-26-95 - Right knee - 1 surgery
Rating 2% lower extremity
Work Status Currently working full duty
Mr. Morgan disputes impairment rating.
Jimmy Crocton
- -------------
Attorney Gary Bone
Date of Injury 09-01-95 - Burn to face
Rating 5% lower extremity
Work Status Currently working full duty
We believe the Alabama Worker's Compensation Law does not provide for Permanent
Partial Disability aware for Mr. Crocton's injury.
Margaret Miller
- ---------------
Attorney Marcus Reid
Date of Injury 09-18-95 - Back and Hip Pain - pending back
surgery
Rating Currently 0%
Work Status Currently out of work for Personal Illness.
This claim was just recently filed and is in the discovery process. Borrowers
are informed that an additional worker's compensation complaint was filed by
Cecil Foster, which has not been served on Borrowers.
Total (12)
Ronald Phillips
- ---------------
Attorney David Kimberly
Date of Alleged Injury 04-04-95 - Hand and neck pain - Cervical fusion
Rating 10% whole person
Work Status Currently working full duty
<PAGE>
Mr. Phillips alleges his cervical problems relate to his date of injury. GSS
denies cervical problems are related to his reported injury.
Doris Burchfield
- ----------------
Attorney David Kimberly
Date of Alleged Injury 02-06-97 - Fracture to foot
Rating 0%
Work Status Currently working full duty
Both of these claims were denied based on Ms. Burchfield's history of Lupus
Disease. Investigation causes us to believe her injuries did not arise from and
on-the-job injury.
Harold Mason
- ------------
Attorney Tammy Parris
Date of Alleged Injury 1-31-97 - Back Pain
Rating 0%
Work Status Currently working full duty
Investigation of alleged injury showed no injury relating to his job.
Larry Simpson
- -------------
Attorney Dan King
Date of Injury 5-13-95 - Knee- Back - surgery knee and back
Rating 14% whole person
Work Status Released to return to work with restrictions.
Mr. Simpson alleges 100% disabled.
This case also involves a claim of negligence and intentional wrongful action
against GSS and a second defendant Gadsden Rehabilitation Center. Mr. Simpson
alleges his back injury occurred during a test performed by Gadsden
Rehabilitation.
General Liability Claims in Litigation
Kenneth D. Vest
Attorney Robert W. Lee, Jr.
Date of Alleged Injury 09-19-95
Mr. Vest, an employee of Air Products, Inc., claims serious bodily injuries, due
to negligence of GSS. As Mr. Vest was leaving the Praxair Plant, a Locomotive
Engine struck his truck. Mr. Vest has also named the Train Operator and Praxair
in his complaint. This case is currently in the discovery process. GSS does not
believe that it has liability in this case.
Gerald Connel
Attorney Ted L. Mann
Date of Injury 03-20-95 - Right Hand
<PAGE>
Mr. Connell is employed by ASB and was paid a Worker's Compensation for his
injuries. Mr. Connell alleges that GSS was the principal and master of ASB and
retained and exercised the right to control the methods employed by ASB in the
execution of its work. This case is not suspected to have a Material Adverse
Effect. Trial is set for November 17, 1997.
<PAGE>
EMPLOYMENT PRACTICES LITIGATION
- -------------------------------
PATRICIA C. TALLENT
EEOC Charge Filed 8-23-96
- -------------------------
Tallent, a White Female, was a General Electrician assigned to the Hot Strip
Mill. Tallent claimed to have sustained a work related injury on 9-20-95 which
twisted her knees when she fell. Tallent had surgery performed on both knees and
has continued to have a lot of problems involving pain and swelling in trying to
perform the job of General Electrician. Her treating Physician placed
restrictions on Tallent which prevented her from performing the General
Electrician job. Tallent has been assigned to Labor which does not violate her
restrictions. Tallent is claiming Discrimination because of her disability in
being assigned to Labor. Company Response made to EEOC on September 10, 1996.
The claimant requested "Notice Of Right To Sue." EEOC issued "Notice Of Right To
Sue" on May 9, 1997. Claimant exercised her Right to Sue on 7-24-97. Company
field its answer to the suite on 8-12-97.
BECKY B. BAKER
EEOC Charge Filed 11-13-96
- --------------------------
Becky B. Baker, a Black Female, age 38, is employed as a Pool Laborer, currently
assigned to the Cold Strip Mill. Ms. Baker was accepted on a bid for an
Electrical Crane Learner vacancy on 6-10-96 and subsequently disqualified due to
her unsafe and inefficient operation. Thereafter, Ms. Baker was assigned to the
Labor Pool as a Bathhouse Janitor, which she refused to perform and was
suspended. The suspension was converted to discipline and Ms. Baker was assigned
to the Cold Strip Mill Pool. Baker is claiming discrimination because of her
Race and Sex by disqualifying her from further training as Crane Learner,
Harassment by Company Officials in the performance of her duties and laid off
from her position as Laborer. Company Response made to EEOC on December 9, 1996.
EEOC Determination not received.
ERIC E. BUSH
EEOC Charge Filed 3-27-97
- -------------------------
Eric E. Bush, a Black Male, age 32, continuous service date of 9-12-89, was
assigned to the occupation of Ladleman in the Melt Shop Department. Mr. Bush has
had a history of poor attendance for several years which has resulted in his
being warned and disciplined, including being provisionally discharged on two
different occasions. Bush was discharged a third time on October 28, 1996, which
resulted in Grievance GSS-1474 and Arbitration of the matter, January 29, 1997,
with the Arbitrator ruling in the Company's favor by denying the Grievance. Bush
is claiming Discrimination because of his Race claiming White co-workers have
been treated differently by being allowed to work even when their infractions
were much more severe. Company response made to EEOC on April 28, 1997. EEOC
Determination not received.
QUENTIS G. MORRISON
EEOC Charge Filed 6-24-97
- -------------------------
Quentis G. Morrison, a White Male, age 61, currently assigned to the Teleprinter
Operator occupation in the Clerical Union. Morrison was regressed form a
supervisory position in the Transportation Department effective 5-5-91, to the
Clerical Bargaining Unit due to a reduction in force. Morrison claims
discrimination because of his age by the Company not offering him a promotion to
supervisor. The Company has filled a supervisory position in the Transportation
Department on a temporary basis with an employee, age 27. Company response made
to EEOC on 7-16-97.
<PAGE>
SCHEDULE 8.1.21
CAPITALIZED AND OPERATING LEASES
Borrowers and their Subsidiaries have the following capitalized leases:
<TABLE>
<CAPTION>
Lessee Lessor Term of Lease Property Covered
------ ------ ------------- ----------------
<C> <S> <C> <C>
GSS Hewlett Packard various expirations under Computers, Software
Master Lease Peripherals
GSS Keibler Thompson monthly Model KT-40
30 day notice Track Machine
GSS Keibler Thompson monthly Model KT-40
30 day notice Track Machine
GSS Premier Services 12/15/97 Laser Profiler
GSS Tractor & Equipment 11/10/99 PPM Model CN128
Crane S/S 57023
GSS Tractor & Equipment 11/10/99 Komatsu Loader
S/N A50007
ASB Taylor Equipment 12/1/97 Forklift Y36W0S
ASB Regions Bank 9/16/02 Forklift SW1 26357
GSS Midwest Leasing 8/1/04 Turbogenerator
</TABLE>
<PAGE>
SCHEDULE 8.1.22
PENSION PLANS
Borrowers and their Subsidiaries have the following Plans:
Profit-Sharing Plan
In connection with its collective bargaining agreement with the USWA, the
Borrowers have a profit-sharing plan for certain salaried employees whereby the
Borrowers contribute 9.75% for income before taxes, extraordinary items and
certain other defined adjustments.
Hourly employees defined contribution pension.
The Borrowers have a defined contribution pension plan for hourly
employees. As of 4/1/97, the contribution rate is $.70 per hour worked.
Hourly and salary employees retiree health benefit plan
As of 10/31/97, the company had an unfunded benefit obligation as described
in Borrowers 10K.
1995 Parent Stock Option Plan
Parent's Board of Directors has adopted the 1995 Employee, Director and
Consultant Stock Option Plan (the "Parent Stock Option Plan"). The Parent Stock
Option Plan provides for the grant of incentive stock options to key employees
of Parent's and its subsidiaries (including the Borrowers) and non-qualified
stock options to key employees, directors and consultants of Parent and its
subsidiaries (including the Borrowers). All of Parent's non-voting Common Stock,
par value $.01 per share, has been reserved for issuance under the Parent Stock
Option Plan upon the exercise of options. The Parent Stock Option Plan will be
administered by the Board of Directors of Parent.
<PAGE>
SCHEDULE 8.1.24
COLLECTIVE BARGAINING AGREEMENTS; LABOR CONTROVERSIES
Collective Bargaining Agreements
- --------------------------------
1. Agreement between Gulf States Steel, Inc. of Alabama and United
Steelworkers of America and its Local 4382 dated April 1, 1996, setting
forth the rates of pay, hours of work and conditions of employment for the
office, clerical and technical employees represented by Local 4382.
2. Agreement between Gulf States Steel, Inc. of Alabama and United
Steelworkers of America and its Local 2176 dated April 1, 1996, setting
forth the rates of pay, hours of work and conditions of employment for the
office, clerical and technical employees represented by Local 2176.
3. Agreement between Gulf States Steel, Inc. of Alabama and Bricklayers and
Allied Craftsmen International Union A.F. L.-C.I.O., acting on behalf of
Local No. 11 dated April 1, 1996, setting forth the rates of pay, hours of
work an conditions of employment for the bricklayer employees represented
by Local No. 11.
4. Agreement between Alabama Structural Beams, Inc. and United Steelworkers
of America dated April 20, 1990, modified as of August 8, 1995, setting
forth the rates of pay, hours of work and conditions of employment for the
full-time production and maintenance employees.
Labor Controversies
None
<PAGE>
SCHEDULE 9.2.4.
TRANSACTIONS WITH AFFILIATES
1. Payment to Parent to permit Parent to make payments on that certain
Note dated April 21, 1995 made by Parent to Gulf States Steel, Inc.
(predecessor to GSS) in the original principal amount of $15,000,000,
in the event Borrowers EBIT is in excess of $40,000,000.
2. Payments to Parent to enable Parent to redeem securities from
certain management personnel under the Parent's Stock Option Plan upon
their termination of employment, death or disability in an amount not
to exceed $200,000 annually.
3. Payments to Parent not to exceed $50,000 per annum to fund operating
expenses of Parent.
4. Payments to Parent pursuant to that certain Tax Sharing Agreement
dated April 21, 1995, among Parent and Borrowers.
5. Payments to Parent for transaction costs incurred in connection with
any public equity offering by Parent.
6. Payments to Spectrum Management Co., Inc. of a management fee of
$1,000,000 per annum plus costs and expenses relating to performing
management services.
7. Payments to Hancock Venture Partners of an annual fee of $250,000
per annum plus costs and expenses relating to performing management
services.
8. Payments to Risk Management Services, an affiliate of Borrowers, as
compensation for services rendered equal to 15% of the total cost of
Borrowers' insurance programs.
9. Existing loans to certain managers and officers of the Borrowers in
an aggregate principal amount of up to $750,000 to finance such
managers' and officers' indirect equity investment in Borrowers.
10. Reasonable fees and expenses and compensation paid to and indemnity
provided on behalf of, officers, directors, employees or consultants of
GSS and its Subsidiaries in an amount not to exceed $500,000 per annum.
<PAGE>
SCHEDULE 9.2.5
PERMITTED LIENS
GULF STATES STEEL, INC. OF ALABAMA
<TABLE>
<CAPTION>
Secured Party File No. Date Filed Nature of Lien
<S> <C> <C> <C>
*Nalco Chemical B 93-38878 FS 11-08-93 40 gpm automatic
Company "Lessor" deiomization system, (2)
KD 2000 Assembly.
*Shawmut Bank B 95-16709 FS 04-21-95 Issued and Outstanding
Connecticut, N.A., Shares of Capital Stock,
as Trustee all pledged shares
including all proceeds
*Shawmut Bank B 95-16710 FS 04-21-95 Equipment; patents,
Connecticut, N.A., trademarks, copyrights,
as Trustee licenses; issued and
outstanding; shares of
capital stock; pledged
shares, including all
proceeds
*Shawmut Bank B 95-16711 FS 04-21-95 Equipment; fixtures
Connecticut, N.A.,
as Trustee
*The CIT B 96-09262 FS 03-05-96 Specific Equipment and
Group/Equipment all proceeds thereof
Financing, Inc.
*The CIT B 96-22410 FS 05-28-96 Specific Equipment and all
Group/Equipment proceeds thereof
Financing, Inc.
*Bombardier Capital, B 96-35730 FS 08-27-96 Undivided 1/8 interest in
Inc. a certain Learjet
Model 31A, together
with (2) two turbofan
engines subject to a
security Agreement
dated and of April 12,
1996.
*The CIT B 96-41377 FS 10-02-96 Specific Equipment and all
Group/Equipment proceeds thereof
Financing, Inc.
*GSS, as Consignor B 95-18254 FS 05-03-95 All inventory consigned
pursuant to the
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Consignment
Agreement dated April 21,
1995.
**Shawmut Bank 15385 04-21-95 Equipment; fixtures
Connecticut, N.A. as
Trustee
**Shawmut Bank 15386 04-21-95 Equipment; patents,
Connecticut, N.A. as trademarks, copyrights,
Trustee licenses
*Hewlett-Packard B 93-05435 FS 2-17-93 Leased Equipment
Company
*Thompson Tractor Co., B 93-15233 FS 5-3-93 Caterpillar 988B Wheel
Inc. Loader w/Heater and AC
*Noranda Sales, Inc., B 93-17779 FS 5-20-93 All goods and inventory
"Consignor" delivered on consignment
to consignee.
*Key Machinery Co., B 93-26029 FS 7-26-93 (1) new case 1840
Inc.; Case Credit Uniloader
"as Assignee"
*Thompson Tractor Co., B 93-30902 FS 9-2-93 (1) new Caterpillar Lift
Inc. truck and proceeds.
*Icemakers, Inc. B 93-34576 FS 10-4-93 Scotsman Ice Machine
Model # LM 500AE-1D-SP
Scotsman Ice Bin
Model # HTB 500-7L-SP
*Hewlett-Packard B 93-35882 FS 10-13-93 Leased Equipment
Company
*Thompson Tractor Co, B 93-39100 FS 11-8-93 Caterpillar 769C truck
Inc. w/AC tires, electronic
traction aid, and
proceeds.
*Shaw Equipment Co. B 93-42627 FS 12-9-93 United Tow tractor
Model # SM-120D
</TABLE>
* filed with Alabama Secretary of State
** filed with Etowah County, Alabama
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Icemakers, Inc. B-94 02137 FS 1-19-94 (1) Scotsman Ice Machine
#CM500AE-1
(1) Scotsman Ice Bin #EB60
*Icemakers, Inc. B 94-04133 FS 2-7-94 (1) Scotsman Ice Machine
#CM500AE-1E
(1) Scotsman Ice Bin
#BH550S-SP
*Icemakers, Inc. B 94-05198 FS 2-14-94 (1) Scotsman Ice Machine
#CM250AE
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 94-11425 FS 4-1-94 (1) Scotsman Ice Machine
Compass Bank, as #CM250AE
"Assignee" (1) Scotsman Ice Bin
#HTB500
*Icemakers, Inc. B 94-12657 FS 4-11-94 (1) Scotsman Ice Machine
#DC33A-1W
*Icemakers, Inc. B 94-21838 FS 6-15-94 (1) Scotsman Ice Machine
#CM250AE-1E
(1) Scotsman Ice Bin
#HTB350-7L
*Icemakers, Inc. B 94-26313 FS 7-18-94 (1) Scotsman Ice Machine
#CM250AE-1-7Z
(1) Scotsman Ice Bin
#HTB350-7L
*Reactive Metals & B 94-27648 FS 7-26-94 (1) Injector w/control
Alloys Corporation, panel
"Owner"; Congress (1) Fruehauf Storage
Financial Corporation, trailer
as "Assignee" (1) Leco
*Key Machinery Co., B 94-33284 FS 9-6-94 1840 Uniloader
Inc.
*Icemakers, Inc. B 94-40291 FS 10-24-94 (1) AC25 MAE-1-7L
*Icemakers, Inc. B 95-02201 FS 1-17-95 (1) HC400SAE-6A-AD
(1) EB60
*Thompson Tractor Co., B 95-13576 FS 4-3-95 (1) Caterpillar Lift
Inc. Truck with accessories
and proceeds.
*Icemakers, Inc. B 95-19694 FS 5-12-95 (1) CME250AE-1A
(1) HTB350
*Icemakers, Inc. B 95-19695 FS 5-12-95 (1) AF300A-1
*Icemakers, Inc. B 95-25230 FS 6-19-95 (1) Scotsman Ice Machine
#SCEMOA-1A
*Icemakers, Inc. B 95-50680 FS 12-13-95 (1) Scotsman Ice Machine
#AC25SAE-1
*Icemakers, Inc., B 95- (1) CM250WE-1
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
Compass Bank of the 50689 FS 12-13-95 (1) BH550S
South, as "Assignee"
*Icemakers, Inc. B 95-50691 FS 12-13-95 (1) CME500AE-1A
(1) HTB 500
*Xerox Corp. B 96-02309 FS 1-17-96 Leased Equipment
*Hewlett-Packard, B 96-18296 FS 4-26-96 Leased Equipment
Company "Lessor" together with all
proceeds.
*Icemakers, Inc. B 96-24747 FS 6-11-96 (1) Scotsman Ice Machine
Compass Bank of the #SCE170A-1A
South, as "Assignee"
*Icemakers, Inc. B 96-24751 FS 06-11-96 (1) Scotsman Ice Machine
Compass Bank of the #CME250AE-1A
South, as "Assignee" (1) Scotsman Ice Bin
#HTB250
*Icemakers, Inc. B 96-30272 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1E
(1) Scotsman Ice Bin
#K500DS
*Icemakers, Inc. B 96-30273 FS 07-19-96 (1) Scotsman Ice Machine
#CM450WE-32E
(1) Scotsman Ice Bin
#HTB250
*Icemakers, Inc. B 96-30274 FS 07-19-96 (1) Scotsman Ice Machine
#CME500AE-1A
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30275 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31A
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30276 FS 07-19-96 (1) Scotsman Ice Machine
#CM650AE-32
(1) Scotsman Ice Bin
#HTB650
*Icemakers, Inc. B 96-30277 FS 07-19-96 (1) Scotsman Ice Machine
#CM650AE-32
(1) Scotsman Ice Bin
#BH250
*Icemakers, Inc. B 96-30278 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#BH350
*Icemakers, Inc. B 96-30279 FS 07-19-96 (1) Scotsman Ice Machine
# CM250AE-1
(1) Scotsman Ice Bin
#HTB500
*Icemakers, Inc. B 96-30280 FS 07-19-96 (1) Scotsman Ice Machine
#HC400SAE-6A
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30281 FS 07-19-96 (1) Scotsman Ice Machine
#CME250AE-1A
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30282 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31A
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30283 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#EB60
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Icemakers, Inc. B 96-30284 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30285 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31A
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30286 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30287 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30288 FS 07-19-96 (1) Scotsman Ice Machine
#CM500AE-1
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30289 FS 07-19-96 (1) Scotsman Ice Machine
#CME500AE-1A
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30290 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30291 FS 07-19-96 (1) Scotsman Ice Machine
#CME500AE-1A
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30292 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#FB60
*Icemakers, Inc. B 96-30293 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30294 FS 07-19-96 (1) Scotsman Ice Machine
#CM500AE-1
(1) Scotsman Ice Bin
#BH5505
*Icemakers, Inc. B 96-30295 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30296 FS 07-19-96 (1) Scotsman Ice Machine
#CM500AE-1E
(1) Scotsman Ice Bin
#BH5505
*Icemakers, Inc. B 96-30297 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30298 FS 07-19-96 (1) Scotsman Ice Machine
#CM500AE-1D
(1) Scotsman Ice Bin
#HTB500
*Icemakers, Inc. B 96-30299 FS 07-19-96 (1) Scotsman Ice Machine
#CM500WE-1
(1) Scotsman Ice Bin
#HTB500
*Icemakers, Inc. B 96-30300 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#60B
*Icemakers, Inc. B 96-30301 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30302 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#60B
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Icemakers, Inc. B 96-30303 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#60B
*Icemakers, Inc. B 96-30304 FS 07-19-96 (1) Scotsman Ice Machine
#CME256AE-1A
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30305 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#BH250
*Icemakers, Inc. B 96-30306 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-30307 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30308 FS 07-19-96 (1) Scotsman Ice Machine
#AC25MAE-1
*Icemakers, Inc. B 96-30309 FS 07-19-96 (1) Scotsman Ice Machine
#CM450AE-32
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30310 FS 07-19-96 (1) Scotsman Ice Machine
AF300A-1A
*Icemakers, Inc. B 96-30311 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#BH350
*Icemakers, Inc. B 96-30312 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30313 FS 07-19-96 (1) Scotsman Ice Machine
#MC30MAE-31
(1) Scotsman Ice Bin
#EB40
*Icemakers, Inc. B 96-30314 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30315 FS 07-19-96 (1) Scotsman Ice Machine
#CME250AE-1A
(1) Scotsman Ice Bin
#HTB250
*Icemakers, Inc. B 96-30316 FS 07-19-96 (1) Scotsman Ice Machine
#CM500AE-1
(1) Scotsman Ice Bin
#HTB500
*Icemakers, Inc. B 96-30317 FS 07-19-96 (1) Scotsman Ice Machine
#CME250WE-1A
(1) Scotsman Ice Bin
#BH5505
*Icemakers, Inc. B 96-30318 FS 07-19-96 (1) Scotsman Ice Machine
#AC11MAS
*Icemakers, Inc. B 96-30319 FS 07-19-96 (1) Scotsman Ice Machine
#AC25SAE-1A
*Icemakers, Inc. B 96-30320 FS 07-19-96 (1) Scotsman Ice Machine
#PC33A
*Icemakers, Inc. B 96-30321 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#BH350E
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Icemakers, Inc. B 96-30322 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30323 FS 07-19-96 (1) Scotsman Ice Machine
#AC125SAE-1A
*Icemakers, Inc. B 96-30324 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30325 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30326 FS 07-19-96 (1) Scotsman Ice Machine
#AC25SAE-1
*Icemakers, Inc. B 96-30327 FS 07-19-96 (1) Scotsman Ice Machine
#AC25SAE-1
*Icemakers, Inc. B 96-30328 FS 07-19-96 (1) Scotsman Ice Machine
#MF400AE-1
(1) Scotsman Ice Bin
#5000SB
*Icemakers, Inc. B 96-30329 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30330 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30331 FS 07-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 96-30332 FS 07-19-96 (1) Scotsman Ice Machine
#CSN1AE-1
*Icemakers, Inc. B 96-30333 FS 07-19-96 (1) Scotsman Ice Machine
#DC33A
*Icemakers, Inc. B 96-30334 FS 07-19-96 (1) Scotsman Ice Machine
AC25MAE-1
*Icemakers, Inc. B 96-30335 FS 07-19-96 (1) Scotsman Ice Machine
#AF300A-1A
*Icemakers, Inc. B 96-30336 FS 07-19-96 (1) Scotsman Ice Machine
#SCE170A-1A
*Icemakers, Inc. B 96-30337 FS 07-19-96 (1) Scotsman Ice Machine
#SCE170A-1A
*Icemakers, Inc. B 96-30341 FS 07-19-96 (1) Scotsman Ice Machine
#CM450WE-32
(1) Scotsman Ice Bin
#BH650E
*Icemakers, Inc. B 96-30342 FS 07-19-96 (1) Scotsman Ice Machine
#CM650AE-32
(1) Scotsman Ice Bin
#EB60
*Icemakers, Inc. B 96-34523 FS 08-19-96 (1) Scotsman Ice Machine
#CM250AE-1
(1) Scotsman Ice Bin
#HTB350
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C> <C>
*Icemakers, Inc. B 96-52588 FS 12-16-96 (1) Scotsman Ice Machine
# CME256AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 97-03603 FS 01-27-97 (1) Scotsman Ice Machine
Compass Bank of the # CME256AE-1A
South, as "Assignee" (1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 97-06670 FS 02-14-97 (1) Scotsman Ice Machine
# CME256AE-1
(1) Scotsman Ice Bin
#HTB350
*Icemakers, Inc. B 97-11296 FS 03-18-97 (1) Scotsman Ice Machine
# CME256AE-1AD
(1) Scotsman Ice Bin
#HTB350AD
*Thompson Lift Truck B 97-13205 FS 03-28-97 (1) Caterpillar Forklift
Company with accessories
and proceeds.
*Thompson Lift Truck B 97-21318FS 05-19-97 (1) Caterpillar Wheel
Company Loader
*Icemakers, Inc. B 97-26869FS 06-25-97 (1) Scotsman Ice Machine
Compass Bank of the # CME506AE-1
South, as "Assignee" (1) Scotsman Ice Bin
#HTB350AD
</TABLE>
ALABAMA STRUCTURAL BEAM CORP.
<TABLE>
<CAPTION>
Secured Party File No. Date Filed Nature of Lien
<S> <C> <C> <C>
*Icemakers, Inc. B 93-24325 FS 07-12-93 Scotsman Ice Machines
Model #AC25SAE-1
Serial #630258-11L
*Taylor Machine B 97-40086 FS 09-26-97 Leased Equipment
Works, Inc.
</TABLE>
ALABAMA STRUCTURAL BEAM, INC.
<TABLE>
<CAPTION>
Secured Party File No. Date Filed Nature of Lien
<S> <C> <C> <C>
*Icemakers, Inc. B93-24325FS 07-12-93 Scotsman Ice Machine
Model #AC255AE1
Serial #630258-11L
*Taylor Machine
Works, Inc. B97-40086FS 09-26-97 Leased Equipment
</TABLE>
<PAGE>
GULF STATES STEEL, INC.
Exhibit 10.15
Mr. Jack R Collins Senior
Vice President and CFO
Gulf States Steel, Inc.
September 24, 1997
Dear Jack:
This letter amends and revises the current agreement ("AGREEMENT") between you,
Jack R. Collins ("COLLINS"), and Gulf States Steel, Inc. ("COMPANY").
WITNESSETH:
WHEREAS, COLLINS continues to be a valuable asset to the COMPANY in his new
capacity, effective September 1, 1997, as Senior Vice President and COO
(Chairman of the Office of the President); and
WHEREAS, the COMPANY wishes for COLLINS to continue full-time employment
through the orderly acquisition of a successor, or at least until April 30,
1998.
NOW, THEREFORE, in consideration of the premises and their mutual covenants
set forth here and in the AGREEMENT, the parties agree to amend and revise the
AGREEMENT as follows:
1. TERM. The term of this AGREEMENT shall be revised to December 31, 1999, or
-----
fifteen months from COLLINS' retirement from full-time employment,
whichever comes first, and "Base Compensation" will continue in full until
that date.
2. COMPENSATION. "Base Compensation" shall be increased to $15,500 per month,
-------------
and all applicable bonuses and incentives for company officers shall apply.
This compensation level may be increased, as appropriate, by the President
and CEO. In addition, a Special Bonus, based upon the performance, against
objectives, of the Office of the President, shall be paid to COLLINS, upon
approval of the President and CEO.
3. CONTRACT WORK. Upon retirement, COLLINS will be offered to perform ongoing
--------------
services for the COMPANY on a contract basis. Contract rates will be
negotiated at the time of retirement.
4. ONGOING BENEFITS. The benefit of stock option vesting under the GSS Holding
-----------------
Corp. Incentive Stock Option Agreements will continue through the term of
COLLINS' above CONTRACT WORK with the COMPANY, provided he performs an
average of at least twenty (20) hours per month of such work for any given
quarter.
5. BONUS PLAN. After retirement, COLLINS will continue to be eligible for the
-----------
BPM Bonus Plan, to be applied to time worked under CONTRACT WORK.
IN WITNESS WHEREOF, the undersigned have executed this amendment and
revision to the AGREEMENT as of the twenty-fourth day of September, 1997.
WITNESS: GULF STATES STEEL, INC.
/s/ Judy R. Lefler /s/ John D. Lefler
- --------------------------- -----------------------------------
President and CEO
Date: 9/24/97
------------------------------
/s/ Terri Collins By: /s/ Jack R. Collins
- --------------------------- --------------------------------
Jack R. Collins
Date: 9/24/97
------------------------------
1
<PAGE>
Exhibit 11
COMPUTATION OF EARNINGS PER SHARE
GULF STATES STEEL, INC. OF ALABAMA
<TABLE>
<CAPTION>
Fiscal Year Fiscal Year For the period
Ended Ended April 21, 1995
October 31, October 31, to October 31,
----------- ----------- --------------
1997 1996 1995
---- ---- ----
<S> <C> <C> <C>
Net income (loss) before cumulative effect of
accounting change $(15,851,000) $ (370,000) $ 1,245,000
Cumulative effect of accounting change (2,647,000) -- --
------------ ----------- -----------
Net income (loss) $(18,498,000) $ (370,000) $ 1,245,000
============ =========== ===========
Shares:
Weighted average common shares outstanding 3,610,000 3,610,000 3,610,000
Net effect of dilutive put warrants and stock
options based on the treasury stock method N/A N/A 189,838
------------ ----------- -----------
Weighted average common and common
equivalent shares outstanding 3,610,000 3,610,000 3,799,838
============ =========== ===========
Net income (loss) per share before cumulative
effect of accounting change $ (4.39) $ (.10) $ .33
Cumulative effect of accounting change (.73) -- --
------------ ----------- -----------
Net income (loss) per share $ (5.12) $ (.10) $ .33
============ =========== ===========
</TABLE>
1
<PAGE>
Exhibit 12
COMPUTATION OF RATIO OF EARNINGS TO FIXED CHARGES
GULF STATES STEEL, INC. OF ALABAMA
(dollars in thousands)
<TABLE>
<CAPTION>
(Successor) (Predecessor)
---------------------------------------------------------------------------------
For the Period For the Period
Fiscal Year Ended April 21, 1995 Nov. 1, 1994 Fiscal Year Ended
October 31, to October 31, to April 20, October 31,
---------------------------------------- ---------------- -------------------
1997 1996 1995 1995 1994 1993
---- ---- ---- ---- ----- ----
<S> <C> <C> <C> <C> <C> <C>
Net interest expense (a) $26,665 $24,118 $12,406 $ 5,230 $14,349 $14,998
Amortization expense (a) 1,525 1,663 618 415 706 956
------- ------- ------- ------- ------- -------
Fixed charges $28,190 $25,781 $13,024 $ 5,645 $15,055 $15,954
======= ======= ======= ======= ======= =======
Calculation of fixed charges:
Fixed charges $28,190 $25,781 $13,024 $ 5,645 $15,055 $15,954
Net income (loss) before (16,611) (640) 2,155 19,928 33,375 (4,945)
------- ------- ------- ------- ------- -------
Earnings $11,579 $25,141 $15,179 $25,573 $48,430 $11,009
======= ======= ======= ======= ======= =======
Ratio of earnings to fixed
charges (b) (b) 1.2x 4.5x 3.2x (b)
=== === ==== ==== ==== ===
</TABLE>
(a) Interest expense has been reduced by the amount of amortization of debt
discount and that amount is included in amortization expense.
(b) Earnings are inadequate to cover fixed charges in 1997, 1996 and 1993 by
$16,611, $640 and $4,945, respectively.
1
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM ANNUAL
REPORT ON FORM 10-K FOR THE FISCAL YEAR ENDED OCT. 31, 1997 AND IS QUALIFIED IN
ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> OCT-31-1997
<PERIOD-START> NOV-01-1996
<PERIOD-END> OCT-31-1997
<CASH> 2,359
<SECURITIES> 0
<RECEIVABLES> 33,775
<ALLOWANCES> (390)
<INVENTORY> 54,651
<CURRENT-ASSETS> 100,846
<PP&E> 238,337
<DEPRECIATION> (40,631)
<TOTAL-ASSETS> 305,392
<CURRENT-LIABILITIES> 54,830
<BONDS> 188,470
0
0
<COMMON> 36
<OTHER-SE> 19,432
<TOTAL-LIABILITY-AND-EQUITY> 305,392
<SALES> 436,510
<TOTAL-REVENUES> 436,510
<CGS> 389,780
<TOTAL-COSTS> 408,223
<OTHER-EXPENSES> 17,995
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 26,943
<INCOME-PRETAX> (16,611)
<INCOME-TAX> (760)
<INCOME-CONTINUING> (15,851)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (2,647)
<NET-INCOME> (18,498)
<EPS-PRIMARY> (5.12)
<EPS-DILUTED> 0
</TABLE>
