-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, C9V9SOSDSTnWsOzlM7puoMMeAWpXJag3yRbFAjCq1oJ1htwqpKKVaSCXFXdstEUj BdAXAyATermZbKc1DualRQ== 0000910394-97-000001.txt : 19970221 0000910394-97-000001.hdr.sgml : 19970221 ACCESSION NUMBER: 0000910394-97-000001 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 5 CONFORMED PERIOD OF REPORT: 19961228 FILED AS OF DATE: 19970211 SROS: NASD FILER: COMPANY DATA: COMPANY CONFORMED NAME: KENTUCKY ELECTRIC STEEL INC /DE/ CENTRAL INDEX KEY: 0000910394 STANDARD INDUSTRIAL CLASSIFICATION: STEEL WORKS, BLAST FURNACES ROLLING MILLS (COKE OVENS) [3312] IRS NUMBER: 611244541 STATE OF INCORPORATION: DE FISCAL YEAR END: 0930 FILING VALUES: FORM TYPE: 10-Q SEC ACT: 1934 Act SEC FILE NUMBER: 000-22416 FILM NUMBER: 97524859 BUSINESS ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 BUSINESS PHONE: 6069291222 MAIL ADDRESS: STREET 1: P O BOX 3500 CITY: ASHLAND STATE: KY ZIP: 41105-3500 10-Q 1 FORM 10-Q SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (Mark One) X QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended December 28, 1996 OR TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ______________________ to ______________________. Commission File No. 0-22416 KENTUCKY ELECTRIC STEEL, INC. (Exact name of Registrant as specified in its charter) Delaware 61-1244541 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification Number) P. O. Box 3500, Ashland, Kentucky 41105-3500 (Address of principal executive office, Zip Code) (606) 929-1222 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES x NO The number of shares outstanding of each of the issuer's classes of common stock, as of February 11, 1997, is as follows: 4,628,099 shares of voting common stock, par value $.01 per share. KENTUCKY ELECTRIC STEEL, INC. TABLE OF CONTENTS Page PART I. FINANCIAL INFORMATION Item 1 - Financial Statements Condensed Consolidated Balance Sheets ................. 3 Condensed Consolidated Statements of Operations ....... 4 Condensed Consolidated Statements of Cash Flows ....... 5 Notes to Condensed Consolidated Financial Statements .. 6-7 Item 2 - Management's Discussion and Analysis of Financial Condition and Results of Operations .................8-10 PART II. OTHER INFORMATION Item 6 - Exhibits and Reports on Form 8-K ...................... 11 SIGNATURES ........................................... 12 KENTUCKY ELECTRIC STEEL, INC. CONDENSED CONSOLIDATED BALANCE SHEETS (Dollars in Thousands) (Unaudited)
December September 28, 1996 28, 1996 ASSETS CURRENT ASSETS Cash and cash equivalents $ 127 $ 124 Accounts receivable, less allowance for doubtful accounts of $535 at December 28, 1996 and $390 at September 28, 1996 10,709 12,113 Inventories 16,436 17,367 Operating supplies and other current assets 5,433 5,067 Refundable income taxes 540 540 Deferred tax assets 276 680 ------- ------- Total current assets 33,521 35,891 ------- ------- PROPERTY, PLANT AND EQUIPMENT Land and buildings 4,353 4,353 Machinery and equipment 37,774 37,774 Construction in progress 2,332 1,412 Less - accumulated depreciation (8,671) (7,852) ------- ------- Net property, plant and equipment 35,788 35,687 ------- ------- DEFERRED TAX ASSETS 7,511 6,263 ------- ------- OTHER ASSETS 658 592 ------- ------- Total assets $ 77,478 $ 78,433 LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES Advances on line of credit $ 9,652 $ 7,546 Accounts payable 7,508 7,214 Capital expenditures payable payable 1,890 2,404 Accrued liabilities 2,504 3,639 Current portion of long-term debt 125 125 ------- ------- Total current liabilities 21,679 20,928 ------- ------- LONG-TERM DEBT 20,000 20,000 ------- ------- OTHER LIABILITIES 445 395 ------- ------- Total liabilities 42,124 41,323 ------- ------- SHAREHOLDERS' EQUITY Preferred stock, $.01 par value, 1,000,000 shares authorized, no shares issued - - Common stock, $.01 par value, 15,000,000 shares authorized, 4,974,099 shares issued 50 50 Additional paid-in capital 15,710 15,710 Less treasury stock - 346,000 and 273,000 shares at cost, respectively (2,608) (2,165) Deferred compensation (350) (421) Retained earnings 22,552 23,936 ------- ------- Total shareholders' equity 35,354 37,110 ------- ------- Total liabilities and shareholders' equity $ 77,478 $ 78,433 See notes to condensed consolidated financial statements
KENTUCKY ELECTRIC STEEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Dollars in Thousands, Except Per Share Data) (Unaudited)
Three Months Ended December December 28, 1996 30, 1995 NET SALES $ 23,382 $ 23,688 COST OF GOODS SOLD 23,396 21,112 ------- ------- Gross profit (loss) (14) 2,576 SELLING AND ADMINISTRATIVE EXPENSES 1,725 1,963 ------- ------- Operating income (loss) (1,739) 613 INTEREST INCOME AND OTHER 5 5 INTEREST EXPENSE (494) (358) ------- ------- Income (loss) before income taxes (2,228) 260 PROVISION (CREDIT) FOR INCOME TAXES (844) 98 ------- ------- Net income (loss) $ (1,384) $ 162 NET INCOME (LOSS) PER COMMON SHARE $ (.30) $ .03 WEIGHTED AVERAGE SHARES OUTSTANDING 4,658,691 4,871,140 See notes to condensed consolidated financial statements
KENTUCKY ELECTRIC STEEL, INC. CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (Dollars in Thousands) (Unaudited)
Three Months Ended December December 28, 1996 30, 1995 Cash Flows From Operating Activities: Net income (loss) $ (1,384) $ 162 Adjustments to reconcile net income (loss) to net cash flows from operating activities: Depreciation and amortization 894 641 Change in deferred taxes (1,248) 224 Change in other (20) (213) Change in current assets and current liabilities: Accounts receivable 1,404 382 Inventories 931 (647) Operating supplies and other current assets (366) (233) Deferred tax assets 404 (137) Accounts payable 294 (1,867) Accrued liabilities (1,135) (1,141) Accrued income taxes refundable/payable - 1 ------- ------- Net cash flows from operating activities (226) (2,828) ------- ------- Cash Flows From Investing Activities: Capital expenditures (920) (997) Decrease in capital expenditures payable (514) (813) ------- ------- Net cash flows from investing activities (1,434) (1,810) ------- ------- Cash Flows From Financing Activities: Net advances (repayments) on line of credit 2,106 (6,346) Repayments on long-term debt - (9,001) Proceeds from long-term debt borrowings - 20,000 Purchases of treasury stock (443) (159) ------- ------- Net cash flows from financing activities 1,663 4,494 ------- ------- Net increase (decrease) in cash and cash equivalents 3 (144) Cash and Cash Equivalents at Beginning of Period 124 327 ------- ------- Cash and Cash Equivalents at End of Period $ 127 $ 183 Interest Paid, net of amount capitalized $ 870 $ 284 Income Taxes Paid $ - $ 11 See notes to condensed consolidated financial statements
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS KENTUCKY ELECTRIC STEEL, INC (1) Basis of Presentation The accompanying unaudited condensed consolidated financial statements represent Kentucky Electric Steel, Inc. and its wholly-owned subsidiary, KESI Finance Company, (the Company). KESI Finance Company was formed in October 1996 to finance the Ladle Metallurgy Project. All significant intercompany accounts and transactions have been eliminated. These statements have been prepared in accordance with generally accepted accounting principles for interim financial information and the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of management, all adjustments (consisting of normal recurring adjustments) considered necessary for a fair presentation have been included. Operating results for the three-month period ended December 28, 1996, are not necessarily indicative of the results that may be expected for the year ended September 27, 1997. For further information, refer to the financial statements and footnotes thereto included in the Company's annual report on Form 10-K for the year ended September 28, 1996. Net income per common share is calculated based on 4,658,691 and 4,871,140 weighted average number of common shares outstanding during the quarters ended December 28, 1996, and December 30, 1995, respectively. (2) Accounting Policies Fiscal Year End The Company's fiscal year ends on the last Saturday of September. Property, Plant, Equipment and Depreciation Property, plant and equipment is recorded at cost, less accumulated depreciation. For financial reporting purposes, depreciation is provided on the straight-line method over the estimated useful lives of the assets, generally 3 to 12 years for machinery and equipment and 15 to 30 years for buildings and improvements. Depreciation for income tax purposes is computed using accelerated methods. Expenditures for maintenance and repairs are charged to expense as incurred. Expenditures for equipment renewals which extend the useful life of any asset are capitalized. The Company capitalizes interest costs as part of the historical cost of constructing major capital assets. Interest costs of $7,834 and $52,474 were capitalized for the three months ended December 28, 1996 and December 30, 1995, respectively. Recent Accounting Pronouncements In October 1995, the Financial Accounting Standards Board issued Statement No. 123 (SFAS No. 123) related to accounting for stock-based compensation. SFAS No. 123 establishes financial accounting and reporting standards for stock-based employee compensation plans. The statement encourages the use of the fair value based method to measure compensation cost for stock-based employee compensation plans, however, it also continues to allow the intrinsic value based method of accounting as prescribed by APB Opinion No. 25. If the intrinsic value based method is used, the statement requires pro forma disclosures of net income and earning per share, as if the fair value based method of accounting had been applied. The fair value based method requires compensation cost be measured at the grant date based upon the value of the award and recognized over the service period, which is normally the vesting period. The Company adopted SFAS No. 123 effective September 29, 1996 and continues to use the intrinsic value based method of accounting. (3) Inventories Inventories at December 28, 1996 and September 28, 1996 consist of the following ($000's): December 28, September 28, 1996 1996 Raw materials $ 4,092 $ 4,069 Semi-finished and finished goods 12,344 13,298 Total inventories $ 16,436 $ 17,367 (4) Long-Term Debt The Company's unsecured senior notes and bank credit facility agreements were amended, effective December 28, 1996, to reduce the required fixed charge coverage ratio, increase the minimum net worth requirement and revise other miscellaneous provisions of the agreements. In connection with the amendment, the amount of the Company's unsecured bank credit facility has been reduced from $24.5 million to $17.5 million. With this amendment, the Company continues to be in compliance with the financial covenants and management believes it is probable that the Company will continue to be in compliance with the amended covenants. (5) Commitments and Contingencies The Company has various commitments for the purchase of materials, supplies and energy arising in the ordinary course of business. The Company is subject to various claims, lawsuits and administrative proceedings, arising in the ordinary course of business with respect to commercial, product liability and other matters, which seek remedies or damages. The Company believes that any liability that may ultimately be determined will not have a material effect on its financial position or results of operations. The Company generates both hazardous wastes and non-hazardous wastes which are subject to various governmental regulations. Estimated costs to be incurred in connection with environmental matters are accrued when the prospect of incurring costs for testing or remedial action is deemed probable. The Company is not aware of any material asserted or unasserted environmental claims against the Company and no accruals for such matters have been recorded in the accompanying balance sheets. However, discovery of unknown conditions could result in the recording of accruals in the periods in which they become known. KENTUCKY ELECTRIC STEEL, INC. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS General. The Company manufacturers special bar quality alloy and carbon steel bar flats to precise customer specifications for sale in a variety of niche markets. Its primary markets are manufacturers of leaf-spring suspensions, cold drawn bar converters, flat bed truck trailers, and steel service centers. Net Sales. Net sales for the three months ended December 28, 1996 decreased by $.3 million (1.3%) to $23.4 million from $23.7 million for the three months ended December 30, 1995. The decrease in net sales was primarily due to a decrease in average net selling price, offset by an increase in shipments from 53,000 tons for the first fiscal quarter of 1996 to 55,000 tons for the first fiscal quarter of 1997. The decrease in average selling price is primarily attributable to price reductions reflecting market conditions and pricing pressures. Shipments for the first fiscal quarter of 1996 were impacted by customers inventory adjustments and a softening in demand. Cost of Goods Sold. Cost of goods sold for the three months ended December 28, 1996 increased by $2.3 million (10.8%) to $23.4 million from $21.1 million for the three months ended December 30, 1995. As a percentage on net sales, cost of goods sold increased from 89.1% for the first fiscal quarter of 1996 to 100.1% for the first fiscal quarter of 1997. The increase in cost of goods sold is due to higher conversion costs, additional depreciation related to the start-up of the ladle metallurgy facility, and caster problems, offset somewhat by lower scrap costs. Conversion costs reflect lower production related to the start-up of the ladle metallurgy facility and the effect of a December melt shop shutdown. The shutdown was necessary to repair the caster superstructure and to convert an additional caster strand for increased production of the thicker, wider products. Productivity in the rolling mill, which had been negatively impacted in prior periods due to the start-up of the expansion projects, improved during the quarter. However, lower production in the melt shop and the depletion of billet inventory reduced finished goods production. Gross Profit (Loss). As a result of the above, the first quarter of fiscal 1997 reflected a loss of $14,000 as compared to gross profit of $2.6 million for the first quarter of fiscal 1996. As a percentage of net sales, gross profit decreased from 10.9% for the first quarter of fiscal 1996 to (.1%) for the first quarter of fiscal 1997. Selling and Administrative Expenses. Selling and administrative expenses include salaries and benefits, corporate overhead, insurance, sales commissions and other expenses incurred in the executive, sales and marketing, shipping, personnel, and other administrative departments. Selling and administrative expenses decreased by approximately $238,000 for the three months ended December 28, 1996 as compared to the same period in fiscal 1996. As a percentage of net sales, such expenses decreased from 8.3% for the three months ended December 30, 1995 to 7.4% for the three months ended December 28, 1996. The decrease in selling and administrative was primarily the result of a reduction in the provision for uncollectible accounts, which was higher in the first quarter of fiscal 1996 due to problems with certain specific accounts. Operating Income (Loss). For the reasons described above, operating income decreased by $2.3 million from $.6 million in the first three months of fiscal 1996 to an operating loss of $1.7 million in the first three months of fiscal 1997. As a percentage of net sales, operating income (loss) decreased from 2.6% for the first fiscal quarter of 1996 to (7.4%) for the first fiscal quarter of 1997. Interest Expense. Interest expense increased by $136,000 for the three months ended December 28, 1996 from $358,000 for the first quarter of fiscal 1996 to $494,000 for the first quarter of fiscal 1997, net of interest capitalized of $52,474 and $7,834, respectively. The increase in interest expense was attributed to the additional debt incurred in financing the capital expansion projects and the reduction of capitalized interest due to the completion and start-up of the ladle metallurgy facility. Net Income. As a result of the above, net income decreased by $1.5 million for the three months ended December 28, 1996 from $162,000 for the first quarter of fiscal 1996 to a net loss of $1.4 million for the first quarter of fiscal 1997. Liquidity and Capital Resources The cash flows used by operating activities was $226,000 for the first quarter of fiscal 1997 as compared to $2.8 million for the first quarter of fiscal 1996. First quarter of fiscal 1997 operating cash flows were negatively impacted by the net loss and a decrease in accrued liabilities, which have been offset due to a decrease in accounts receivable and inventories. The cash flows used by investing activities consist of capital expenditures of $.9 million for the first quarter of fiscal 1997 and $1.0 million for the first quarter of fiscal 1996 and reductions in capital expenditures payable of $.5 million and $.8 million for the first quarter of fiscal 1997 and 1996, respectively. The cash flows from financing activities was $1.7 million in the first quarter of fiscal 1997 as compared to $4.5 million for the first quarter of fiscal 1996. The cash flows from financing activities of $1.7 million for the first quarter of fiscal 1997 reflects advances of $2.1 million on the Company's line of credit and $.4 million for purchase of treasury stock. The cash flows from financing activities of $4.5 million for the first quarter of fiscal 1996 reflects repayment of $6.3 million on the Company's line of credit and $9.0 million repayment of long-term debt, however, these amounts have been offset with the proceeds of $20.0 million of new long-term debt. Working capital at December 28, 1996 was $11.8 million as compared to $15.0 million at September 28, 1996, and the current ratio was 1.5 to 1.0 as compared to 1.7 to 1.0. The decrease in working capital and current ratio is primarily attributed to a decrease in accounts receivable and inventories. The Company's unsecured senior notes and bank credit facility agreements were amended, effective December 28, 1996, to reduce the required fixed charge coverage ratio, increase the minimum net worth requirement and revise other miscellaneous provisions of the agreements. In connection with the amendment, the amount of the Company's unsecured bank credit facility has been reduced from $24.5 million to $17.5 million. With this amendment, the Company continues to be in compliance with the financial covenants and management believes it is probable that the Company will continue to be in compliance with the amended covenants. The Company's primary ongoing cash requirements are for the payment of retainage on the capital expansion projects and current capital expenditures. The two sources for the Company's liquidity are internally generated funds and its bank credit facility. The Company had $9.7 million in borrowings outstanding as of December 28, 1996. The Company believes that the bank credit facility and internally generated funds will be sufficient to fund its ongoing cash needs through the next twelve-month period. Outlook The melt shop was shut down for ten days from December 24, 1996 through January 3, 1997 to repair the superstructure and to convert an additional caster strand for increased production of the thicker, wider products. The major modifications to the new equipment are complete and all of the Company's efforts are focused on increasing production. We believe the second quarter will be another difficult quarter as the Company focuses its efforts on increasing production. The Company's new product sizes continue to be well received by the marketplace. Although the spring market is somewhat soft, the Company's backlog remains firm and the Company is cautiously optimistic about the future strength of the markets it serves. Forward-Looking Statements The matters discussed or incorporated by reference in this Report on Form 10-Q that are forward-looking statements (as defined in the Private Securities Litigation Reform Act of 1995) including those statements in "Outlook" above, involve risks and uncertainties. These risks and uncertainties include, but are not limited to, the reliance on truck and utility vehicle industry; excess industry capacity; product demand and industry pricing; volatility of raw material costs, especially steel scrap; intense foreign and domestic competition; management's estimate of niche market data; the cyclical and capital intensive nature of the industry; and cost of compliance with environmental regulations. These risks and uncertainties could cause actual results of the Company to differ materially from those projected or implied by such forward-looking statements. PART II. - OTHER INFORMATION ITEM 6. Exhibits and Reports on Form 8-K A) Exhibits 3.1 Certification of Incorporation of Kentucky Electric Steel, Inc., filed as Exhibit 3.1 to Registrant's Registration Statement on Form S-1 (No. 33-67140), and incorporated by reference herein. 3.2 By-Laws of Kentucky Electric Steel, Inc., filed as Exhibit 3.2 to Registrant's Registration Statement on Form S-1 (No. 33-67140), and incorporated by reference herein. 4.4 First Amendment Agreement to Senior Note Agreement between Registrant and a group of institutional investors. 4.5 Amendment No. 1 to Amended and Restated Loan Agreement between Registrant and National City Bank, Kentucky. 10.15 First Addendum to Agreement with Morgan-Pomini Company for Rolling and Finishing End Modernization 27 Financial Data Schedule B) Reports on Form 8-K - None. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. DATED: February 11, 1997 KENTUCKY ELECTRIC STEEL, INC. (Registrant) \s\ William J. Jessie William J. Jessie, Vice President, Secretary, Treasurer, and Principal Financial Officer EX-27 2 ART.5 FDS FOR 1ST QUARTER 10-Q
5 This schedule contains summary financial information extracted from Kentucky Electric Steel, Inc.'s condensed consolidated financial statements as of and for the three month period ended December 28, 1996 included in this Company's quarterly report on Form 10-Q and is qualified in its entirety by reference to such condensed consolidated financial statements. 0000910394 KENTUCKY ELECTRIC STEEL, INC. 1,000 U.S. DOLLARS 3-MOS SEP-27-1997 SEP-29-1996 DEC-28-1996 1 127 0 11244 535 16436 33521 44459 8671 77478 21679 20000 50 0 0 35304 77478 23382 23382 23396 23396 0 0 494 (2228) (844) (1384) 0 0 0 (1384) (30) (30)
EX-4.4 3 FIRST AMENDMENT AGREEMENT TO SENIOR NOTE AGREEMENT BETWEEN REGISTRANT AND A GROUP OF INSTITUTIONAL INVESTORS. KENTUCKY EL ECTRIC STEEL, INC. ___________ ______________________________ FIRST AMEND MENT AGREEMENT ___________ ______________________________ January 30, 1997 To the Noteholders Whose Names are set forth on the Signature Pages hereto: Ladies and Gentlemen: Reference is made to those certain Note Agreements dated as of November 1, 1995 (the Note Agreement ) between the undersigned Kentucky Electric Steel, Inc. (the Company ) and the respective purchasers of $20,000,000 in the aggregate principal amount of the Company s 7.66% Senior Notes due November 1, 2005 (the Notes ). The Company has requested the Noteholders named on the signature pages attached hereto (the Noteholders ) to agree to an amendment to the Note Agreement; and the Noteholders have agreed to such amendment on the terms and conditions hereinafter set forth. (Unless otherwise expressly provided herein, capitalized terms used herein shall have the same respective meanings as were assigned to each under the Note Agreement). In consideration of the foregoing and of the mutual covenants hereinafter set forth, the Company and the Noteholders agree as follows: 1. Section 5.7 of the Note Agreement is amended to read in its entirety as follows: 5.7 Consolidated Adjusted Net Worth. (i) At all times prior to the earlier of December 26, 1998 and the date on which the ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed Charges for the immediately preceding period of four consecutive fiscal quarters, calculated at the end of such fiscal quarter, is greater than or equal to 2.0 to 1.0, the Company will keep and maintain Consolidated Adjusted Net Worth at an amount not less than $30,000,000; and (ii) at all other times, the Company will keep and maintain Consolidated Adjusted Net Worth at an amount not less than $25,000,000. 2. Section 5.9 of the Note Agreement is amended to read in in its entirety as follows: 5.9 Fixed Charges Coverage Ratio. The Company will keep and maintain the ratio of its Consolidated Cash Flow Available for Fixed Charges to Fixed Charges at: (i) not less than the amounts shown below for each period of eight consecutive fiscal quarters, calculated as of the end of each fiscal quarter shown below: Fiscal Quarter End Ratio December 28, 1996 2.0 to 1.0 March 29, 1997 1.5 to 1.0 June 28, 1997 1.2 to 1.0 September 27, 1997 1.0 to 1.0 December 27, 1997 1.0 to 1.0 March 29, 1998 1.0 to 1.0 June 27, 1998 1.0 to 1.0 September 26, 1998 1.2 to 1.0 (ii) not less than 2.0 to 1.0 for each period of four consecutive fiscal quarters thereafter, calculated as of the end of each such fiscal quarter. 3. Section 6.1(e) of the Note Agreement is amended to read in its entirety as follows: (e) (i) At all times prior to the earlier of December 26, 1998 and the date on which the ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed Charges for the immediately preceding period of four consecutive fiscal quarters, calculated at the end of such fiscal quarter, is greater than or equal to 2.0 to 1.0, default or the happening of an event shall occur under any indenture, agreement or other instrument under which any Debt in an aggregate principal amount of $2,000,000 or more of the Company or any Subsidiary may be issued, and, as a consequence of such default or event, such Debt has become, or has been declared, or one or more Persons are entitled to declare such Debt to be, due and payable before its stated maturity or before its regularly scheduled dates of payment; and (ii) at all other times, default or the happening of any event shall occur under any indenture, agreement or other instrument under which any Debt in an aggregate principal amount of $2,000,000 or more of the Company or any Subsidiary may be issued and such default or event shall result in the acceleration of the maturity of any Debt of the Company or any Subsidiary outstanding thereunder; or 4. The modifications set forth herein shall be effective as of December 28, 1996 when holders of 66 2/3% in aggregate principal amount of outstanding Notes shall have signed and returned to the Company a copy of this First Amendment Agreement. 5. Except as specifically modified hereby, the Note Agreement shall remain in full force and effect in accordance with the terms thereof. 6. Each reference in the Note Agreement to the Note Agreement, the Agreement, this Agreement, herein, hereof, or other words of like import referring to the Note Agreement shall mean the Note Agreement as amended by this First Amendment. KENTUCKY ELECTRIC STEEL, INC. By: /s/ William J. Jessie Name: William J. Jessie Title: Vice President Agreed and Accepted: Noteholders: CONNECTICUT GENERAL LIFE INSURANCE COMPANY By: CIGNA Investments, Inc. By: /s/ Richard B. McGauley Name: Richard B. McGauley Title: Managing Director CONNECTICUT GENERAL LIFE INSURANCE COMPANY, on behalf of one or more separate accounts By: CIGNA Investments, Inc. By: /s/ Richard B. McGauley Name: Richard B. McGauley Title: Managing Director MODERN WOODMEN OF AMERICA By: /s/ Nick S. Coin Name: Nick S. Coin Title: Supervisor, Securities Division EX-4.5 4 AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN AGREEMENT BETWEEN REGISTRANT AND NATIONAL CITY BANK, KENTUCKY. AMENDMENT NO. 1 TO AMENDED AND RESTATED LOAN AGREEMENT THIS AMENDMENT NO. 1 to Amended and Restated Loan Agreement ( Amendment ) is made and entered into as of the 28th day of December, 1996 by and between KENTUCKY ELECTRIC STEEL, INC., a Delaware corporation with principal office and place of business in Boyd County, Kentucky (the Borrower ), and NATIONAL CITY BANK OF KENTUCKY, a national banking association with principal office and place of business in Louisville, Kentucky (the Bank ). P R E L I M I N A R Y S T A T E M E N T : A. Pursuant to that certain Amended and Restated Loan Agreement dated as of November 1, 1995, between the Borrower and the Bank (as amended, supplemented or otherwise modified from time to time, the Amended and Restated Loan Agreement ), the Bank has established in favor of Borrower a revolving line of credit in the amount of $23,000,000. B. Pursuant to the terms of an Agreement to Extend Maturity Date dated August 28, 1996, the Bank exercised its option (set forth in Section 2.1B of the Amended and Restated Loan Agreement and in Paragraph 1 of the Amended and Restated Working Capital Line of Credit Note) to extend the stated maturity date of the Working Capital Line of Credit for a one (1) year period to and including January 31, 1998. C. Pursuant to the terms of Section 2.4C of the Amended and Restated Loan Agreement, the Borrower has elected to permanently reduce in part the Working Capital Commitment from $23,000,000 to $16,000,000. D. The Borrower has requested that the Bank agree to modifications of certain covenants contained in the Amended and Restated Loan Agreement, and the Bank is willing to do so on the terms and conditions hereafter set forth. NOW, THEREFORE, in consideration of the premises and the mutual covenants and agreements set forth herein and for other good and valuable consideration, the mutuality, receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows: 1. Definitions. All capitalized terms not otherwise defined herein shall have the meanings given to such terms in the Amended and Restated Loan Agreement. 2. Amendments to Amended and Restated Loan Agreement. The Amended and Restated Loan Agreement is hereby amended as follows: 2.1. Section 6 of the Amended and Restated Loan Agreement is amended to add the following Section 6.12: 6.12. Covenant to Secure Working Capital Line of Credit. In the event the outstanding balance of Working Capital Loans exceeds $13,500,000 (exclusive of outstanding Letters of Credit), the Borrower shall take such steps as are reasonably necessary to grant the Bank a security interest in substantially all its assets, such that the Amended and Restated Working Capital Line of Credit Note shall be, in accordance with the terms of the Amended and Restated Loan Agreement and of the Senior Note Agreement, secured equally and ratably with the Senior Notes. 2.2. Section 7.8 of the Amended and Restated Loan Agreement is hereby amended to read in its entirety as follows: 7.8 Fixed Charges Coverage Ratio. The Borrower will not permit, as at each Fiscal Quarter end, the ratio of its Consolidated Cash Flow Available for Fixed Charges to Fixed Charges to be less than: (i) the amounts shown below for the eight-Fiscal Quarter period ended on each respective Fiscal Quarter end listed below: Fiscal Quarter End Ratio December 28, 1996 2.0 to 1.0 March 29, 1997 1.5 to 1.0 June 28, 1997 1.2 to 1.0 September 27, 1997 1.0 to 1.0 December 27, 1997 1.0 to 1.0 March 29, 1998 1.0 to 1.0 June 27, 1998 1.0 to 1.0 September 26, 1998 1.2 to 1.0 (ii) 2.0 to 1.0 for the four-Fiscal Quarter period ended on each Fiscal Quarter end thereafter. 2.3. Section 7.9 of the Amended and Restated Loan Agreement is amended to read in its entirety as follows: 7.9. Minimum Consolidated Adjusted Net Worth. (i) at all times prior to the earlier of December 26, 1998 and the date on which the ratio of Consolidated Cash Flow Available for Fixed Charges to Fixed Charges for the immediately preceding period of four Fiscal Quarters, calculated at the end of such Fiscal Quarter, is greater than or equal to 2.0 to 1.0, the Borrower will not permit its Consolidated Adjusted Net Worth to be less than $30,000,000; and (ii) at all other times, the Borrower will not permit its Consolidated Adjusted Net Worth to be less than $25,000,000. 3. Voluntary Reduction of Working Capital Commitment. Pursuant to the provisions of Section 2.4C of the Amended and Restated Loan Agreement, the Borrower hereby gives the Bank written notice of its intention to, effective on February 7, 1997, permanently reduce in part the Working Capital Commitment from $23,000,000 to $16,000,000. 4. Conditions to Effectiveness. This Amendment shall become effective as of December 28, 1996, when and only when the Bank shall have received this Amendment executed by the Borrower and shall have returned an executed copy to the Borrower. 5. Effect on the Amended and Restated Loan Agreement. (a) Upon the effectiveness of Section 2 hereof, each reference in the Amended and Restated Loan Agreement to this Agreement, hereunder, hereof, herein or words of like import shall mean and be a reference to the Amended and Restated Loan Agreement as amended hereby. (b) Except as specifically amended herein, the Amended and Restated Loan Agreement and all other documents, instruments and agreements executed and/or delivered in connection therewith, shall remain in full force and effect, and are hereby ratified and confirmed. (c) The Borrower and the Bank acknowledge and agree that, subject to extension thereof as provided in Section 2.1B of the Amended and Restated Loan Agreement, the Working Capital Line of Credit Termination Date in effect as of the date of this Amendment is January 31, 1998. 6. Counterparts. This Amendment may be executed by the parties hereto in one or more counterparts, each of which taken together shall be deemed to constitute one and the same instrument. IN WITNESS WHEREOF, this Amendment No. 1 has been duly executed as of the day and year first written above. KENTUCKY ELECTRIC STEEL, INC. By: /s/ William J. Jessie Name: William J. Jessie Title: Vice President and Chief Executive Officer NATIONAL CITY BANK OF KENTUCKY By: /s/ V. T. Larimore, Jr. Name: V. T. Larimore, Jr. Title: Vice President EX-10.15FIRSTADDENDU 5 FIRST ADDENDUM TO AGREEMENT THIS FIRST ADDENDUM TO AGREEMENT, made and entered into this 23rd day of December, 1996, by and between KENTUCKY ELECTRIC STEEL, INC. ( KES ) and MORGAN POMINI COMPANY ( MPC ). W I T N E S S E T H : WHEREAS, on the 14th day of March, 1994, KES and MPC entered into that certain Agreement (the Agreement ; capitalized terms used herein and not defined herein shall have the meanings assigned to such terms in the Agreement), to modify KES s Manufacturing Facility to achieve KES s Requirements; and WHEREAS, KES and MPC have agreed to amend the Agreement to relieve MPC of MPC s obligation to achieve KES s Requirements for narrow products of less than .291" in thickness ; and WHEREAS, KES has requested: (i) the extension of that certain Guaranty Agreement of Morgan Construction Company, Inc. and Pomini S.p.A. from December 31, 1996 through December 31, 1999; and (ii) the assumption by Morgan Construction Company of the service obligations set forth in Article 8.5 of the Agreement; and WHEREAS, the parties desire to amend and supplement the Agreement in furtherance of the above; NOW, THEREFORE, in consideration of the mutual covenants and obligations set forth herein and in the Agreement and other good and valuable consideration, the receipt and sufficiency of which is hereby acknowledged, it is agreed by and between KES and MPC as follows: 1. The Preamble provisions set forth above are made a part of this Addendum. 2. KES s Requirements are hereby amended by amending and restating the third paragraph of the Preamble in the Agreement as follows: WHEREAS, KES has sought proposals to modify and improve the rolling and finishing end of KES's Manufacturing Facility to meet KES's requirement that upon completion of said modifications and improvements, KES's Manufacturing Facility will be capable of producing prime bar flats and squares, with square and round edges in widths 2" through 12" and in thicknesses .236" through 3" in grades described in Exhibit 1 and pass schedules for new sizes described in Exhibit 2 at production rates of greater of (i) one hundred (100) tons per hour for sizes above 0.660.73 square inches in cross sectional area, or (ii) the cycle times and capacity in MPC's proposal--"Quotation for Finishing End Modernization Contract Scope Document, No. MPC93-424-001" dated January 18, 1994, and such that a 5160 grade material .236" in thickness and 2" in width will be delivered to the first notch of the cooling bed above the transitional temperature with sufficient temperature that the bar will remain above the transitional temperature until the following bar packs (the aforementioned size ranges in the grades and pass schedules described together with the aforementioned production rates and transitional temperature requirements are sometimes referred to herein collectively as "KES's Requirements"); and 3. As reflected in the approved Change Orders, the Contract Sum shall be Six Million Nine Hundred Eighty-Three Thousand Two Hundred Thirty- Three and 89/100 (US $6,983,233.89) -- $7,307,050.00 - $323,816.11 = $6,983,233.89. MPC shall reimburse KES or the Contract Sum shall be further reduced to reimburse KES for: (i) the cost of replacing welded strips on the cooling bed chill sections ( Chill Sections ) (see also, Change Order No. 0596-018B); and (ii) repairing existing Chill Sections as may be required until all the Chill Sections are supplied by MPC as required by paragraph 4 below. 4. Pursuant to Section 8.3 of the Agreement, at no cost to KES (except for removal and installation of the Chill Sections), MPC shall design modifications to and deliver replacements for the Chill Sections to eliminate the breakage that is occurring on the first notch of the Chill Sections. If MPC s new design requires a change in the cooling beds or the cooling beds drop wall, such changes shall be at MPC s cost and expense. On or before January 15, 1997, MPC shall submit to KES MPC s design of the modifications to the Chill Sections which shall be a seven (7) notch Chill Section of approximately the same dimensions or other design acceptable to KES. Said replacements shall be scheduled for delivery in up to three (3) increments so as to afford MPC and KES an opportunity during the subsequent rolling cycle to evaluate the performance of the first increment of the replaced Chill Sections prior to delivery of additional Chill Sections. Within nine (9) months from the execution of this Addendum, MPC agrees to deliver replacements of the first increment which shall consist of at least forty (40) Chill Sections. Should MPC be unable to complete delivery of the first increment of Chill Sections within nine (9) months as required herein due to any failure of a foundry to timely fabricate the Chill Sections, MPC shall promptly provide notice to KES. All the Chill Sections shall be delivered within twenty-four (24) months from the execution of this Addendum. Any review by KES of MPC s design of modifications to the Chill Sections shall not be deemed a waiver of KES s rights, and shall not relieve MPC of its obligations, with respect to the replacement Chill Sections. If the new Chill Sections alter KES s products in such a manner as the Project will not continue to achieve KES s Requirements, MPC will correct the problem to achieve KES s Requirements by further modification and/or the supply of replacement castings to the Chill Sections. As soon as practicable (on a down-day basis), KES shall be responsible for the removal and installation of the Chill Sections and replacements to the Chill Sections, through its own forces or by contract with others. All Chill Sections removed shall remain the property of KES. 5. The Warranty Period for all the Chill Sections shall be extended one (1) year from the date on which the final delivery of the replacement Chill Sections is made. Any breakage of castings under normal operating conditions and without misuse, abuse or alteration, will be deemed to be a defect in material and workmanship. 6. The modified two piece drop table and clevis designed to air cushion the roll during shearing and correct the east end roll breakage at the shear entry will be installed at no cost to KES by March 10, 1997. KES will provide a PLC programmer for any control changes required for operation of the table, hold down roll and roll line sequencing as directed by MPC providing that those changes will not slow down production. 7. The pins and bearings for the stacker that have been delivered to KES will be installed by MPC at no cost to KES by March 10, 1997. 8. The Equipment for the modifications to the top and bottom shear knife locking wedges and brass liners will be installed at no cost to KES. This installation will be completed by March 10, 1997, subject to KES making the Equipment available to MPC for two (2) outages (not to exceed three (3) days for the bottom wedges and four (4) days for the top wedges), and KES agrees to make the Equipment available for such outages as soon as practicable. If on or before March 10, 1997, the bottom wedges have been installed so as to allow the blades to be changed without having to cut a bar or bump the blade and KES has not made the equipment available for installation of the top wedges, KES shall not withhold the retention of Three Hundred Twenty-Five Thousand Nine Hundred Eighty Dollars (US $325,980.00) under paragraph 14 by reason of the work required under this paragraph 8. The Warranty Period shall be extended three (3) years from the Effective Date hereof for the Equipment described in the Agreement as Group 4.00 - Cold Shear and Equipment. In addition to the warranty provided by Article 8, MPC warrants that under normal operating conditions and with proper maintenance, care, and lubrication, the shear s brass ways will not need to be replaced within the extended Warranty Period and that the modifications will allow the blades to be changed without having to cut a bar or bump the blade. MPC further warrants that, under normal operating conditions and with proper maintenance, care, and lubrication, at the end of the extended Warranty Period, there will be no wear on the casting surface that interfaces with the wedges. 9. The twelve (12) month Warranty Period for Groups 1 and 3 under the Agreement -- the Vertical Stand and Cooling Bed (excluding the Chill Sections described in paragraph 4 above) shall be deemed to have commenced on November 28, 1995, and has expired. 10. The twelve (12) month Warranty Period for Group 2 under the Agreement -- the Replacement Run-In Table shall be deemed to have commenced on April 1, 1995, and has expired. 11. The twelve (12) month Warranty Period for Group 7 under the Agreement -- the Banding Machine shall be deemed to have commenced on August 1, 1995, and has expired. 12. The twelve (12) month Warranty Period for Group 6 under the Agreement -- the Flat Stacker System shall be deemed to have commenced on September 26, 1996, but the sprockets, chains, forks, and other wear parts are excluded from the warranty. 13. The twelve (12) month Warranty Period for Group 5:00--Shear Gauge Beam with Two Traveling Heads and Back Sear Table with Reject System shall be deemed to expire when the modifications required by paragraph 8 will allow the blades to be changed without having to cut a bar or bump the blade. 14. KES shall withhold payment of the lesser of Five Hundred Thousand Dollars (US $500,000.00) or the delivered F.O.B. cost of the replacement Chill Sections, until the Work required by paragraph 4 is completed. Within ten (10) days after MPC presents to KES the amount of its committed reasonable costs for the replacement Chill Sections, along with reasonably estimated delivery and transportation charges, KES shall release to MPC (a) the amount by which the withheld payment of Five Hundred Thousand Dollars (US $500,000.00) exceeds the amount of such costs and charges, and (b) a prorata amount of the remaining withheld payment attributable to the first increment of Chill Sections. KES shall withhold payment of Three Hundred Twenty-Five Thousand Nine Hundred Eighty Dollars (US $325,980.00) until the Work required by paragraphs 6 and 8 is completed. [$846,000 (Group 4.00) + $783,900 (Group 5.00) = $1,629,900 x 20% = $325,980]. Within ten (10) days after MPC completes the Work required by paragraphs 6 and 8, KES shall release to MPC the withheld payment of Three Hundred Twenty Five Thousand Nine Hundred Eighty Dollars (US $325,980.00). On the Effective Date of this Addendum, KES shall pay to MPC the sum of Three Hundred Eleven Thousand Six Hundred Thirteen Dollars and 90/100 (US $311,613.90) representing the balance of the Contract Sum as set forth in paragraph 3 of this Addendum, less the amounts to be withheld pursuant to this paragraph 14 of this Addendum. 15. The obligations of MPC set forth in Article 8.5 of the Agreement shall be assumed by the Morgan Construction Company, Inc. by execution and delivery of the Assumption Agreement attached hereto as Exhibit A. 16. The term of the April 4, 1995 Guaranty of the Agreement by Morgan Construction Company, Inc. and Pomini S.p.A. shall be extended through December 31, 1999 by execution and delivery of the First Amendment to Guaranty Agreement attached hereto as Exhibit B, subject to the terms thereof. 17. The effective date ( Effective Date ) of this Addendum shall be the date on which this Addendum, the Assumption Agreement, and First Amendment to Guaranty Agreement are properly executed and delivered to KES. KES shall have the option of declaring this Addendum null and void if the Assumption Agreement and First Amendment to Guaranty Agreement are not executed and delivered to KES prior to December 27, 1996. 18. Except as set forth in paragraph 2 above, KES s Requirements are not modified by this Addendum and all provisions of the Agreement as amended or supplemented by this Addendum shall remain in full force and effect. Article 16.9 shall apply during the Warranty Period as extended herein in the event that MPC fails to perform in accordance with the terms of this Addendum, but the amount of any requested letter of credit shall not exceed Two Million Dollars (US $2,000,000.00), less amounts, if any, then withheld by KES. IN WITNESS WHEREOF, the parties have hereunto executed this First Addendum to Agreement in Boyd County, Kentucky, this 23rd day of December, 1996. KENTUCKY ELECTRIC STEEL, INC. By: /s/ Charles C. Hanebuth Its: President MORGAN POMINI COMPANY By: /s/ R. L. Brannaman Its: President EXHIBIT A ASSUMPTION AGREEMENT THIS AGREEMENT, by and between KENTUCKY ELECTRIC STEEL, INC. ( KES ), MORGAN POMINI COMPANY ( MPC ) and MORGAN CONSTRUCTION COMPANY ( Morgan ). W I T N E S S E T H : WHEREAS, MPC has entered into an Agreement to modify KES s facility in Boyd County, Kentucky (the Contract ) dated as of March 14, 1994; and WHEREAS, Morgan is a stockholder in MPC; and WHEREAS, Morgan desires for KES to enter into that certain First Addendum to the Contract; and WHEREAS, KES would not enter into the First Addendum unless Morgan assumed the service obligations of MPC set forth Article 8.5 of the Contract; and WHEREAS, Morgan is willing to assume the service obligations set forth in Article 8.5 of the Contract; NOW, THEREFORE, in consideration thereof, the parties agree as follows: 1. Morgan hereby assumes the obligations of MPC arising from Article 8.5 of the Contract. 2. MPC and Morgan shall not destroy or dispose of any equipment or parts patterns developed for the Project (as this term is defined in the Contract) without providing KES with notice and the opportunity of securing such patterns upon payment by KES of reasonable handling and transportation charges. 3. The service obligations assumed by Morgan hereunder shall be deemed personal and may not be further assigned except with the express written consent of KES. IN WITNESS WHEREOF, the parties have executed this Assumption Agreement in Boyd County, Kentucky this 23rd day of December, 1996. KENTUCKY ELECTRIC STEEL, INC. By: /s/ Charles C. Hanebuth 12/28/96 Its: President MORGAN POMINI COMPANY By: /s/ R. L. Brannaman Its: President MORGAN CONSTRUCTION COMPANY By: /s/ Philip R. Morgan Its: President PAGE EXHIBIT B FIRST AMENDMENT TO GUARANTY AGREEMENT THIS FIRST AMENDMENT TO GUARANTY AGREEMENT, made as of and effective the 23rd day of December, 1996, by and between MORGAN CONSTRUCTION COMPANY ( Morgan ), a Massachusetts corporation, having its principal place of business in Worcester, Massachusetts, and by POMINI S.p.A. ("Pomini"), an Italian corporation, having its principal place of business in Castellanza, Italy (each of Morgan and Pomini a "Guarantor" and collectively, the "Guarantors") to and for the benefit of KENTUCKY ELECTRIC STEEL, INC. ("KES"), a Delaware corporation, having its principal place of business in Ashland, Kentucky. W I T N E S S E T H: WHEREAS, Morgan-Pomini Company, a Pennsylvania corporation (the "Company") has entered into an agreement to modify a facility in Boyd County, Kentucky (the "Contract") with KES dated March 14, 1994; and WHEREAS, the Guarantors entered into that certain Guaranty Agreement made as of April 4, 1995, but effective as of March 14, 1994 ( Guaranty Agreement ) to guarantee the performance of the Company under the Contract; and WHEREAS, the Company desires for KES to enter into that certain First Addendum (the First Addendum ) to the Contract; and WHEREAS, KES will not enter into the First Addendum unless the Guarantors agree to extend the termination date of the Guaranty Agreement from December 31, 1996, to and including December 31, 1999; and WHEREAS, the Guarantors are willing to extend the termination date of the Guaranty Agreement as aforestated; NOW, THEREFORE, as an inducement to KES to enter into the First Addendum to the Contract, Guarantors and KES agree as follows: 1. Paragraph 1 of the Guaranty Agreement is hereby amended as follows: The Guarantors hereby guarantee performance of all of the obligations of the Company under the Contract, as amended and supplemented by the First Addendum and all change orders in accordance with the terms and conditions therein. In the event of breach of any such obligations of the Company or default in performance, the Guarantors shall undertake performance of the obligations of the Company to KES at such time and in such manner as specified in the Contract, as amended and supplemented by the First Addendum and all change orders. Notwithstanding the foregoing, the maximum aggregate amount which Morgan will be obligated to expend or be liable for pursuant to this Guaranty shall in no event exceed 58 percent of the Contract Price or $4,118,000.00 $1,160,000.00 and the maximum aggregate amount which Pomini will be obligated to expend or be liable for pursuant to this Guaranty shall in no event exceed 42 percent of the Contract Priceor $2,982,000.00 $840,000.00. The Guarantors further agree that this is a continuing guarantee and shall not terminate until December 31, 1996 December 31, 1999. 2. The Guaranty Agreement, as amended and supplemented hereby, remains in full force and effect and subject to its terms and conditions. 3. This First Amendment to Guaranty agreement may be executed in counterparts, each of which shall constitute an original, but such counterparts when taken together shall constitute but one agreement. IN WITNESS WHEREOF, the parties have executed this instrument on the day and date first above written by and through their duly authorized officers. MORGAN CONSTRUCTION COMPANY By: /s/ Philip R. Morgan Its: President POMINI S.p.A. By: /s/ Ben Cattaneo Division Director Its: Rolling Mill Division December 23, 1996 KENTUCKY ELECTRIC STEEL, INC. By: /s/ Charles C. Hanebuth Its: President -----END PRIVACY-ENHANCED MESSAGE-----